Cash is king for companies snubbed by banks

July 2, 2009 | Print this Page.
Companies stockpiling cash as recession lingers on
It's no secret that small businesses and medium-sized companies have been struggling with banks cutting business lines of credit and denying applications for new loans.

But the Association for Financial Professionals reports that companies have been responding by hording cash until the economy recovers.

The AFP's 2009 Liquidity Survey revealed that 72 percent of companies increased or maintained their cash balances during the first half of the year.

"Despite unprecedented government action, the lack of any significant thaw in short-term credit access is extremely troubling and many companies are reacting by stockpiling cash," said Jim Kaitz, president and CEO of AFP.

Kaitz argued that the economy will truly get a boost when companies put their cash reserves to work and "foster growth."

More than half (59 percent) of companies told the AFP that access to short-term credit had not changed significantly since earlier this year with more than a quarter (27 percent) of respondents actually saying that credit was harder to come by.

For many companies, their business line of credit is an important way to run daily operations and facilitate contracts and payments with vendors, suppliers and business partners.

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