Smarty_Pants

The Paulson Plan: Compelling Banks to Lend at Bazooka Point

Past Tense:

With a tapped out consumer and a slowing economy most businesses are going to be hunkering down. The first item that shrinks after slowing sales is the bottom line.

If profit shrinks too much the business goes under and the game is over. Prudent businesses will put off purchases or upgrades until the effect of the slowdown is known and revised plans can be made. Once that loan is taken the payment becomes a long term burden that claims just that much more of the company's working cash.

Even loans for new equipment that generate savings in operations are a burden if the necessary volume for realizing those savings doesn't materialize or if they are too small. While saving $1000/month over 30 years is great, what if the loan payment is $3000/month for 5 years? It may be good in the long run, but first you have to survive that first 5 years in an environment where income is shrinking and your monthly expenses are $3000 higher.

Businesses without a very large cash cushion will be looking to cut costs first and foremost just to make sure they can survive until conditions improve. They won't be looking for many loans.