Tuesday, July 31, 2007

Bank Loan Mutual Funds Hit Bump in Road

According to today's Wall Street Journal, bank loan mutual funds are feeling a bit of pain as of late.

In "A Stumble for Bank Loan Mutual Funds", Ian Salisbury reports that bank loan mutual funds are experiencing declines in value and a significant increase in withdrawals by investors.

Bank loan mutual funds own loans, typically below investment grade, that banks have issued to corporations and then resold to institutional investors. The LMP Corporate Loan Fund, construed by some as a barometer of the loan market, has declined 8.8% in the past month alone. According to its SEC filings, the LMP Corporate Loan Fund buys pieces of loans in amounts of up to $4.0 million for such companies as Delta Airlines, Hertz Corporation, Gold Toe (think socks), Leiner Health Products and Del Monte to name a few.

What's led to the decline in value and the investor redemptions? Spillover from the sub-prime market and a tightening of corporate credit to fund large corporate leveraged buyouts.

The impact to the small business market? It is my opinion that there will be a tightening of credit terms and availability in all markets. When it will actually start to be felt in the market for small business loans is anyone's guess. All I know is that my phone has been ringing a little more as of late with calls from small businesses seeking financing.

My advice to small businesses seeking financing? Don't get caught with your pants down. Pay attention to your income statement and balance sheet and make sure that you have good relationships with your financing sources. And remember, there are a lot of ways to get a business loan if the bank says "no"!

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, July 30, 2007

Tanned and Rested

I'm back from vacation!

While I read only one or two newspapers the entire time, I did notice a New York Times article about the number of large debt financings related to leveraged buyouts that are either struggling or being pulled from the market. I also noticed the stock market sell-off driven by continued concern in the marketplace over the potential spread of the sub-prime fallout to other credit markets. I suspect we'll be seeing more on both of these topics in the next few months.

As I was speaking to bankers today on some pre-screens, it was clear that some of them are looking a bit more closely these days at cash flow and the quality of collateral. I'll keep you posted on any developments here.

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

Friday, July 20, 2007

More from California Capital Marketplace

A few months ago, I attended the May breakfast meeting for the California Capital Marketplace, a monthly invitation only networking event limited to senior executives and professionals with at least 15 years of experience in areas including lending, investment banking, accounting, international trade and legal. Today's 45 attendees included at least 15 guests who previously had not attended one of the meetings. Always nice to have the chance to make new connections.

After the initial schmoozing and "elevator" speech introductions, the group moved onto a round table discussion - this month's topic being the flurry of financing and M&A deals in the marketplace and the underlying financial reasons for the uptick. Before I had to rush out, I heard the following...
  • Blame it on the baby boomers. With many boomers turning 65 faster than you can count, the number of owners seeking to transition out of businesses will only be increasing in the foreseeable future. In my opinion, this explains a longer term trend rather than the recent flurry, but it got the conversation going.

  • Go get your credit card, there's a sale on US businesses by oversees buyers. Why? While foreign countries have already established a comparative advantage for labor costs, those countries now are trying to gain control over the sales channel which we Yankees still dominate. With the exchange rates favoring the foreigners, it's now time to buy and buy quickly before the dollar gets stronger.

  • Here's the one I find most accurate - probably because I've written about it before. There's too much damn money chasing too few deals! One private equity source said that low interest rates and too much money has resulted in leveraged buyouts where the debt load is 6 to 7 times EBITDA cash flow. Just a few years ago, you could buy the company for 6 to 7 times EBITDA cash flow!

  • The capital markets may be getting ready to reverse course. I've increasingly noticed that on the heels of the sub-prime fallout, the market is seeing resistance to the high debt loads, covenant lite and thin spreads for the leveraged buyouts.

  • Finally, more and more middle market companies are going private to avoid the cost (dollars, time and aggravation) of implementing the Sarbanes-Oxley Act (commonly called Sox or Sarbox). With all the private equity and cheap debt available, why bother with public company status?

Unfortunately, I had to rush out to my next meeting. I'll share again from the next meeting in September.

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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Inventories Stressing Working Capital

According to CFO Magazine's annual working capital survey, the nation's biggest firms allowed their days inventory outstanding to rise last year driving a slight increase in overall working capital days.

Now in English. Business is not turning its inventories as fast as last year and thus more money is tied up in working capital.

And money tied up in working capital is money not available to invest in the business, fund an acquisition or pay dividends to the owners.

Rick Arcaro, a Comerica banker, was recently interviewed in Smart Business Magazine about creative financing secured by accounts receivable and inventory. This financing solution may be available to help small businesses with money tied up in working capital.

Has the growth of your small business resulted in too much money tied up in working capital? Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

CFOs - Pinstripes or Prison Stripes?

According to CFO Magazine, a report issued by the President’s Corporate Fraud Task Force calculates that at least 53 chief financial officers have been convicted since 2002.

Who's guarding your money?

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, July 16, 2007

Five Big Burdens of Business Ownership

MyBusinessMag.com says that cash flow is one of the five big burdens of business ownership.

The company serving as the poster child for the cash flow headache is none other than the makers of Penagain, Pacific Writing Instruments. I wrote about Penagain after reading about their cash flow challenges last November.

"You can be a super-successful company, have a great product distributed all over the place, be profitable and still go out of business because of cash flow," Ronsse says. "You have to have quick access to capital. Nothing else matters if you can't pay your bills."

Fast growing companies often suffer from cash flow problems and find extreme difficulty in attracting traditional banking sources of working capital. The growing company needs a lot of money and often fast!

Purchase order financing and factoring are two forms of asset based financing that can prove very beneficial to the cash flow of fast growing companies. These financing solutions depend more about the creditworthiness of your customers rather than the credit strength of the company needing to borrow money.

Don't overlook these financing solutions just because they might cost a bit more than a bank loan. They're still both cheaper than bringing in equity.

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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First SBA Patriot Loans Approved

The SBA just announced that it has approved its first 20 loans under the new Patriot Express Loan program targeting military community entrepreneurs.

Here's information on the first three approvals under the Patriot Express Loan program...
  • Loan #1 for $350,000 to veteran Matthew J. Lattig of Virginia, to start Charter Advisory Partners, LLC, from Sun Trust Bank of Atlanta, GA.

  • Loan #2 for $100,000 to veteran Waldemar Medina of Connecticut, to start Walt Medina & Associates from Webster Bank, National Association of Waterbury, CT.

  • Loan #3 for $60,000 to veteran Roger Stone, owner of Full Line Electric LLC, from The Bank of Missouri in Perryville, MO.

What's most interesting to me is that two of the first three loans are apparently to help fund start-up businesses. I'm sure many a borrower is wondering what, if anything, might have been used as collateral to support these loans. On amounts up to $350,000, there is not supposed to be a collateral requirement.

Nearly 375 banks and lending institutions nationwide have already been approved to participate in Patriot Express, including many of SBA’s largest lenders. SBA has many lenders in the approval process and continues to receive applications from lenders every day.

Patriot Express loans total more than $2 million dollars in the early stage of this initiative and range from $5,000 to $350,000 in individual loan amounts. Loans have already been approved in California, Connecticut, Florida, Missouri, New Mexico, Oregon, South Dakota, Texas, Virginia and Wyoming. After loan applications are approved by the bank, they are submitted to SBA for approval. Once submitted, the SBA claims that most applications are approved by SBA within 24-hours.

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, July 10, 2007

Small Business Not Worried About Credit

According to most recent National Federation of Independent Business Small-Business Optimism Index, small business owners are not worried about their ability to obtain business loans.

Only 3 percent of owners cited the cost and availability of credit as their No. 1 business problem, far from the record 37 percent reached in 1982.

Thirty-six percent reported all their credit needs met compared to 4 percent who reported problems obtaining desired financing, typical of readings for the past few years.

"There is no real evidence that credit standards are being tightened, and credit remains as available as it has been for years. It's just more expensive," said the NFIB economist.

Available, just more expensive.

Don't lose my phone number...just in case conditions in the credit markets change and availability becomes an issue as well.

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, July 03, 2007

Enough is Enough

In yesterday's Wall Street Journal, writer Michael Hudson asks "Is the Corporate-Credit Party Almost Over?". The corporate debt markets have been in a bit of tizzy in the last few days over the reduction in the junk bond offering by Thomson Learning and the withdrawal of the bond offering helping fund the leveraged buyout of U.S. Foodservice. Coming on the heals of the Bear Stearns hedge fund near collapse, the possibility is growing that the party days of the corporate debt markets may be nearing an end.

As the article pointed out, the excessive amounts of liquidity in the corporate debt markets have resulted in extremely high levels of leverage for many of the largest companies. Whereas a few years ago, five times EBITDA was considered an outer limit for leverage, some companies in the leveraged buyout market have been using leverage as high as ten times EBITDA. As I pointed out weeks ago, this house of cards may be in for a tumble real soon.

The impact to small business? The excessive liquidity for large corporate borrowers has forced banks serving small business to allow increased leverage and provide easier credit terms to its small business borrowers as well. Anything that upsets the corporate debt markets for the largest borrowers will eventually find its way down to the market for small business borrowers.

I had lunch yesterday with a lender for one of the nation's largest commercial finance companies. His primary target are borrowers with business loan needs of $5 million to $20 million. This is probably the upper end of the small business market. He competes with both banks and asset based lenders to generate loans. He sees little evidence that the market is saying "enough is enough" when it comes to easy credit and liberal terms and cites continued fierce competition amongst lenders for new loan business.

Stay tuned to see how the market for small business loans turns out!

Happy 4th of July!

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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