Posts Tagged ‘Emergency Economic Stablization Act of 2008’
Q&A: How Will the Bailout Plan Affect Wholesalers?
Thursday, October 23rd, 2008
Q: How will the bailout plan affect wholesalers?
A: Financial suffering is bound to trickle down the supply chain because of unstable credit conditions. As a result, “many wholesale distributors will be affected by the government’s efforts to stabilize the credit markets,” said Brent Grover, managing partner at Evergreen Consulting and National Association of Wholesaler-Distributors author (“Official Guide to Wholesaler-Distributor Success”).
The extent of that effect depends upon how quickly the government can stabilize the banking system. Because of economic times like these, the bailout plan – or, the Emergency Economic Stabilization Act of 2008 – implemented discount rates to the costs of both purchasing and insuring troubled financial institutions, as once defined by the Federal Credit Reform Act of 1990.
Distributors typically have two primary sources of financing: supplier credit, or how much self-financing goes into company operations; and bank credit, or how much a company borrows through either credits or loans. A typical distribution business usually borrows 30 to 60 percent of its capital, or total amount of financial resources available, according to Grover.
Such a business still has to consider then how interest rates can rise and how the availability of credit can fall. For a distributor, weakened suppliers and apprehensive customers “can be dangerous to deal with,” Grover said, for all can suffer from decreases in sales and profits.
With this, highly-leveraged companies – or those with a heavy use of bank credit – may also struggle to make regular payments back to banks. Add struggling banks into that relationship, and “the problem is exacerbated,” Grover said.
In sum, “the government’s efforts to stabilize the banking system, if successful, will bring a great deal of relief to the customers of those banks,” as Grover said.
Of course, how quickly these efforts will be made has yet to be determined. But with the determination amongst the administration and Congress, as the Wall Street Journal’s David Stout wrote last month, “while a couple of venerable investment banks could fade into oblivion or be absorbed by mergers, the entire financial system could not be allowed to collapse.”
Tags: bailout plan, Brent Grover, christina lee, economic crisis, Emergency Economic Stablization Act of 2008, Evergreen Consulting, National Association of Wholesaler-Distributors, wholesale distribution
Posted in News & Articles | No Comments »