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1. Small Business access to capital in the current economic environment.
2. What small businesses need to do to raise capital in the current environment
3. Small business outlook for 2012 – 2014.

Bill Holt

Executive Vice President, Business Banking

SunTrust Banks, Inc.

Bill Holt joined Suntrust Bank in July 2009 as Executive Vice President Business Banking.

Bill’s prior experience includes Executive Vice President Wholesale Banking with Wachovia Bank, Executive Vice President – Wholesale Banking Group Chief Operating Officer and Executive Vice President – Executive Director of Business and Community Banking.

Bill Holt graduated from Furman University in Greenville, South Carolina with a Bachelor of Arts, Economics and Business Administration.

Technorati Tags: access to capital, bill holt, small business, suntrust

Great article on asset based lending – what it is and when to use it! - TW

Asset Based Lending as a Financing Tool

By Kent Harlan

Many CFOs and other finance executives view asset based lending as a financing outlet of last resort. While that may sometimes be the case, such a view is a one-dimensional perspective. But as companies confront a tight credit market coupled with lower than expected results, many CFOs are viewing asset based lending as a viable option in the financing tool kit. Even successful companies with strong banking relationships can quickly fall out of favor with lenders and lose access to unsecured financing, especially if they’ve shown recent losses. A few bad quarterly results doesn’t necessarily mean that a company is in bad shape, but stringent bank underwriting parameters can cause existing loans to be called and prevent the firm from qualifying for new financing. A company facing such a scenario can use asset based lending (ABL) arrangements as bridge loans to pay off banks and provide liquidity until bank financing is achievable.

What is asset based lending?

Asset based lending can be an effective way to raise capital.

An asset-based loan is secured by a company’s accounts receivable, inventory, equipment, and/or real estate, whereby the lender takes a first priority security interest in those assets financed. Asset-based loans are an alternative to traditional bank lending because they serve borrowers with risk characteristics typically outside a bank’s comfort level. These assets typically have an easily determined value. The financing can take the form of loans to revolving credit lines to equipment leases and can range from $100,000 to $1 billion, depending on needs and circumstances.

How can ABL be a beneficial financing option?

Acquisition

To grow a business, a company may look to acquire a strategic partner or even a competitor. Asset-based financing is often an efficient means to obtain funding for business acquisitions.

Turnaround Financing

Turnaround financing is often used by under-performing businesses that are not achieving their full potential. In some cases, it is used for businesses that are either insolvent or on their way to becoming insolvent. Asset-based lenders are accustomed to the bankruptcy process and asset-based financing is ideal for turnarounds because of its flexibility.

Capital Expenditures

Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.

Debtor-in-Possession (DIP) Financing

Debtor-in-possession (DIP) refers to a company that has filed for protection under Chapter XI of the Federal Bankruptcy Code and has been permitted by the bankruptcy court to continue its operations to effect a formal reorganization. A DIP company can still obtain loans–but only with bankruptcy court approval. DIP financing, which is new debt obtained by a firm during the Chapter XI bankruptcy process, allows the company to continue to operate during a reorganization process. Asset-based lenders also provide exit financing or confirmation financing to companies coming out of bankruptcy.

Growth

Typically, as a company grows so does its need for financing. Also, as a company’s collateral grows, its assets can strengthen its ability to borrow. An experienced and creative asset-based lender can assemble a credit facility that can scale to grow with a company.

Recapitalization

Recapitalization is the process of fundamentally revising a company’s capital structure. A company might recapitalize due to bankruptcy or replacing debt securities with equity in order to reduce the company’s ongoing interest obligation. A leveraged recapitalization typically achieves just the opposite–by taking on a material amount of debt, the company increases its ongoing interest obligation but is able to pay its shareholders a special dividend.

Refinancing/Restructuring

When a company enters or exits a growth stage, refinancing or restructured financing may be key to creating a capital structure that better meets the needs of the company. This type of financing is often used for market expansion, completing an acquisition, restructuring operations, or following a successful corporate turnaround.

Buyout

A buyout is the purchase of a controlling percentage of a company’s stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. The target company’s assets are used as collateral for debt, and its cash flow is used to retire debt accrued by the buyer to acquire the company. A management buyout (MBO) is an LBO led by the existing management of a company.

What are the advantages to ABL?

· Tends to feature fewer covenants than other types of financing and those it does include tend to be more flexible. Cash flow loans, by contrast, often have four or five covenants including total leverage, fixed charge coverage, and minimum net worth.

· If a company is growing, the receivables and inventory it uses to secure the asset based loan is likely growing as well. Thus, the company has a greater collateral base and can borrow funds to fuel its growth.

· ABL instills discipline. Since the loans are based upon accounts receivable and inventory, the company is motivated to improve collections and complete the production cycle in a timely manner.

· As mentioned earlier, ABL imposes less stringent covenants compared to cash flow loans. These type of loans also provide better security to the lenders, which in turn allows them to grant more time to the borrowers to turn their company around in difficult times.

What are the disadvantages of ABL?

· Since the level of funding is contingent upon the asset values on the balance sheet, there may not be sufficient liquidity. Only asset rich companies would likely benefit, while many service companies would not.

· Such a requirement can be difficult for the company.

· Asset based lending tends to be more expensive than other types of financing, often three to five percentage points above traditional bank financing.

· ABL runs counter to the thinking of a lot of CFOs who believe it is dangerous to tie short term assets to long term financing.

Although ABL is now a common financing tool, it is not for everyone. It makes sense to explore all types of financing before deciding if asset based lending is the right choice. The CFO must review the state of the company’s credit, analyze the firm’s asset structure, and its current debt load. Asset based lending can provide the liquidity needed for the company to grow until less expensive bank financing is available.

Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing in the areas of accounts receivable factoring, equipment leasing, asset based lending, and healthcare provider financing. Website: http://www.ocflink.com

Article Source: http://EzineArticles.com/?expert=Kent_Harlan

http://EzineArticles.com/?Asset-Based-Lending-as-a-Financing-Tool&id=289296

Technorati Tags: ABL, asset, based, business, equipment, factoring, funding, lending, loans, receivables, working capital

The Wharton Club of Atlanta,
Kellogg Alumni Club of Atlanta
and the
London Business School Atlanta Alumni Club
are pleased to invite you to our next
breakfast series event entitled

Private Equity Panel Discussion:
Opportunities in 2012

with guest speakers

Andrea Malik Roe
Director, Healthcare
Arcapita

John McCarty
Principal
Peachtree Equity

and moderated by

Kenneth Saffold
Vice President
GE Capital


Thursday, January 26, 2012
7:30 AM – 9:00 AM

at
The Buckhead Club
3344 Peachtree Road NE, Suite 2600
Atlanta, GA  30326

Cost:
$35 per person

Note: If you are a Wharton, Kellogg or London Business School grad and would like to attend, please email me at twright@tocafamilyservices.com. I’ll email you the link to register.

For a complete listing of 2011-12 Breakfast Series events, please visit:
http://wklatlanta.eventbrite.com/

Technorati Tags: private equity, private equity forum, Wharton, wharton club

Q: Should you have several different scenarios when doing financial projections / creating pro-forma financials?

A: Yes, but only if you or someone on your team (whether permanent or contracted) has the skill and acumen to do these correctly. If not, stick to providing one set of financial projections which focus solely on the probable or expected performance. Why? If the financial scenario modeling is done well, the bank or equity investor will use those as their own. If they are not done well, the model will be completely disregarded and your credibility will be undermined and perhaps even damaged.

For those of you who, like myself, are adept at building models and doing iterations of financial projections, banks and equity investors like to see three (3) scenarios: 1) Worst case; 2) Probable case; 3) Best case.

The worst case scenario is NOT when all he– breaks lose. The worst case scenario is the most probable worst case you can think of showing the loss of one or two of your highest revenue-generating customers, a drop off in the economy and/or industry, the rejection of a highly anticipated product or service by the market, or some similar occurrence(s) Running a worst case scenario shows that you’ve thought about how negative situations will adversely impact your company’s sales, profits, and cash flow. Doing this will also help you structure your financing to ensure you do not break a loan covenant.

The probable case is the general financial projections incorporating the assumptions you have in your strategic business plan. 

The best case scenario is when everything goes better than you have in your plan. Your new product or service could be wholly embraced by the market and grow exponentially. You could enter into a partnership that dramatically increases your customer base. Anything that you have reasonably considered that would vault your company’s growth in revenue, net income, or cash flow can be part of the best case. Make sure you specify your assumptions and explain why this scenario is possible.

Technorati Tags: Atlanta, entrepreneurs, minority entrepreneur, minority entrepreneurs, minority owned business

“Financing a Medium Sized Business” is a presentation I created that provides an overview on when to pursue business financing and what types of financing are available. It includes some helpful hints on how to view your business so that you, as a business owner or executive management team member, view your business from the same perspective that the financing or investing entity does. When you can empathize with whomever your pursuing business funding from, you can speak to their issues, concerns, and desires easily.

Financing a Medium Sized Business is hosted on Slideshare. I have other presentations there that you may wish to check out. In the next month I will add a presentation page to this site. Stay tuned.

Also, if you have any topics you’d like me to cover in a presentation or general blogpost, please let me know.

Technorati Tags: business financing, business growth, business owner, financing, management team

Video provides a top-down description of why and how to write an abbreviated business plan or executive summary specifically to obtain bank financing or garner equity investors. This is Part I.

Technorati Tags: abbreviated business plan, executive summary, financing-focused

I attended a seminar on financing sources. (Yes, I do continuing education!) I thought some of the comments on various debt types were worthy of sharing. Here are the comments I  noted:


Convertible debt is

• more dilutive than mezzanine financing
• usually has 4-8% coupon
• more subordinated than mezzanine financing
• can slam you in a downturn

Convertible debt converts to equity when payments cannot be made as scheduled.  Consequently, when a business encounters cash flow problems, as often happens in a recession or industry downturn, and must forgo paying debt so it can pay employees and key suppliers, that convertible debt becomes equity. How quickly it converts to equity depends on the loan agreements and covenants.

Convertible debt can be just what a struggling or rapidly growing company needs to access debt at low interest rates they can readily pay. (Both struggling or rapidly growing companies have similar cash flow shortages but obviously for different reasons.)

Mezzanine Payment in Kind (PIK)

• used when a company can’t make debt payments, so it will “pay in kind”
• For example, if a company can’t make a 12% interest payment in a particular month, then it will have an additional 5% PIK tacked on, which will bring the total interest to 17%.
• Or the additional PIK will be equity, as is the case when the PIK is warrants. 

I’ve written about mezzanine debt before and will again. This is not meant to be an exhaustive description of mezzanine but to acquaint you with the concept of PIK.

Asset-based Lender (ABL)
Asset-based lenders lay off risk by knowing deeply the type of asset involved and mitigating those risks. For example, an ABL will set aside enough accounts receivables (A/Rs) to cover payroll for a staffing company.
Why? Because payroll is a MUST to pay. A company and its owners will be pursued by the federal government and could even have criminal charges filed against the owners neglect to pay payroll and the associated payroll taxes.

In summary, the key to remember here, as is my mantra, is that there are numerous types of financing options for all situations, industries, and companies. If you own an asset-rich company, consider asset-based lenders or ABLs. If you have a strong, profitable history or high growth prospects and are having cash flow issues, consider convertible debt. If you are financing an acquisition, buying out a co-owner, or have high growth prospects, consider mezzanine payment-in-kind or PIK.

Technorati Tags: debt options, mezzanine financing

I’m reposting the new, revised version because the audio on the last video presentation was defective. My apologies!

Technorati Tags: medium business financing, medium-sized businesses

A friend from Insead forwarded me an email she received about a VC funding event. She inquired if Wharton alums could attend. One of the organizers replied that it was open to anyone. So I’m passing this information on to anyone who will or could be in the New York City area on February 15, 2011.

Here’s the information, copied verbatim from their website:

“Come meet interact and network with leading venture capitalists, private investors, and emerging companies at New York’s premier annual venture networking forum.

February’s program will feature a distinguished lineup of early stage VCs who will share their criteria for funding deals in 2011 and their insights on where the venture industry is heading.

NEW – SPEED PITCHING!!

 We’re pleased to announce that this year’s program will also feature Face 2 Face “Speed Pitching” which will allow startups an opportunity to efficiently pitch, shake hands, and hand out their executive summaries.

VCs and angels participating at Speed Pitching include:
Flybridge Capital Partners
Rho Ventures
Penny Black
Connecticut Innovations
Time Warner Investments
Edison Ventures
First Round Capital
Metamorphic Ventures
StarVest Partners
Investor Growth Capital
Union Square Ventures
Chart Venture Partners
more to be announced

Agenda:

04:00 pm Registration, Speed Pitching & Networking Reception
06:00 pm Panel Discussion
Q&A
07:00 pm Presentations
07:30 pm Networking Reception
09:00 pm Adjournment”

When:  February 15, 2011
Time:  4:00 PM – 9:00 PM
Where:  Goodwin Procter LLP, New York City

If you are in the area and wish to attend and are one of the following: private investor, venture capitalist OR a founder or CEO of an early stage or rapid growth companyplease click here for more information and to register.

Early registration ends February 2, 2011.

Technorati Tags: VC funding, venture capital, venture capitalists

View the video “Financing Your Small Business”, also available on youtube.