Wednesday, September 30, 2009

Do You Really Want to be Banker of the Year?

Less than a year ago, then Chairman and CEO of Bank of America, Ken Lewis, was named Banker of the Year for the second time by American Banker.

Today, The Wall Street Journal (subscription required) announced that Mr. Lewis will retire from Bank of America by year end. This announcement comes just months after Mr. Lewis losing his chairman title over the Merrill Lynch debacle.

Mr. Lewis now joins Kerry Killinger (ousted CEO of Washington Mutual), Ken Thompson (ousted CEO of Wachovia) and Angelo Mozilo (ousted CEO of Countrywide) on the list of former Banker of the Year honorees who thereafter lost their jobs!

Sounds a bit like the Sports Illustrated cover jinx. Do you think any banker in their right mind wants to win next year's award?

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

Tags : Banker of the Year , American Banker , Ken Lewis , Bank of America

Monday, September 21, 2009

Lack of Refinancing Options for Maturing CMBS Loans

In Two Kinds of Pain for Commercial Real Estate Loans, I wrote that about the shortage of funding to refinance commercial real estate loans as they come due.

In a study for The Wall Street Journal (subscription required), Trepp, which tracks the commercial real-estate market, found that, year-to-date, 528 commercial mortgage backed securities (CMBS) loans valued at $4.7 billion weren't able to refinance when they matured. About 75 percent of these commercial real estate loans were backed by properties that were throwing off more than enough cash to service their debt!

A quick calculation shows that the average loan size for these 528 CMBS loans was approximately $8.9 million. That's not really a large number - this lack of re-financing capacity is likely to impact small and medium sized commercial real estate owners.

At last week's ACG Conference in Los Angeles, I listened to a bank presentation on the state of the debt markets. This bank has tightened their lending criterion for loans including those secured by commercial real estate in part by raising the minimum debt service coverage ratio. If I recall correctly, a 1.35x debt service coverage ratio is the current minimum. By the way, this bank is not lending on commercial real estate without the borrower bringing its entire relationship to the bank.

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

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans , California

Tuesday, September 15, 2009

45 Days and Counting!

This afternoon, I dropped by the 2009 M&A Business Conference for the Association of Corporate Growth's Los Angeles chapter. Both the lobby and the Capital Connection room were buzzing with activity.

The Capital Connection room was filled with representatives of over 100 private equity firms with one lender and one commercial real estate sale-leaseback firm thrown in for good measure. The room was packed with deal makers trying to figure out how to get a piece of the $400 billion of equity overhang that everyone keeps talking about!

Spoke to a few of the lenders milling about and each one confirmed the same. If you've got a business loan that needs to be funded by year end, you need to submit the deal to a lender (preferably with a complete due diligence package) by Halloween. After that, there's a reduced likelihood the deal could close by New Year's Eve.

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

Tags : Association of Corporate Growth Los Angeles , sale leaseback , business loans

Tuesday, September 08, 2009

Credit Crunch Officially Over

The credit crunch is officially over - at least for one of my clients, an operator of barges and a tugboat.

When referred to me by a Southern California chief financial officer, the borrower had to complete a refinancing of purchase money debt within 25 business days. They were in discussions with six commercial banks, but getting nowhere fast. The bankers were quite interested in the company's deposit potential, but had absolutely no interest in providing the equipment loan.

Within days of being hired, I submitted a completed application and full due diligence package to an SBA lender. A cooperative and well prepared client was a huge plus! We received an approval for an SBA 7a loan within 10 days, subject to an appraisal. The deal closed the last week of August with days to spare before the borrower's deadline.

Why is the credit crunch over for this borrower?

Funding 911 knew the right lender and presented a convincing story on why the SBA lender should expect full and timely repayment of the loan. The borrower can now focus on growing a successful company and not worry about finding money.

A couple of quick notes on the SBA loan market...

According to many sources including this CNN report, SBA loan volume has picked up significantly compared to earlier this year primarily because the secondary markets for SBA loans has healed itself - without much assistance from the government. The ability to quickly replenish their coffers and the attractive premiums once again available for selling these loans have enticed lenders to make more SBA loans.

By the way, as part of the spring stimulus passed by Congress, the SBA was granted over $700 million to increase guarantees and waive borrower paid guarantee fees. Sources say that these funds may be completely utilized by the end of the calendar year. If your business is considering an SBA loan and wants to avoid the stiff guarantee fees, don't wait to apply!

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch

Wednesday, September 02, 2009

Tightening the Screws on Cash

Money tied up in working capital is not available to grow the business - or in today's environment, not available to help a company survive the economic turmoil.

So it's not surprising that The Wall Street Journal (subscription required) gave front page coverage to the most recent study by REL Consultancy on how big firms are expediting cash collections and slowing cash payments - particularly at the expense of the smaller or weaker companies with whom they conduct business.

The largest companies are particularly good at this cash flow exercise. Companies over $5 billion of annual revenues remit their payables on average in 55.8 days and collect their receivables in as little as 41 days - a net of almost 15 days of working capital in their favor.

Companies below $500 million in revenues are not quite as successful in managing cash flow. The cash is going out the door faster than it comes in! The small and mid size enterprises take almost 59 days to collect their receivables while remitting payments in a fraction over 40 days - a net of almost 19 days of working capital to their detriment.

Many of the small and mid sized companies that I see are experiencing a similar working capital crunch. As a result, some of these companies lack the cash to take advantage of new orders that could lead to a return to profitability as the economy improves.

In an environment where credit is tight and more expensive, it pays to carefully watch one's working capital and cash flow!

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

Tags : working capital , cash flow , accounts receivable , credit crunch , REL Consultancy

Tuesday, September 01, 2009

Two Kinds of Pain for Commercial Real Estate Loans

Just when it looks like the banks may be putting the residential mortgage mess behind them, commercial real estate loans are a reminder that the real estate sector is just getting ready for round two. This next wave of pain could put a number of bank lenders into the hurt locker.

The Wall Street Journal (subscription required) reminds us the $700 billion of commercial mortgage backed securities (CMBS) outstanding are experiencing their first major downturn. The sector will likely suffer two kinds of pain.

First - sloppy underwriting for commercial real estate loans resulted in overly optimistic cash flow assumptions by stupid bankers. With the economic downturn, vacancy rates have cut cash flow well below the ability of many commercial real estate properties to service their debts.

Second - Over $150 billion of CMBS simply mature in the next three years. Given the CMBS market has collapsed and isn't available for refinancing purposes, there is little hope that there will be sufficient loan capacity in the weakened bank market to re-finance many of these loans.

The end result - values will drop further as CMBS go into default causing banks to have to lower commercial real estate valuations in their own portfolios. At some point, banks could be forced into devaluing commercial real estate loans on its own books even if they are performing!

Need help finding the right lender to finance your California commercial real estate? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans