Are You Making the Most Out of Your Current Customers?
January 24, 2017
By: Robert D. Katz
Originally published as an Opinion Colum for The Secured Lender on October 16, 2016
As we come down the home stretch for 2016, the constant concerns are thin margins, pressure to book new business, the struggle to generate quality opportunities and how we’re all chasing the same small pool. It’s a challenge to be more optimistic.
Ponder this: Are you maximizing the value proposition to, and for, your current clients; or are you leaving opportunities/deal flow and profits on the table? Sometimes, your best prospects are your current clients.
Additional Funding for High Performers
One of our clients just came off two very good years. Profits and availability are strong. For approximately seven years, the company has had a subordinated note to two family members. During the renewal process the client asked the lender to allow them to cash out a portion of the subordinated notes. The cash flow of the business and the current fiscal-year projections supported the redemption. The client and lender agreed on the fee and a premium that served both parties well. The client received additional cash flow and the lender picked up an additional 1.25% yield.
Looking Inside the Bank
After six months, a new loan went sideways and ended up in the lender’s workout/ special assets group. Nine months after being retained to advise the client, it has made a substantial turnaround. Availability is in excess of $2 million and, in addition, cash in the bank has been almost $1 million.
Rather than moving the client out of the bank, we had suggested that the bank consider moving the client back to the line, which is rare. Sometimes the special assets group is like the reference from the Eagles’ Hotel California, “You can check-out any time you like, but you can never leave!”
We had suggested that, since the client had been with the bank less than a year before it was transferred, that it was hard to image that they covered their costs, let alone earned a profit. It would serve as a win/win for the lender and the client to keep the loan and transfer it back to the line. The lender now has a performing loan that it didn’t have to go out and originate and the client saved enormous time and costs from identifying a new lender and going through due diligence again.
Within your current portfolio consider:
- Is there a dividend recapitalization opportunity on the horizon before year end?
- Can you extend and lock-up a good customer in advance? For the first time in memory, lenders have reached out to current clients more than six months in advance of expiration to renew facilities and prevent or reduce the competitive pressures.
- For your growing companies, is there a need for additional equipment? Usually term loans carry a higher rate and both the lender and borrower can trade on the relationship rather than shopping around.
- Is there an ability to take advantage of cash management opportunities?
- Have you considered opportunities for related international entities?
Prospecting in the fall, with conventions and holiday parties starting earlier and earlier, becomes more of a challenge. It’s unlikely you’ll be able to close before year end. Refueling and focusing on existing clients provides positive feedback and builds a foundation on a multitude of levels. Not only are you showing your customers positive attention, which we never get enough of, but also it could lead to an opportunity to close quickly where you have already performed the majority of your diligence.
TURNAROUND AND RESTRUCTURING RESOURCES