LBOs Pile on the Debt - No Room for Error

In the latest M&A announcement that Harrah's is being purchased, private equity buyers Texas Pacific Group and Apollo Management have indicated that Harrah's will carry debt totaling more than eight times cash flow (as measured by operating earnings before interest, tax, depreciation and amortization - also known as EBITDA).

The December 27th Wall Street Journal (subscription required) comments that leveraged buyouts (LBO) of larger companies have involved piling on increasingly heavy debt loads. Fourth quarter LBO acquisitions have seen ratios of total debt to cash flow (or EBITDA) of 5.7 times on average according to S&P. This ratio is the highest it has been since the merger boom of the mid to late 1990s. With this much debt, a company has no room for error if interest rates rise or revenue and cash flow decline.

For a small business seeking to obtain a business loan, the analytical review is the same. Key ratios reviewed are the same as for the larger companies - total debt to EBITDA and EBITDA to debt service. However, the thresholds are tighter since there's even less room for error with a small business. For a small business, lenders typically won't allow a borrower to have total debt to EBITDA of greater than 3.0 times. These same lenders want to see that the EBITDA to debt service ratio exceeds at least 2.0 times.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Related Tags: M&A, business loan, private equity, LBO, Harrah's, Texas Pacific Group, small business, cash flow, EBITDA

A Tsunami of Community Banks

In Banking More on Indie Banks, Jeffrey Gangemi of BusinessWeek tells us that new community banks are opening up at a pace unseen since the late 1990s. Start-up banks in 2006 are on pace for 158 new bank openings based upon activity in the first two quarters of the year.

What is driving this rapid increase of new bank start-ups? Well, for one, community banks rarely fail and are usually profitable within three years - not a bad track record for its investors.

But this isn't a "build it and they will come" strategy. The customers are looking for better service, a specialized focus and a more personal touch - something often missing at the bigger banks.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!


Related Tags: bank, community bank, BusinessWeek, bank loan, business loan

What Will A Banker Ask Me?

What will a banker ask me when I'm applying for a loan?

That's the question on a Google search that just resulted in a visit to my blog.

I almost always recommend that a prospective borrower put together a request for a business loan document. If written correctly, it answers most of the questions a banker will ask you when applying for a loan. A well written request for business loan document also improves you chances that the right funding source will say "yes, you're approved".

Here's what I include in the business loan proposals I prepare for clients.

• Executive summary - A short paragraph to make it easy for the lender to decide if they want to read any further
• Company overview - What is your business? Who do you serve? What competitive advantages do you have?
• Financing requirements - How much money do you need?
• Uses of funds - On what will you spend the money from the loan?
• Financial history & ratio analysis - How well (or poorly) have you performed in the last 24 to 36 months and why?
• Financial projections - What does the future look like once you get this loan?
• Collateral review - What sources of repayment are your offering? Banks typically look for cash flow, business assets, assets outside the business and in many cases, personal guarantees of the owners.
• Ownership - Who owns the company and how is it legally structured?
• Management/advisory board - Who helps you run the company?
• Key issues - What challenges are you currently facing and how do you plan to overcome these challenges?

Don't give up when the bank says "no". But do give me a call if you need help finding the right lender or telling your story the right way!

Related Tags: business loan, banker, bank loan, request for money, when the bank says no

Capital Access for the Hispanic Community

In this month's edition of Hispanic Business Magazine, Tom Castro states that "the only thing lacking in the Latino business community is access to capital".

Castro's latest venture, Border Media Partners, is the largest privately owned Hispanic-focused radio company in the country and the best capitalized Hispanic start-up company in history. Border Media raised more than $275 million in its first 30 months.

Castro mentions the New America Alliance which was created in 1999 to focus on increasing access to markets and capital for Latino businesses. One of the big events organized by the New America Alliance is an annual fall Wall Street Summit which brings together finance leaders from Wall Street to Main Street to find ways to increase the human and financial capital available to Hispanic business.

I think the message is getting through. In just the last few weeks, I've written about a private equity source focused on the Hispanic market place, a loan program focused on minorities including the Hispanic marketplace, and the growth of new banks focused on ethnic groups including Latinos. In five years or less, access to capital for Hispanic businesses may be an issue of far less significance.

If your business needs help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call!


Related Tags: Hispanic, access to capital, Tom Castro, Border Media Partners, business loans, capital, New America Alliance, private equity

Santa Baby, Come to the Carnival

Check out The Entrepreneurial Mind for this week's Carnival of the Capitalists and find out what's on everyone's wish list for Christmas or Hanukkah or Kwanza or whatever you celebrate!

The Show Me the Money gift to the carnival is my posting from this past week "Is Your Lender a Vulture? Three Questions to Ask!". Check it out!

Related Tags: Carnival of the Capitalists, The Entrepreneurial Mind, Show Me the Money, Carnival, business loans

Money Available! Operators Standing By!

In just the last twenty four hours, I've been approached by two sources telling me they are actively looking to make investments or provide financing and business loans in their areas of expertise.

First, a direct lender who has an expertise in lending to companies who provide products or services to the federal, state or municipal government or to a prime contractor fulfilling a federal, state or municipal government contract. This lender provides both asset based revolvers and factoring of accounts receivable in amounts large and small. One recent transaction - a line of credit to a company performing a contract for the US Navy down in San Diego in which the contract served as sole collateral! According to the lender, there's a lot of activity with federal contracts down in San Diego.


Second, a private equity source that is actively seeking investments in the food sector for the Hispanic markets. They just acquired a Southern California Hispanic food company and are looking to add to their portfolio of companies.

If either of these sound like a good fit for your needs, feel free to give me a call!


Related Tags: San Diego, government contracts, line of credit, factoring, business loan, private equity, Hispanic, food, Southern California

Is Your Lender a Vulture? Three Questions to Ask!

The December 12th Wall Street Journal (subscription required) reported on the front page that cup maker Radnor (owns WinCup and StyroChem) borrowed money from hedge fund Tennenbaum Capital Partners LLC in mid 2005 in order to save itself from its financial difficulties.

Little did they know that less than 18 months later, Tennebaum Capital Partners would be the new owner of the firm.

The Wall Street Journal article goes into great detail as to whether Tennenbaum Capital Partners was a "loan to own" type of lender with critics suggesting that firms like Tennenbaum Capital are "vulture lenders" preying on weak companies by charging high interest rates and swooping in when they fail to repay. Founder Michael Tennenbaum claims the firm never intended to own Radnor and he and his firm are not "vultures".

If you've got access to The Wall Street Journal, you should read the article and reach your own conclusions - I won't do that for you. It's an interesting read if you want to know more about how companies experiencing distress obtain funding.

Here's my point - there's a LOT of money chasing deals. Billions upon billions of dollars. Banks, private equity and hedge funds have more money to lend and invest than at any time I can remember. These lenders and investors are looking for different types of deals all across the risk spectrum. The higher the risk, the more return they expect.

As a recipient of these funds, you need to know the objectives and investing styles of the parties providing the money. While these funding sources will often take weeks (if not months) to complete a due diligence on its investment opportunities, the recipients should be going through the same process in selecting its funding sources.

Here are three questions you might ask to determine if your lender is a vulture...

1. What actions has this lender taken with its other borrowers in the event of a default?

2. Are the proposed covenants tighter than a company can realistically expect to achieve if anything goes wrong with the plan?

3. Is the financing transaction structured in a way that creates a situation in which the new lenders or investors have better claims on a company's assets and income than do existing common shareholders and lenders?

This is a short list - other could be added and I encourage you to leave a comment if you have any other questions that should be added to the list.

The bottom line - the markets are flush with cash ready to be invested and loaned. If you plan to be around for a while, make sure you ask the right questions before you accept.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call.


Related Tags: Wall Street Journal, Radnor, Wincup, StyroChem, Tennenbaum Capital, vulture, business loan, Michael Tennenbaum

M&A Outlook - How High Will it Go?

Thinking about cashing out? Will the torrid pace of the mergers and acquisition market continue? Will price multiples continue to climb?

Green Manning & Bunch believes that the sheer velocity driven by idle capital available from lenders and the private equity community will cause today's competitive landscape to continue for the near term.

For the their latest summary of the M&A markets, read the Green Manning & Bunch 3rd quarter Outlook Newsletter!

Need help finding the right lender for your acquisition? Read "Matchmaking for Business Loans" and give me a call!

Related Tags: Green Manning & Bunch, M&A, mergers and acquisitions, EBITDA multiple, private equity

New Guidelines Cut Real Estate Business Loans

On September 11th, I asked "Will Real Estate Loans to Business Dry Up?". The Wall Street Journal had reported that bank regulators were becoming increasingly concerned that too many bank loans were secured by business real estate creating an undue level of risk in bank loan portfolios.

Today's LA Times reported that Federal regulators issued guidelines Wednesday on the amount of commercial real estate loans that banks can hold without triggering greater oversight, a move widely opposed by small and mid-size banks.

One of the big questions is whether Federal regulators will interpret these new guidelines as guidelines or as hard and fast thresholds in determining which banks need to cut back on their real estate business loans.

If your company needs a business loan and is thinking about using real estate as collateral, it might be helpful to see if your bank is close to the new thresholds and has capacity to make your loan. Otherwise, maybe it's time to think about using other business collateral - receivables, inventory and equipment - to secure the needed funding.

Need help finding the right lender for your secured business loan? Read "Matchmaking for Business Loans" and give me a call!


Related Tags: LA Times, accounts receivable, business loan, bank loans, equipment leasing, Wall Street Journal

Carnival of the Capitalists - Thanks for Visiting!

As this week's Carnival of the Capitalists comes to a close, I wanted to say "thanks" to the many visitors who found their way to my humble site.

You visited from not only the United States, but from over 25 other countries around the globe including Canada, Australia, India, Malaysia, Poland, The Phillipines, Finland, New Zealand, the Netherlands, Israel and the United Kingdom.

Also wanted to say thanks to the many sites that pointed traffic my way - without them, carnivals wouldn't survive. A special "thanks" to The Carnival of the Capitalists, Business Pundit.com, The Entrepreneurial Mind, Blog Business World, Execupundit.com and Business Opportunities Weblog who showed up most frequently on my Statcounter lists. My apologies in advance if you sent visitors my way and I left you off the list!

I've volunteered to host again in early 2007 - but don't feel like you have to wait until then to come visit again!

Related Tags: The Carnival of the Capitalists, Businesspundit.com, Entrepreneurial Mind, Blog Business World, Execupundit.com, carnival, Business Opportunities Weblog

Show Me the Money Welcomes Carnival of the Capitalists

The goal of Carnival of the Capitalists is to bring together on a weekly basis some of the best postings from blogs around the world on the broad subject of business and capitalism.

Show Me the Money has been selected to host the December 4th Carnival – it’s my first time as host! Sorry to say this blog is not affiliated in any way with William Shatner’s game show of the same name so the only riches you’ll enjoy here will be from the enrichment of your mind! I reviewed over 30 postings and have categorized them for you to review.

I’m also including my first ever submission to a blog carnival, Unique Business Loans for Minorities. Hope you enjoy it as well as the other postings for this week’s carnival.

Would love to hear your feedback on which posts you liked so feel free to leave me a comment.

Enjoy your visit to Show Me the Money and come back to visit again!


Business
In Listen to the Music, David Daniels of Business and Technology Reinvention shares his thoughts on Microsoft’s new MP3 player, Zune.

Kevin Henney of Quartz Mountain Communications believes that there are Lessons from Walmart’s Black Friday that we can use in our own businesses.

If You Don’t Build, They Will Leave is offered by Starling David Hunter from the blog The Business of America.

Jack Yoest of Reasoned Audacity speaks to the Entrepreneurial Exchange Group at NYU on business plans, management tactics and cultural challenges. So who is the mysterious teenage dreamer?


Management
In The Truth About Communication, Carmine Coyote says that organizations today are suffering from a plague of pointless and unnecessary communication.

In The Power Game, Michael Wade of Execupundit.com gives tips on maintaining and using power in the workplace.

In The Next Big Trust Scandal, Charles H. Green of Trust Matters tells us where to look for the next problem in establishing trust in the business world.

Whether on Main Street USA or in Krakow, Poland, Pawel Brodzinski believes that people are the most important thing in project management.

At The Instigator Blog, Ben Yoskovitz tells us that nothing lasts forever including business partnerships.


Accounting & Finance
Leon Getler of SOX First offers Rewriting SOX – It’s got nothing to do with baseball, but everything to do with honesty!

Marshall Lebovits of Show Me the Money tells us about SBA-like business loans to minority businesses when the bank cannot in Unique Business Loans for Minorities.


Economics
Menzie Chinn at Econbrowser asks Will the Dollar Fall? Would that be so Bad?

The Democrats are in charge and Brian Gongol goes on record with “Problems in Raising the Minimum Wage”.


People
At Queercents, read Ten Money Questions for Kara Swisher, a Wall Street Journal columnist and reporter covering all things digital who blogger Nina believes is a digerati rock star!

What lessons might you have learned if Steve Jobs had spoken at your college graduation? Read what Mike Dawson of the Time and Money Group might have learned.

David Maister presents a podcast interview of Business Week executive director, John Byrne, entitled “Passion, People and Principles”.


Marketing and Sales
Rob May of Businesspundit tell us “Why Branding isn’t a Source of Competitive Advantage”.


Blogging
Wayne Hurlbert’s November 30th posting in Blog Business World suggests you look beyond your website’s home page to watch your sales numbers and company revenue grow.

Here are a few tips from James D. Brausch entitled, “Writing Articles, Brain Dead or Not”.


Stock Market
In Stock Market Beat, equity analyst William A. Trent provides insight into why he’s not buying Sony stock.

At Fat Pitch Financials, read what George has to say about stock Coldwater Creek's potential as a wide moat stock. Yes, he'll also explain what a "wide moat" stock is.


Entrepreneur
Jeff Cornwell of The Entrepreneurial Mind offers an important lesson for all entrepreneurs: "It isn't over until the fat lady sings."


Personal Finance
At The Simple Dollar, Trent gives us a few pointers on investing for a child’s future.

InsureBlog points out in Younger and Younger that long term care insurance isn’t just for the elderly. Henry Stern says us young whippersnappers may need it too!

Free Money Finance claims More Education Equals More Pay and offers statistics to back it up!

Think Money Wouldn’t Change You? Think Again! Life Coach Laura Young has a few thoughts on the psychology of money at The Dragon Slayer’s Guide to Life.

Sagar Satapathy presents "Lessons from Mom: 33 Easy Cost-Cutting Tips “.


Other
When Wenchypoo can’t sleep, she writes about all kinds of things. From one of her recent sleepless nights, here’s Taking a Bad Thing and Making it Worse.


Poetry & Humor
Investors havin a little fun at Market Poetry offer “How to Get Rich Without Going Crazy”. Don’t worry, you don’t have to know anything about assonance or alliteration.

Mad Kane’s Humor Blog offers up “Ode to Prosperity”.


Related Tags: carnival of the capitalists, blog carnival, cotc, Show Me the Money