By Corey Henriksen
While you are focused on pennies in profit margin, are you neglecting big dollars that fly out the door needlessly because you are not always getting the best financing rates and terms? It may be that in talking with others, you are paying high rates as compared to them; or your loans may be coming up for renewal; or your prepayment penalties may have dropped off.
What do you do? Is your lender really giving you the best rates? Can you do better? Should you go elsewhere? Will looking around jeopardize your current banking relationship? How much can you save?
Which yields the best results: (i) “just go talk to a couple of bankers and see what they say” or (ii) periodically execute a well-thought-out plan for obtaining the best rates and terms?
Financing: A Separate Profit Center.
You already watch very carefully each of your profit centers. You review every line item, scrub every expense, and tighten down every expenditure. Do the same with your financing. Whether you are with one lender or multiple lenders, look at each facility within the capital stack. Are the rates and terms the very best… for your lines of credit, your CAPEX term loans, your real estate loans, your equipment leases, etc. Reining in those big dollars will have a dramatic impact on the bottom line.
Competition Works: Every Time, Every Loan.
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 funding; as well as work out loans that were either securitized in pools or held in portfolio.
When you ask your lender for better rates, do you think that he will give you the very best rates and terms? How do you know? Only one way: competition among a number of qualified lenders. It is amazing how a banker will sharpen his pencil when he finds out that other lenders are competing for your business. In my experience, a better deal is always struck.
What about hurting your banking relationship by checking the marketplace? Easy answer — let your lender know that you understand that he expects you to respect him, “as a good lender,” when he needs to check valuations through reappraisals, or to reduce lines of credit, etc.. Therefore, he should respect you, “as a good businessman,” to periodically check the marketplace to ensure the best rates and terms for your business.
Hire An Adviser? Or Do It Yourself.
The important question is: “Do you have the time and expertise available in-house to research — and negotiate the financing issues that will impact you for years to come? Remember what you are up against — you are negotiating against a loan officer and underwriting staff that has the time, expertise and years of experience negotiating the lender’s side…
If you seek financing yourself you will save an advisers fee; however, the savings obtained by a competent adviser will equal that fee many times over.
Also, you risk that you may get it wrong, obtain poor terms and covenant structure, and end up paying for your mistakes for a long, long time. Or you may spin your wheels and never get the financing closed. Or even worse, you may not even get in front of the right lenders for your transaction. With the wrong lenders, concentration issues can pull you up short for further growth.
A competent financial adviser, however, will obtain a faster, better, cheaper loan transaction; saving you money. Why? Because he knows the market and the issues. Negotiating loan packages is all he does, day in and day out. While he plays to his strengths, you play to yours: you can then spend your time on building your business and obtaining more opportunities.
Be sure to choose only professionals with proven performance. Base their fees on success. Check references.
Presentation to the Lender
If you seek financing yourself, here are some important guidelines:
- Active lenders are overloaded with loan requests. Do not give them a disorganized stack of papers and expect them to figure it out. Give them a presentation that stands out as quality in the stack of loan requests on their desk.
- Research thoroughly each lender’s underwriting requirements. Even lenders within in a similar lender class will have different parameters for their ratios, etc. Work through all the issues before it gets to their desk. Do the sensitivity analyses. Provide each lender with an individual loan request tailored to that lender’s specific requirements.
- Educate each prospective lender about the unique aspects of your business, whether wholesale or retail, or both. Show you really know your business and where it stands by providing accurate books and records. Every day more big dollars are flying out the door needlessly. Obtain the best rates and terms now. Execute a well-thought-out plan today.
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.
