The dislocation in prices and supply lines we're all experiencing right now has "whipsawed" many business owners including private lenders into making decisions they later regretted.
As recently as last spring it seemed as if the best move for businesses was to front-load larger inventory even at a higher cost to take advantage of future price increases as well as to prevent delivery delays from supply-line shortages. It worked, for a while.
Unfortunately now many businesses are struggling with higher than normal inventory at a time when demand is dropping like a rock due to pressures on the consumer from gas and housing cost increases. That has led to a precipitous drop in the prices of many materials which were already inventoried and also a severe drop in pricing for shipping rates.
"I estimated my operating costs if I were to buy a truck and trailer under my own authority, I came out with an overhead of $16,425/month"
I have argued many times in recent blog posts that I personally believe there is an organized and very purposeful attack being prosecuted against small businesses in America. We can argue about the reasons why that is but the evidence all points in the direction of a slow, controlled demolition of smaller, independently owned businesses.
"In a report called Barriers to Business, the Institute for Justice (IJ) analyzed 20 US cities for how easy it is to open five different types of businesses. To cover a range, those businesses included a restaurant, a retail bookstore, a food truck, a barbershop, and a home-based tutoring business.
Entrepreneurs who want to start a restaurant, for example, have 13 different fees totaling $5,300, on average across the 20 cities. In San Francisco, those fees reach $22,648.
Remember, these costs and regulatory hurdles are all in addition to the normal costs and work of opening a restaurant."
From a lenders perspective, the conditions for lending to small businesses has deteriorated considerably in terms of risk. The banks have little to no incentive to take risks on commercial loans for working capital since they are already heavily subsidized by the Federal Reserve.
Private lenders who are required to actually get their capital back have been "whipsawed" by the same factors affecting their borrowers; lot's of high priced inventory and higher input costs simultaneously while revenues are stagnant.
Even when revenue is increasing cost are increasing faster - working capital is needed to stay ahead of the curve now.
The Captain has turned on the "Fasten Seat Belt Sign" Ladies and Gentlemen, buckle up!