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Revolving Credit Facility

If you were to negotiate a new revolving credit facility, which banks would you approach?  Would you try to sole source or select an array of banks?  What term would you seek?

Thank you. 

Answers

Jim Holloway
Title: CFO
Company: Contract Lumber, Inc.
(CFO, Contract Lumber, Inc.) |

JPMorgan Chase, Wells Fargo, Bank of America and PNC

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Thank you for responding. Best.

Pete DeWeese
Title: EVP & CFO
Company: Tanknology Inc.
(EVP & CFO, Tanknology Inc.) |

Depends on your financial condition, I find Chase great to deal with, the standard documents are "free" and very reasonable. Our Atty said they were the best Bank loan documents that he ever worked with. Pricing is great, treasury products are great. Wells is also a great bank. I would always have banks compete for your business you save yourself and company a lot of money. It will also helps in negotiating your financial covenants. play the off of each other and you will be surprised. Be sure to include your monthly bank fees into the negotiation, you will find that you can generally get about a 50% savings. Also if you changing banks, I always get the new bank to give me 4 months of free fees as it takes a while to wind down the old accounts and get the news one set up.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Thank you. My "circumstance" is a corporate restructuring; so even though there is history, the drill is essentially a start from scratch situation. Did you go to Chase headquarters or local relationship officers?

Pete DeWeese
Title: EVP & CFO
Company: Tanknology Inc.
(EVP & CFO, Tanknology Inc.) |

I am in Austin, Texas and I went to the local loan officers. I was previously with Wells Fargo. I also went to a regional bank and was able to get a very good quote. Go in with a plan in mind and be sure and lay out and pros and cons. I also always try to go to the top of the department, these people are more seasoned and can be a bigger help to fight for you in the loan committee. If you can find some who knows a banker at Chase use them to get you in the door. It makes a big difference. You do not want to start with a beginner, it makes it very hard to get a deal done.

I have completed almost 1 billion dollars in loans with about $500k for restructures. The way I approach every transaction, is I look at the loan officer and remember that he has a mortgage to pay and probably a family to fee. So is not different than anyone else, so if you tell them and approach them that you are a full disclosure person and do not run from the truth, this goes a long way. I always tell them I do not want your to ever be surprised, except from a positive stand point with any transaction you do with me. You will be surprised.

For some of the restructures, I have used asset based lenders and had a lot of luck but they can be expensive. It is a borrowers market right now so good luck. Let me if you any other questions.

David Belgum
Title: CFO
Company: LeoNovus, Inc.
(CFO, LeoNovus, Inc.) |

I am the CFO of a small company and because of the size, prefer to work with the small business banks in order to be closer to the decision makers. Strongly favor getting multiple proposals to 1. determine market rates and 2. have leverage for negotiating. In some cases, pricing may be less important than flexibility in terms of covenants.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Small businesses are many times better off at smaller banks. However, regardless of the bank's size it is easier to get a loan from a bank you already have an established relationship with.

But with the right financials, business model, and in your case management history, it may be easier.

As far as paperwork goes, price is negotiable (to some extent) and most reputable banks should have similar types of contracts.

In my area (NYC Metro) the smaller banks seem to be both hungrier and smarter than the large banks (but given the current compliance issues it may make no difference).

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

The choice of banks depends on the size of your company. If you are a small company then the money center banks would not be interested. In fact in many cases small companies will be serviced by the small business part of these banks with different products and services. If you are a technology company both Sikicon Valley Bank and Comerica bank would serve you well. If not then look to smaller regional banks.

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, Wabash Financial Strategies) |

Specific bank recommendations will vary with your (unspecified) geographic location. Start with banks that know and have favorable experience with your client. These may be local or regional banks instead of the local office of a national firm. Deal with the most senior people possible. Make sure you understand the approval process (who has the signing authority and for what dollar amount, etc.) and estimated timing. Certainly solicit more than one bid. Competition keeps things honest and may also produce interesting alternate approaches. As someone else noted, pricing is only one element to consider. For example, a revolving line is usually secured but lenders may have different advance rates against similar assets.

If your line is large enough to require multiple banks, it's best to have a master/joint agreement among all parties. One lender should have the "lead" role so that you negotiate with them and they, in turn, work with the other lenders. Otherwise, each lender may have different covenants, advance rates and reporting requirements, making a bigger ongoing compliance and reporting job for your client.

The loan term is a function of funding needs and alternative capital sources. If this is more like term debt than seasonal working capital, longer is better. You may even want to negotiate a feature where some portion of the outstanding balance can convert to a term loan. Avoid, if possible, pledging more assets than necessary to support the loan.

Kirk Westbrook
Title: VP - Tech Banking Group
Company: US Bank
(VP - Tech Banking Group, US Bank) |

I would strongly recommend appraoching at least three banks. Try to select those that may have a particular specialty, like technology mentioned above, in your Company's line of business. This may not be readily apparent or available at your corner branch, but accessed with a few questions. Though the end product is a commodity, cash, the expertise that comes with it is not. Prior to getting into the nuts and botls of the financials, interview the people you will be working with, ask if those will be the same people that will watch over your account once the line is funded and if they have other clients with similar business models. I have been on both sides of the fence and presently am on the technology banking side at US Bank. Experience in a sector does matter, especially as the complexity of a business increases. Many people think of a banking relationship as primarily debt with a checking account. There are generally other products and services that can help companies in certain segments and result in a positive result on the bottom line.

J.G. Collins
Title: Managing Director
Company: The Stuyvesant Square Consultancy
(Managing Director, The Stuyvesant Square Consultancy) |

I've visited your website and I have at least a nominal overview of your lumber and building supply business.

For a business like yours, there are several steps to recommend before even considering a line of credit:
1. Can anything be done to spur earlier collections or to increase (commence?) deposits from customers for work yet to be done?
2. How are you recognizing your income for tax purposes? On the various projects you have going on, are you using the completed contract method of accounting so that you're not paying tax before the income is earned?
3. Can expenses or corporate distributions be deferred to enhance cash flow?
4. Are your suppliers able to provide you with financing or deferred payments that you could push on to the ultimate customers?
5. If the company is family owned, consider re-capitalizing the company and adding a class of cumulative preferred stock that functions much like a line of credit. The company won't get a deduction for the interest, but if the stock is properly structured, dividends on the preferred stock would be taxed at only 15%. .

If you determine that you absolutely MUST have a line of credit (which is convenient to have, in any event), I always recommend that the Board of Directors put their own strict rules and approvals in place -- beyond those of the bank -- to assure that there is full consensus in the company's management before "tapping" the line of credit.

As for the banks, I'd base a lot on the bank's client services and your "chemistry" with the banker you'll be dealing with. (If the bank doesn't give you a banker you can talk to, move on and select another bank.)

I do tend to recommend HSBC and TD Bank for medium sized businesses. They're much more familiar with the workings of middle-market businesses an pay much more attention to them than others.. They generally have better rates, too, depending on your balance sheet. You guys look like you're good, upfront, corporate good citizens; you should have no trouble.

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