Friday, March 12, 2010

Lunch Special of the Day

A residential foreclosure contractor hired by Bank of America reportedly not only padlocked the wrong house, but confiscated the home owner's pet parrot, Luke.

Earlier this week, The New York Times DealBook section reported that Bank of America has been instructed to shrink as regulators focus on banks that "are too big to fail".

One reader not only rejected Bank of America's denial of the guidance, but commented on the "parrot-napping" as well.
In an unrelated cost savings move, Bank of America has announced that any pets seized in a property foreclosure action will, in the future, be served on the lunch menu in the employees’ cafeteria.

By the way, a traumatized Luke was eventually returned to his owner by the contractor.

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 : Bank of America , too big to fail

Wednesday, February 24, 2010

Bank Lending - Sharpest Decline Since 1942

Shocker! U.S. banks last year posted their sharpest decline in lending since 1942 according to today's Wall Street Journal (subscription required).

I'm trying to figure out why this article was front page headline worthy for The Wall Street Journal no less. It's old news.

Senior bank lending officers have been reporting for two years about tightening credit. In fact, they tightened credit so much, they can't tighten any more.

Many banks are still amongst the walking wounded due to troubled commercial real estate loan portfolios. Yesterday, the FDIC announced its problem bank list hit a 16 year high of 702 troubled institutions. Many of these banks will likely fail and others will be unable to lend in support of an economic recovery for a long time to come. The FDIC shuttered 140 banks in 2009 and 20 banks year-to-date 2010.

In the meantime, the Commercial Finance Association (CFA) just released its Quarterly Asset-Based Lending Index, Q4 2009, revealing continued stability and signs that U.S. businesses are seeking alternative sources of stable funding from non-bank, asset-based lenders. In the fourth quarter of 2009, total committed credit lines grew by 1.2 percent among asset-based lenders, while 50 percent of respondents reported an increase in new credit commitments.

By the way, Harry Reid's stripped down jobs bill just stripped out additional funding for SBA small business loans. The original $85 billion "jobs" bill included additional funding for the SBA to continue offering small businesses enhanced loans guarantees and elimination of guarantee fees. The SBA just exhausted its $855 million of stimulus funds which it claims resulted in over $20 billion of loans to small businesses in the last 12 months.

Notwithstanding all of the backwards looking news, I am seeing the green shoots of recovery. A couple of very large banks may be feeling the populist pressure to pump up lending and are adding to their lending teams. Even Huntington Bank, notwithstanding five consecutive quarters of losses, has announced it is doubling its annual small business lending and has announced it will originate $4 billion of new loans in the next three years.

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 : small business , bank loans , SBA loans , asset based loans , Commercial Finance Association , Huntington Bank

Thursday, February 04, 2010

Asset Based Lending Grows

Asset based lenders have stepped up to fill the capital gap caused by the credit crunch for borrowers both large and small according to The Wall Street Journal (subscription required).

According the Journal, asset based lending may have increased by double digits in 2009 after an 8.3 percent increase in 2008. Given the article was focused on small business, it would have been more interesting had the Journal been able to learn the percentage growth of asset based lending for deal size less than $10 million.

The Journal notes that drawbacks of asset based loans include relatively high interest rates. Asset based loans can range as high as 35-40 percent per annum when a borrower is using factoring or purchase order financing. However, there are some lenders that will provide asset based loans at rates in the single digit range. Even the SBA has a program that provides asset based lines of credit at rates currently below 10 percent!

Also this past week, the Federal Reserve's January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices was released.

The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years.

Expect to see asset based lending continue to grow in 2010!

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

Tags : Asset based loans , factoring , purchase order financing , lines of credit , SBA loans

Tuesday, February 02, 2010

Who Will Fund Inventory Growth?

GDP grew at its fastest pace in six years in the last three months of 2009, expanding at a 5.7 percent yearly rate over the previous quarter according to The Wall Street Journal (subscription required).

The largest portion of the growth, 3.4 percentage points, came from businesses shrinking inventories more slowly than in the previous quarter to accommodate increased demand. Shrinking inventories means increased production to prepare for future sales increases.

One can argue about how much of the inventory buildup came from one-time events such as government stimulus programs, but one thing is clear. Businesses will have to increase inventories as the economy recovers.

Where will the money come from to fund the inventory growth is a bigger question.

I know very few bank or commercial finance lenders eager to lend for inventory increases. In fact, one middle market commercial banker told me at lunch that inventory increases are the last thing he wants to fund. Don't expect to see improved appetite for inventory lending until cash flow improves.

Some asset based lenders will provide lines of credit when there the borrower is profitable and subject to sublimits tied to accounts receivable. I also know one lender who will lend against inventory only in amounts up to $10 million. The terms are tough and the pricing is not for the faint of heart.

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 : inventory loan , GDP growth , line of credit , working capital

Wednesday, January 20, 2010

Extend and Pretend

The recent bank practice to "extend and pretend" was the focus of a commercial real estate panel discussion held last night at UCLA. The moderator, Jesse Sharf of Gibson, Dunn & Crutcher, questioned four leading members of the commercial real estate industry on a variety of topics including "when will deals reappear?".

About two hundred attendees listened attentively to the responses of John Brady (Oak Tree Capital Management), Samuel Freshman (Standard Management Company), Bill Lindsay (Pacific Coast Capital Partners) and Sean Mahon (Wells Fargo Bank).

Here are the highlights from my perspective:

  • The October 30, 2009 (the night before Halloween) guidance issued by the FDIC and other regulators has made it very easy for banks to extend and restructure commercial real estate loans that otherwise could have been classified as troubled assets.
  • Commercial real estate values will likely drop to 50 percent of their peak values as cap rates increase from 6% to 9%.
  • There is a HUGE shortage of capital available to re-finance all of the commercial real estate loans maturing in the next three to five years due to the implosion of the CMBS markets and balance sheet challenges faced by the commercial banking community.
  • Low interest rates are keeping a lot of commercial real estate loans from going into default. Look for the Federal Reserve to keep benchmark rates low for the foreseeable future.
  • Deal flow for commercial real estate loans and investor opportunities will not recover until the unemployment rate starts to drop.
  • All four panelists opined that commercial real estate values will continue to decline in 2010.

If you were looking for some good news from last night's meeting - well, they served a very nice chardonnay! Crisp, refined and a hint of pear.

I've still got some commercial real estate bridge lenders actively pursuing loan opportunities of at least $1 million. Give me a call if I can help!

Tags : extend and pretend , commercial real estate loans , FDIC , bridge loans , private money loans

Wednesday, January 06, 2010

Turnaround Management Association - A Hard Slog

Nearly half (49%) of the respondents to the Turnaround Management Association's (TMA) distressed industries forecast think durable improvement in the economy is unlikely until at least the second half of 2010. About three out of ten think the worst is over, but nearly 20 percent suggest the economy has yet to hit rock bottom.

Access to capital remains a big question for how the economy will fare in 2010 according to 52 percent of respondents.

Three out of four respondents think the commercial real estate industry will fare the worst in 2010 as debt matures and lenders remain reluctant to refinance.

"Overleveraged balance sheets are one of the primary causes of industry problems," said William K. Lenhart, CTP, a partner with BDO Consulting in New York. "In 2009, many lenders were more willing to 'extend and amend' terms so borrowers were not in default. It is unclear if these companies took this opportunity to improve operations, reduce expenses and sell off underperforming assets to reduce debt."

My own sources have referred to many commercial bank lender's actions in 2009 as more like "extend and pretend" or "delay and pray".

Happy new year? We'll see.

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 : Turnaround Management Association , TMA , extend and pretend , commercial real estate , bridge loans