Friday, February 29, 2008

Double Bottom Line Financing

Double bottom line financing refers to a lender or investor which focuses on both a financial return and a social return when it makes an investment decision.

In the February edition of Inc. Magazine, Nitasha Tiku discusses the latest trends in "Do-Gooder Finance" by highlighting a select group of investors and lenders that want to meet companies that pursue social goals.

In the article, Tiku mentions three lenders - New Resource Bank, RSF Social Finance and ShoreBank Pacific - and four equity investors - Underdog Ventures, Root Capital, Good Capital and TBL Capital - as examples of double bottom line funding sources.

In the past, I have written about other double bottom line investors such as Golden Seeds, 12 Angels Investment Group and Pacific Community Ventures.

Apparently, it's an idea whose time has come!

Hopefully, the companies that approach these investors and lenders will understand that the profit motive has not been abandoned altogether. It's just that double bottom line capital is prepared to be more patient, consider unusual business models and look at the impact on a community.

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

Tags : Double Bottom Line , Inc Magazine

Thursday, February 28, 2008

Walmart Sneezes; Cott Catches a Cold

For any size business, too much revenue from one customer can lead to difficulty in obtaining a business loan to provide the working capital.

Walmart has driven home this lesson to Cott Corporation, a manufacturer of private label sodas and drinks. As reported in The Wall Street Journal (subscription required), Walmart has informed Cott that it will be reducing the amount of shelf space allocated in its stores for private label sodas and drinks. Walmart will be filling that shelf space with higher margin products from Cadbury Schweppes.

Walmart is Cott's biggest customer and represents approximately 38 percent (approximately $640 million) of Cott's annual revenue which totaled over $1.7 billion in 2007. While it is still unclear the specific dollar impact to Cott, the company concedes that the Walmart move "would be significant to Cott's business plans". In English - that means less future cash flow and nervous bankers.

You can see why from the viewpoint of the bank, once your revenues from a single customer exceed 10 percent of total sales, you become less bankworthy. If a customer exceeds 20 percent of total sales, your company may see a reduction in your borrowing base and higher interest rates. Customer concentration greater than 30% - better be using factoring!

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

Tags : Walmart , Cott , working capital , cash flow

Wednesday, February 27, 2008

Fast SBA Loan Approval

About two weeks ago, I received a phone call from a banker who had declined an SBA loan request. The prospective borrower was working with a consultant who had been struggling for eight months to get the deal approved.

I got an SBA loan approval from a different banker in less than a week.

How? I told the story the right way to the right set of ears.

Here are the key facts that needed to be highlighted for the SBA lender:
  • While a start-up, the owner had extensive experience in the field.
  • The owner had injected equity of more than 20% of the total project cost.
  • Once I reformatted the pro-formas, it became clear that the new business could service the debt from cash flow.
  • There were strong secondary and tertiary sources of repayment including equity in real estate.

It's been said that the definition of insanity is repeating the same action and expecting different results. If your SBA loan request is dragging for more than three weeks (please don't wait eight months), there is a strong likelihood your request is going to be denied.

Simply taking it to another lender without knowing if you're telling the story the right way to the right lender is a perfect example of insanity.

Pick up the phone and call me at 310-371-4011. I can probably tell you in a short phone call the odds of getting an approval. I can pre-screen your deal with an SBA lender on a "no-names" basis in as little as a couple of hours. There's no cost and no obligation.

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 , 7a loan , 504 loan , working capital , business loan , small business

Monday, February 25, 2008

Tight Cash Flow? Try Asset Based Lenders

This week's edition of the Los Angeles Business Journal (may require subscription) wrote about how the credit crunch is creating new opportunities for alternative lenders in the middle market.

For businesses with less cash flow, but good collateral and a strong story, alternative lenders such as St. Cloud Capital, Allied Capital Corporation and Ares Capital are able to provide a variety of capital solutions including senior debt, subordinated debt or equity.

While these and similar funding sources could be more flexible than a bank, they will also require a much higher interest rate than the bank for taking on more risk. In some cases, the alternative lenders may be more than happy to own the business of the borrower in the event of a default.

The key with any lender is to know what deal size, industries and risk profile the lenders may be seeking. Many of these lenders are not dealing with small businesses - too much aggravation and not enough return on their money.

There are a number of asset based lenders who can provide alternative solutions to small businesses when the banks cannot accommodate their borrowing needs. These lenders will not focus solely on cash flow, but will look to the borrower's assets - accounts receivable, inventory, equipment and real estate - to create a funding solution to meet the small business borrower's objectives. Like the alternative lenders focused on the middle market, the rates will be higher than the bank and you need to know what type of deal each lender is seeking.

So if the bank tells you "no", there may be other sources of money available - credit crunch notwithstanding. It will cost you more, but your business may live to see a better day.

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

Tags : credit crunch , Los Angeles Business Journal , asset based lenders

Wednesday, February 20, 2008

Solid Cash Flow & More Collateral

With tighter lending standards, small businesses seeking financing now must have good credit, solid cash flow, more collateral and more cash for down payments according to Keith Leggett, senior economist at the American Bankers Association.

In USA Today, Leggett and others say that small firms with good credit quality still are able to land financing and grow. It is suggested these firms investigate financing from smaller community banks. Having avoided high-risk securities and poor lending practices, the smaller community banks haven't been humbled by the housing slump and subprime debacle.

What if your business doesn't qualify as a good credit? There is still plenty of money around. It's just being re-priced for risk.

Consider SBA loans, state backed loan programs, commercial finance companies, leasing companies and accounts receivable financing. You may pay a bit more for your money, but your business will have the working capital it needs to transition to better times.

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

Tags : USA Today , small business loans , Keith Leggett , American Bankers Association

Tuesday, February 19, 2008

Venture Funding for High Tech

For high tech companies seeking investments from venture capital providers, this week's edition of the Los Angeles Business Journal (subscription may be required) might be a good place to start.

In "Making it Click", the Los Angeles Business Journal provided brief bio's of 22 venture capitalists, deep pocketed angel investors, seasoned entreprenuers, and a group of lawyers and other enablers who play crucial roles in connecting new high tech ideas with money. Not surprisingly, my name is not on the list.

My guess is that these 22 resources don't limit their reach to only Los Angeles based entrepreneurs. So if you've got a good story, don't let geography hold you back.

Need to research any of the venture capitalists, go back and read this posting.

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

Tags : venture capital , angel investors , entrepreneurs , Los Angeles Business Journal

Friday, February 15, 2008

NFIB - No Credit Crunch

The National Federation of Independent Business (NFIB) joins Warren Buffet in the opinion that there exists no credit crunch for small business per today's Reuter's release.

"There is no credit crunch on Main Street for small businesses. Period," said William Dunkelberg, chief economist of the NFIB.

Dunkelberg's opinion is based upon the recently released survey of NFIB released earlier this week which predicts a recession.

The Reuter's release had two items that caught my eye:
  • Many small businesses are seen heading for trouble because they used home equity loans to fund their businesses during the housing boom. In July 2006, I warned small businesses that home equity was in the process of declining and continued reliance on this would make financing their business more difficult.
  • One borrower noted that his bank wanted his home, in which he has built up a lot of equity, as collateral rather than the assets of the business. He refused not wanting to mix his business assets and personal assets.

While most small business owners will still have to provide a personal guarantee, there are still plenty of lenders (including banks) that will look solely to the assets of a business as the collateral. Acceptable collateral includes purchase orders, accounts receivable, inventory, equipment and real estate.

On the other hand, if you don't have any assets in your business, be prepared to give a lien on your home if you've got one.

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

Tags : credit crunch , business loans , Warren Buffet , NFIB

Tuesday, February 12, 2008

Numerous Requests for Working Capital

My September 2006 posting entitled "How Do You Measure Working Capital" is the most frequent landing page in my entire collection of blog postings.

With a recession highly likely and a credit crunch gaining strength, more businesses will be focused on maximizing their cash flow and minimizing working capital because money tied up in working capital is money not available to grow the company.

While over 80 of my postings mention the term working capital, I thought I would give you a few links to some oldies but goodies. Enjoy!

Thursday, February 07, 2008

Warren Buffet - Not a Credit Crunch

According to The LA Times, Warren Buffett does not think the economy is experiencing a credit crunch.

"I wouldn't quite call it a credit crunch," he said. "Money is available,and it's really quite cheap because of the lowering of rates that has taken place."

He added: "What has happened is a repricing of risk and an unavailability of what I might call ' dumb money,' of which there was plenty around a year ago."

It's never a credit crunch unless it affects the ability of your business to obtain a business loan or other financing. Money is available, just not wheelbarrows of money for you to go join in on the poker game with Bill Gates.

Your business may not qualify for the lowest cost bank loan, but it may qualify for an SBA loan or asset based financing including revolving lines of credit, factoring and equipment leasing.

And yes, risk is being re-priced. So now your business loan may be priced a few percentage points over prime rate, or as high as four to five times prime!

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

Tags : credit crunch , business loans , Warren Buffett

Monday, February 04, 2008

Business Credit Getting Tighter

No big suprise here - the Federal Reserve says banks are getting more stingy when it comes to providing new business loans.

The latest Federal Reserve survey of senior bank-loan officers released today shows that one-third of domestic institutions reported having tightened their lending standards on business loans to small as well as to large and middle-market firms over the past three months.

While few banks are eager to admit publicly that they are scaling back, almost every banker I speak with tells me of tightening credit standards and deals not getting approved by investment committee as a fear mentality starts to take hold.

What's a small business to do that needs a business loan? Before you go to a lender, ask yourself what three sources of repayment are you offering in support of your business loan?
  • Are you able to demonstrate that your business will generate sufficient cash flow to pay back the loan?
  • What business collateral are your offering to secure the loan? This should include accounts receivable, inventory, equipment and real estate.
  • What is the personal credit strength of the business owner(s)?

If you can answer those three questions satisfactorily, your lender should be willing to entertain your request for a loan.

If you can't answer those questions, keep my phone number handy because you'll probably be a victim of the credit crunch.

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

Tags : Federal Reserve , small business , business loans , credit crunch

Report Card on SBA Loans to Minorities

The Greenlining Institute produces an annual report card that grades the largest US banks on their SBA lending activities to minorities – specifically African Americans, Asian Americans and Latinos.

Only one bank got an “A”. There was a handful or so of “B” grades. As for the rest, they got a spanking on their hands with a ruler.

You can read the full report, but here’s a couple of highlights:

  • No bank met Greenlining’s challenge to originate 60% of all its SBA loans in 2006 to minority entrepreneurs, split equally amongst African Americans, Asian Americans and Latinos. Citigroup came close at 56%. Bank of America scored #1 for largest number with 5,468 SBA loans to minorities.
  • African American small businesses are the most underserved by financial institutions in terms of both the number and percentage of SBA loans originated to this group compared to other groups in the study. Bank of America was at the top of the list in both the number of SBA loans and the percentage of its SBA loans.
  • Citigroup and PNC did the best in percentage of SBA loans to Asian Americans both surpassing Greenlining’s minimum lending goal of 20%. Bank of America was tops in the number of SBA loans to Asian Americans.
  • Close, but no cigar for Citigroup who came close to meeting the 20% goal for Latinos with Bank of America not far behind. Bank of America had more than twice the number of SBA loans to Latinos than second place J.P. Morgan Chase.
  • Three banks received overall “F’ grades – Key Bank, Capital One and Fifth Third. Ouch!

At the end of the day, the Greenlining Institute says the number of minority owned businesses in the United States is growing at two or three times the national average for all U.S. businesses, but the proportion of SBA loans going to minority entrepreneurs has remained constant at one-third of all SBA loans.

According to the Greenlining Institute, if banks would originate 60% of their annual SBA loans to minorities, this would double the number of SBA loans to minority owned businesses.

Here are two questions I have on this report card.

  • Does it take into consideration the demographic and geographic footprint of each respective financial institution?
  • What were the actual approval rates for SBA business loans to minorities of each respective financial institution?

Check out my earlier blog postings for other resources on loan program directed minorities!

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 loans , minorities , African American , Asian , Latino , Greenlining Institute