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Financing Your Company in a Down Economy – Watermark Advisors Executive Briefing Webinar - July 15

Submitted by: Hagen Rogers on Jul 07, 2010 at 1:55 pm Tagged with: Debt Financing Source: Watermark Advisors

Greenville, SC - July 7, 2010 Are you facing the task of refinancing your company in the second half of 2010? If you are, or if taking out a business loan for the first time, you should prepare for how much the world of finance has changed since 2007.

Consider that since 2008 there have been 242 failed or assisted FDIC institutions. As a result, loan issuance has dropped precipitously. Thomson Reuters LPC recently reported U.S. middle market loan issuance at $6 billion in the first quarter of 2010, which is far below the second quarter 2007 peak of $27 billion. Past due loans over 90 days at FDIC insured commercial banks are at their highest levels since the early nineties. Therefore, commercial banks have tightened their lending standards. According to “American Banker Magazine” and Greenwich Associates 87% of bankers (at banks with assets $10 billion or more) surveyed in the first quarter of 2010 reported loan standards tighter or significantly tighter over the first quarter of 2009.

Companies with earnings before interest, taxes, depreciation and amortization less than $5 million will find financings even more challenging than companies with higher profitability. We estimate that one out of every seven borrowers facing refinancing in the next six months will be asked to find alternative sources of capital in replace of or in addition to their current lender. The “American Banker”/Greenwich survey also reported that nearly one in three new loan inquiries failed to meet bankers underwriting standards. Borrowers are finding that these are troubled times. So how can you best posture to be successful in financing your company today?

First, you should realize that to have success, you must begin discussions earlier to allow for more runway time. We have been approached recently by new borrowers who need funds within six weeks and while that might have been possible a few years ago, it is much less likely today. To maximize positioning, we advise our clients to begin discussions with their incumbent bank or new prospective banks at least four to six months in advance of the need. The process of securing loans is simply taking longer than in previous years. Time can be in your favor or work against you in negotiations. Starting earlier will afford you advantage of having more options as the time draws close to the date at which you actually need the financing.

Second, you should prepare to speak to two to three times the number of debt sources than you normally would consider. In previous markets, two or four banking alternatives likely would have resulted in at least one to two term sheets. Not true today. Watermark Advisors recently found bank debt financing for a client. We introduced our client to eighteen prospective financial parties and received three credit approved term sheets.

Third, many industries have greater uncertainty today than any other time throughout our careers. Customer loyalty is low. As a result, the tried and true business models that have generated consistent profitability and growth for many private companies have been permanently reshaped. Five year business plans have therefore become obsolete. It is simply too speculative to forecast performance so far out into the future as there are too many assumptions that are difficult to prove.

Rather than a five year business plan, we recommend you prepare a financial MAP. MAP stands for massive action plan. First, start by researching cutting edge industry trends and how they will affect your business. Also, identify breakthrough leaders in your industry and what core assumptions are driving their success. How are these leaders betting on the future? What should you adopt from these leaders? Then, we advise clients to get real clear on the outcomes they want for themselves and for their business three years out. We believe the “why” is actually more important than the “how.” Companies that have, and communicate, strong “whys,” build teams that move with greater clarity and often have stronger results. Finally, you bring all of this into a financial MAP, which will have greater flexibility in tactics than a standard business model. A financial MAP will set you apart in banker’s eyes from other prospects that are currently failing to meet standards.

Watermark Advisors will be sharing a complementary, educational 1-hour Executive Briefing on July 15 and July 22 at 11am via webinar called The Four Most Dangerous Trends Today Facing Private Companies That Need to Refinance. In this briefing we will be sharing our findings on how a combination of: maturing debt increasing geometrically each quarter over the next three years, along with two economic bubbles yet to bust, will create major hurdles in financing your company. To register, please contact Joan Roush at 866-527-8454.

About Watermark Advisors
Watermark Advisors is “Your Ally in the Capital Markets” with over 50 years of direct investment banking experience. Our Managing Directors have served over 60 clients over the past thirteen years in helping clients: raise capital to finance growth, make an acquisition, take money off the table and sell outright, while providing valuations and fairness opinions, industry benchmarking and strategic and financial modeling.

Contact:
Hagen Rogers,
Executive Managing Director
Watermark Advisors, LLC
531 South Main Street
Greenville, SC 29601
Ph: 866-527-8454

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