Sunday, January 31, 2010

Dealing with Credit – How to Expand your Line

One of the more common requests the past few months has been around being able to expand credit lines with distribution or financial institutions. The frantic calls usually involve a very large sale that exceeds the minimal credit capacity that most partners often have available. The good news is that end customers seem to be spending money again. The bad news is that many partners have done nothing to prepare for the increased demand and credit needs, so now it goes into crisis mode to try and land that big deal that puts one over the top.

Rule #1 – We live in a new world. No matter what your experience has been previously, the rules have changed. There are much tighter views being taken on credit and the requirements are definitely increasing. So expect it to be more difficult and be prepared to share more information.

Rule #2 – Get credit capacity before you need it. This has not changed. Far too many partners are completely undercapitalized as a company and then wonder why everyone is not signing up to give them unlimited capital. Financial institutions loan money based on a few factors. Like being profitable over time. Seems a little unfair doesn’t it? They expect us to make money every year? Yes they do. They also expect you to leave earnings in the business. That is called equity. And it is necessary to grow your credit capacity. If you spend it all or take it out there is no increased value in the company. Banks don’t loan based on your managed service contracts. They loan based on equity and past performance.

Rule #3 – Prepare to provide a lot more documentation. For a long time, many financial institutions loaned money based on character as much as facts. Those days are rapidly leaving us. You need financials and business plans and budgets and projections and a strong reason to convince them that you will pay back any funds you borrow. They will likely require a personal signature to get credit. It is not unfair or unusual.

Rule #4 – Make money. The bottom line is that it is important to run your company profitably. Look in the mirror and ask yourself if you would loan someone else money that has a profit structure like yours. Many partners show a loss or very minor profit each year. That does not lead to a solid loan application. Your EBITDA % is critical – first to know and understand – but then to grow so you are accumulating some profits. That is why benchmarking is so critical to partners to participate in and understand. How can you improve if you are unsure how you are performing compared to others? Analyze your performance and make sure you are profitable.

Rule #5 – Be creative. There are ways to work around most credit situations. HTG is ready to help you if you find yourself in a position of opportunity but struggling with credit. There are many alternative ways to structure deals so you don’t lose the opportunity. Get engaged as soon as you know the need may arise. It is always better to ask before you need it than to be scrambling when you are against a timeline.

HTG has a special arrangement with Ingram Micro to accelerate credit line reviews based on the following guidelines. Please review the guidance below that they have shared to make the process flow more smoothly when you request a review:

It is no secret that today’s financial markets have undergone many changes over the past twelve months. Two notable examples of such changes have occurred in the housing market and the auto finance business and both have resulted in hardships well beyond their respective markets. The recent bankruptcy of CIT Group reflects the latest casualty of a tightening in the credit markets.

The good news that Ingram Micro wants to share with everyone that regardless of the conditions of the financial markets and the downturn of institutional lending that has begun to plague our economy, Ingram Micro has not changed our lending practices. What this means is that we have not modified our lending practices to reflect the tighter credit that exists in the market today.

The basis of being able to support your credit request are grounded on several fundamental lending practices that we adhere to as a means of marginalizing our losses and thereby controlling the cost of doing business and this, in turn, is reflected in our pricing to you.

If you have already established an account with Ingram Micro it may be that we are not current on mandatory information and your credit analyst may request the following:

1. A current set of financial statements (Balance Sheet and Income Statement) for your company and depending on the information we have on file they may also request your last year-end financial statements or tax return.
2. Additional ways to expedite your request include the following;
a. Along with the financial statements, please consider providing us with any relevant information regarding any significant occurrences and their resulting impact to the financial statement as this will help us better understand your company
b. Any pertinent information about the type of year you are having, etc
c. Information regarding your banking arrangements and credit line as applicable.

Additionally, we want you to be aware that Ingram Micro has established several alternatives to help you close opportunities beyond your existing credit line. These programs generally function on the credibility of your client and as such do require a certain degree of paper work but we will be there to explain it and help you through the process. Please feel free to ask your credit analyst about Ingram Micro’s alternative financing programs and they will be more than happy to take you through each program and help align the right program to fit each situation.

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