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BAN K L EN D IN G Bank Lending Difficult For Small Businesses But… "60% of small businesses were denied loans in 2011." The Wall Street Journal BY MA T TH EW IDE T HE GREAT RECESSION HAS TAKEN ITS TOLL ON MANY components of the economy and, unfortunately, all of us can point to examples that have affected our communi- ties. In providing debt and equity capital with financial advisory services to fuel dealers my colleagues and I see the impact that reduced lending to small businesses, like fuel dealers, has had. The Federal Deposit Insurance Corporation recently released data that shows while overall commercial and industrial lending has increased over the past five quarters, the number of small loans to businesses has been shrinking since June 2008. As of September 2011, total outstanding loan volumes to small busi- nesses were down 14.7 percent. There are many reasons for the decline in lending to small busi- nesses and more reasons still for banks' reluctance to lend to fuel dealers—limited tangible collateral, ever growing line of credit needs and depressed profits due to fluctuating margins to name a few. "Are credit standards tighter today than they were two years ago? Absolutely. But (that's) because we're operating in a dif- ferent economic climate," said Robert Seiwert, director of the American Bankers Association's Center for Commercial Lending & Business Banking. THE WEATHER MAY NOT BE THE ONLY THING WARMING UP As I write this article, weather for the Northeast has been generally 15 percent warmer than normal since November. What is also show- ing signs of warming up is the small business lending environment. The Thompson Reuters/PayNet Small Business Lending Index has shown an 18 percent increase in lending activity to small businesses in December, representing a four year high. Hopefully this trend will continue. Banks we regularly work with on behalf of our clients are indicating the door to do business is open and we have witnessed firsthand successful transactions. But fuel dealers must remember that there is still plenty of caution in the lending community. WHAT'S A FUEL DEALER TO DO? The reality is that obtaining bank financing for your business will require more effort than in the past. As Robert Seiwert of the ABA 34 MARCH 2012 | FUEL OIL NEWS | www.fueloilnews.com said, "We are operating in a differ- ent economic climate." With our assistance, fuel dealers who have successfully obtained financing in the current economic climate have taken a new approach with banks. We can share some of the key strat- egies these dealers have used. Matthew Ide CANDID ASSESSMENT OF FINANCIAL POSITION Regardless of what type of financing you are requesting from the bank, a dealer must take a hard look at the financial condition of the company with particular focus on the balance sheet. An understanding of the relationship between current assets and current liabilities—which is defined as working capital—is paramount. In our experience, the failure of the business owner to recog- nize a limited or nonexistent working capital position is the root cause of the vast majority of unsuccessful financing requests. This also results in most of a dealer's frustration in dealing with a bank, since in a dealer's mind the balance sheet has nothing to do with the purpose of the loan, e.g., new equipment, acquisitions, receiv- able financing, etc. The truth is a weak working capital position may in fact be the reason why a dealer is asking for a new or increased line of credit. It may also be the reason why the company needs financing for equipment when it should be able to pay for that equipment with internally generated cash flow. We have seen weak working capital positions doom many acquisition financings and deals. The critical takeaway is that a dealer must understand the company's working capital position before there are any discussions with the bank. With that under- stand—an appropriate tact can be taken with the bank to achieve your financing goals. UNDERSTAND THE PURPOSE OF BANK FINANCING Banks loan money to businesses that can demonstrate both a