The Credit Conundrum: What Retailers Need for the New Lending Landscape

The Great Recession is over, but its aftereffects are still having an outsize effect on the jewelry industry when it comes to obtaining bank financing.

When the recession’s credit crisis prompted financial institutions to pull back on lending, small and independent businesses of all stripes suffered. Jewelry retailing, however, has a couple of unique characteristics that have continued to stymie store owners seeking loans or lines of credit.

Compared to many other types of retail niches, jewelry inventory has a slower turnover. This makes banks nervous, since merchandise that doesn’t move can give the perception (true or not) that the business is facing challenges.

There’s also the question of what that merchandise is worth—another part of the lending process that can snare retailers.

Financial institutions used to accept jewelers’ valuations of their inventories, and when the price of gold soared, so did retailers’ borrowing ability, based on those paper gains. Much like the real estate crash, though, the recession prompted banks to become more parsimonious in their appraisals, and people suddenly found themselves holding assets that had plummeted in price through no fault of their own.

This presents a slippery slope for store owners, particularly if a loan or line of credit has been a lifeline in tight times. They might find conventional bank financing harder—if not impossible—to obtain.

Just like an underwater homeowner unable to refinance a mortgage, a store owner seeking a loan or line of credit is likely to find that banks will lend based only on an assessment of liquidation value. In this kind of situation, the reality is that even many longtime owners are not equipped to present the kind of sophisticated financial analysis institutions demand today. Jewelers today need to work with partners, like Wilkerson and Associates, who can advocate for their cause and safeguard the value they have spent years or even generations building.


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