Pickled pork skins, jalapenos and other Mexican culinary staples have been good business for El Alteno Foods so good, in fact, they’ve helped cushion the blow of the credit crunch.
While many companies are struggling to borrow money, the City of Industry food manufacturer and distributor is expecting to receive a $5 million loan on terms it can live with.
“We would love to get something around 6 or 7 percent,” said Ruth Reynoso, the company’s chief financial officer. “Our business is food, which is something you have to buy to feed your family, and we have very affordable prices.”
It helps that El Alteno is dealing with a lender with which it already established a relationship, Los Angeles-based Promerica Bank. Perhaps more importantly, it is seeking to lease a new facility and expand a healthy, growing business.
But while small businesses with strong cash flow are finding they are still welcome at their local business bank, startup and entrepreneurial companies deemed greater credit risks are increasingly looking elsewhere
“The small business credit market has been affected by the consumer credit and real estate markets,” said Bryan Moeller, director of small business banking at Wells Fargo in Los Angeles. “Most of our loan applications for startup businesses rely heavily on the personal credit report. We are seeing a higher usage of people’s personal credit, and usage is one of the parameters that affect our lending decisions.”
David Rainer, chief executive of California United Bank, maintains that the Encino bank hasn’t changed its standards it’s just that fewer companies are meeting them as the economy slows.
“Business conditions are becoming more challenging and we are seeing some companies showing flattening revenues and squeezed margins after years of consistent revenue growth,” Rainer said.
Businesses turned down for traditional bank loans might try those backed by the Small Business Administration. The SBA has ramped up its lending in recent years, and is now funding bigger companies and more loans above $1 million, though the fees can add up. Still, the L.A. district office set a record with more than 6,100 loans in the 2006-07 fiscal year.
Another alternative is even pricier “hard money” lenders, which provide business loans secured by the commercial real estate of the borrower, at interest rates multiple points above prime.
“Over the past three months, we are seeing 50 percent more loan applications,” said Mark Crawford, president of Crawford Park Financial Inc., a hard cash lender in Pasadena.
While lenders might find it difficult to swallow paying interest rates closing in on 10 percent, dealing with hard money lenders can have its up side.
Lending money on the basis of assets reduces risk and can give financiers more flexibility in arranging loans. Crawford noted he recently handed a $300,000 loan to a local cabinetmaker, who secured the note with his owner-occupied shop and other real estate.
“With home construction down, if you’re a cabinetmaker, that doesn’t sell at the bank,” Crawford said. “We are able to help people who have equity in their property, and we can do it in a reasonable amount of time with less headache and more limited documentation than the bank.”
Joffrey Long, president of hard money financier SouthWestern Mortgage in Granada Hills, said his company has serviced many struggling retailers and restaurant owners.
Long recently arranged a loan for a local restaurant owner with less than stellar credit who needed the funds to convert a section of the parking lot into an outdoor patio.
“The banks are not as willing to make this type of loan,” Long said, adding that his company also is receiving twice as many commercial loan requests as it did a year ago.
For those small businesses willing to pay the going rate, there appears to be no shortage of available funds. Private investors eager to earn yields of around 9 percent in the diversified loan portfolios of hard money lenders are ponying up capital.
Another alternative source are factors, which buy up accounts receivables at a discount and can provide cash in some cases within 48 hours. Typical clients are small companies ranging from $500,000 to $7 million in annual revenues, including distressed companies.
“If you have receivables with companies that are in good credit condition, factoring provides a way to maintain cash flow and stay in business,” said Richard Kort, regional vice president of the Hamilton Group, a factoring firm based in Westlake Village.
“We are seeing twice as many deals as we saw this time last year because companies are scrambling in anticipation of things getting worse.”
