Thursday, December 28, 2006

LBOs Pile on the Debt - No Room for Error

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

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

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

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

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A Tsunami of Community Banks

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

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

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

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

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Tuesday, December 19, 2006

What Will A Banker Ask Me?

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

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

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

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

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

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Monday, December 18, 2006

Capital Access for the Hispanic Community

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

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

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

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

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

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Sunday, December 17, 2006

Santa Baby, Come to the Carnival

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

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

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Thursday, December 14, 2006

Money Available! Operators Standing By!

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

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

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

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

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Tuesday, December 12, 2006

Is Your Lender a Vulture? Three Questions to Ask!

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

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

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

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

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

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

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

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

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

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

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

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

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

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Monday, December 11, 2006

M&A Outlook - How High Will it Go?

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

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

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

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

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Thursday, December 07, 2006

New Guidelines Cut Real Estate Business Loans

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

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

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

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

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

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Carnival of the Capitalists - Thanks for Visiting!

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

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

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

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

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Sunday, December 03, 2006

Show Me the Money Welcomes Carnival of the Capitalists

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Wednesday, November 29, 2006

Unique Business Loans for Minorities

SBA-like business loans to minority businesses when the bank cannot.

That sums up the Certified Minority Lenders program created by the National Minority Supplier Development Council and the Business Consortium Fund (BCF).

BCF is funded primarily through investments and contributions made by NMSDC corporate members and other organizations including companies who wish to support minority businesses in the United States including Walmart, General Electric, Sears, Boeing and Coca Cola. The targets for these loans are businesses controlled by U.S. citizens who are Asian, Black, Hispanic or Native American who are conducting business with a member of the National Minority Supplier Development Council which is practically any household name in corporate America.

Minority businesses that qualify may have weak cash flow, negative equity, a history of losses and little to no secondary source of repayment. Even with these challenges, a prospective borrower must still have solid management and sales experience in their field. The specific financial requirements will vary from account to account based upon the underwriting criterion of the lender – you had better have a good story and a complete application.

If your business qualifies, you can apply for business loan programs ranging in amount from $100 thousand to $1 million at rates that currently don’t exceed 12%. The loan can be structured as a short term or long term borrowing and proceeds can be used for working capital, contract financing, equipment purchases and other business purposes.

Generally, the borrower must pledge sufficient assets, to the extent they are reasonably available, to secure the business loan. Personal guaranties are required from all principal owners of the business. Liens on personal assets of the principals also may be required.

Sound interesting? If I can help you with an introduction to a lender who can lend nationwide, please give me a call!

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Tuesday, November 28, 2006

Uncle Sam Offers Contracting Bonanza

According to All, the federal government is about to launch a massive upgrade of its computer systems that should present a multibillion-dollar opportunity for small technology vendors.

All cites a BusinessWeek report that the General Services Administration has already advanced contracts to upgrade the government's phone and computer systems, and the contracts include a $35 billion set-aside for small, minority, and disadvantaged businesses.

The contracts are considered just the tip of the iceberg as the government gears up to overhaul its communications and information technology systems over the next 10 years.

As I mentioned in my posting on government contracts funding, if you're providing products or services to the government or to a prime contractor fulfilling a government contract, don't get caught in a working capital squeeze. Cost effective financing is available - feel free to give me a call and see if I can help.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Wednesday, November 22, 2006

SBA Announces New Women's Business Centers

Just last night, I was asked if there were any resources available specifically to assist women in their quest to become successful entrepreneurs and find business loans. The answer is "yes"!

In fact, the SBA just announced funding to add 19 new women's business centers throughout the United States in addition to continuation of funding for 80 existing women's business centers.

The women's business center program served more than 144,000 clients across the country last year, providing help with financial management, procurement training, marketing and technical assistance.

And of course, that assistance includes advice on business loan programs available through the SBA including Express, 504 and 7(a) business loans.

Happy Thanksgiving!

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Tuesday, November 21, 2006

As Much Money As You Want

There is so much money chasing M&A deals right now that there is growing concern that a bubble may be developing.

As reported in the LA Times, private equity buyers have announced about 1,000 U.S. takeovers this year worth a record $356 billion, according to data tracker Thomson Financial.

Private equity firms have raised an unprecedented $178 billion in new capital from investors this year, about 10 times what they raised in 1995, according to data firm Dealogic.

That's a lot of money!

Back in August, I wrote that the M&A markets were at record levels so this LA Times article isn't new news to my faithful readers. The big questions are "when will M&A activity slow down?" and "will it be driven by buyers who put their foot down on escalating prices or lenders who refuse to provide the increasingly risky business acquisition loans?"

By the way, if funding sources aren't lined up outside your door and you need help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call.

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Monday, November 20, 2006

There's a New Bank in Town

There's a new bank in town and a good chance that it is focused on providing business loans to the Latino, Indian, Vietnamese, Chinese, Cambodian or Korean business community.

According to the LA Times, the specialized focus of these banks allows these lenders to establish a foothold against a crowded field of competitors that may have a larger array of banking products.

New, smaller banks continue to experience great success in California in particular - no California commercial bank founded from 1988 on has failed according to the Federal Deposit Insurance Corp - and there's no shortage of investors waiting to start another new bank in the state.

What's the secret of their success? Seems to be a focus on developing relationships with a specific target customer and being creative with business loan solutions that meet borrower needs.

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

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Tuesday, November 14, 2006

Don't Make this Pricing Mistake!

While reading a Forbes article on product pricing, I thought about a mistake companies make when pricing their products - they forget to add in the cost of extending open credit terms.

If you're allowing your customer to pay for your products on terms and they're not paying on time, it could be significantly impacting your bottom line.

If you need to borrow to make payroll and cover other operating costs, you should be incorporating the interest cost into your product pricing. Money tied up in accounts receivable increases your borrowing costs which ignored will reduce your margins and your cash flow.

In an earlier posting about working capital, I pointed you to a free DSO calculator to help you calculate the cost of your accounts receivable. If you're re-evaluating your pricing for 2007, it may be worth another look!

And if your accounts receivable are piling up and exhausting your cash flow, read "Matchmaking for Business Loans" and give me a call.

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Monday, November 13, 2006

Wall Street Journal - Can You Afford to Say Yes?

Today's Wall Street Journal section on Small Business included a follow up story on PenAgain, which had achieved the small business holy grail of landing a big order from Walmart.

While a small business might typically be thrilled by such an event, the challenges that it presents correctly had the business owners acknowledging that they couldn't afford to say "no", yet they might not be able to afford to say "yes".

From a financing perspective, the cash flow of a small business can be overwhelmed by receiving significant orders from one big customer. In the short run, how does a small business fund the production costs of delivering the goods? PenAgain has seen big orders come in not only from Walmart, but from Office Depot and Walgreen. CVS, Staples, OfficeMax and Bed Bath & Beyond have all shown interest in their products as well.

So how did PenAgain obtain the funding needed to meet the explosive demand for its growing product line? PenAgain has lined up purchase order financing to finance an order upfront in return for a share of the profit in return.

And to pay off the purchase order financing, PenAgain may very well have lined up a factoring line of credit as well in order to borrow against the receivables to pay off the purchase order financing once the product succesfully ships.

This story is a perfect example of how a small business can obtain non-bank business loans to provide the working capital necessary to close big sales.

Need help finding the right lender to fund your explosive growth, read "Matchmaking for Business Loans" and then give me a call.

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Sunday, November 12, 2006

William Shatner Hosts Show Me the Money

If you came to Show Me the Money expecting to find millions of dollars, you may have come to the right place. However, if you came to Show Me the Money expecting to read about the new variety and game show series to be hosted by Emmy-winning television legend William Shatner, I regret to inform you that you’ve come to the wrong place.

But while you’re here, look around and make yourself at home. You can read about what’s going on in the world of business loans including factoring, asset based revolvers, bank loans, purchase order finance, equipment leasing and hard money real estate loans.

All great solutions when the bank has said “no” and you need a business loan to grow your company or save it from bankruptcy!

So “live long and prosper” and call me when the bank says no!

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

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Monday, November 06, 2006 - Got Time?

According to a new survey by Robert Half, reports that nearly half (46 percent) of CFOs cited time management as their greatest challenge these days. This was more than double the second most common response — keeping up with technology.

What's your greatest challenge these days?

If your greatest challenge is finding the right lender or telling your story the right way, read "Matchmaking for Business Loans".

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Bank of America - Growth Strategies

Every other month, Bank of America Business Capital sends me an e-newsletter, Capital Eyes, that helps mid-size and large businesses and their advisors stay informed about developments in leveraged finance.

The most recent edition led with a story on current credit market conditions and what steps a business owner could take to ensure it has access to sufficient capital to continue to grow in the coming months.

My takeaways from this article are twofold and apply to any size company seeking a business loan.

First, while the credit markets are flush with capital, borrowers will likely see changes as the economy enters a less attractive phase of the credit cycle. Lenders will be more picky about which business loans they fund. By the way, this is consistent what I hear directly from chief credit officers, bankers and loan underwriters.

Second, these coming changes will emphasize how important it is to have a relationship with a lender who understands your situation and has the products and creativity to provide you with a business loan best suited to achieving your growth plans.

When should you take action for your business? There's no time like the present.

Need help finding the right lenders or telling your story? Click here to read "Matchmaking for Business Loans"

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Wednesday, November 01, 2006

Congratulations! You're a Lender!

On August 30th, I wrote that businesses extending open credit terms need to be aware of the risks and act like a factor. I just received the weekly newsletter of Hedman & Associates reminding companies that when they issue credit, they've essentially become a lender increasing their own business risk.

For some tips on teaching your staff how to minimize the risks of being a lender, consider these ten levels of investigation to follow when deciding whether to offer credit to your customer.

If cash flow gets tight because you're acting like a lender and you need a business loan secured by your accounts receivable, read "Matchmaking for Business Loans" and then give me a call.

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Tuesday, October 31, 2006

In Love with Remote Deposit Capture

I visited with one of my success stories last week – a client in the food business that I helped with equipment financing and a bank line of credit. The Century City branch of California Bank & Trust provided the line of credit and other banking services and my client claims they’re doing a great job.

But what brought the biggest smile to my client’s face was when he pointed out the scanner on his desk that accelerates his cash flow through remote deposit capture! He loves it!

Remote deposit capture has eliminated the time it would take him to run back and forth to the bank to deposit checks – it’s freeing up hours a week he can spend on more productive tasks.

And, he’s also receiving improved funds availability. Faster cash and less money tied up in working capital. That’s more interest income and less interest expense. Sounds like a winning formula to me!

Looking to accelerate your cash flow? Think about remote deposit capture!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 30, 2006

Federal Reserve - Small Businesses Turn to Alternative Financing

A recent study released by the Federal Reserve on the borrowing activities of small business concludes that more small businesses (less than 500 employees) are seeking financing and other credit products from financial institutions other than banks. Given that the study is based upon newly available data from the Federal Reserve's 2003 study of small business finance, I'm not sure that the conclusions are earth shattering.

In the last few months, I've written about how factoring has grown to a $1 trillion industry and how credit unions are offering new products and a focus on relationships.

Am I surprised about the conclusions? No. But it does confirm a trend that shows few if any signs of reversing.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 23, 2006

Improve Cash Flow through Accounts Receivable Outsourcing

Businesses of all sizes focus each day on how to improve cash flow and deal with the challenges of having too much of their cash flow tied up in working capital. As I wrote in September, money tied up in working capital is money not available to grow the business.

So how do you reduce working capital? The most obvious step a company can take is to collect your accounts receivable faster. Easier said then done? Maybe it’s time to get some help. Let me tell you about a conversation I had last week with Neal Gold, Corporate Vice President for STA International, on how to improve cash flow through accounts receivable outsourcing and improve your bottom line. Here’s what Neal said…

Business process outsourcing (BPO) continues to gain momentum as more businesses recognize tangible benefits from outsourcing non-core processes. Operational cost advantages and greater economies of scale, resource utilization efficiencies, enhanced risk management and improved employee morale were all cited as outcomes of effective outsourcing relationships.

An area of business process outsourcing which is getting greater attention is that of accounts receivable outsourcing. More companies, frustrated by lost revenue and related profit opportunities, are increasingly exploring new ways to manage their receivables.

From a customer retention perspective, accounts receivable outsourcing works to sustain and build better customer relations, rather than allowing a contentious situation to arise.

Neal claims that businesses that make a commitment to accounts receivable outsourcing will not be disappointed. Strictly from a financial standpoint, businesses using accounts receivable outsourcing will achieve faster receivables collection, reduce bad debt write-offs and lower debt recovery costs. Companies using accounts receivable outsourcing typically realize improved cash flow by up to 30% on their outsourced receivables resulting in reduced borrowing and lower interest payments.
Let me put that into perspective for you. If your company is borrowing at 9% and can reduce its average days sales outstanding (a common benchmark for measuring effectiveness at collecting your receivables) by even as little as 10%, then you can reduce your annual interest expense by $9,000 for every $100 thousand of accounts receivable you typically carry. Reduce your average days sales outstanding by 20% and the projected annual savings are $18,000. That’s an improvement in cash flow that goes all the way to the bottom line!

If your accounts receivable are eating up precious working capital, give me a call and I’ll put you in touch with Neal.

Click here to read "Matchmaking for Business Loans"

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Thursday, October 19, 2006

Government Receivables - They Took a Holiday

CFO Magazine reports that the federal government put Medicare related vendor payments on hold for nine days at the end of the fiscal year ending September 30th. No doubt, many businesses both small and large took a hit to their cash flow when accounts receivable collections suffered.

Let's put that into perspective for you.

Let's assume that your company generates $10 million per year of revenue. Normally, you collect on accounts receivable in 30 days. If you're collections period (days sales outstanding) increased by nine days for an entire year, your cash flow would significantly decrease and your interest costs would increase by approximately $30,600 for the year if your company is able to borrow money at 9.5%. Thank you, Uncle Sam!

Some banks are uncomfortable about lending to companies that provide products to government agencies. If you're one of those companies, you may be funding those contracts internally or perhaps utilizing factoring and the cost of being stretched out on your accounts receivable might be more expensive.

As I mentioned in my posting on government contracts funding, if you're providing products or services to the government or to a prime contractor fulfilling a government contract, don't get caught in a working capital squeeze. Cost effective financing is available - feel free to give me a call and see if I can help.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Tuesday, October 17, 2006

Credit Unions - It's the Relationship, Stupid!

Back in August, I wrote When the Bank Says No, Ask a Credit Union after the Los Angeles Times wrote that credit unions were becoming more active in providing business loans. In this month's edition of Entrepreneur Magazine, A Perfect Union describes how credit unions are focusing on old fashioned service and relationship to attract more customers for business loans.

The article highlights three reasons that credit unions may be more successfully competing with banks for business loans.
  • Credit union participation in the SBA's flagship 7(a) business loan program due to a change in SBA rules.
  • The Export-Import Bank has begun to identify credit unions best suited to provide export financing.
  • The credit unions' lending capacity for business loans may get a boost from proposed legislation in Congress.

At the end of the day, the success of credit unions in providing more business loans will be based upon how well it builds relationships with business borrowers. If they prove to be more flexible in their underwriting and lending practices and more attune to the needs of business borrowers, they may be successful in offsetting the lack of breadth of their financial offerings to the business community.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 16, 2006

The Bottom Line of Payroll

In reviewing a business loan proposal, the lender will often ask how much time is spent on making money and how much time is spent on non-revenue generating activities. The processing of payroll is one of those items that is clearly important, but may not be the best use of time for a small business owner.

I spent some time recently with Steve Goldstein of Payroll Management Solutions to get his thoughts on a recent poll from the NFIB which showed that nearly two thirds of the nation’s small businesses process their own payroll due to concerns about cost and control. Here’s what he had to say…

After 23 years in the payroll outsourcing business, the most common misconception I deal with every day is that by processing their own payroll, employers save money or maintain a degree of control they would otherwise have to give up as if their time is worth nothing and there is no risk involved.

Like rent, payroll processing is a task that produces no revenue though it is a necessary evil for business owners who wish to stay in business. Time spent processing payroll is time not available to add to the bottom line, whether that might be increasing sales, collecting receivables, developing new products or strategies, or even taking some time to relax and recharge the batteries. All of these things are more productive than payroll processing which can only create risk for the owner as well as cost time and money.

What’s the risk? Every single paycheck includes at least five required tax deductions in each state which then must be added to other employer taxes and voluntary deductions, and every one of these items is an opportunity for a problem to occur. The late or incorrect deposit of these tax liabilities can result in costly penalties and interest for a business owner.

For a company with as few as five employees, a small boutique provider of payroll services might charge as little as $20 per pay period plus $1.65 per check to completely outsource the task of calculating payroll and properly paying all state and federal taxes. The time spent on payroll can be reduced to simply reporting the hours worked. The payroll service provider shoulders both the workload and the liability of the payroll processing and the business owner can now focus on bottom line - running and growing their business.

The employer maintains complete control over when and how the payroll is processed, wages, raises, reviews, hiring, and benefits. Access to information is also not a valid consideration as business owners have complete access to all reports, history, personnel data as well as report writing capability with our web based service. Since there are no "contracts" in payroll, no employer is ever forced to stay with a service they find unsatisfactory for any length of time. All payroll services can be terminated with a simple letter or phone call.

The biggest benefit of tax filing service is that if ever a notice arrives from the IRS or EDD, a client simply faxes that to their service provider to be handled. These notices often result from a mistake by the IRS or EDD and are cleared up very quickly – all without any effort from the business once that fax is sent. The employer who does it himself (for "free") will spend many hours responding to such notices, hours away from the business that can never be replaced.

By the way, outsourcing your payroll function does not relieve you from your tax responsibilities. Entrepreneur’s October issue gives a business owner three tips to make sure your payroll tax is really paid. Stay in the loop, ask about bonding and confirm payroll tax deposits online.

How do you handle your payroll processing?

Click here to read "Matchmaking for Business Loans"

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Thursday, October 12, 2006

Yahoo! - When the Bank Says No

Yahoo! Finance has a business learning center and I found an article about what to do "When the Bank Says No".

One of the questions this article poses is - was your written business loan proposal realistic? If I had a nickel for each time a borrower called me with unrealistic expectations, I would be a wealthy man. But I digress...

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

If you can completely and succinctly prepare a written business loan proposal, there's a greater likelihood your expectations will be realistic and a greater chance your bank will say "yes".

If the bank still says "no" to your request for a business loan, you may just be knocking on the wrong door. Don't hesitate to give me a call if you feel like you're knocking on the wrong door or still need help telling your story the right way. There are a lot of options even when the bank does say "no"!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 09, 2006

Working Capital - A $450 Billion Challenge

As I mentioned on September 17, the 2006 Working Capital Survey in the September issue of CFO Magazine shows a wide range of performance in minimizing working capital among the 1,000 largest publicly traded companies in the United States. With over $450 billion of cash unnecessarily tied up in working capital, the chief financial officers of these companies are seeing a stronger focus on working capital and free cash flow by the analyst community.

In reviewing the survey conducted by Hackett-REL, a consulting firm which advises companies on reducing working capital, one notices significant differences in working capital levels between companies. As measured by “days working capital outstanding”, the airline industry is the most efficient user of working capital with the median score of 5.3 days. Not all that surprising given that most airline receivables are in the form of credit card receipts and the real inventory for the airline industry, its seats, are not considered inventory for accounting purposes. By the way, industry stalwart, Southwest Airlines, actually has a negative number for days working capital outstanding!

At the other end of the spectrum, the pharmaceuticals industry sports an 85.5 median score for days working capital outstanding. While there is clearly a difference in performance between the best and worst members of the sector, even the most efficient users of working capital within the pharmaceutical sector are not the fastest collectors of cash.

How does your company stack up? How fast are you collecting your cash?

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Friday, October 06, 2006

Staffing Slowdown on the Horizon

Is the staffing and temporary help industry slowing down? According to statistics just released by the Bureau of Labor Statistics, it may be doing just that.

According to the Staffing Industry Employment Bulletin, in September, temporary help payroll growth finally stalled altogether — eking out just a slight 0.7 percent growth from the year earlier as reported today by the Bureau of Labor Statistics (BLS). Versus the previous month, temporary jobs were down 11,300; further, the BLS restated downward the temporary job counts for July and August by a combined 15,000. This represents the lowest ebb in growth in what has been a continuing deceleration so far this year.

Nonetheless, temporary help earnings continued strong, up 8 percent in August (these are reported on a one-month delayed basis). The increase reflected a 1.3 percent increase in temporary hours worked and a 6.7 percent increase in average wages paid. These improvements may reflect, in part, a change in mix, as the professional side of temporary staffing, which both works more hours and receives higher pay, is growing faster than the commercial side. At the same time, however, evidence from the Staffing Industry Benchmarking Consortium indicates that temporary help wages have generally been increasing.

Job growth decreasing and wages accelerating. What does this say about the economy for the staffing sector? Sounds like a slight downturn with warning signs of inflation.

If your firm is involved in the temporary staffing and temporary help industry, making sure that you have sufficient working capital is key at this stage of the economic cycle. Revenues may drop off a bit and accounts receivable may be collected more slowly. Factoring is one of the biggest sources of working capital to this industry - now is a good time to make sure that you have sufficient lines of credit to make payroll and meet other operating expenses.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Wednesday, October 04, 2006

Increased Limits for SBA Business Loans

According to the Los Angeles Times, legislation to boost the limit of SBA business loans to $3 million recently sailed through the Senate Small Business and Entrepreneurship Committee. The 50 percent increase, which is contained in legislation to reauthorize SBA programs, would help the agency's flagship loan keep pace with the increasing costs of real estate, equipment and small-business acquisitions.

According to the article by Cyndia Zwahlen, a proposal to increase the limit on 7(a) loans is contained in the House version of the SBA reauthorization. That legislation, still bogged down in committee, would have to be approved and a compromise between the House and Senate bills reached before the increase would go into effect.

If these increases are implemented, small business loans supported by the SBA would dramatically increase over this past year's record loan volume of $19.1 billion.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Tuesday, October 03, 2006

Ensuring a Successful Expansion

Expansions can fail. Adding equipment, plant or staff to increase revenue doesn't always translate into a healthier bottom line. And without the expectation that the bottom line will grow after a planned expansion, it will be difficult to attract a business loan to fund your growth.

To help ensure the success of a new business plan, take time to calculate and understand costs, margins and breakeven. To get the lowdown on how to go about conducting your pre-expansion financial analysis, check out Is Expansion Right for You? from the weekly ezine of Hedman & Associates, a CPA firm just north of Los Angeles.

Click here to read "Matchmaking for Business Loans"

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Wednesday, September 27, 2006

Matchmaking for Business Loans

Part of the feedback I received from Brian Brown of the Pajama Market was to tell you how I help small business owners obtain business loans. A great idea!

I run a matchmaking service for borrowers. What exactly does that mean?

Who calls me and why?

The phone rings with calls from companies of all sizes across the United States and their trusted advisors when the bank says “NO” to a request for a business loan. Frustrated, anxious and unsure of which way to turn, they need someone who can identify the right funding source and can help them tell their story in the right way so a lender will say “YES”. And they usually need this done fast – as in yesterday!

What’s the first step?

Every deal receives a free, no obligation pre-screen. Feedback about lender interest and indicative terms is often provided to the borrower as little as 24 to 48 hours.

If there’s no interest by lenders or by the borrower, we bid one another adieu and move along. I won’t take a deal if I can’t identify interested lenders during the pre-screen process.

When do I have to hire you?

If the borrower likes what they hear about interested lenders and indicative rates, then the borrower signs a consulting agreement with me. The key term - no funding, no compensation. I typically get paid only a “success” fee at closing – however, in a few limited cases of a very risky deal involving significant amounts of my time, I may request a retainer that will be credited against any success fee. By the way, on purchase order financing, factoring and some leasing transactions, I may not charge a success fee at all.

What services do you provide?

After my contract is signed, I officially become your advocate in obtaining the best deal available for a business loan. As your advocate, I offer a variety of services including preparation of a written “request for money”, introduction to interested lenders, review of any proposals received from the lenders, support in the due diligence process and assistance in negotiation with the lenders.

How long does the entire process take?

The time to complete a business loan funding varies by the type of funding and how quickly the borrower can provide the information needed by the lender to complete due diligence. For example, a factoring facility can be completed in less than a week with subsequent fundings taking place same-day. A lease financing for less than $100 thousand can be completed in as little as 3-4 days. An SBA loan might be funded within three weeks. A hard money loan secured by real estate might close within 10 days. Larger, more complex deals can require up to 30 days and longer.

Who funds your deals?

My business loan transactions are all funded by rock solid, financial institutions including commercial banks, factors, purchase order financiers, asset based lenders, commercial finance companies, leasing companies and real estate lenders. I am not a direct lender!

These lenders are looking for deals of all sizes with companies from most industries. Many of these lenders will fund business loans for companies with less than perfect credit. A little risk doesn’t scare them as long as there is strong collateral to support the business loan. The best collateral includes purchase orders, accounts receivable, inventory, equipment and real estate (both personal and commercial). If you don’t have any collateral, I probably can’t help you.

What interest rates do your lenders charge?

The rates vary by deal, but each lender will charge a “market” rate based upon the risk profile of the proposed business loan transaction. I will discuss the rates with you during the pre-screen process.

What if I’m talking directly to a lender or with another broker?

If you’re already talking directly to a lender, keep talking and call me if they say “no” or if they don’t give you acceptable terms.

If you’re already working with another broker, keep working with them and call me if their funding sources say “no” or if they don’t give you acceptable terms. If they have funding sources that can give you a “market” deal, it’s unlikely I can beat it. Furthermore, lenders are often reluctant to put forth effort and resources on a deal when it’s not under the control of one broker or intermediary.

What guarantees do you provide?

I guarantee that you’ll get a great advocate for your business loan request and be quickly introduced to lenders who want to lend money to your business! The lender is the only party that can approve financing which is why I structure most of my assignments on a “success” fee only basis.

To find the best match for your business loan, feel free to call me at 310-371-4011!

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Tuesday, September 26, 2006

Lower Interest Rates? Not So Fast!

Two articles in today's LA Times highlight the issues that are driving the direction of interest rates.

In Problem Loans for US Banks Rise, regulatory agencies note that adversely rated credits — loans that are likely to result in some loss for the lender without corrective action — rose to 5.1% of all credits from 4.8% a year earlier.

In Cost of Corporate Debt on the Rise, Standard & Poor's says borrowers are paying about 50 basis points (one half of a percent) more for non-investment grade, or junk debt. Junk debt is debt ranked less than BBB-minus by Standard & Poor's or Baa3 by Moody's Investors Service.

The interest rate charged by lenders is comprised of both a benchmark rate and a risk premium. The benchmark rate is typically the fed funds rate, a treasury note, LIBOR or some other financial instrument in which the lender believes it can alternatively invest its money without incurring any risk. The risk premium is the increment the lender charges to compensate itself for the risk of whether or not the borrower will re-pay the loan.

These two stories tell us that the lenders are experiencing greater risk in their loan portfolios and are charging a higher premium as compensation for this risk. Notwithstanding the pundits belief that short term benchmark interest rates may decrease in early 2007, the interest rates paid by borrowers may still increase for the foreseeable future.

Click here to read "Matchmaking for Business Loans"

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Sunday, September 24, 2006

How do You Measure Working Capital?

In my September 17th posting I offered a simple definition of working capital – the difference between current assets and current liabilities. Money tied up in working capital is money not available to grow the company.

The benchmarks that many companies (and their lenders) use to evaluate how efficient a company is with its working capital includes days sales outstanding, days payables outstanding, days inventory outstanding and days working capital. Here are the calculations of these definitions as shown in the September issue of CFO Magazine .

How Working Capital Works

Days Sales Outstanding: AR/(net sales/365)
Year-end trade receivables net of allowance for doubtful accounts, plus financial receivables, divided by net sales per day.

A decrease in DSO represents an improvement, an increase a deterioration. Companies marked with an asterisk have securitized receivables, which can artificially improve DSO without changing actual customer-to-cash processes. The survey eliminates this distortion by adding receivables back on the balance sheet before calculating DSO.

Days Payables Outstanding: AP/(net sales/365)

Year-end trade payables divided by sales per day.* An increase in DPO is an improvement, a decrease a deterioration. For purposes of the survey, payables exclude accrued expenses.

Days Inventory Outstanding: inventory/(net sales/365)

Year-end inventories divided by sales per day.* A decrease is an improvement, an increase a deterioration.

Days Working Capital: (AR + inventory - AP)/(net sales/365)

Year-end net working capital (trade receivables plus inventory, minus AP) divided by sales per day. The lower the number of days, the better. In the charts, a DWC change of -X% represents an improvement (even if DWC itself is negative), while a DWC change of +X% represents a deterioration. The percent change is marked NA (Not Applicable) if DWC moved from a positive to a negative number or vice versa.

*Note: Many companies use cost of goods sold instead of net sales when calculating DPO and DIO. The Hackett-REL methodology reflected on the working-capital charts uses net sales across each working-cap component to allow a balanced comparison across each DWC element and provide true comparison between industries. Reported sales have been adjusted for acquisitions and disposals during the year.

Does your company use these or similar calculations in measuring working capital?

Click here to read "Matchmaking for Business Loans" or to read "Interest Expense Reduced by Over 50%!"

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Thursday, September 21, 2006

Interest Rates - What's the Impact?

Last night, I attended a meeting for the networking group PNG to which I belong. This month's discussion topic was the impact on our respective clients of the Federal Reserve's decision not to raise interest rates.

In attendance were approximately twenty professionals who all serve small and middle market businesses in the manufacturing and distribution sectors. My fellow attendees work for investment and commercial banks, insurance brokers, marketing consultants and operations consultants to name a few. Each works closely with top level executives at their clients.

Surprisingly, most, though not all, believed that rising interest rates were not having a significant impact on their customers relative to engaging their services. A few of the consultants were seeing increased requests from clients to help them become more efficient, but didn't attribute this surge to interest rates. The insurance brokers were mixed on how the general rise in interest rates were impacting premiums and guaranteed returns offered on certain policies. The money guys, myself included, claimed the rise in interest rates has not decreased the amount of money chasing deals, but transactions are being funded by different sources than six months ago as chief credit officers are adjusting their appetites for perceived increases in risk.

CFO Magazine noted today that optimism levels of CFOs are at a 5 year low due to concerns about weak consumer demand. Worried about the U.S. economy and that a recession is imminent, these CFOs also singled out labor costs and interest rates as two of their top concerns.

How are interest rates impacting your business? Let me know.

Click here to read "Matchmaking for Business Loans"

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