Financing Growth and Survival in Today’s Tough Capital Markets

Jan 11, 2012

Topic: Business

With some commercial real estate and other asset values still falling, 2012 is shaping up as another opportunity for outdoor companies to expand. That is, if they could just get the financing.

Banks, which have traditionally accounted for half of small business lending, tightened loan standards early last year for the first time since mid-2008, according to Small Business Administration surveys. Finance companies, which have traditionally accounted for another 45 percent of small business lending and borrow from banks, have also cut back their small business lending. As a result, the total outstanding balance of small business loans ($1 million or less) was nearly 16 percent lower as of Sept. 30, 2011 than in June 2008, according to SBA data.

For businesses that are growing, but can’t show two or three years of consecutive profits, borrowing remains difficult, but not impossible, according to Kent Thomas, founder and CEO of Advanced CFO Solutions of Utah.

Since 2008, Thomas figures he has helped clients complete 30 to 40 financing transactions of $1 million or more involving both debt and equity. His experience has taught him that bankers will lend to companies that can explain recent losses and other financial skeletons in their recent past.

For instance, companies that have suffered a period of losses after losing a key client, but returned to profitability can find sympathetic bankers.

“You can get a deal done, but you have to be able to guide bankers through the process very quickly on why you think your situation will improve,” Thomas said. “Bankers have to explain to regulators, investors and their loan committee why a loan will work. These days, they are motivated to say no, more than say yes.”

At the end of the day, Thomas said, securing capital is still about building trust relationships. It’s also about looking in the right place at the right time and having realistic expectations.

On Monday, for instance, Thomas got a call from a CEO at a company that had been operating less than a year. He needed a loan to finance $300,000 in equipment so he could buy a business that was being spun off by another company. Every bank in the region had turned him down.

Thomas explained to the executive that he might want to consider leasing the equipment through a finance company, which would be much more comfortable lending against receivables and other assets than banks. While the effective interest rate on a lease might be 6 to 7 percent, that’s nothing a healthy business can’t handle.

“They had been shaking the wrong tree,” Thomas said of the company. “There is not a bank in Utah that will take this deal.”

Thomas is among eight financing experts Outdoor Industry Association has recruited to appear on two Outdoor University® panels during Outdoor Retailer Winter Market next week. He will participate in The Dollars Dating Game – How Outdoor Companies Find and Maintain a Credit Companion Today, which will address where and how to access credit in today’s environment. Another four experts will focus on how to pitch private equity investors in a panel discussion entitled Outdoor Investment Idol – Equity Judges Debate What’s Cool to Invest in and Why.

Bankers on both panels will discuss how they are deciding where to invest and why. Moderators will help them examine real world examples of which pitches work and which don’t in today’s environment. The events are designed to be relevant to both start-ups and more established companies that need capital to finance their next phase of business.