Coping with the Credit Crunch
February 11th 2009 11:57 pm
ASU Spirit of Enterprise hosted a panel discussion on “Coping with the Credit Crunch.” The panel consisted of Phillip P. Guttilla, Corporate Attorney with Ryley Carlock & Applewhite, Lauran Lindsey, Assistant Professor of Finance at the W. P. Carey School of Business at ASU, and Dr. John Shufeldt, CEO of NextCare Urgent Care. The moderator was Gary Naumann, Director of the Spirit of Enterprise Center at ASU.
The program was attended by about 40 people, including bankers, CPA’s, business owners, and finance professionals. The first part of the program was “Taking Your Financial Pulse.” The take away from this section, is that, as a business owner, you need to know your company’s numbers. Even if it is not your strongest suit, lenders will want you, as the owner, to present your company. Are you monitoring you “days outstanding sales?” When is the last time you looked at “sales per full-time equivalent employee?” Have you been monitoring your margins, your receivables? Have you been communicating with your suppliers? with your banker? Have you been doing your collections? Your banker wants to see that you are on top of your business and that you are adjusting to the current climate.
The second section focused on “Are you prepared to go looking (for financing)?” Have you updated your sales forecast? Can you show where the increase is going to come from? Is it new customers? Is it deeper penetration into your current customer base? What is your cash cycle? There’s an old saying “Cash is King.” It is always true, but it is even more true today. Those that have watched their leverage, managed their business carefully, will be able to take advantage of opportunities that will arise. You need to know how much cash you will need; the rule of thumb is to ask for 18 months of cash needs — one year of cash plus an additional 6 months to line up the next financing source.
The third section focused on “Sources of Financing.” Even though we all read the paper and watch TV as the politicians harangue the bank presidents about lending, there is money being lent. You have to work harder to find it and you have to be prepared to show that you are credit-worthy and know how to the money that might be availabe. Some banks are lending; you will have to go to more than one bank. I suggest that you go to the ones that have not been in the news; they are the ones that have to cut their lines of credit in order to support commitments they have already made. Try privately held banks, new banks; these banks are less likely to have as many bad loans that they are working out of.
Other types of financing — asset based lenders, factors, invoice discounters. If you own equipment, see if you can sell it and lease it back. SBIC’s are Small Business Investment Companies; they finance small companies with loans and equity. If you are large enough to have $1 million in EBITDA, there is private equity capital available.
