A company had grown profitably using a business model based on heavy use of bank credit. In the 2008 financial crisis, the company’s bank reduced the credit line and tightened up loan covenants. The company’s return on equity was severely hurt, leading the CEO to wonder about the long-term viability of the business model. I was asked, “Should we wind down the business and return capital to our investors, or wait for a return to old bank lending standards?”

I began with an historical study of bank lending cycles. Even though the 2008 cycle was far more severe than most business cycles, I concluded that banks would reverse, at least mostly, their credit tightening, and I provided a time range for this to happen. I developed a set of indicators that would show the likelihood of banks easing credit standards and provided these to the CEO monthly.

Despite my optimism about the eventual turnaround, the company’s largest investors decided to wind down the business. Then the management team formed a new business, with new investors, that implemented the old strategy. By the time that they had organized and secured an equity investment, bank lending standards had loosened up and the new company enjoys good returns. My research was fundamental to the management team pursuing this business opportunity successfully.