When Your Business Cant Repay a Bank Loan

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					When Your Business Can't Repay a Bank Loan - BusinessWeek                                                   Page 1 of 3

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 SMART ANSWERS April 11, 2011, 2:38PM EST

 When Your Business Can't Repay a Bank Loan
 A business turnaround adviser explains why small and midsize companies are having
 trouble servicing their debt and offers advice on defusing tough situations
 By Karen E. Klein

 Business turnaround expert Jim Martin has had an insider's view of the Great Recession as he works out loan
 repayment troubles between banks and middle-market companies still scrambling to recover. The founder and
 managing partner of ACM Capital Partners, a turnaround and financial restructuring company based in Miami,
 says he still sees market "softness" but is optimistic about increased availability of credit and private equity
 investment for small businesses. Martin, who has been in the corporate turnaround industry for more than
 two decades, spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation

 Karen E. Klein: You have seen a lot of declining companies in the past couple of years. Was lack of
 demand the biggest problem?

 Jim Martin: There was such a precipitous drop in the economy. It was the speed at which we saw this recession
 approach and take over, coupled with the banks' own issues. And it was exacerbated by the runup of personal
 debt of the individuals who own companies. They either made huge personal investments in their businesses or
 they bought toys—Lear jets and yachts—when debt was cheap and aplenty.

 Has your business seen a boom during the recession?
 In '08 and early '09, our business was basically nonexistent, despite the fact that was the worst time. It was
 because people were scared to part with a dollar for anything. The Dow was down; we all thought the world was
 coming to an end.

 As people started to see the landscape a little clearer, they were willing to spend money on advisers like myself
 to help get through their issues. My business started to pick up during the second half of last year and now we
 have a whole slew of deal flow and activity, generated by both bankers and borrowers.

 What are you seeing on your clients' balance sheets right now?
 The recession may be officially over, but its effects are still being painfully felt by owners of middle-market
 companies, their management, and lenders. I'm looking specifically at many companies in the construction
 industry in South Florida, where the experience of the recession has been particularly hard.

 But I've also got a client that is a last-mile trucking company who does a lot of retail business and we're still
 seeing softness in his business. That's exacerbated by fuel costs and balance sheets that are not cleaned up,
 both on the family side and the small business side.                              4/12/2011
When Your Business Can't Repay a Bank Loan - BusinessWeek                                                  Page 2 of 3

 So, many companies are still suffering. We're in April of 2011 and I'm seeing cases where the bank is asking us
 to liquidate retail locations that survived the worst of times. I don't think we're where many would think we are
 from a recovery standpoint.

 What's your advice for small and midsize business owners who start having difficulty making loan
 They have to act quickly. When the banks come and request information, or are bearing down on them, the
 worst thing they can do is ignore it or not provide communication back. It scares the banks to death. The banks
 are not in the best of shape, so when you have a borrower like that, it just exacerbates the situation.

 Why do business owners react by stopping communication?
 Mostly they're running scared. That entrepreneur who started the business and grew it from $1 million to $150
 million may be back to $70 million or $80 million. They often don't have a sophisticated team around them.
 They'll call somebody a [chief financial officer] who's really a controller at best. They know their way around a
 P&L statement or an auditor, but when it comes to communicating with sophisticated third parties, they don't
 know how to act.

 The bank translates that as failure to communicate, or shutting down, and it starts a death spiral where they
 throw things to their attorneys. I've got a $6 million deal right now where the owner of a construction company is
 ready to take the company into bankruptcy. I reached out to the head of the bank's workout group for the whole
 region. I told him, Sit down and talk to this guy or you'll get 10 cents on the dollar.

 What do you do when you're hired to intervene?
 Sometimes we're brought in by the banks and other times by the businesses. If we're brought in by the business
 owner, we immediately take control—as much as we can—of the company's cash flow. And we immediately start
 dialogue with the bank, which defuses a tough situation.

 We analyze the credit, analyze the situation, and then quickly report back to both sides about what the
 company's balance sheet can support in terms of credit. Our goal is to help restructure the debt so that the
 business survives and the bank can maximize its recovery.

 Are you finding that you can get troubled companies new lines of credit?
 Yes. We've refinanced over $800 million in the last three years. The good news is that the dry powder in private
 equity—the capital available to invest in companies in North America today—is half a trillion [dollars]. It's the
 largest private equity overhang since private equity was founded.

 With that excess liquidity comes the ability for the businesses to borrow. There are a whole slew of new,
 nontraditional lenders in the marketplace that are equity financed and do asset-based loans with rates of 10
 percent to 13 percent.

 Are you advising clients to take out those kinds of loans?
 We're using that available credit to take out senior debt when we can't get bank financing. It's expensive, but not
 egregiously so, and most can handle it for a year and a half or so. In that scenario, you want someone in your
 corner to advise you when you are really bankable again so you can move into cheaper credit.

 We're also using the SBA's 504 loan program that is now in play. We've found it's an excellent tool to refinance
 real estate and hard assets.

 Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.                            4/12/2011

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