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04/25/10
Obtaining a loan during Great Recession requires perseverance, hard work
Filed under: General, Business
Posted by: Lillian Wong @ 6:13 pm

by Chris Casacchia Phoenix Business Journal Friday, April 23, 2010

Even though Chase Bank shut down its $250,000 line of credit for Randy Lujan’s general contracting firm, Sonoran Bank thought it was worth the credit risk.

IFCM Inc. used the line about a once a year. It served more as a safety net than a funding mechanism for the bonding company. That’s why Lujan was surprised to see it had been removed when he checked his account online more than a year ago.

The bank told him since he didn’t use it, they chose not to renew it, eliminating some exposure.

“After that happened, it left a bad taste in my mouth,” said the president and CEO of the Gilbert company.

So he called a friend on Sonoran’s board of directors, and within weeks the line was granted and bumped to $400,000.

Lujan had a profitable company, good cash reserves, liquidity and excellent credit, but his trends were down even with a good pipeline of business from bank construction — ironically, mostly from Chase and Bank of America.

GOOD CREDIT RISK
The credit line is partially cash secured through a CD, creating no risk to Sonoran on that portion.

“He was a good credit risk for us,” said Frank Coumidas, senior vice president of lending at Sonoran Bank. “There’s not a lot of businesses right now that can say they’re trending up.”

IFCM used the credit line numerous times last year because business picked up as big banks received money through the federal Troubled Asset Relief Program. Without that line, Lujan said he would have needed to secure another loan.

Before the downturn, landing a commercial loan would never make headlines. But, given the credit crunch and this market’s reliance on financing, getting the green light for a loan is no small feat.

I/o Data Centers LLC, which designs and builds storage capacity for some of the world’s largest corporations, is well-capitalized and growing. But the company recently needed a loan for additional capital and infrastructure enhancements.

Executives began shopping a year ago for a debt provider and quickly were courted by financial firms, said Parker Lapp, chief corporate development officer of the Tempe company.

Mutual of Omaha prevailed, offering a competitively priced, long-term loan.

Kevin Hollarand, Mutual of Omaha’s head of commercial and real estate lending, said his bank looks at the individual seeking the loan, the company’s cash flow, collateral, and the overall conditions of the business and industry.

“We’re able to structure deals that correlate with the company’s cash flow,” Hollarand said. “A lot of banks aren’t even able to sit down with a client because they’re having capital or regulatory issues.”

Last year, Mutual of Omaha loaned more than $200 million in Arizona.

ESTABLISHED BUSINESS
Dean Rennell, head of Arizona business banking at Wells Fargo Bank, wants his team to identify the top 10 companies in each industry and seek their business. Each business banker is expected to make three face-to-face calls on prospects every week.

Rennell collects financial information from each potential borrower and links it to the size and type of loan request. He favors companies with established work contracts or specialized business lines.

That’s one of the reasons the San Francisco-based bank was attracted to American Metals Co., which processes, buys and sells scrap aluminum, brass, copper and other metals.

The Mesa company wanted to purchase a portable shredder, an $850,000 machine that breaks down scrap metal, which would allow AMI to sell the pieces directly to steel mills and consumers.

Finding financing was not easy.

President Irwin Sheinbein spoke to three other banks, which examined his records with a “magnifying glass” and “fine-toothed comb.”

“Getting the type of loan I wanted was frustrating,” he said. “As a small-business owner trying to grow my business, it was extremely challenging.”

After lengthy negotiations, Wells financed about 80 percent of the cost.

Sheinbein said the machine will bring in more revenue, while cutting freight costs in half by reducing the size of scrap. Although he secured a loan, he wants the banking community to be more sympathetic to the needs of small businesses.

“The economy depends a tremendous amount on small businesses such as ours,” he said.

Get Connected
American Metals Co.: www.americanmetalsco.com

IFCM Inc.: www.ifcminc.com

i/o Data Centers: www.iodatacenters.com



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Valley companies are still struggling to find financing
Filed under: General, Business
Posted by: Lillian Wong @ 6:06 pm

by Chris Casacchia Phoenix Business Journal Friday, April 23, 2010

Despite owning a successful luminary business and having a $120,000 purchase order in hand from three major retailers, John Norberg couldn’t secure a loan from M&I or Chase banks.

Russ Perry’s young marketing and advertising firm has avoided debt and weathered a storm that rocked his industry, yet Wells Fargo bankers quickly told him he wouldn’t qualify for a line of credit.

It’s a common story for thousands of small-business owners in the Valley who continue to have loans rejected by banks, which sparks the question: What do we have to do to get a loan?

“You need to know what the bank needs to know before they need to know it,” said Scott Mahoney, managing partner of Catalyst Corp­orate Solutions in Peoria.

Mahoney has spent more than a decade in the financial services industry, including stints as a commercial banker at JPMorgan Chase & Co. and KeyBank’s Technology Investment Banking Group. Now, he’s advising businesses on how to land financing in a difficult environment.

Cash always has been king, but it’s never been more important than now.

“Cash flow, that’s paramount,” said Glenn Gray, CEO of Sunwest Bank, which took over First State Bank in Flagstaff after the Federal Deposit Insurance Corp. shut it down in September.

But that’s only one of the criteria his bank assesses before granting a loan.

QUALITY FINANCIALS
He advises business owners to have high-quality financial reports prepared by an accountant — even better, audited by a certified public accountant. Important factors include inventory, quality of receivables and their turnaround time, and current assets.

On the liability side, Gray wants to know whether companies are accounting correctly for their payables and accruing their expenses and cost of goods sold properly. He also wants to examine year-over-year trends and what’s driving revenue.

When a potential borrower doesn’t want to supply tax returns or reports a discrepancy between company financials and tax statements, that’s a big red flag, Gray said.

“We are certainly putting more credence on quality financials,” he said.

Jeff Kunkel, a senior vice president and West region manager of Chase, lists cash flow, liquidity and capital position among his highest priorities. But he also wants to know how a company has adjusted during the recession, the purpose of the loan, if it has been well-thought-out, and if the right business decisions have been made.

SINKING DEMAND
This year, Chase intends to double its lending to $10 billion nationwide and hire 325 business bankers to handle that load. If a loan is rejected, a second team will review it and help the customer find either an in-house solution or another lender.

In 2009, lending was way down at Chase, one of the largest banks in the world. When asked why, Kunkel said demand sank as businesses struggled to survive — a similar refrain among many bankers the Phoenix Business Journal talked to for this story.

“It wasn’t so much we stopped lending. The demand is what came to a screeching halt,” Kunkel said.

Norberg, president of RC Co., said he was turned down for a loan last May because of a lack of business experience. He bought the company two years ago, though it was established in 1984.

Norberg’s accountant drafted a business plan for the $100,000 loan, and he relied on the advice of his wife, a former business banker. But even a $120,000 purchase order from Walgreens, Ace Hardware and True Value wasn’t enough to sway the banks.

Within a few months, he found Performance Funding, a Phoenix factoring company that provides accounts receivable financing. The company provided the loan, and Norberg was able to order the supplies to cover the purchase order, which was more than he borrowed.

“If we wouldn’t have gotten funding from Performance last year, we would be bankrupt today because every penny we had, we put into that company,” Norberg said. “We wouldn’t even be in our house.”

ACCESS TO CAPITAL
Perry gave up looking for a credit line after being discouraged by the process. He was seeking a $10,000 to $20,000 credit line as a precaution, in case he needed to hire a new employee or buy software or hardware.

He was rejected a few days after he applied, which entailed filling out a form with personal and business information.

“There was no guidance after that,” said the founder of Keane Creative in Tempe, which has never posted an annual loss.

Perry had worked with the same banker for years and established business accounts with San Francisco-based Wells. Despite the setback, his company hasn’t switched banks. He likens the idea to leaving the Mafia.

“Since then, I haven’t tried again. I felt like a little fish,” he said. “It is very hard to grow because we can’t get that access to capital.”

Get Connected
Keane Creative: www.keanecreative.com

RC Co.: www.luminarias.com

Wells Fargo: www.wellsfargo.com

JPMorgan Chase & Co.: www.jpmorganchase.com

Sunwest Bank: www.sunwestbank.com

Securing a Business Loan
Do
1. Have your financial statements in order. Lenders want to know the business is making money.
2. Be able to explain how the loan proceeds will be used. Lenders like to know whether the loan proceeds are going to increase cash flow.
3. Make sure the business has enough collateral (e.g., accounts receivable) to justify the line of credit. Collateral are assets offered as a repayment source.
4. Ensure the owners are invested in the company. Lenders are looking for sufficient equity in the company on the part of an owner.
5. Know your local economy and competition. Be prepared to describe the primary threats to the business and what measures are being taken to protect the company from these risks.

Don’t
1. Lie or overstate items on the application, financial statements or your personal financial statement.
2. Get too small a line of credit. If sales are growing quickly, you may not have enough credit to fill orders.
3. Get just one term sheet. There are plenty of lenders, so find one that understands your business and has a good rate.
4. Stop communicating. Whether it is a cash-flow issue or a business opportunity, talk to your lender. Lenders are proactive and can offer solutions.
5. Bluff. Do not threaten to leave a lending relationship just to get a better deal. The lender may just call your bluff.

Source: Factors Southwest



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Buyers have no moral duty to lenders
Filed under: General, Real Estate, Mortgages
Posted by: Lillian Wong @ 5:52 pm

As a result of the housing collapse, many Arizonans have seen their homes lose half of their value. Many owe several hundred thousand dollars more than their homes are worth and are unlikely to dig out of their negative equity hole for decades.

For these homeowners, the American dream has become a nightmare - and their financial future is dim.   more…


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Arizona home values may depend on mindset of buyers
Filed under: General, Real Estate
Posted by: Lillian Wong @ 5:44 pm

The psychology of the metropolitan Phoenix housing market is at a crossroads.

Decades ago, the market was a mix of long-term and short-term buyers: People who saw a house as their home, and people who saw a house as a box of equity to cash in at the first good opportunity. Long-term homebuyers were the dominant segment.  more…


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Tempe condo towers up for sale by CB Richard Ellis
Filed under: General, Real Estate
Posted by: Lillian Wong @ 5:09 pm

Early next week the mostly-built Centerpoint condominium towers in downtown Tempe will be listed for sale by CB Richard Ellis.

The condominium project recently failed to sell at a foreclosure auction, which forced Peoria-based lender ML Manager LLC to take over the property.   more…


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New-home sales, orders for durable goods rise
Filed under: General, Real Estate
Posted by: Lillian Wong @ 4:43 pm

WASHINGTON - Sales of new homes took the biggest monthly jump in 47 years in March, while orders for most large manufactured products rose by the largest amount since the recession started.

While factories are benefiting from a sharp increase in orders from U.S. and foreign businesses, the fuel for new-home sales is coming from a less sustainable source: government subsidies.  more…


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Home-sales report buoys stocks
Filed under: General, Real Estate
Posted by: Lillian Wong @ 4:37 pm

NEW YORK - Stocks rose Friday after a strong report on new-home sales offset mixed news from corporate earnings reports. The market was held in check for much of the day after Greece decided to tap a bailout program.

The Dow Jones industrial average closed higher for the 11th time in the past 12 trading days. Friday’s gains wrapped up the index’s eighth consecutive weekly gain - the longest winning streak for the Dow since a two-month stretch ended in January 2004.  more…


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Good buy or goodbye? Tips to shopping for foreclosed, short-sale and flipped homes
Filed under: General, Real Estate
Posted by: Lillian Wong @ 2:40 pm

It has a mountain out back and, apparently, a mountain of debt.

Weeds and overgrown landscaping obscure a for-sale sign in the front of the foreclosed home northwest of Deer Valley and Cave Creek roads in north Phoenix.

“This one is not too bad,” real-estate agent Gary Holloway of Zip Realty said of the long-vacant home. “They get no love.”  more…


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Outlook good, but analysts warn of housing downturn
Filed under: General, Real Estate
Posted by: Lillian Wong @ 2:36 pm

WASHINGTON - The economy is improving, with home sales up, jobless claims down and inflation tame. Yet there are concerns the rebound won’t get much juice from the housing market, which is fueled by government tax breaks.

Sales of previously occupied homes grew by nearly 7 percent last month, more than expected, the National Association of Realtors said Thursday. It was a welcome sign after three months of decline, and a solid kickoff to what’s expected to be a strong spring selling season.  more..


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Phoenix council may delay property-tax funded projects
Filed under: General, Real Estate
Posted by: Lillian Wong @ 2:31 pm

Home and commercial-property values have plunged in recent years, reducing Phoenix property-tax revenue used to pay for some capital projects.

Now, city staffers are asking the City Council to consider shelving some or all of the remaining property-tax-funded projects - from a $4.7 million Ahwatukee Foothills fire station to a $1.6 million police driver’s training facility - to avoid piling on the debt.  more…


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