60 Minutes: You're Stupid and You're Fat!

President Obama told 60 Minutes last night that it was "fat cat bankers" that caused the US financial systems to almost completely fail.


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No blame for Congressional members who were taking campaign contributions from the financial services industry and then failed to adequately supervise the likes of Fannie Mae, Freddie Mac and Bear Stearns.

No blame for borrowers who gorged on cheap money when the cash flow of their businesses couldn't demonstrate an ability to pay back those business loans.

Nope. Just the stupid bankers.

Now I'm not defending the fat cat bankers. Just trying to add some perspective that there's a lot of parties that should share in the blame of this financial fiasco.

However, that sound bite won't play as well on 60 Minutes. Or maybe something got left on the editing room floor.

I'm sure the President's meeting today with the banking community will go well when he tells them to lend more money while his regulators tell them don't be "stupid".

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

Tags : fat cat bankers , stupid bankers , 60 Minutes , President Obama

Business Lending Down Six Percent

Business loans in the third quarter of 2009 were down almost six percent according to The Wall Street Journal (subscription required).

No doubt this decline will pit those in Congress who claim that TARP funds should lead to increased lending against bankers who claim regulators are demanding that lenders take less risk in these troubled times. With a fear of a second round of troubled loans primarily in commercial real estate, banks are as risk averse as ever.

The FDIC's troubled bank list now totals 552 problem banks - approximately seven percent of all banks. Fifty banks failed in the third quarter - the most bank failures in a single quarter since the fourth quarter of 1992. "Failure Friday" took a holiday break over Thanksgiving weekend. Look for bank failures to re-commence sooner than later.

If your business loan request is already in process, you still have a chance of obtaining funding in 2009 if you are working with the right lenders. Otherwise, a 2010 funding is the more likely scenario.

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

Related Tags: factoring, accounts receivable, p.o. financing, purchase order financing, bank loans, equipment leasing, working capital, cash flow

Walmart Shifts to Supply Chain Finance

Wal-mart recently announced a new supply chain finance program according to this weekend's Wall Street Journal (subscription required). I first wrote about supply chain finance in April 2007.

This supply chain finance program will provide Wal-mart's suppliers with accounts receivable financing - a market which has experienced significant turmoil given the bankruptcy filing of CIT and the credit crunch, in general.

Wal-mart's partner banks, including Wells Fargo and Citigroup, will be providing factoring to Wal-mart's suppliers. It is unclear whether these rates will be any cheaper than those offered by other factors and accounts receivable financiers.

The article mentioned that other retailers, including Kohl's, are also experimenting with supply chain finance programs.

If you're having difficulty with your accounts receivable funding in light of the CIT situation or general market conditions, give me a call!

Tags : Walmart , CIT , supply chain finance , accounts receivable , factoring

CIT, Commercial Real Estate and Workouts

Lots of issues to think about these days with respect to loan workouts, CIT's bankruptcy and commercial real estate.

• Last week, I attended the Risk Management Association's panel discussion on loan workouts and restructurings. Panelists included three bankers from the loan workout departments and an attorney who crafts loan workout agreements. The panel's consensus was expect another year of increasing loan defaults in the world of commercial real estate and business loans. Until this workout activity starts to decline, new loan origination activity is not likely to pick up.
• I still cannot figure out the real impact of the CIT bankruptcy. Many borrowers won't be able to find new lenders because CIT's advance rates against inventory was too high and their interest rates were too low relative to current rates. Some borrowers won't find new homes because they won't find another lender with the back-office capabilities of CIT that has traditionally provided.
• The FDIC issued new guidance to commercial banks allowing them to keep commercial real estate loans on their books as "performing" even when the underlying property value has declined. I suppose this is similar to guidance issued for modification of residential real estate loans with the intent to avoid more losses for banks at a time when their balance sheets cannot afford the earning hit.

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

Tags : CIT Group , CIT , bankruptcy , factoring , accounts receivable loans , commercial real estate , FDIC

$5 Million SBA Loans if Your Name is Joe or Doug

Is the SBA considering increasing its guarantees for the SBA 7a loans program for loan amounts as high as $5 million?

Yes. But I think only if your name is Joe or Doug.

Here's a portion of what President Obama had to say about his thoughts on changes for the SBA ...

"The first thing we need to do is increase the maximum size of various SBA loans. So I am calling on Congress to increase the cap on what's called 7(a) loans to $5 million. These are the loans most frequently handed out by the Small Business Administration to help folks open their doors and buy machinery, equipment, land and buildings. These larger loans will help more small business owners and franchisees grow. We also need to increase the maximum size of what's called 504 loans to $5 million. These are the type of loans that Joe and Doug used to expand this business and create new jobs. And we should also increase the maximum size of microloans that go to start-ups and other smaller businesses."

By the way, the expectation remains that the current SBA loan stimulus money will be exhausted by the end of 2009. Don't wait if you want to take advantage of the current higher SBA guarantees and waiver of SBA loan guarantee fees.

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

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch

Commercial Real Estate - More Pain Ahead

Commercial real estate losses could reach 45 percent next year according to an internal presentation at The Federal Reserve Bank.

As reported in The Wall Street Journal (subscription required), while not the central bank's formal opinion, the presentation by Atlanta Fed real estate expert, K.C. Conway, paints a bleak picture of sliding real estate values, increasing commercial real estate loan defaults and enormous amount of debt that will need to be re-financed in the next few years.

Banks have been slow to take losses on their commercial real estate loan portfolios because their balance sheets still have not recovered from their housing loan related losses. "Extend and pretend" has been the philosophy of some banks whose primary focus is capital preservation and avoiding enforcement actions by regulators.

I have personally seen three bank commercial real estate loans in recent weeks where the banks are in trouble on construction loans and first trust deeds gone sour. I'm working on sale leaseback solutions on two of the three that will necessitate the banks taking a significant discount on the loans. On the third, the value of the property is so low relative to the loan balance, it's not clear where the solution lies.

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

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans

Do You Really Want to be Banker of the Year?

Less than a year ago, then Chairman and CEO of Bank of America, Ken Lewis, was named Banker of the Year for the second time by American Banker.

Today, The Wall Street Journal (subscription required) announced that Mr. Lewis will retire from Bank of America by year end. This announcement comes just months after Mr. Lewis losing his chairman title over the Merrill Lynch debacle.

Mr. Lewis now joins Kerry Killinger (ousted CEO of Washington Mutual), Ken Thompson (ousted CEO of Wachovia) and Angelo Mozilo (ousted CEO of Countrywide) on the list of former Banker of the Year honorees who thereafter lost their jobs!

Sounds a bit like the Sports Illustrated cover jinx. Do you think any banker in their right mind wants to win next year's award?

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

Tags : Banker of the Year , American Banker , Ken Lewis , Bank of America

Lack of Refinancing Options for Maturing CMBS Loans

In Two Kinds of Pain for Commercial Real Estate Loans, I wrote that about the shortage of funding to refinance commercial real estate loans as they come due.

In a study for The Wall Street Journal (subscription required), Trepp, which tracks the commercial real-estate market, found that, year-to-date, 528 commercial mortgage backed securities (CMBS) loans valued at $4.7 billion weren't able to refinance when they matured. About 75 percent of these commercial real estate loans were backed by properties that were throwing off more than enough cash to service their debt!

A quick calculation shows that the average loan size for these 528 CMBS loans was approximately $8.9 million. That's not really a large number - this lack of re-financing capacity is likely to impact small and medium sized commercial real estate owners.

At last week's ACG Conference in Los Angeles, I listened to a bank presentation on the state of the debt markets. This bank has tightened their lending criterion for loans including those secured by commercial real estate in part by raising the minimum debt service coverage ratio. If I recall correctly, a 1.35x debt service coverage ratio is the current minimum. By the way, this bank is not lending on commercial real estate without the borrower bringing its entire relationship to the bank.

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

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans , California

45 Days and Counting!

This afternoon, I dropped by the 2009 M&A Business Conference for the Association of Corporate Growth's Los Angeles chapter. Both the lobby and the Capital Connection room were buzzing with activity.

The Capital Connection room was filled with representatives of over 100 private equity firms with one lender and one commercial real estate sale-leaseback firm thrown in for good measure. The room was packed with deal makers trying to figure out how to get a piece of the $400 billion of equity overhang that everyone keeps talking about!

Spoke to a few of the lenders milling about and each one confirmed the same. If you've got a business loan that needs to be funded by year end, you need to submit the deal to a lender (preferably with a complete due diligence package) by Halloween. After that, there's a reduced likelihood the deal could close by New Year's Eve.

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

Tags : Association of Corporate Growth Los Angeles , sale leaseback , business loans

Credit Crunch Officially Over

The credit crunch is officially over - at least for one of my clients, an operator of barges and a tugboat.

When referred to me by a Southern California chief financial officer, the borrower had to complete a refinancing of purchase money debt within 25 business days. They were in discussions with six commercial banks, but getting nowhere fast. The bankers were quite interested in the company's deposit potential, but had absolutely no interest in providing the equipment loan.

Within days of being hired, I submitted a completed application and full due diligence package to an SBA lender. A cooperative and well prepared client was a huge plus! We received an approval for an SBA 7a loan within 10 days, subject to an appraisal. The deal closed the last week of August with days to spare before the borrower's deadline.

Why is the credit crunch over for this borrower?

Funding 911 knew the right lender and presented a convincing story on why the SBA lender should expect full and timely repayment of the loan. The borrower can now focus on growing a successful company and not worry about finding money.

A couple of quick notes on the SBA loan market...

According to many sources including this CNN report, SBA loan volume has picked up significantly compared to earlier this year primarily because the secondary markets for SBA loans has healed itself - without much assistance from the government. The ability to quickly replenish their coffers and the attractive premiums once again available for selling these loans have enticed lenders to make more SBA loans.

By the way, as part of the spring stimulus passed by Congress, the SBA was granted over $700 million to increase guarantees and waive borrower paid guarantee fees. Sources say that these funds may be completely utilized by the end of the calendar year. If your business is considering an SBA loan and wants to avoid the stiff guarantee fees, don't wait to apply!

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch

Tightening the Screws on Cash

Money tied up in working capital is not available to grow the business - or in today's environment, not available to help a company survive the economic turmoil.

So it's not surprising that The Wall Street Journal (subscription required) gave front page coverage to the most recent study by REL Consultancy on how big firms are expediting cash collections and slowing cash payments - particularly at the expense of the smaller or weaker companies with whom they conduct business.

The largest companies are particularly good at this cash flow exercise. Companies over $5 billion of annual revenues remit their payables on average in 55.8 days and collect their receivables in as little as 41 days - a net of almost 15 days of working capital in their favor.

Companies below $500 million in revenues are not quite as successful in managing cash flow. The cash is going out the door faster than it comes in! The small and mid size enterprises take almost 59 days to collect their receivables while remitting payments in a fraction over 40 days - a net of almost 19 days of working capital to their detriment.

Many of the small and mid sized companies that I see are experiencing a similar working capital crunch. As a result, some of these companies lack the cash to take advantage of new orders that could lead to a return to profitability as the economy improves.

In an environment where credit is tight and more expensive, it pays to carefully watch one's working capital and cash flow!

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

Tags : working capital , cash flow , accounts receivable , credit crunch , REL Consultancy

Two Kinds of Pain for Commercial Real Estate Loans

Just when it looks like the banks may be putting the residential mortgage mess behind them, commercial real estate loans are a reminder that the real estate sector is just getting ready for round two. This next wave of pain could put a number of bank lenders into the hurt locker.

The Wall Street Journal (subscription required) reminds us the $700 billion of commercial mortgage backed securities (CMBS) outstanding are experiencing their first major downturn. The sector will likely suffer two kinds of pain.

First - sloppy underwriting for commercial real estate loans resulted in overly optimistic cash flow assumptions by stupid bankers. With the economic downturn, vacancy rates have cut cash flow well below the ability of many commercial real estate properties to service their debts.

Second - Over $150 billion of CMBS simply mature in the next three years. Given the CMBS market has collapsed and isn't available for refinancing purposes, there is little hope that there will be sufficient loan capacity in the weakened bank market to re-finance many of these loans.

The end result - values will drop further as CMBS go into default causing banks to have to lower commercial real estate valuations in their own portfolios. At some point, banks could be forced into devaluing commercial real estate loans on its own books even if they are performing!

Need help finding the right lender to finance your California commercial real estate? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans

Tracking the Nation's Bank Failures

The FDIC announced that its "problem bank" list has grown to 416 banks, an increase of 111 banks since last quarter according to The Wall Street Journal (subscription required). If my math is correct (and my logic sound), the problem bank list has actually grown by close to 160 banks when one considers that bank failures in the last quarter totaled almost 50 banks.

While concerns grow that the FDIC's insurance fund is about to be consumed, the questions intensify over whether or not the FDIC may soon be forced to borrow from its $100 billion line of credit at the Treasury Department.

Within the online version of The Wall Street Journal (subscription required), they created this great little interactive tool to show readers which banks have failed this year, the size of the institution, the name of the rescuing bank and the cost to the FDIC

Honors for costing the FDIC insurance fund the most - IndyMac Bank at $8.9 billion.

Honors for being the biggest failure by asset size - Washington Mutual with $307 billion of assets.

The problem bank list still represents only 5 percent of all banks. There is still money available for all types of business borrowers with a variety of risk profiles. Even bank money.

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

Tags : Problem Bank List , Failed Banks , FDIC , Washington Mutual , IndyMac Bank

Wells Fargo Claims Top Ranking from CIT

Wells Fargo is the new king of SBA loans.

According to a study by Foresight Analytics, Wells Fargo funded 7.7% of all SBA loans in the first nine months of the fiscal year while struggling CIT Group's 1.1% market share dropped it to 16th place in the rankings.

When taking into account the Wells Fargo acquisition of Wachovia Bank, their combined market share of SBA loans rises to 9.3% of the market.

CIT Group had held the top spot in SBA loan production for nine years until its recent challenges put an end to its marketplace dominance.

For those borrowers who qualify, now is a good time to consider an SBA loan. Between the fee waivers and the recovery of the secondary markets for SBA loans, activity levels are picking up. There are a lot of smaller, regional banks looking to add to their SBA loan portfolio.

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

Tags : SBA loans , 7a loan , Wells Fargo , CIT Group , top SBA lender

Latest in Lending Developments

Here are a couple of things I have read in the last few days about the business loan and commercial real estate loan environment.

• According to the July 2009 Senior Loan Officer Opinion Survey, demand for business loans and commercial real estate loans continues to be weak. Credit is still tight, though the number of banks increasing credit underwriting guidelines is lower than it was in the peak of year end 2008. Don't count on lending returning to "normal" before late 2010 or 2011 for either bank loans or commercial real estate loans.


• Bank closings continue at a record pace with eight bank closings in the first half of August bringing the year to date bank total to 77. Over 300 banks were on the FDIC's troubled bank list as of the end of May according to The Wall Street Journal (subscription required). Don't expect the pace of bank closings to slow anytime soon.


• It is increasingly difficult to tell if CIT's fortunes are improving if you were to read this August 13th Written Agreement with the FDIC. Regardless of who your lender is, it's not a bad idea to know your options at a time like this. I imagine there are plenty of lenders who finance accounts receivable that are licking their chops as CIT tries to overcome its challenges.


• The spring stimulus bill has been good news for the SBA. SBA loan volumes have significantly increased and there is some concern that its allocation of stimulus money to waive guarantee fees may run out by the end of the calendar year. I'm in the process of closing a $1.3 million SBA 7a loan which was approved in less than ten days!

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

Tags : Bank loans , commercial real estate loans , CIT Group , troubled bank list , SBA loans , accounts receivable financing

Vulture Lenders Are Back!

Vulture lending is back according to The Wall Street Journal (subscription required). New data from Dealogic pointing to 140 distressed debt deals valued at over $84 billion in which creditors used their debt positions to seize control of troubled companies.

The deals cited included corporate takeovers resulting from bankruptcies, restructurings, recapitalizations or liquidations.

The front page article suggests that many of today's vulture lenders are hedge funds who are increasingly thinking about a "loan to own" strategy. However, it is hard to know if the hedge fund lenders in these corporate takeovers were merely executing upon one of their exit strategies to recover their loan balances or if their original intent was to own the company.

In late 2006, I provided a few tips on how to identify if your lender is a vulture. If your considering new lenders, it's a good time to revisit those tips. If you've already got lenders who are beginning to act suspiciously, it's probably too late to do anything about it.

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?

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

Tags : vulture lender , distressed debt , loan to own , business loans , cash flow problems

Forecast Your Cash

I’m struggling with a manufacturing client that is not able to generate a financial model which can provide comfort to a bank that the company can repay its debts. Without a forecast which is based upon solid and defensible assumptions, this manufacturing company could be forced to obtain capital at much higher interest rates than a bank would charge.

By hiring a third party resource to create a robust, dynamic financial model, the manufacturer could generate multi-period reports that would help the company and its lenders answer such questions as:

· How much capital will I need?
· How long will my cash last under various scenarios?
· How will I be able to repay my loans?

But the client is hesitant to spend the money even though it could potentially save over $150 thousand of annual interest expense. The cost to hire an expert to create the financial model? In this case, less than 5 percent of the savings.

I recently spoke with Daniel Feiman of Build It Backwards, a management consulting and training services firm, which develops financial models for businesses ranging from start-ups to established firms with annual revenues exceeding billions of dollars. Feiman just published “What Everyone Needs to Know About Financial Modeling” and here’s one portion of our discussion I found particularly compelling.

"A common mistake in financial models is not having a solid understanding of what CASH is and is not. Revenues are not cash. Gross margins are not cash. Profits are not cash. Only cash is cash. Slight changes in the timing between cash receipt and disbursement - even just a couple of weeks - can bankrupt your business. Therefore, a good model will reflect not only cash flows generated by your firm but also their timing."

From your lender's perspective, a good financial model understands cash and can answer the three questions shown above. If you cannot answer these cash flow questions for your banker, the teller’s window will be closed.

If you would like a copy of “What Everyone Needs to Know About Financial Modeling”, click here. Daniel Feiman can be reached at 310-540-6717.

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

Tags : Financial Models , cash flow , bank loans , Daniel Feiman , Build It Backwards

Bankruptcy for CIT?

The $60 billion finance company, CIT, is negotiating for a government rescue while also having retained bankruptcy counsel.

The outcome is unclear as various press sources report that the US government does not feel that CIT's failure would create a systemic risk to the financial markets. Same conclusion that was reached with Lehman Brothers last fall and the outcome wasn't pretty.

CIT is a major asset based lender to small and medium size businesses offering products including factoring, accounts receivable lending, equipment finance, SBA loans and cash flow loans to a wide variety of industries. Its factoring and accounts receivable loans have been available to companies with revenues as little as $5 million.

Many of these borrowers are probably quite nervous at the moment. While the government may reach the opinion that J.P. Morgan Chase, Wells Fargo and Bank of America can replace CIT in the marketplace in the long run, the short term chaos in the meantime could be significant. These and other asset based lenders could be overwhelmed if the curtain came down on CIT and borrowers had to find replacement lenders on short notice.

Are you a current CIT borrower and worried about your options? Read "Matchmaking for Business Loans" and give me a call!

Tags : CIT Group , CIT , bankruptcy , factoring , accounts receivable loans

Los Angeles Commercial Real Estate Struggling

As reported in the Los Angeles Times, research firm Real Capital Analytics found that 263 Los Angeles commercial real estate properties totaling $4.5 billion were in default, foreclosure or bankruptcy at the end of June.

Nationwide, troubled commercial real estate properties number over 5,300 properties valued at more than $108 billion.

What's to blame? Excessive leverage. When will it get better? No time soon - this could be the early stages of a decline.

These troubled properties will continue to impact both new financings and re-financings of commercial real estate for a while. Commercial real estate bridge loan lenders are having a field day and opportunistic investors with hordes of cash are overwhelming distressed owners having to sell.

As for the banks holding some of these properties in their workout departments or as REOs, it is impacting their ability to make business loans for working capital. Banks are still saying "no" to new business loan opportunities and in some cases, saying "go" to existing companies on maturing lines of credit.

Need help finding the right lender for your commercial real estate bridge loans or for business working capital loans? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate loans , commercial real estate , California , Los Angeles , real estate bridge loans , private money loans

Factoring for California IOUs

One of my factoring sources has told me they are providing emergency funding of California IOUs. This could be a huge assist to many small and medium sized businesses who conduct business with California but may not be able to collect on their invoices for months given the current budget stalemate in Sacramento.

The factor will buy the IOUs for 90% of the face value - you can sell as much or as few of your California IOUs as you need to support your working capital requirements. There are no minimum contract periods. The spot factoring is non recourse to the borrower - if California doesn't pay the IOUs, the factor will not require the borrower to make them whole.

If you already have a lender which has a senior lien on your accounts receivable, it doesn't matter. As the funding source is buying the IOU, it will not be subject to the senior lender's lien position.

Got that? Any questions on how to sell your California IOUs, give me a call at 310-371-4011 ASAP!

Tags : California IOUs , accounts receivable , factoring , asset based line of credit , cash flow

Clean Up the Balance Sheet

Seven Steps to Improving Cash Flow and Profitability in a Turnaround is one of the articles in the most current edition of the CapitalEyes e-Newsletter from Bank of America Business Capital.

Clean up the balance sheet is the step which caught my eye.

Businesses are encouraged to generate as much liquidity as possible from receivables and inventories. Why? Money tied up in working capital is money not available to grow the company.

All lenders are focused on borrower liquidity in this market. Lenders want to know that borrowers are sending out invoices in a timely manner, if you are taking appropriate steps to implement leading edge credit and collection policies and if you are collecting your accounts receivable in a timely manner. Watch your receivables like a hawk!

Inventory is another hot button. Fewer lenders are willing to advance funds against inventory which may be slow moving or obsolete. I am finding that overly aggressive lending against inventory by incumbent lenders is one of the key reasons that borrowers are unable to find new lenders when the bank says "go"! More conservative lenders are limiting inventory advances to only 25-33% of the accounts receivable advance and only for profitable borrowers.

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

Tags : accounts receivable , Bank of America , CapitalEyes , working capital , business loans

Will California IOUs Impact Your Cash Flow?

The deadline for California to approve an annual budget has passed once again without a final budget. How and when the California legislature and Governator Schwarzenegger will fashion a resolution for the now projected $24 billion deficit are unknown.

Once again, businesses conducting commerce with California that rely on borrowing against their accounts receivable for their cash flow are at risk.

The IOUs that the state may issue in lieu of payment to vendors may not be deemed acceptable for those borrowing against accounts receivable.

If your business is using factoring or a formula driven, asset based line of credit to accelerate cash flow, it is best to check quickly with your funding source and find out their stance on California IOUs. Decisions to accept the California IOUs as collateral will likely be done on a lender-by-lender basis.

By the way, six other states failed to meet July 1 budget deadlines including Arizona, Illinois, Ohio, Pennsylvania, Connecticut and North Carolina.

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

Tags : California IOUs , accounts receivable , factoring , asset based line of credit , cash flow

Credit Still Tight

The Turnaround Management Association’s Annual Trend Watch Credit Poll is out and the final word is in - business credit is still tight.

“The credit crunch is being exacerbated not only by the lack of availability of credit, but also by the lack of borrowing capacity of companies needing credit,” said TMA Chairman Arthur Perkins, co-head of the West Region Restructuring Practice of Deloitte Financial Advisory Services LLP in San Francisco.

In other words, borrowers suffer from lack of cash flow to service their debt and the banks suffer from lack of capital.

The end result to borrowers is an increase in interest rates and a tightening of loan conditions including a reduction in asset valuations used for collateral.

There is money sitting on the sidelines being loaned against accounts receivable, equipment and commercial real estate. But you have to know where to find it.

Need help finding the right asset based lender or telling your story the right way for your business? If you're in need of at least $1 million, read "Matchmaking for Business Loans" and give me a call!

Tags : credit crunch , Turnaround Management Association , TMA , Credit Poll , accounts receivable , commercial real estate , asset based loans

Top Five Bank Leasing Companies - 2009

The 2009 list of the top 100 equipment leasing companies was just published and there are not a lot of surprises.

New business volume was down approximately $12.5 billion due to softening demand and tighter underwriting criterion. GE Capital took the biggest dollar hit with its new business volume down $24.5 billion. No other leasing company was even close to taking as large a dollar volume decrease.

Portfolio quality took another body blow following up on its poor prior year performance. Over 60% of the respondents reported that delinquency rates, credit loss provisions and net charge-offs were higher. Lower net charge-offs were reported by only 9% of the survey respondents.

So who were the top five U.S. bank affiliate leasing companies based upon new business volume?

• CIT Group - was an independent until the financial bailout and generated almost $13 billion of new volume, down 23%
• Bank of America - at $10.9 billion, an increase of 6%
• Wells Fargo - at $9.8 billion, a 19% increase
• Key Equipment Finance - at $4.5 billion, a 29% decrease
• US Bank - at $4.0 billion, a 4% increase

From the tone of the publication, the current year is expected to be even tougher. Lessees beware!

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

Tags : equipment leasing , leasing , equipment financing , Equipment Leasing and Finance Association

More Distributors and Manufacturers Seeking Loans

In the last ten days, I have been referred to four distributors and manufacturers for asset based lines of credit for amounts ranging from $1 million to $8 million. Included in the group are a manufacturer of cosmetics, a distributor of building supplies, a produce distributor and an electronics manufacturer.

In each case, these companies generated losses in 2008 and have been asked by their incumbent bank lenders to find a new source of funding. Across the board, the borrowers have already reversed their losses by taking actions to reduce their direct costs and overhead. However, the banks have either used the expiration of the credit facility or a breach in financial covenants as reason to terminate their lending relationship nonetheless.

When I spoke with the bank lenders, they cited a tightening of credit criteria or lender fatigue as the primary reason for asking these borrowers to find a new home.

I'm in the process of screening each of these asset based funding opportunities with banks, commercial finance companies and factors. Given that each has assets to offer as collateral (receivables, inventory and equipment), each of these borrowers will find a new lender. The issue will be at what cost. I expect that some of the borrowers will attract new loans in the 8% range while others will pay interest rates in the mid teens.

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

Tags : manufacturer , distributors , lines of credit , asset based loan , factoring , accounts receivable , PACA

Bare Knuckle Asset Based Lending

It's a bare knuckle asset based lending environment with a back to basics approach of pure formula driven structures with reliance on hard assets according to May/June edition of The ABF Journal.

With businesses generating less cash flow and banks still rationing credit, more and more business borrowers are finding that it takes strong accounts receivable and valuable inventory to get a line of credit.

For those business borrowers who don't quite qualify for conventional bank financing, there are two good asset based lending programs being offered by select banks.

The first program is available to qualified business borrowers in the state of California and provides a revolving line of credit up to $1.5 million.

The second program is available to qualified business borrowers nationwide through select SBA lenders and provides a revolving line of credit up to $2.0 million.

Both asset based lending programs focus on accounts receivable and inventory as the primary source of repayment. The all-in rates on these loans are tied to the prime rate and currently range from about 7.75% to 8.75%.

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

Tags : Line of credit , asset based lending , accounts receivable , SBA

Interest Expense Reduced by Over 50%!

Almost every business borrower will tell you that in today's current environment it is tougher to get a business loan and the lenders are charging higher rates of interest.

My client, a three year old healthcare staffing company, will tell you how I helped them increase their available credit and reduce their interest rate by over 50%!

Over the course of a two year funding commitment by the lender, my client could save as much as $250 thousand in interest expense.

This lower rate wasn't accomplished through a buy one, get one free promotion or a 3 day weekend sale.

It was accomplished by telling the borrower's story correctly to the right lenders and creating an auction environment so the lenders competed aggressively!

If your business needs to borrow up to $2 million and is currently borrowing at rates in excess of 15% (possibly through factoring), you might be able to achieve the same results!

To be eligible for these business loans, your business must be profitable and have a positive net worth. Accounts receivable and inventory will be the primary collateral for repayment of the revolving line of credit.

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

Tags : accounts receivable , factoring , SBA 7a loan , asset based loans , line of credit , working capital

Taking the Bite out of Rising Healthcare Costs

What do CFOs worry about when the credit crunch is not their main focus of attention?

In its most recent CFO survey by Bank of America, 67 percent of CFOs are concerned about rising healthcare costs. It is little wonder with healthcare costs expected to grow at an annual average rate of 6.7 percent between now and 2017.

In a survey conducted late last year by CFO Research Services, more than 40 percent of CFOs said they intend to reduce their company’s contribution to benefits in 2009.

Just how will they accomplish this? Will it be through a reduction of benefits, a transfer of costs to employees or a complete rethinking of the very nature of health plans?

To find out how companies might accomplish this, I spoke with Kelly Moore of Moore Benefits. Her company provides employee benefits consulting, brokerage, communication and administration for businesses with up to 200 employees, nationwide.

Here are three ideas Kelly mentioned that companies may use to save money on healthcare costs while remaining competitive in their benefit offerings.

First, companies might consider using a smaller network of HMO providers. In many cases, the more restrictive network allows for the same employee co-pay levels with a much lower premium cost. The savings can be substantial and in the range of 15% - 20%. The downside is that some employees may not have access to their provider as this smaller network will exclude the highest cost providers.

Second, many employers have realized a 20 to 30 percent reduction in premiums by replacing Co-pay plans with high deductible plans in combination with health savings accounts (HSAs). This is a good idea for employers who currently offer co-pay plans with relatively low out-of-pocket costs. The reason these plans have been slow to be adopted is the extra layer of paperwork in establishing, funding and filing claims from the HSA. Every carrier offers these types of plans and people from both extremes (high and low utilizers) can benefit from the savings.

Third, the most common way employers cut healthcare costs is a transfer of costs by increasing co-pays and deductibles. Moore agrees with CFO Magazine that employers may be able to make small changes to healthcare plans to minimize the increase in employee costs.

As lenders drill down on a borrower’s expenses and cash flow, healthcare costs will continue to draw their scrutiny. If you need assistance in getting a better handle on your company’s healthcare costs, give Kelly Moore a call at (949)872-2380.

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

Tags : healthcare costs , chief financial officers , employee benefits , health savings accounts , HSA