Friday, June 29, 2007

Five Banks Said No

A Los Angeles provider of security services needed to obtain financing to repay a soon to mature loan and provide working capital in support of its rapid growth averaging over 30 percent a year. Five banks said “no” and the owners were starting to worry. The last of these five banks suggested the business owner give me a call at Funding 911.

The company has a strong business model, excellent customer relationships and major household name clients. But they needed help in the areas which I excel – helping a borrower tell their story the right way and meeting the most appropriate lenders.

We spent the next few weeks developing a presentation that would clarify for the lenders how this business generates cash flow (historically and in the future) and what collateral would be offered in support of a loan facility. CFO 911 Solutions upgraded the company's financial reports to provide lenders detailed information about its business operations and ability to repay the loan.

With a well written executive summary in hand, we had banks aggressively pursuing this business loan. Yesterday, we closed on a very competitively priced loan facility with a bank that has the ability to provide the financing to help the security services firm grow to its stated goal of $100 million in annual revenue. My client is ecstatic!

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, June 26, 2007

Bridge Real Estate Loans - Update!

A quick update on one of my sources of bridge real estate loans for properties in California. Loan demand and investor appetite is so strong, this source is now funding deals in the range of $1 million to $15 million.

While no doubt benefiting from the sub-prime market fallout, the fund is being very careful and limiting its loan to value exposure to no more than 65% down from as high as 75% back in January.

But this source isn't just for credit challenged borrowers. One of its real benefits is that it can close real estate loans in as little as seven days. A great advantage when you're about to miss on a great opportunity because your conventional lender needs 30-60 days to close.

The pricing is still very attractive for a bridge loan with rates at 9.9% fixed for 18 months for most property types with no prepayment penalties!

So if you're in need of a bridge financing real estate loan in the state of California, don't hesitate to give me a call about this funding source!

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Like a Fly Hitting a Windshield

According to today's Wall Street Journal article entitled, "Behind Buyout Surge, A Debt Market Booms", questions continue to be raised over whether the oversupply of corporate debt could lead to a shakeout in business loans similar to that being experienced in the subprime mortgage market.

The Wall Street Journal article quotes a recently released Standard & Poor's report that says "We are witnessing a loan market rife with liquidity and disproportionate power in the hands of borrowers, arrangers, and financial sponsors". Now in English - too much money chasing too few deals. With looser underwriting standards and a noticeable decline in the ability of some companies to service debt obligations, one possible outcome is mistakes by stupid bankers leading to loan defaults.

Not everyone is concerned. "Like a fly hitting a windshield" is the description of one investor in these collateralized loan obligations which have provided all this liquidity. The investor believes that its diversification of its loan holdings will offset a default or two in the corporate loan market.

So how does all of this impact small businesses seeking business loans? If the economy stubs its toe and one or two deals end up in default, the impact is likely to be minor. However, if the economy experiences more than a couple of defaults from significant business loans, we might see a fallout similar to that being experienced by the subprime mortgage market.

If that happens, borrowers large and small will experience a tightening of credit and higher interest rates.

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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Wednesday, June 20, 2007

SCORE Offers More

This just in on how to get more from SCORE...

SCORE “Counselors to America’s Small Business” recently announced three new content areas of the SCORE Web site. These added sections offer valuable information, tips and interactive workshops to help small business owners achieve success.

Of the three, you might want to take a look at Learn Online which features 26 new, free workshops on starting, managing and marketing a business. Ten of these online courses address managing the finances of a small business. There are plans to add more workshops in the coming months, including some designed specifically for women and minority entrepreneurs.

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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More on SBA's Patriot Express

Want to see a few more details on the SBA's newly announced Patriot Express program targeting veterans?

Visit today's LA Times and read "SBA Streamlining Loans for Vets".

One quick comment - it's a bit unclear the point being made in the article by Bob Multz, a military veteran, small business owner and chairman of the Elite Service Disabled Veteran-Owned Business Network.
"By God, if they have to give them a grant or they have to forgive them something, they should," he said. "I'm not saying [vet borrowers] shouldn't be monitored for performance but … they did something above and beyond. They've earned the right."

While I believe it is appropriate to offer more flexibility in the credit criterion for military veterans to initially qualify for these loans, I'm not sure that I would agree that these loans should not be monitored for performance. Once a military veterans receives the loan, that individual should be expected to pay it back based upon the agreed terms. Otherwise, it's just a grant. Not necessarily what the taxpayers might want to see done with their tax dollars nor the most efficient way to help those who have served our country.

Visit today's LA Times and read 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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Friday, June 15, 2007

Visit to Tech Coast Angels

One of my fellow judges at the 2007 Kravis Business Plan Competition is a member of the Tech Coast Angels, a Southern California based angel investor club with approximately 300 members in its four networks located in Los Angeles, Orange County, San Diego and Santa Barbara.

I accepted his invitation to attend a deal screening today for the Los Angeles network and hear pitches from four companies seeking angel financing through the Tech Coast Angels network. Each of the four companies was given about 20 minutes to sell their idea to approximately 30 angel investors followed up by about 10 minutes of Q&A.

The four companies were at different stages of their development - some were in the seed stage, others were already generating revenues. Or as they say in the venture capital world, they've already got proof that the dog is eating the dog food.

The follow up questions were all good, solid questions reflecting the varied backgrounds and experiences of the investors. The answers from the entrepreneurs were not always so solid - which is what one would expect. No amount of coaching can prepare the typical entrepreneur for some of the questions posed. But that's what the angels look for - they note everything from how well the entrepreneur thinks on his/her feet to the tone of voice that is used in the response.

The most interesting part of the morning for me was the open exchange at the end of the session after all the presenters had been excused. One gains tremendous insight into how angel investment opportunities are critiqued in a "club" environment and their philosophies about building their investment portfolio with companies ranging from good solid "hits" to potential "home runs". The interplay between the different investors is also interesting - like in any situation, two different people hear the answer to a question in different ways. Which angel investors volunteer to serve on the due diligence team for an investment opportunity and the chemistry amongst them no doubt will impact the final conclusions reached in the due diligence process.

By the way, in the April 30th Wall Street Journal, the Tech Coast Angels were featured in an article by Jaclyne Badal entitled "Early Options". The article discusses the Tech Coast Angels' recently launched "seed track" funding program. I'm not sure this new program is found on the website for Tech Coast Angels, but there is plenty of information on their deal screening process and investment criteria (it's not just technology companies that interest them). Most budding entrepreneurs will also find great value in the online Guidelines for Entrepreneur's Presentation - a useful tool for whatever forum from which you might be seeking investment capital.

Like most angel groups, the Tech Coast Angels focuses its investment dollars in its own backyard. If you're looking for money for your venture outside of Southern California, you might investigate the angel clubs in your own neighborhood. A good place to start looking is the listing of groups by location on the website of the Angel Capital Education Foundation.

And my pitch to the angels - once your portfolio company starts to generate revenues, consider using secured debt financing where possible to leverage your investment and minimize the dilution that would result from additional equity raises.

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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Thursday, June 14, 2007

Patriot Express Pilot Loan Initiative

This just in from the SBA as reported in The Wall Street Journal on the new Patriot Express Loan Initiative. I have not yet investigated this program, but it seems the improvement is the higher SBA guarantee level when compared to the typical Express 7(a) guarantee of only 50%. I don't know if there's any reduction in SBA guaranty fees.

Here's the text from The Wall Street Journal...

The Small Business Administration on Wednesday unveiled a government-backed loan program especially for members of the U.S. military. The loan program – named the Patriot Express Pilot Loan Initiative -- is built on the SBA’s Express 7(a) loan program and will grant loans of up to $500,000 to U.S. veterans, certain active-duty military, reservists, National Guard members and spouses. The program will require that borrowers pledge collateral on amounts over $350,000.

The agency says the loans will carry interest rates of 2.25% to 4.75% over prime, depending on the size and maturity of the loan, and will be SBA-backed for 85% of the loan value for loans up to $150,000 and 75% guaranteed by the SBA for larger loan amounts. Those interest rates and loan guaranty levels are the best the SBA offers, the agency says.

The loans will be available for “most business purposes, including start-up, expansion, equipment purchases, working capital, inventory, or business-occupied real-estate purchases,” according to an SBA news release.

"More than 14% of businesses in America are owned by veterans, and SBA is proud that we guarantee more than $1 billion annually in loans for veteran-owned businesses,” SBA Administrator Steven Preston said in the release.

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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Wednesday, June 13, 2007

Celebrate with a Top Ten List

It's a good thing to have a birthday - it certainly beats the alternatives. Today, Show Me the Money is celebrating its one year birthday. Most blogs of any type don’t survive one month. So after 130 posts, I'm proud of my achievement of reaching this one year milestone. I’ve enjoyed the experience – it has given me a greater understanding of the issues impacting the ability of small business and large business alike to access capital. I hope that you have found your visits here to be informative and worthwhile and that you return to visit on a frequent and regular basis.

In no particular order, I thought I would point out to you some of the more popular of the 130 postings from this last year:
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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Saturday, June 09, 2007

Less Breathing Room

While the end is clearly not near, is it possible that the current leveraged buyout cycle is starting to show signs of stress?

An interesting chart in the June 8th Wall Street Journal points out that companies going private are showing a reduced ability to pay their interest obligations. The measure of cash flow known as the interest coverage ratio is declined from a peak of 3.4 times in 2004 to a ten year low of 1.7 times in 2007.

Is the storm of turnarounds and loan defaults just around the corner? Which banks will be the early losers and qualify as "stupid bankers"?

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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Trouble Ahead for Small Banks

Less than six months ago, I was writing about the tsunami of community banks - the rapid pace at which new, small banks were opening. Over the last few years, it seemed like a slam dunk to open these de novo banks, expand to a few locations and then sell to the highest bidder.

But challenges for small banks lurked in the dark corners and the June 8th Wall Street Journal just reported in "For Small Banks, Beware 'Takeunders'" that some small banks being acquired are being bought for less than their current stock price!

One of those challenges is the increasing number of defaults in both residential and commercial real estate loans that often make up a large portion of a small bank’s loan portfolio. Not surprising. I have written a number of posts since last summer on the impact the changing real estate loan markets will have on the ability of small business to borrow to fund their businesses.

This latest Wall Street Journal article continues to support two possible outcomes for the small business loan market in the coming months. First, small business may find it more and more difficult to tap its real estate to fund its business operations. Second, as the smaller banks look to diversify their loan portfolios, they will more aggressively target small businesses to provide non-real estate loans secured by accounts receivable, inventory and equipment. This could possibly lead to the small banks joining the big banks in the "stupid bankers" category!

With all this turmoil, your small business may need help finding the right lender or telling your story the right way. Read "Matchmaking for Business Loans" and give me a call if I can be of assistance!

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Wednesday, June 06, 2007

Read the Fine Print

Today's Small Business Column in the LA Times is probably a good example of small businesses that either don't read the fine print or don't understand the implications of the loan documents they are signing.

Here are four points from the article by LA Times staff writer E. Scott Reckard a small business might consider when evaluating business loans.
  1. The SBA is guarantor of last resort, not first, should a small business default on its SBA-backed loan obligation. The banks I deal with (and the laws may vary by state) tell me that the loan documents typically give them the option of pursuing the assets of the business or the personal assets of the the personal guarantor in any order they choose in the event of a default. Not sure about the order your lender has the right to pursue in the event of a default, read the fine print before you sign and ask if it's not clear to you!
  2. The security interest and lien that the borrower gives the lender may be a blanket lien on all current and future assets of the business as well as a lien on your home. This may tie your hands when you're attempting to obtain additional loans from different lenders down the road. Not sure about the restrictions, read the fine print before you sign and ask if it's not clear to you!
  3. The article attributes to Michael D. Ames, executive director of the Center for Entrepreneurship at Cal State Fullerton a comment that a company needs four or fives years of profitability to qualify for receivables financing (presumably factoring). I suspect (and hope) the staff writer misunderstood this one. To qualify for the lowest cost receivables financing from a bank, a company typically must have two to three years of profitability though in some cases, exceptions are made. A company doesn't have to even be profitable to qualify for factoring - which is why many non-profitable firms utilize it!
  4. The staffing company discussed in this article was put into default on their loan not for missing loan payments, but for the technical default of violating a non-payment related covenant. Loan covenants are a key consideration for a business accepting any form of financing. Know and understand those covenants and how they impact the operations of your business.
A couple of last comments from yours truly.

The staffing company discussed in this article made a key mistake that destroys many a small business. It allowed one customer to become too large a portion of its revenues. Bad things happen to companies that make that mistake - don't let it happen to you.

Factoring of accounts receivable is often a much better financing solution for many small companies when compared to bank financing. It's easier and quicker to obtain approval compared to bank financing, doesn't typically require covenants and the funding amount can increase with the growth of the borrower's revenues. Provided your customers are paying your invoices, it's self liquidating leading to a much lower likelihood that a small business can overextend itself by borrowing more than it can repay. Personal guarantees are not as stringent as those required in a bank financing and can sometimes be limited to acts of fraud. The staffing company in this article should have been using factoring.

Is factoring more expensive than bank debt? In terms of absolute cost, usually. But considering all the other factors, factoring is a financing solution to which businesses of all sizes should give serious consideration.

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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