Slow Economy Forces 'Factory Banks' To Back Off

(MoneyWatch)  The credit crunch has turned some of the nation's largest manufacturers into lenders of last resort for many customers. But now it appears the "factory bank" is starting to close the loan office.

As traditional commercial lending tightens, many small and mid-sized companies are relying more on their manufacturing and equipment suppliers for loans to help pay for new orders and shipments.

Major suppliers, including Caterpillar and Deere & Co., have been providing their customers with financing to acquire trucks, heavy equipment and other big-ticket items.
Now, however, rising costs and worries about the economy are forcing many manufacturers to curtail their lending. One major problem: Concerns about customer defaults.

The manufacturers' cost of client default-insurance is going up, in some cases by as much as 200 percent, according to Tradition Asiel Securities Inc., a New York brokerage firm.

More troubling, the nation's manufacturing sector is in a serious slump--its worse downturn since October 2001, according to the Institute for Supply Management.