Former SBAM Board Chair Jeff Van Winkle testified before the House Banking and Financial Services Committee last week. The subject of the hearing was the difficulties that small businesses in Michigan are facing in getting credit from the state’s traditional lending sources.
Van Winkle is an attorney with the Clark Hill law firm in Grand Rapids. Among his specialties is working with clients to obtain financing.
Van Winkle testified that the relationship between banks and their business customers has changed significantly in the last year. Generally, it has been difficult to obtain a commitment for financing on terms that have been satisfactory to the borrowers.
He outlined three specific challenges that borrowers face when seeking new loans or extending existing loans:
- Substantial devaluation of the value of collateral offered to secure the loan.
- Exceptionally restrictive covenants regarding continued operation of the business. These include limitations on capital expenditures, debt to equity ratios, and similar restrictions.
- A requirement of improved debt to equity ratio, specifically requiring cash equity to be injected into the business.
The committee also heard testimony from small business representatives, bankers and credit union officials explaining how new regulations from federal regulators are making it difficult to make loans that would have been given 18 months ago. This is especially the case in Michigan and for manufacturers.
The committee will continue to look at the issue to determine if there can be a state solution to this problem.