By Corey Henriksen
Are you missing out on getting the best rates and terms for your business during this unprecedented time of opportunity? Interest rates are historically low. If so, what practical steps can you take to make sure that you’re getting the best financing for your business right now? How do you overcome issues in your current financials in order to obtain great financing?
My perspective is as an attorney and an adviser representing solely petroleum wholesalers and retailers in securing financing. I help petroleum industry borrowers increase working capital and accounts receivable/inventory lines of credit, and obtain acquisition, construction and refinance site funding; as well as work out loans that are either securitized in pools or held in portfolio.
The key is awareness, a focused plan of attack and presentation of the facts in a manner that obtains results.
Take A Cold Hard Look At Your Financials
As a problem solver, you know that ultimately you are responsible for your business’ current financial situation (all excuses aside). You have acted on many choices getting to this point and the choices you make from this point forward will determine the results you get.
Break out the last three years of financials. Go through them in detail. Where are you making money? Where are you losing money?
Keep your review simple. Focus on where you make your money and improve the profit center or cut it out where you don’t. What are the problems? What are the blemishes? Where are the opportunities ?
It is important to note that to some lenders, blemishes are seen merely as signposts of past experience as long as you know about the blemishes — you point them out to the lender and you show the lender how you’re going to fix them.
What does instill panic and swift backpedaling in a lender is when the underwriter finds an issue in the financials about which you had no knowledge and have no clue how to fix; which also brings up an additional lender fear that there are possibly other undiscovered issue “time bombs.”
So now you have a laundry list of issues in the financials. Relax, any business that’s been around the block a number of times is bound to have some nicks and dents. This is all part of the valued “seasoned industry experience.” No one ever plays a perfect game all the time.
Set Up a Reasoned Business Plan/Pro Forma
Put together a plan of attack for each issue. Can it be fixed or do you cut your losses? For example — serious issues with dispatch? Do you figure out a way to fix them, or do sell your trucks and use common carriers? Bad propane purchase last year without a hedge? Continue with propane, but have a hedge in place?
There are terrific sources of operational guidance available within our industry. There is no need to reinvent the wheel: seek out these experts to help you fine-tune your remedial operational action plan. However, sometimes pretty drastic measures may need to be taken. So do you do it yourself or do you create some distance by hiring somebody from outside to come in with the chainsaw and do it?
Armed with this information, update your business plan to include the changes that you will be making. Create a pro forma as well that explains these changes, when they will come and justifies the resulting proposed EBITDA. This is where all your hard work comes together.
Make a Quality Presentation
So far, you have been focused internally. You know where your business is headed and how you will obtain your profits in the future. Now focus externally:
- Determine the type of financing that you need: term financing, accounts receivable/inventory lines of credit, working capital, etc. Determine what’s important to you: interest rates, term, amortization, guarantees, etc. Your requirements will determine the lenders you choose.
- Cast a wide net for different lenders. Competition is good. Research thoroughly each lender’s underwriting requirements. Note that even lenders within a similar lender class will have different parameters and ratios.
- Provide each lender with an individual loan request tailored to that lender’s specific requirements. Give each lender specifically what they require. Educate them about the unique aspects of your business.
- Work through all the issues where your numbers currently fall short on a specific covenant. Show through your business plan and pro forma how you will become “in covenant” shortly.
Lenders will not finance a perceived losing proposition, and certain lenders do not generally work off of pro forma. However, everything is negotiable. If you give a lender a presentation of your business that stands out as a well-thought-out business plan with pro forma, and you can justify that within a certain time frame you will be within covenant many lenders will structure certain covenant requirements in a stepped fashion to take into account anticipated increased EBITDA due to reasoned remediation of a blemish in your financials. This is of course because you have shown you really know your business, where it stands and what it can and will do.
Conclusion
If you have “challenges” in your current financial statements, you are not precluded from obtaining good terms and rates right now. However, you do have to be aware of the requirements of lenders that provide the type of financing that you want, where your current financials fall short of a specific lender’s covenant and what you need to do to fix that blemish to bring your financials in covenant. Then, with a quality presentation that presents a solid business model addressing past blemishes you can gain immediate access to a tremendous amount of money available at good rates.
Corey Henriksen is Managing Director of Acquisition and Refinance Capital, Inc., a firm founded for the sole purpose of obtaining numerous capital alternatives for wholesale and retail owners and operators in the petroleum industry. Corey can be reached at (949) 481-8500 or www.AcqRefCap.com.
