Kiplinger Connection
Business Lending • Energy • Business Travel

Business Lending: Difficulties for real estate ventures.
Energy: High gas prices sticking around
Business travel: This summer at least as bad as the last.

Business Lending
Credit crunch? What credit crunch?
Most businesses just aren’t seeing one, not if their order books and their cash flow are good enough to show potential lenders that they can pay back the loans they want.

There’s plenty of cash available from small and midsize banks glad to lend for working capital and equipment.
Smaller banks see an opportunity as big institutions pull back to add reserves to cushion against bad loans they’re carrying. They are assuming, as we have forecast, a mild and short recession. If the economy falls sharply, small banks will pull back, too.

But the lending climate has changed.
There’s closer scrutiny by banks, though nothing untenable. It’s mostly a retreat to the standards in effect a few years ago ... correcting what many feel was a foolish easing.
Borrowers face rigorous screening. No more quick computer-based credit checks. Instead, examiners will go over a company’s assets, orders, and cash flow. One wire-mesh maker in Mass. says his bank even surveyed his customers to make sure they were satisfied with the firm’s products and service.
Tighter terms are likely: Shorter payment periods ... three years, for example, instead of five ... and more collateral. Most bank lenders will insist on personal guarantees so that owners have more at stake.
The picture on costs is mixed. Though fees are higher, many loans are still cheaper because of the Federal Reserve’s interest rate cuts. That’s less true of loans tied to LIBOR, an international benchmark.

Credit is relatively easy for some sectors, such as biotech, medical goods, agriculture, and companies with lots of exports. One California maker of medical devices plans to boost her staff from 100 to 120 and says three banks are eager to provide the credit.
But others are finding it hard ... truckers with high fuel costs, firms tied to housing, and big commodity users. They’ll have a tough time trying to persuade banks that they’re strong enough to be good risks.
Very difficult to get: Loans to invest in commercial real estate. The risks are too high, and it’s difficult to accurately value property.
Small start-ups have fewer options as home equity lines of credit dry up and firms tighten up on credit card use for newer businesses.
And all credit is tougher to get in the hardest hit areas ... Fla. and Calif. because of housing and Mich. because of the auto slump.

Energy
High gas prices will stick around longer than we anticipated. Expect gas to peak at $3.40 a gallon during the summer season. That’s about 35¢ a gallon more than the high for gas last summer.
Prices will eventually fall, ending the year at about $2.90.
Crude oil prices are way out of sync with where they should be under normal supply and demand fundamentals ... a good 25 percent higher. Too many investors ... from hedge funds to nervous individuals ... view crude as a safe haven in this time of uncertainty. But that won’t last. Oil’s luster will fade as more motorists and truckers cut back on use.

Business travel
Airline passengers will pay higher fares for even less service as the record fuel prices force airlines to take tough measures. They’re grounding older, gas-guzzling planes, eliminating flights, and trimming staff. Even low-cost carriers are feeling the pinch.
Prepare for a rough summer, with many delays and cancellations. Modest steps put in place earlier ... such as reducing congestion in NYC ... will have only a minimal effect. It’ll be at least as bad as last summer.
Don’t expect help from laws creating a passenger bill of rights. A strict law passed by N.Y. was struck down by an appellate court there, and that will discourage other states from their plans to follow suit. Congress won’t act, either, leaving passengers pretty much on their own.

One option for well-heeled travelers: Take an air taxi. Taxi use is growing steadily, despite the slowdown in the economy. Demand is strong enough to sustain two firms, with a third due soon.
DayJet and Linear Air now offer seats on demand on small jets that hold three passengers, have a range of 500 miles and cruising speeds of 350 miles per hour. Prices depend on distance and timing. For example, a DayJet trip from Boca Raton to Tallahassee, Fla., can cost between $437 and $1,663, depending on the flexibility of a passenger’s travel plans. DayJet serves the Southeast, while Linear Air serves the Northeast and Mid-Atlantic regions. Pogo Jet plans to start service in 2009 in the Northeast, the Mid-Atlantic, Ohio, Mich., Ind., and the Carolinas.

In the not so distant future: Faster, longer-range business jets. Gulfstream Aerospace’s G650 will be able to cruise at 630 miles per hour with a range up to 8,000 miles, allowing nonstop flights from NYC to Beijing, for example. It’s due in 2012 and will cost $58.5 million. Cessna plans a $27-million jet in 2014 with a range of about 4,600 miles.

Higher costs and competition will mean a cut in airline profits. They’ll drop to about $2 billion overall this year. That’s about half of what the industry made in 2007 ... and that’s the best-case scenario.
If fuel prices don’t fall, an industry restructuring is certain. Frontier, ExpressJet, and Mesa are the most vulnerable to bankruptcies or forced mergers. They don’t have the cash to weather a long slowdown.