Most lumber dealers say the credit crisis hasn't hurt them much, in part because they borrow from banks sparingly, a new ProSales survey reveals. The minority of dealers that are feeling heat from their banks often said it's because of their customers' trouble getting and paying construction loans.

The online poll of 234 lumber and building materials (LBM) dealers, distributors, and manufacturers was conducted Oct. 7-14, and the results were announced this week. Among its findings:

  • One out of 10 dealers say its bank has reduced or cut off its credit line since Aug. 1. But 40 percent of the dealers with credit lines don't owe any money on them.

  • Only 56 percent of dealers have a term loan with any bank.

  • Roughly 12 percent of dealers go to the bank for money at least once a month, but 60 percent haven't borrowed a single time this year.

  • Nearly a quarter of the dealers surveyed said their financial lender has taken a more active role in their business activities, principally by requesting reports more frequently than the usual quarterly numbers.

  • Some banks want daily reports.

  • One out of six dealers polled say they are on the board of trustees of a financial institution with which that lumberyard does business.

"Last year's profits were down," said one dealer who, like all respondents, wasn't required to give personal information as part of the survey. "This year (with real profits), when we asked for an increase in our line amount, we were declined. We're treated like a NEW client each time we need to do anything with our 20-year-history OLD bank (three years of P&Ls and more info needed ... for payroll auto-deposit requests of our own money!). We're currently switching to a new bank because our old bank doesn't want to loan money. I don't understand how a bank can even stay in business if they're not interested in loaning money."
Added another: "Thus far the credit crisis has not affected us, as we are currently flush with cash. Because we lost a little money last year (due to write-offs), the bank lowered our line of credit and bumped our rate. Our borrowing has been at zero on the line. The crisis has affected our customers more severely and is causing a real constriction in our business. It looks like this is going to last for some time to come."

The biggest credit-related challenge, the numbers suggested, stemmed from the problems that builders are having with acquiring new construction loans, receiving draws on existing loans, and then paying dealers from the proceeds. Just more than 42 percent of dealers said their contractor customers were having slight difficulty obtaining loans, while another 36 percent said their customers were having significant difficulty.

"Our builders are finding it very difficult to get their draws from the lenders, and this has increased our days outstanding by about two weeks," said one dealer.

"We had two builders go out of business," another dealer reported. "Of the two, one has paid two-thirds of his balance, and the other is totally broke. We seem to be fortunate. We will bad debt that one, but it could have been lot worse."

Because they are getting paid more slowly than they were last year, some dealers are finding it harder in turn to pay vendors and distributors, both of which are just as eager to get paid; 23 percent of dealers said at least one manufacturer or distributor had changed its payment terms since Aug. 1.

Roughly one-eighth of all dealer respondents said that, in general, they are paying their distributors and manufacturers more slowly than in 2007. But 33 percent of the manufacturers and 71.4 percent of the wholesalers surveyed said dealers were paying more slowly.

"We are a true wholesaler, selling to lumberyards and pro dealers," one two-stepper reported. "We are seeing many of our customers go out of business or downsize. Our bank is seeing the industry in trouble and has declined our requests for an increase in our line of credit, forcing us to be undercapitalized."

"The bottom line is, there isn't enough work to go around right now," a dealer concluded. "Some competitors are running scared and bidding jobs way too low. The ones that survive this time in our industry will come out strong, but I believe there will be quite a few that fail. We have had to trim down staff immensely over the last year and may have to trim more."

Craig Webb is editor of ProSales magazine.