Back in the Saddle…Again

After almost six years in commercial banking, I have returned to advising growing businesses throughout the USA on a wide variety of asset based funding solutions.

Companies who can benefit from my services are often non-bankable credits who lack access to capital for reasons including short time in business, hyper-growth sales, weak cash flow and highly leveraged balance sheets.  These companies will typically have revenues of $500 thousand to $30 million and will have B2B accounts receivable, inventory and equipment that can be offered to a lender as collateral for repayment of a loan.

If your business has receivables, inventory and receivables and needs over $50 thousand of financing, please contact me at 310-344-2522.

Bank Lending - Sharpest Decline Since 1942

Shocker! U.S. banks last year posted their sharpest decline in lending since 1942 according to today's Wall Street Journal (subscription required).

I'm trying to figure out why this article was front page headline worthy for The Wall Street Journal no less. It's old news.

Senior bank lending officers have been reporting for two years about tightening credit. In fact, they tightened credit so much, they can't tighten any more.

Many banks are still amongst the walking wounded due to troubled commercial real estate loan portfolios. Yesterday, the FDIC announced its problem bank list hit a 16 year high of 702 troubled institutions. Many of these banks will likely fail and others will be unable to lend in support of an economic recovery for a long time to come. The FDIC shuttered 140 banks in 2009 and 20 banks year-to-date 2010.

In the meantime, the Commercial Finance Association (CFA) just released its Quarterly Asset-Based Lending Index, Q4 2009, revealing continued stability and signs that U.S. businesses are seeking alternative sources of stable funding from non-bank, asset-based lenders. In the fourth quarter of 2009, total committed credit lines grew by 1.2 percent among asset-based lenders, while 50 percent of respondents reported an increase in new credit commitments.

By the way, Harry Reid's stripped down jobs bill just stripped out additional funding for SBA small business loans. The original $85 billion "jobs" bill included additional funding for the SBA to continue offering small businesses enhanced loans guarantees and elimination of guarantee fees. The SBA just exhausted its $855 million of stimulus funds which it claims resulted in over $20 billion of loans to small businesses in the last 12 months.

Notwithstanding all of the backwards looking news, I am seeing the green shoots of recovery. A couple of very large banks may be feeling the populist pressure to pump up lending and are adding to their lending teams. Even Huntington Bank, notwithstanding five consecutive quarters of losses, has announced it is doubling its annual small business lending and has announced it will originate $4 billion of new loans in the next three years.

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 : small business , bank loans , SBA loans , asset based loans , Commercial Finance Association , Huntington Bank

Asset Based Lending Grows

Asset based lenders have stepped up to fill the capital gap caused by the credit crunch for borrowers both large and small according to The Wall Street Journal (subscription required).

According the Journal, asset based lending may have increased by double digits in 2009 after an 8.3 percent increase in 2008. Given the article was focused on small business, it would have been more interesting had the Journal been able to learn the percentage growth of asset based lending for deal size less than $10 million.

The Journal notes that drawbacks of asset based loans include relatively high interest rates. Asset based loans can range as high as 35-40 percent per annum when a borrower is using factoring or purchase order financing. However, there are some lenders that will provide asset based loans at rates in the single digit range. Even the SBA has a program that provides asset based lines of credit at rates currently below 10 percent!

Also this past week, the Federal Reserve's January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices was released.

The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years.

Expect to see asset based lending continue to grow in 2010!

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 : Asset based loans , factoring , purchase order financing , lines of credit , SBA loans

Who Will Fund Inventory Growth?

GDP grew at its fastest pace in six years in the last three months of 2009, expanding at a 5.7 percent yearly rate over the previous quarter according to The Wall Street Journal (subscription required).

The largest portion of the growth, 3.4 percentage points, came from businesses shrinking inventories more slowly than in the previous quarter to accommodate increased demand. Shrinking inventories means increased production to prepare for future sales increases.

One can argue about how much of the inventory buildup came from one-time events such as government stimulus programs, but one thing is clear. Businesses will have to increase inventories as the economy recovers.

Where will the money come from to fund the inventory growth is a bigger question.

I know very few bank or commercial finance lenders eager to lend for inventory increases. In fact, one middle market commercial banker told me at lunch that inventory increases are the last thing he wants to fund. Don't expect to see improved appetite for inventory lending until cash flow improves.

Some asset based lenders will provide lines of credit when there the borrower is profitable and subject to sublimits tied to accounts receivable. I also know one lender who will lend against inventory only in amounts up to $10 million. The terms are tough and the pricing is not for the faint of heart.

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 : inventory loan , GDP growth , line of credit , working capital

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

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

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

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

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

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

Factoring for Agriculture, Meat and Seafood Industries

Obtaining a line of credit from a commercial bank if you are a distributor in the agriculture, meat and seafood industries can be a bit more challenging.

Why?

Laws have been established which provide lien status to certain suppliers in these industries which trumps the priority liens over accounts receivable granted a borrower to its senior secured lender. As a result, banks and other commercial finance companies tend to shy away from lending money to anyone but the most creditworthy borrowers from these industries. Poor margins, insufficient net worth, too much leverage or too much concentration? No bank loans for you!

So if you are a distributor in the agriculture, meat and seafood industries, what alternatives for lines of credit exist if you are a less than perfect credit?

I work with a non-recourse factor who loves to finance distributors in the agriculture, meat and seafood industries. By purchasing the invoice rather than lending against it, the factor controls the security interest in the accounts receivable even when the distributor has failed to pay its supplier.

This particular funding source provides non-recourse factoring lines of credit in amounts starting at $1.0 million. The effective cost of this money ranges from 15-18% which is more than competitive with the most aggressive factoring rates from even recourse factoring!

A key to obtaining this financing is to have a well balanced list of customers whose creditworthiness can be readily confirmed.

If you are a distributor in the agriculture, meat or seafood industries and need help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call!

Tags : agriculture , meat , seafood , distributors , accounts receivable , recourse factoring , PACA liens , PSA liens , lines of credit , credit insurance

California Declared Ineligible

A major commercial bank confirmed to me today that its borrowers could no longer include state of California accounts receivable as eligible collateral until further notice.

In California Cash Flow Problems, I warned of impending cash flow challenges for businesses with accounts receivable from the state of California. If other lenders should take the same tact, a major cash flow crunch could take place for any company doing business with the state or its agencies.

If you're conducting business with the state of California and borrowing against your accounts receivable, I suggest you check with your lender to see if its lending policies are being adjusted.

Doing business in another or with another state? Keep an eye on their state budget woes. This cash crunch could be playing in a theater near you.

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 , credit crunch , California , working capital , factoring

Rocket Fuel for Growth

A Southern California manufacturer and distributor of consumer electronics was searching for a $1.25 million revolving line of credit to fuel its growth. In its just completed first year of operation, it had achieved a revenue run rate in excess of $10 million and was profitable – an amazing accomplishment by any standard.

The company had excellent products, good accounts receivable, a solid business plan and a strong ownership team.

Yet, lacking a three year history of operating results, no commercial bank was willing to approve a loan especially during this period of an increasingly tight credit crunch.

Unable to find a cost effective source of working capital on its own, this hyper-growth company was referred to Funding 911 by a commercial banker.

Funding 911 introduced the company to two commercial bankers who each offered solutions not known by many financing advisors and not offered by many commercial banks. One was a revolving line of credit through a CAPLINE program guaranteed by the SBA. The other was a revolving line of credit offered through a state of California program.

My client has just closed a $1.25 million revolving line of credit with the commercial banker offering the CAPLINE product. This working capital facility will enable the borrower to receive loan advances tied to its accounts receivable and inventory at very attractive interest rates not available through any other sources. The CAPLINE program can currently support loan amounts up to $2 million.

My client now has the rocket fuel it needs to more than double in size in spite of a credit crunch which is strangling many businesses.

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 : Working capital , accounts receivable , credit crunch , revolving line of credit , SBA , CAPLINE