Not the End of Main Street

While many in the mergers and acquisitions markets may be lamenting the lack of activity on Wall Street due to the credit crunch, there are still signs of life on Main Street.

According to one lower middle market investment bank, Green Manning & Bunch, both strategic and private equity buyers are actively acquiring businesses.

Why?

Strategic buyers are using the cash on their balance sheets and thus are not constrained by the lending limits of commercial banks. Private equity continues to raise record amounts of capital (on pace to exceed last year's record amount of more than $300 billion), which they need to put to use.

The companies being acquired have solid profit margins, prospects for growth, protected market niches and quality management teams.

Need help finding the right lender for an acquisition of a lower, middle market business? Read "Matchmaking for Business Loans" and give me a call!

Tags : Mergers and acquisitions , M&A , Green Manning & Bunch , credit crunch

SBA - Loans Decrease for Fiscal Year 08

At the beginning of the credit crunch in the summer of 2007, I wrote a posting, "Small Biz Credit Crunch: Will SBA Save the Day?".

With the release of its full fiscal year 2008 numbers, I believe the answer is in and there's really no surprise.

According to The Coleman Report, both SBA loan volume and SBA loan dollars were significantly lower in fiscal year 2008 for both the SBA's 7a and 504 loan programs.

In the 7(a) program, SBA loan activity for fiscal year 2007 totaled 99,606 loans for approximately $14. 3 billion. SBA loan activity for fiscal year 2008 totaled 69,434 loans for almost $12.7 billion. That's a reduction of 30,171, or 30.3 percent, in the total number of loans, and a reduction of $1.6 billion, or 11.3 percent in dollars loaned to small business.

In the 504 program, SBA loan activity for fiscal year 2007 totaled 10,669 loans for approximately $6.3 billion. SBA loan activity for fiscal year 2008 totaled 8,883 loans for almost $5.3 billion. That's a reduction of 1,786, or 16.7 percent, in the total number of loans, and a reduction of just over $1 billion, or 16.2 percent in dollars loaned to small business.

According to SBA director of financial assistance, Grady Hedgespeth, the lending decline reflects both banks' tightened credit standards and less demand from business owners. In general, larger, more mature businesses still have a healthy demand for loans than earlier stage, smaller businesses.

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 : credit crunch , business loans , SBA loans

California Cash Flow Problems

Cash flow for the state of California is getting tight as the state is having difficulty accessing the credit markets. California may seek a short term loan from the US Treasury in the amount of $7 billion!

If your company is a vendor to the state of California or its counties, cities and school districts, you need to watch your receivables like a hawk. There's a good chance you'll see your days sales outstanding increasing over the coming weeks until the credit markets thaw out.

If your business has direct (or indirect) significant exposure to California government entities and affiliates, you may want to provide your own lender a heads up. If California related accounts receivable pile up, your business could run into either concentration issues or cross aging issues resulting in a reduction in your own lines of credit.

If you don't have a line of credit, you might find that you need one. Factoring of accounts receivable could be a working capital solution that can be arranged within 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 : credit crunch , accounts receivable , lines of credit , factoring , California

CFOs Worry About Access to Capital

The credit crisis is deepening and the uncertainty of a congressional bailout package has both the financial markets and CFO's alike worried about the continued impact.

According to a new survey by CFO Research Services, 61 percent of CFOs surveyed are concerned about their company's access to day-to-day financing. Even more - 65 percent, are worried about access to long term credit.

Many of the lenders with whom I speak say they are willing and able to lend, but the proof is in the pudding. Here's what I have personally experienced myself in the last few days.

• Closed a $250 thousand SBA loan for a manufacturer of food products.
• Closed a $500 thousand factoring deal for an importer of meat products.
• Received approval for a $500 thousand equipment financing for new trucks.
• Obtained a bank proposal on behalf of a consumer electronic products company for a $1.5 million working capital secured by accounts receivable and inventory. Formal due diligence starts next week.
• Submitted a $6 million proposal for Fannie Mae financing of a recently completed and fully leased, multi-family real estate property.

Debt financing is still flowing into the markets on a selective basis provided you can offer the right collateral to lenders. Rates are a bit higher reflecting lender perception of risk and the lack of liquidity amongst 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 : credit crunch , accounts receivable , lines of credit , factoring , SBA loans , bridge loans , real estate

Nervous Borrowers Draw Down Lines of Credit

The Wall Street Journal (subscription required) reported a growing number of companies are hoarding cash and tapping lines of credit they don't actually need.

Why?

Fear that their bank lender may withhold it or unable to deliver the funds down the road.

With liquidity crunches in the interbank lending markets and the commercial paper markets, many borrowers are not waiting to make sure their own liquidity needs go unmet. GM, Sally Beauty, Jarden Corp. and Fairpoint Communications are just a few borrowers that have recently tapped or announced intentions to tap their lines of credit. GM recently announced it intends to draw down the remaining $3.5 billion of its $4.5 billion secured revolving line of credit.

Typically, these lines of credit would be quickly paid down. I suspect some of these companies will be letting the money sit in their own accounts till the storm passes over.

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 : credit crunch , business loans , accounts receivable , cash flow , lines of credit

Very Crunchy, Indeed

The credit crunch will be felt even more in the months ahead as a result of the financial earthquake suffered on Wall Street this past Monday according to The Wall Street Journal (subscription required).

Those with less than stellar credit histories will have the most trouble borrowing money to run and expand their operations.

Need anecdotal evidence of a credit crunch?

One of my colleagues introduced me yesterday to six new deals - all for small and medium sized businesses seeking lines of credit ranging in amounts from $1 million to $10 million. In each case, the borrowers had been told by their lenders to find replacement sources of financing. All of the companies were offering accounts receivable and inventory for collateral.

Here are a couple of reasons these companies are having trouble finding lines of credit.

• operating losses accompanied by negative cash flow
• too much inventory relative to sales volumes
• significant exposure to foreign accounts receivable

Asset based lending will likely be the solution for most of these deals. The interest rates will likely be much higher than what they're currently paying.

I had two interesting conversations today with bankers. The first with an SBA lender who commented on a shrinking pipeline of deal flow. The second with a banker who spoke of cherry picking deals and increasing the interest rates charged to 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 : credit crunch , business loans , accounts receivable , cash flow , lines of credit

Banks Cutting Lines of Credit

According to CFO.com, banks are downsizing companies' revolving lines of credit and pulling out of loan syndications.

Why?

First, to preserve liquidity and shore up balance sheets after large losses in their real estate portfolios. Second, to to put money to work in more profitable loans with borrowers who are using other lucrative bank services.

Easy companies to target for a reduction are those with little if any outstanding balances on revolving lines of credit. Use it or lose it if you want your bank to keep it in place seems to be the message.

According to Oliver Wyman consultant, John Walenta, middle market companies and small businesses may be at greatest risk to modifications to their revolving lines of credit. With these customers, the banks may have contractual rights to demand full repayment at any time.

I'm hearing of more banks cutting back on revolving lines of credit to customers that are in both payment default and those in violation of covenants. Most of the banks I know also won't consider a loan in this environment without a deposit relationship. The asset based lenders are much more active as bank lending continues to tighten.

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 : CFO Magazine , credit lines , credit crunch , lines of credit