Lenders Tighten Flow of Credit

The New York Times reported today that business loans flowing to American companies are drying up at a pace not seen in years based upon data from the Federal Reserve.

The Federal Reserve continues to closely monitor this credit crunch and may again respond by lowering interest rates at its December meeting.

Couple of key points in the article:

• Borrowers with strong relationships with their banks are more likely to get approved for business loans.
• If your industry is tied to real estate, automotive or other cyclical businesses, it will be more difficult to attract financing.
• Half of American jobs come from small business who are considered by lenders to be more risky and thus more likely to suffer from the credit crunch.
• Companies with collateral and a track record of cash flow will still have access to capital, often at increasingly favorable terms.
• As the effects of the credit crunch unfold, alternative lenders including asset based lenders and community development groups like the Pacific Coast Regional Small Business Development Corporation will find more borrowers knocking on their doors.

If the credit crunch has already become a bit too close to home for your business, be prepared to consider the lenders who provide funding secured by purchase orders, accounts receivable and equipment. In some cases, the cost of these funds will be more expensive than traditional bank funding. Just remember, it's not necessarily forever - when the economy improves, your business may once again generate the cash flow necessary to obtain a bank loan.

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

Tags : New York Times , credit crunch , small business loans , cash flow , asset based lenders

California Capital Marketplace November Meeting

The California Capital Marketplace monthly meeting continues to attract a very stimulating mix of senior executives and professionals with at least 15 years of experience in areas including lending, investment banking, accounting, international trade and legal.

The November meeting featured a case study by Kevin Shultz of FTI Capital Advisors. Shultz described a situation where his team was retained to find capital for a struggling company in the fashion footwear business. The deal was named a 2006 finalist by The M&A Advisor for both the Middle Market Deal of the Year and the Consumer Products Financing of the Year.

The closed financing was very creatively structured and encountered many challenges and twists and turns over the course of many months. The efforts of FTI Capital Advisors clearly points out the value of a good intermediary whether it be for the small, middle or large corporate markets. FTI Capital Advisors brought in the right lender and helped the borrower present its story and proposed structure in a compelling way.

Shultz pointed out that given the change in the capital markets over the last six months, this deal would be hard pressed to close in the current credit environment. The borrower has also returned to some of its previous habits of bad decision making once again proving that the definition of insanity is making the same mistakes and expecting different results.

Here's a couple of quick comments from the roundtable discussion which followed:

• The M&A markets are slowing down across the board as investors are waiting to see what direction the economy heads in 2008.
• Both lenders and investors are focusing more on fundamentals - code word for "cash flow".
• Here's the scariest one. No one really knows the extent of the subprime mess and the potential losses to be absorbed by lenders.
• Expect a bumpy ride for the next 12 - 18 months. According to one intermediary, his phone is ringing quite a bit more these days. I'm experiencing the same.
• The hedge funds still have lots of money and have to put it to use.

I'll be taking the rest of this week off to travel for Thanksgiving break. Wishing all of you a joyous start to the holiday season!

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

Tags : California Capital Marketplace , FTI Capital Advisors , cash flow , business loans

Early Success for Patriot Express

I received a call last night from a military veteran seeking assistance in obtaining financing for his start-up business. I suggested he consider the SBA Patriot Express program and learned he wasn't aware of its existence. He expressed surprise that I even asked him about being a veteran. As a matchmaker for business loans, it's my job to look for all possible angles that may help my client get the most cost effective financing that might be available.

As a result of this call, I decided to visit the SBA website to learn about the latest development for the Patriot Express Program. Here's what I found.

In the four months since its launch, the U.S. Small Business Administration’s SBA Patriot Express Loan Initiative has produced more than 500 SBA guaranteed loans amounting to $51 million, with an average loan amount of nearly $102,000.

The number of participating lenders is growing daily with more than 700 nationwide currently underwriting Patriot Express loans on much more flexible terms than offered in the SBA's standard 7(a) loan programs.

Patriot Express is available to military community members including veterans, service-disabled veterans, service members leaving active duty, Reservists and National Guard members, current spouses of any of the above, spouses of active duty members, and the widowed spouse of a service member who died during service, or of a service-connected disability.

By the way, one of my favorite funders has just changed jobs and is heading up an office for an SBA participating lender - he's been told to go out and aggressively seek new Patriot Express loan opportunities on a nationwide basis.

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

Tags : Patriot Express , military veteran , SBA , 7(a) loan

Credit Crunch in California

The market for business loans is placing renewed emphasis on cash flow and business loan interest rate spreads are returning to historical levels.

This was just one of the juicy tidbits on business lending I heard at the November 8th event at the Milken Institute which focused on the credit crunch in California resulting primarily from the implosion of the residential subprime markets.

It was an impressive panel including California Secretary of State, Debra Bowen, and representatives of Wells Fargo Bank, The Milken Institute, Ares Capital Management and the private equity firm of Riordan, Lewis & Haden.

Here's what else I heard...

• Underwriting of loans in the last few years has not been prudent to be sustainable in the long term. Too many marginal companies have been able to borrow at rates that did not compensate lenders for the risk entailed. Why? In my opinion, too much money and stupid bankers.
  
• In the future, business borrowers will need to do a better job of showing their ability to repay a loan obligation from cash flow generated by the business. Notwithstanding the reduction in prime rate, small businesses might pay more to borrow money.
• According to one panelist, the recent credit crunch experienced by large business borrowers has not been driven by performance issues such as non-payment or covenant defaults. In my opinion, this was one of the more curious comments of the night. The reason there haven't been many covenant defaults is that "covenant light" and "PIK" deals have made defaults very unlikely.
  
• Other shoes that could drop and exacerbate a corporate credit crunch in California include an implosion in commercial real estate loans, a possible 10% across the board budget reduction for the state of California (worry about the multiplier effect), more writedowns in the residential subprime market by major lenders and a softening of the job market.
  
• Government intervention in a credit crunch must be done very carefully, if at all. Too often when the government has intervened in the past, it has merely delayed the day of reckoning. Market forces will (and should be allowed to) work and determine who survives. Yes, some businesses will get hurt in the process. But that's capitalism.

While the panel all seemed bullish on California for the long run, it was predicted that the next 18 months could be quite challenging for business borrowers. Small business could find itself squeezed for capital to grow and survive.

If I heard her correctly, Madame Secretary Bowen stated that small businesses in California provide 88 percent of the state's jobs. If you're a small business in California, be prepared for a tightening of credit.

An impending credit crunch have you worried? Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : California , small business , credit crunch , Milken Institute , cash flow , business loans

Fed Sees Credit Tightening

Credit to businesses of all sizes is tightening according to the October 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices published by the Federal Reserve.

In the October survey, domestic and foreign institutions reported having tightened their lending standards and terms on commercial and industrial (C&I) business loans over the previous three months.

About one-tenth of respondents—a fraction similar to that in the July survey—reported tightening their lending standards on C&I business loans to small businesses, and about one-fifth of domestic institutions reported charging higher loan rate spreads on such loans.

Two things to note.

First, this was the Fed's first poll of loan officers since the summer credit crisis. The next poll may be more telling once its known how many more Merrill Lynch and Citigroup type fiascoes are uncovered.

Second, the poll results were received prior to last week's reduction of key benchmark interest rates that led to a reduction in the prime rate by commercial banks. With the Fed reductions, banks may take a hint not to constrain the availability of credit to small business more than necessary.

All in all, it's another good data point, but not yet conclusive evidence of a system-wide tightening of credit for small business.

But keep my telephone number handy just in case a credit crunch becomes too real for your small business. Probably the only credit crunch you really care about.

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

Tags : credit crunch , small business , Federal Reserve , business loans

Lease Delinquencies Double

My small ticket leasing partner shared with me a chart from Paynet showing that lessee payment delinquencies of greater than 90 days has almost doubled in the last 15 months.

This statistic is based on blind reporting by not only small ticket lessors, but all of the big boys as well including Wells Fargo, Bank of America, GE Capital and National City. It also reflects deals from a variety of industries and for a variety of credit types (A, B, C & D).

Notwithstanding the increase in delinquencies, the leasing market is currently so flush with money that a leading lessor which specializes in subprime credits and startups is seeing increased competition. New entrants are taking on more risk and charging lower rates.

With the slowdown in the economy, this market dynamic for lease financing is unlikely to last too much longer.

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

Tags : equipment leasing , leasing , Bank of America , Wells Fargo , GE Capital , National City

Five Tips from B of A on Credit Cycle

This edition of CapitalEyes from Bank of America Business Capital offers businesses five tips on How to Navigate the Current Credit Cycle. I've written about most of them in the past, but it should be pretty obvious which one of the tips I like reading the most.

• Provide your lenders with all the information they need to understand your business and be your advocate in front of their senior management.
• Keep up with both market conditions and local conditions.
• Seek the advice of a well-informed and active credit arranger.
• Especially when times are tough, it's about relationship - make sure you've got a good relationship with your lender.
• Manage your liquidity and collect your cash.

It doesn't matter if your business is small, medium or large, these are five tips worth thinking about as the credit cycle changes. Especially the third one.

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: Tags : Bank of America , Capital Eyes , business loans , credit cycle

SBA Gets Grilled by Senate

The SBA just announced its sixth straight year of record loan volume, but the U.S. Senate still found plenty to question during the SBA's recent visit to Capitol Hill.

I'll let you read the CNNMoney.com article, but here's what caught my eye.

The SBA estimates that its 7(a) loan default rate is 6.96% over the 25 year life of the loans. No one seems to be sure if that's comparable to loan default rates on commercial loans from FDIC-insured banks. But according to the CNNMoney.com article, the default rate for commercial loans from FDIC-insured banks is currently 1.5% a year.

Just because a loan goes into default doesn't mean the entire loan is a loss, but that seems to be a pretty high default rate. As a taxpayer, I think that the SBA should be doing a better job of managing its risk.

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

Tags : SBA , 7a loan , small business