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Jeffrey Sweeney is an investment banker with years of experience in direct lending and corporate finance for small- to middle-market companies. He is the chairman and CEO of US Capital Partners, an innovator in small- to middle-market business lending. US Capital Partners has been providing prompt, innovative, and reliable financing solutions across the United States and abroad for more than a decade.

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Tuesday
Dec222009

Small Business Investment Banking: What Obama Needs to Know as He Works with Small Banks to Unlock Credit

While President Obama has been busy meeting with executives of small banks to encourage them to increase lending to small businesses while pledging to work with bank regulators to "cut some of the regulatory red tape," what seems to be overlooked is how these small banks fit into the greater small business banking landscape.

According to CNBC, Obama has implored these small community bankers to help keep the fragile recovery from faltering by increasing lending to small businesses and supporting a rewrite of financial regulations.

With all the focus on changing lending practices at community banks to unlock credit, Obama may not realize that alternative lending solutions for small businesses have been available all along - if people know where to look. And the solution to the credit crunch isn't so much to work to "cut regulatory red tape" but to encourage small banks to educate their bankers on these alternative financing options like asset-based lending that are available when a business does not fit the bank’s lending risk profile. That way the small businesses can get alternative financing they need until they recover. But rarely do the local banks know how to help businesses get the funding they need, nor are they paid to know how to help them find these solutions.

With the national unemployment rate clinging to double digits, it's critical that we rally behind small businesses - but we need to be able to provide them viable long-term solutions and turn to resources with experience in financial restructuring and a proven track record of providing immediate, innovative, and reliable financing solutions.

And in order to do this, it may be helpful to get a brief overview of the banking landscape. Allow me to color this in for you with some very broad brush strokes. Of course, there are many exceptions, but for discussion purposes here goes:

In Business School the guys who got the A+’s (or dropped out to get to work!) are running the very successful small (now large) businesses. These are the huge profitable hedge funds and investment banks. They are the smartest guys in business, period. Here are a few examples to prove the point: Bill Gates, Steve Jobs, GoldmanSachs, and Blackrock (a private Hedge fund that goes public just before the stock market crashes, and then recently launched a gold investment fund at the peak of the gold bubble).

The guys that got the B’s are running the large cap companies for salaries and working for the big banks, as well as running small hedge funds and working with small businesses.

That leaves the guys who got the C’s. They are working at you regional small bank, or in the small business lending division of the large institutions, serving small businesses. This is not intended to offend anyone, but merely to illustrate the point that even when you get a C you need an appropriate job.

The local banks have a very simple job. They interview small business to see if they fit into their narrow and narrowing acceptable lending profile. One banker was recently quoted saying: “We are going to tell Obama what we need from him.” This statement is ridiculous in many ways, especially since as I mentioned earlier, the guys at the regional banks rarely know how to help businesses get the funding they need, nor are they paid to know how to help them find these solutions. Compounding the problem, large business managers have professional chief financial officers (CFOs) and large investment banks to help with those decisions. Smaller businesses have bookkeepers who are not knowledgeable in alternative lending, and an accountant who only knows about tax reporting, no one else.

The answer to this information vacuum is education. There are plenty of funds available for small businesses but you have to know where to look, who to speak with, and what pricing is appropriate. We see the major headlines about credit remaining tight for small businesses across the country - and yet there's already plenty of funding available for small businesses that need working capital. Alternative financing options, like SBA lending and asset-based lending, can help many businesses get the backing they need when the banks say “No.”

While these loans may cost businesses more in interest in the short-term, they are helpful and necessary to get a business back on its feet.

It is important that businesses find a small business investment banker and advisor who knows the financial landscape for small and mid-cap companies. Remember - these are the guys who got B’s or else they would be running large hedge funds. Instead they run small hedge funds aka asset based lenders (ABL). If there is anything that the small banks could do to help small business is educate their bankers on alternatives for when a business does not fit the bank’s lending risk profile. That way the small business can get alternative financing until they recover or grow to the point that the small banks can actually start lending your grandmother's money to them again.

To find out more more about how your businesses can secure alternative financing, visit US Capital Partners, Inc. at http://www.uscapitalpartners.net/ or call (415) 882-7160.

Wednesday
Dec162009

Will White House Prodding Affect Bank Lending to Small Businesses?

While Obama has been calling on the nation's biggest bankers to provide more small-business loans, business owners who need working capital are left wondering when if and when the administration's efforts to boost credit will pay off - if ever.

According to the Washington Post, President Obama has said: "America's banks received extraordinary assistance from American taxpayers to rebuild their industry. And now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy."

The banks will pay lip service to the latest political pressure on lending but there will be no substantive changes. The reason that there will be no substantial affects on bank lending to small business due to White House prodding is because commercial bank lending is formulaic. In simplest terms, your grandmother puts her savings in the commercial bank, the government guarantees that deposit, the bank prudently loans it out to business based on their proven ability to pay it back. The assessment as to whether the business can pay it back is called underwriting criteria.

Businesses are currently financially stressed due to the recession so demand from credit worthy borrowers for loans is down.  In addition, the number of credit worthy borrowers is down. The banks cannot “lower their standards” to make more loans because they will end up with another large group of defaults like they now have in real estate.

The solution to this dilemma already exists as there are plenty of alternative lenders to the commercial banks. Asset based lenders (ABL) and factors have always made loans to small and medium sized business when they were too risky for the commercial banks. Many times loans can be made at rates as low as or just slightly higher than commercial banks.  On the surface, this sounds like good news, but the problem is the ABL world is fragmented and made up of many smaller regional lenders with varying appetites for loan types.

It is very difficult for businesses to find appropriate lenders in this space. Hence the small business credit “crisis” is a crisis of information...

....Ironic in the information age. But the truth is that there's plenty of funding available for small businesses who seek out alternative lenders.

Banks may use politics as a scapegoat to justify their lending practices, but overall, the system from banks is the same.  So even White House prodding isn't going to affect small business lending.

Banks are responding with political window dressing.  If you like what happened when the feds lowered the standards on mortgage lending creating the “great recession” when the real-estate bubble burst you will love it if they lower the standards on small business lending.

US Capital Partners is a private investment bank, direct lender, co-lender, and lead financial arranger. If you are looking for financial support, visit our website at http://www.uscapitalpartners.net/ or call (415) 882-7160.

Thursday
Dec032009

How to Protect Your Small Business from "Vulture" Hedge Funds Employing Loan-to-Own Strategies

It’s a fact that lender liability can be an issue for hedge funds that embrace loan-to-own strategies. But by far the most serious consequences of loan-to-own strategies is felt not by the lender, but by the “target” business.

So how do businesses protect themselves from such opportunistic plays? If your company is in default on a loan or in breach of loan covenants, what can you do to avoid falling into the hands a “vulture” hedge fund eager to take control of your business?

I recently shared my insight and advice for businesses with Jennifer Banzaca of The Hedge Fund Law Report for her article entitled “Hedge Funds Employing Loan-to-Own Strategies Face (and Resolve) Ownership Dilemmas” (Vol. 2, No. 35).

The most important actions to take are the following:

(1) proactively find a new lender to take out your existing lender

(2) open negotiations with your current lender to pay off all or part of your loan before they’re motivated to sell it at a deep discount to a loan-to-own lender. Waiting and doing nothing because you have a relatively inexpensive loan with your current lender is not only inadvisable but dangerous in this environment, because of loan-to-own debt buyers.

US Capital Partners is a specialist in small- to middle-market business finance, and is a principal lender to businesses. We know all about loan-to-own strategies and the dire ramifications for borrows in the event of default. This is why The Hedge Fund Law Report contacted me. In fact, our mission and business model is to help clients avoid loan-to-own consequences.

In most cases, loan-to-own is when a hedge fund or other lender provides senior secured debt to a “target” business, or purchases its senior secured debt, with a view to control or acquire the business. The fund often buys the debt at a deep discount. As I noted to Jennifer, stock pledges often serve as key elements in loan-to-own strategies.

Sometimes the fund may try to nudge the target company toward a bankruptcy filing where it can then turn the face value of the debt into an equity ownership in the chapter 11 process. Of course, such a strategy does carry risks. As I explained to Jennifer, “if you become a lender and then, as a lender, force an event that is detrimental to the company, there are lender liability issues.”

Loan-to-own strategies are not new. We’re just seeing more of them now because of the difficult economic climate we’re in and the lack of financing alternatives available. Businesses are often forced into loan-to-own situations because they need more working capital, but can’t get financing from conventional lending sources.

If you’re in this category, you need to know there is sound alternative financing available to you—especially through asset-based loans. And if you’re in default or in breach of loan covenants, you need to get expert counsel quickly, before it’s too late. At US Capital, we specialize in restructuring debt to avoid loan-to-own consequences. It’s imperative for borrowers to take proactive steps to recapitalize before their loan is sold to one of these “vulture” hedge funds. In this situation, the borrower can’t afford to remain passive.

If you would like to know more about how your business can secure the funding it needs, visit US Capital Partners, Inc. at http://www.uscapitalpartners.net/ or call (415) 882-7160.

Tuesday
Nov242009

Plenty of Money Available for Small Businesses Who Seek Out Alternative Lenders for Working Capital

JPMorgan recently announced that it would add $4 billion in small business loans. However, there are still many companies unable to qualify for credit despite efforts by commercial banks to ramp up small business lending.

Credit remains tight for small businesses across the country, despite this “window dressing” feel boost from U.S. banks. What we are seeing here is a bunch of sound bites created by the commercial banks who are merely pretending to pay attention to Main Street’s needs to gain political capital. The billions in loans offered to alleviate the credit crunch is not going to help many small businesses that are still struggling with the down economy and do not have the financial strength to meet the stringent lending criteria of these banks.

Even with new lending initiatives from intuitions like JPMorgan Chase, business owners still face incredible difficultly qualifying for credit and obtaining the funding they need, and will need to seek out alternative lenders available to assist with financial recovery.

That's the good news: There's already plenty of help available for small businesses that need funding. Alternative financing options, like asset-based lending, can help many businesses get the backing they need when the banks say “No.” While these loans may cost businesses more in interest in the short-term, they are helpful and necessary to get a business back on its feet. And it's critical that businesses who need financial restructuring work seek out an expert who has experience in re-structuring and providing alternative debt for small businesses. This can provide capital for your business to help make it through the downturn into the recovery so you can once again qualify for commercial bank loans at lower rates.

Help for small business lending is not on the way – it’s already been here, but you need to know where to look. If your business doesn’t fit the bank’s narrow (and narrowing) loan criteria, this is a time when you need to think outside the box to get help rehabilitating and re-structuring your finances. But you can’t wait for JPMorgan to loan you money or for Obama to fix the economy – you need to be proactive in managing your business and seek out a specialized financial advisor/lender who can help you re-structure your finances in a way that makes sense for you.

If you would like to know more about how your business can secure the funding it needs, visit US Capital Partners, Inc. at http://www.uscapitalpartners.net/ or call (415) 882-7160.
 

Wednesday
Nov182009

US Capital Partners at the TMA Panel on Alternative Financing: Where to Go When the Banks Says "No"

Last week I had the pleasure of speaking in San Francisco on the TMA Panel on Alternative Financing: Where to Go When the Banks Says "No." In addition to US Capital Partners, the panel featured great insight and different perspectives from Wells Fargo Business Credit, Renovo Capital, and Business Capital.

With small-businesses bankruptcy filings up 44% and business owners finding it increasingly difficult to obtain funding, the session on alternate finance was a "must do" event for many attendees.

There are definitely alternatives available for businesses to turn to for financing when the banks say "No." Companies like U.S. Capital specialize on providing borrowing alternatives to companies that are unable to qualify for bank financing.

While it's important to know your options for alternative financing, it's also important to select partners that have proven track records in providing complete and comprehensive financing solutions. So make sure your prospective lenders can provide the best financing available in addition to specialist advisory and financial restructuring services, where necessary.

US Capital Partners is a private investment bank, direct lender, co-lender, and lead financial arranger. If you are looking for financial support, visit our website or call (415) 882-7160.


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