Thursday, August 30, 2007

Small Biz Credit Crunch: Will SBA Save the Day?

The August 29th LA Times explores whether or not the SBA will step up and support small business loans if the banks tighten credit.

Here are the highlights:
  • There's no agreement on whether or not there is currently a credit crunch. But there appears to be agreement that banks and other lenders are tightening their credit criterion for approving a business loan.

  • The surge in SBA loan volume is being driven in part by the challenge small business owners are facing when trying to tap their home equity to fuel their business working capital needs. No surprise here - I wrote about this concern a year ago.

  • The approval process for SBA loans focuses more on cash flow than collateral. Still, it's probably not a good idea to show up at the bank without any collateral. Know your three sources of repayment!

  • SBA loans are not cheaper financing and if you're not well prepared, the extra documentation requirements could be very time consuming.
  • Read the fine print. If you miss a payment, the bank is going to first come after the business borrower.

In the event the SBA doesn't jump in to save the day for every needy business owner, there are other business loan options for the small business at attractive rates.

Today, I visited with Nestor Correa of Pacific Coast Regional (PCR), a small business development corporation. PCR works with banks throughout Southern California to provide a variety of small business loans supported by the state of California. Some of the microloans are actually provided through the SBA microloan program and are available nationwide by other intermediaries. Don't be discouraged if you don't live in California.

These business loans supported by PCR range from microloans to larger loans of up to $500 thousand. The rates are typically fixed rate and the pricing is competitive if not cheaper than SBA guaranteed loans. A FICO score as low as 600 is not an obstacle for approval. Startups, however, need not apply. The documentation requirements are a bit less stringent in some cases resulting in a faster decision process. While the PCR will accept "best available" collateral, don't come knocking on their door if your business doesn't have the cash flow to support repayment of the loan.

Don't qualify for any of these loan programs, but your business has purchase orders, accounts receivable, inventory, equipment or real estate? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , LA Times , Pacific Coast Regional , purchase order financing , factoring , accounts receivable , equipment leasing , business loans , credit crunch

Wednesday, August 29, 2007

Financing - What are they Looking For?

The anxiety levels of businesses seeking loans and financing seem to be a bit higher as of late.

I thought I would share with you ten of the more frequently used search terms that have resulted in recent visits to my blog since the beginning of August...
I hope they all found what they were looking for...

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

Tags : SBA , Patriot Express , factoring , cash flow , staffing companies , tax lien , minority loan programs , stupid bankers

What's on Your Desk?

The last days of August are often slow in the deal world - seems all the funding sources and other deal makers are enjoying those last few days of summer at the beach.

That being said, I'm starting to feel the impact of the turmoil in the credit markets from these last few weeks. My phone is ringing more and my blog is seeing more hits from anxious borrowers.

Here's a partial look at what's on my desk...
  • We'll start with a success story. Just arranged a factoring facility for a company in the remote surveillance business. They were landing contracts with big name clients, but their balance sheet and short time in business didn't support a bank line of credit. They needed money fast - from start to finish, the funding solution was completed in less than a week. The CEO commented that the interest rates were below what he expected!

  • Was working with a prospect that wanted me to find them either a less expensive factoring facility or an asset based revolver secured by accounts receivable and inventory. In my due diligence process, I discovered a potential problem with past due payroll taxes. I've offered an introduction to Peter Stephan (who helped me write "Yeah, I'm the Taxman") who can advise them on how to resolve the tax problem.

  • I'm pre-screening a loan for a company who has reasonably strong cash flow but is challenged by a significant customer concentration issue and a lack of collateral either inside or outside the business. Wish me luck on this one.

  • I've written posts on how important it is to have a strong relationship with one's lender. I've been recommended to a prospective borrower seeking to borrow a large sum of money to fund a real estate acquisition. He told me that a loan officer at a bank which had previously loaned him the funds to acquire real estate declined this new financing opportunity while providing a reason that didn't make sense. He did not have a strong relationship with this banker. My own contact at the bank did a little digging and then admitted they had dropped the ball. Know your lender and build a real relationship.

  • I've recently been introduced to a company which provides homeland security solutions. Request #1 is to find them a lower cost factoring solution than they currently have. If their accounts receivable are reasonably clean, it shouldn't be too big a challenge to find them a more cost effective source of factoring. Request #2 is to create a vendor financing program so they can more easily sell their products to municipalities and other government agencies that often cannot pay in full for assets acquisitions. This could be a fun assignment.

As we head into the Labor Day weekend, hope your summer has been a great one.

And if you need help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call!

Tags : cash flow , bank loan , factoring , accounts receivable , equipment leasing , municipal leasing , payroll taxes , vendor financing

Wednesday, August 22, 2007

Business Bankruptcy Rates Continue to Rise in 2007

This news blurb on business bankruptcy filings just arrived.

The number of U.S. business bankruptcies continues to rise in 2007, as the second quarter filings showed yet another dramatic increase in the number of businesses seeking protection from creditors, accounts receivable insurer Euler Hermes reports.

According to the U.S. Bankruptcy Courts, 6,705 businesses declared bankruptcy in the second quarter of 2007. This number shows a series of upward trends, including:
* A 7% increase over the first quarter of 2007
* A 38% year-over-year increase from the second quarter of 2006
* A 45% increase for the first half of 2007 in comparison to the first half of 2006

"Businesses today are facing serious headwinds, including a slowing economy and an increase in the cost of doing business," said Euler Hermes ACI chief economist Daniel C. North, who earlier this year forecasted a 51% increase in business bankruptcies for 2007.

North has said that the three most serious issues remain the effects of increased energy, raw material, and labor costs; the effects of monetary policy tightening by the Federal Reserve in 2004-2006; and the "decimated" housing market and its effects on consumers and businesses.

The housing market's recent effects on the financial markets have brought the seriousness of the situation to light, but North has been tracking -- and predicting -- the economic impact for nearly a year.

"What first tipped me off was when median prices on existing homes fell for 10 consecutive months on a year-over-year basis, which is an unprecedented event since house prices almost never fall; they have never fallen for more than two months in a row in the 38 years that records have been kept," he said. "This is an obvious sign of a rapidly deflating asset bubble, the effects of which will continue to be felt for some time to come."

According to the Euler Hermes business failures forecast, a return to 30,000 business bankruptcies is expected in 2007. This follows a spectacular, but one-off, reduction in business failures in 2006, when the number of corporate insolvencies dropped by 50% due to a 2005 change in U.S. bankruptcy legislation.

North said the disappearance of the impact of the change in legislation, coupled with the slowing economy and reduced profits, will bring the bankruptcy numbers to "more normal levels."

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

Tags : bankruptcy , Euler Hermes , working capital , business loans

Monday, August 20, 2007

Wall Street Journal Highlights Factoring

In today's special Small Business section, Richard Gibson of The Wall Street Journal writes about factoring in an article entitled Fast Money.

Gibson focused on a lot of the same points about factoring that you've been reading about right here...
  • Factoring of invoices is a great tool for businesses that need a lot of money and fast.

  • Factoring is a great tool for companies that don't qualify for bank financing because they've been in business for a very short period of time or the business has flaws in its credit profile.

  • Paying the higher cost of factoring is often preferable to selling a part of the company.

  • Factoring of invoices is easier to obtain than bank financing and is considered by some to be less intrusive.

  • A factor can save a company the overhead cost of internal staffing for credit screening and bill collection.

  • The cost of factoring can be reduced by using the cash flow to take advantage of early pay discounts offered by one's own vendors.

Also pointed out in The Wall Street Journal article, not all factors are alike. Ask around, check references and negotiate for the best rate.

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

Tags : factoring , accounts receivable , Wall Street Journal , working capital , cash flow

Sunday, August 19, 2007

Top 5 Bank Leasing Companies

Fresh from the August issue of a magazine for the leasing industry, here's the top five banks with the largest dollar increases in 2006 in equipment leasing activity.

  1. Bank of America Leasing
  2. Wachovia Equipment Finance
  3. National City Commercial Capital Corporation
  4. Key Equipment Finance
  5. Regions Equipment Finance

According to the survey, these five banks closed over $21.5 billion of new leasing business in 2006.

Again, this survey includes bank owned leasing companies only thus excluding big industry players like GE Capital and CIT. I'll fill you in when the industry numbers are published which includes all types of equipment leasing funding sources.

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

Tags : equipment leasing , leasing , Bank of America , Wachovia Equipment Finance , National City Commercial Capital , Key Equipment Finance , Regions Equipment Finance

Friday, August 17, 2007

Capital Crunch - Should Small Business Worry?

The volatility in the capital markets over the last few days have been nothing short of astonishing. Today's announcement by the Federal Reserve to reduce the discount rate enabled the stock market to break its string of daily losses. What's the impact on the typical small business and its ability to obtain a business loan?

Probably not much.

For the typical small business borrowing money tied to the Prime Rate, you may have to sit tight until September 18th when the Federal Reserve has its next scheduled meeting of the Federal Open Market Committee to consider adjusting the target for the Fed Funds Rate which would have direct impact on the Prime Rate.

By the way, I just finished reading an email which crossed my desk from the Senior Economist at Wells Fargo Economics, Scott Anderson. It addresses both the cost and availability of business credit in general.

Anderson says that while the overall cost of credit has only increased moderately, the cost of credit for all but the most risky consumers and businesses is not yet restrictive.

As for the availability of credit, Anderson writes that the latest senior loan officer survey from the Federal Reserve shows that banks are tightening credit standards across a broad spectrum of consumer and business loans, but have not yet hit the emergency brake.

So until September 18th, enjoy the ride.

If you're not enjoying the ride and 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, August 15, 2007

Yeah, I'm the Taxman

George Harrison of The Beatles had it right…

Let me tell you how it will be
there’s one for you, nineteen for me'
Cause I'm the taxman, yeah, I'm the taxman.

Every business has to worry about the taxman – especially the impact the taxman can have on the ability of a business to obtain a loan.

As a condition of providing a business loan, a lender will typically require a first priority lien on the assets of a business. In the event of a default, the lender wants be paid first from the proceeds resulting from a foreclosure on the accounts receivable, inventory, equipment, real estate and any other assets associated with the business. Without this assurance, few if any lenders will extend a business loan.

What happens if a business doesn’t pay taxes on time or at all? Its lender may lose its first priority lien and may reject a loan request or withdraw from any further new financing for a business.

Ouch! Lack of access to financing may immediately put some businesses out of business.

I recently spoke to Peter Stephan of Stephan & Stein, Certified Public Accountants located in Woodland Hills, CA, about the implications of past due taxes on a financing. Peter has over 20 years of experience in the arena of tax resolution with both federal and state taxing authorities. Here’s what I learned….

When asset based lending is involved (such as accounts receivable or other revolving type financing), 45 days after the IRS records a notice of Federal tax lien, it will have a first priority lien on accounts receivable, inventory and equipment. While some lenders will terminate funding immediately, some may continue to extend additional funding until the lien becomes effective after the 45 days elapses. After the lien becomes effective, a business is likely to be cut-off by all lenders from new financing unless a payment plan and subordination agreement is signed between the business and the taxing agency.

A sale of a business with outstanding tax liens creates a similar challenge to a buyer which needs a business loan to conclude the acquisition. Successor liability means the tax lien transfers to the buyer even if the seller has agreed to indemnify the buyer for the risk.

With an executed installment agreement and the proper incentives, the IRS or other taxing authority might agree to subordinate its lien so a lender can obtain a first priority lien position. It could take two or three months to prepare the materials and conclude a subordination agreement. A business that needs a loan quickly to keep its doors open may not be able to wait three months.

So what’s a business to do if it owes back taxes and needs financing?

As soon as you get behind in tax payments, hire a good professional with experience in tax resolution. Be careful who you choose as this is a very specialized area. This expert can potentially negotiate reductions in the tax liability, obtain improvements to a payment plan, defer the formal filing of a lien or assist in concluding a subordination agreement.

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, August 08, 2007

Tips for Weathering a Credit Crunch

Just a month ago, I noted that small businesses were not worried about their ability to obtain business loans. The economy was growing and the availability of business loans was plentiful and priced at attractive rates.

Frankly, I was surprised at this sentiment expressed by small business owners, but that was before the subprime mortgage meltdown.

Now, according to The Wall Street Journal in "How Firms Can Weather a Credit Crunch", small business may soon be looking at a credit crunch.

Some businesses are falling behind on loan payments and default rates are expected to accelerate.

Big surprise.

For the last 36 months, some banks have been falling all over one another to offer the lowest rates and the most flexible terms to even marginally creditworthy business borrowers. It's easy for a small business to make its loan payments when the prime rate is at 4.25%. A completely different story now that the prime rate is at 8.25%.

Both the bank business development officers and the bank workout guys tell me that change is in the air. Expect slightly tougher credit standards with a lot more emphasis on cash flow and less on how much equity the borrower has in their home or their business real estate.

So what's a small business to do? Tighten up on expenses, pay closer attention to collecting accounts receivable, know the value of your collateral and make sure you've got timely and accurate financial reports.

Also, don't forget that all lenders aren't the same. They have different criteria and interest rate requirements. Some of them actually value relationships and may be able to bend a little bit if you get into trouble.

Plus, when one bank says no, doesn't mean another bank won't say yes. If all the banks say no, there's an entire universe of asset based lenders ready to provide your small business with a loan secured by purchase orders, accounts receivable, equipment and real estate. Availability may not be an issue if a borrower can live with the higher cost of capital.

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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Pearls of Wisdom - Norm Morales of Vineyard Bank

I attended a PNG networking lunch meeting today which featured Norm Morales, President and CEO of Vineyard Bank. Vineyard Bank is a Southern California, full service community bank with over $2.4 billion in assets. In both 2005 and 2006, Vineyard Bank was listed in Fortune Magazine's 100 Fastest Growing Companies.

While he has over 25 years of experience as a banker, Norm really didn't spend much time talking about banking products. Not one word on cash flow, remote deposit capture or SBA loans. Instead, he spoke about how to build a successful, entrepreneurial driven organization, what he's learned from working with multi-cultural businesses and how he uses that in growing a successful financial services institution.

Here's a few of Norm's pearls of wisdom...

  • Successful banks build relationships to meet their client's needs over a lifetime - cradle to grave. Provide solutions rather than sell products and you'll have a client for a lifetime.
  • Introduce your clients to other appropriate resources who can help build their businesses. You'll create a loyal customer that will pay off in the long run.
  • Good bankers (and business people in general) don't just sell products. They provide their customers with ideas and solutions to help them grow their businesses.
  • Hire the best talent that complements the rest of your team and fits with the culture and core values of your business.
  • If you serve multi-cultural businesses, acknowledge the operating and cultural differences of those clients. These differences may change over time based upon the number of generations removed from the initial immigration to the United States.

There were other "pearls of wisdom" Norm shared with the group - too many to list all of them here.

My takeaway at the end of the day, businesses become successful by building a relationship with their clients by aligning goals and culture. This message is applicable to any business, not just a bank.

By the way, next time you meet with your banker, ask them if they see the world the way Norm Morales does. Let me know what they say.

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, August 07, 2007

Researching Venture Capitalists

When doling out advice last April, I mentioned that a business should research investors and lenders before seeking funding. Learning in advance what kind and size of deals a funding source is seeking will make it easier to find the best match to meet one's financing objectives.

For the average business seeking funding, that's easier said than done. I do it for a living and it can be challenging keeping up with each funding source's particular requirements.

In today's Wall Street Journal, I learned about a new website that can help a business research venture capitalists. Called, the site allows those seeking funding to read presumably honest feedback provided by over 1,700 entrepreneurs about almost 3,600 sources of venture capital.

In addition to the feedback posted about the venture capital sources, the website provides advice on closing, open letters from entrepreneurs and numerical ratings. There's even a Top 5 list!

The feedback is quite enlightening and entertaining - it can provide some extremely useful information to an entrepreneur which can help them make more effective use of their efforts seeking venture capital.

However, as The Wall Street Journal article points out, there's no accountability. In a situation where probably less than 3% of all deals get funded, there's nothing to keep a spiteful entrepreneur from trashing a venture capitalist simply because their funding request got rejected.

If I were an entrepreneur, I would find the site useful simply because one can search the firms by geography and by funding size. In addition, each fund profile provides a link to their website which can be used to further research the venture capital fund.

This site can be a great supplement to one's search for venture capital. Is anyone working on one for lenders?

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, August 03, 2007

SBA Patriot Express Lenders

I received a call this morning asking me which banks were making business loans under the new SBA Patriot Express loan program.

Here is a list of which lenders have been approved by the SBA to make Patriot Express loans.

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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