Friday, February 23, 2007

Two Different Opinions on the Proposed SBA Budget

Over the last few weeks, I have written about the proposed changes in the SBA budget for 2008 which includes not only changes in business loan offerings, but a possible reduction in fees. Forbes Magazine posted "Head to Head: Funding for the SBA" summarizes some of the ongoing bickering and posturing on Capital Hill over the changes and provides a Q&A with new small business committee chairwoman Nydia Velázquez, D-N.Y., and ranking committee member Steve Chabot, R-Ohio.

In response to a question on lowering fees, Chabot responds that "Reducing the cost should provide greater incentive for banks to be a part of the loan programs and assist in economic development. " Just spoke with one of my bank SBA lenders who confirmed that most (if not all) banks simply pass those fees along to the borrower. So lowering of the fees helps the borrowers, but probably isn't an incentive for more banks to be a part of the loan programs.

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

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Thursday, February 22, 2007

Fortune: Creative Cash Flow Funding

Check out this story on Fortune Small Business about a cosmetic start-up company and the creativity it used to obtain assets and working capital to jumpstart the business. If only we all had a friend that would lend us money at 6% without any timetable for repayment!

But if you don't, then purchase order financing and factoring are options that can help many startup and small businesses move forward on the road to success in their businesses. Assuming your company has healthy gross margins in your products, these financing techniques can be very helpful in accelerating cash flow until your company becomes bankworthy.

Need help finding the right source of purchase order financing or factoring? Read "Matchmaking for Business Loans" and give me a call!

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Thursday, February 15, 2007

WSJ on Venture Funding Twist

Venture capital backed start-up and early stage businesses are increasingly taking on debt according to a February 14th article in The Wall Street Journal. Venture lenders are providing loans of $100 thousand to $10 million and more to provide leverage to companies in a wide variety of industry sectors. As always, though, high tech seems to be the hot ticket. As a result, the venture lending market seems to be at its highest levels since the late 1990s tech boom.

Though the article didn't make a distinction, here's a quick explanation of the differences between a venture loan and a venture lease.

Venture loans typically provide operating capital for general corporate uses that can be used to fund product development, product or geographic expansion or acquisition of complementary technologies. The cost of such capital is normally interest, with principal, paid over a fixed period of time (usually 24 to 48 months, depending on the company’s risk profile) and a small pledge of stock warrants. The goal - a 30% or higher return on its loan. The venture lender will typically require a blanket lien on all of the assets of the borrower.

In a typical venture leasing transaction, the lessor will lease equipment to early stage companies for two to three years. The lessor receives a monthly payment which usually provides the lessor with a 12-15% rate of return. To achieve a return closer to its goal of 30% and higher, the lessor may also receive warrants to buy shares of the company when the company goes public or is otherwise sold. In lieu of warrants, some lessors may enhance its yield by selling the equipment to the lessee at a fair market value at lease expiration. The venture lessor will typically receive an ownership interest in specific assets, but not a blanket lien.

I'm working on a large venture leasing opportunity right now - as in other secured lending transactions, each funding source has its own unique set of criterion. Some like only high tech or bio-tech, others like all industries. Some will only fund deals below $2 million. Others won't look unless the deal exceeds $5 million. Some funding sources will only lend while some will only structure leases. Some will only fund to very early stage companies in product development while others look for companies who have already validated the concept and are about to go to market.

A key consideration for many funding sources is whether or not the borrowing company is already funded by a well recognized venture capital firm with which they are comfortable. The lender or lessor wants to know that someone else they trust has already validated the investment and has deep pockets to bail out the company in the event everything doesn't go to plan.

It's a jungle out there. If you need help finding the right lender or right lessor for your venture, read "Matchmaking for Business Loans" and give me a call!

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Wednesday, February 14, 2007

SBA Proposes Fee Reductions

According to an LA Times interview of new SBA chief Steven C. Preston, a number of changes have been proposed to Congress that would lower loan fees for the 2008 fiscal year starting October 1, 2007.

The borrower's upfront fee for the popular 504 loan program would be eliminated resulting in a 50 basis points savings - that's one half of a percent of the guaranteed loan amount. That's a nice savings.

On the other hand, the upfront fees for the 7(a) program are staying flat and the annual fees are going down. While certainly it's helpful that annual fees are going down, most borrowers need every penny they can get when the loan is initially funded. It would have been a bigger help had the proposed budget include lower upfront fees for the 7(a) program as well.

Two key things to remember. First, nothing has been approved yet. With the recent change in congressional control, there's no guarantee that Congress will vote for anything that reduces federal revenues. Second, the earliest a change will be implemented is October 1st when the new fiscal year commences - not much help if you need a loan before then.

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, February 13, 2007

Rule Number 2 in Action

There's never a shortage of stories about a business which lands a big contract and then gets hit by a cash flow squeeze.

Hispanic Business adds another story to the list in The Doors Open Wider. Precision Task Group Chief Executive and President Massey Villarreal has learned over the course of 27 years in business that when a small business wins a big contract, it is "like swallowing a watermelon because if you don't have the financing, you can't get it."

So this is where Rule #2 comes into play - raise money before you need it because you’ll always need it sooner than you think.

In Villarreal's case, he's raised money before his business needed a loan by developing a long term relationship with a bank that was willing to finance his growth. As many of you know, becoming "bankworthy" doesn't happen overnight.

But even if you're not bankworthy, there are other options to obtain a business loan if you have assets to offer as collateral. Purchase order financing, accounts receivable financing, equipment leasing and minority business loans are some of the options that might enable your firm to digest that big contract. It doesn't always matter if you don't have a long enough track record or a pristine credit profile.

So focus on rule #2 and start looking for appropriate sources of financing before your cash flow gets squeezed!

Need help finding the right lender in anticipation of landing the big contract? Read "Matchmaking for Business Loans" and give me a call.

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Tuesday, February 06, 2007

The Banks Said No

Twice last week I received phone calls from banks saying they were declining a borrower's request for a business loan. In both cases, the borrower had a credit profile a bit too challenging for a bank lender. Likewise, in both cases, the borrower had accounts receivable that were from creditworthy customers.

Faster than a speeding bullet, I made the appropriate introductions of those borrowers to a factor who was prepared to give them money for their accounts receivable. The deals are both done and the borrower can now get back to running their companies and growing their revenues instead of worrying about how to fund their growth.

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

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