SBA Updates it's Operating Procedures!

As we all know, the Small Business Administration (SBA) updates and modifies their Standard Operating Procedures (SOP) almost every year.  What you may not know is what some of the most recent changes were.  Included are:


·         Those of us that have been in the SBA world for a while remember that SBA required a 25% minimum down payment for business acquisitions, when the Goodwill was in excess of $500,000.  The new rules have reduced the required equity to be 10%, with at least 5% of this coming from borrower funds.  No more than 5% of any seller debt will be counted toward this amount and, it will only count if the seller note requires no payments for the full term of the loan

·         The SBA requires that anyone owning 20% or more of the business or real estate provide a personal guaranty.  While this is still the case, now, there is also a requirement that lenders review the financial condition of any 10% or greater owner, to determine if they would have been able to provide “Credit Elsewhere”.  It appears most lenders are requiring a review of the personal financial statements of 10%+ owners to comply with this new requirement

·         The SBA has established the ‘SBA Franchise Directory’, which is available on its website ( and serves as the sole source of a list of eligible franchises.  If a franchise is not listed on the directory, it is not eligible until the franchisor has submitted to the SBA for approval (something that I am told is taking about three weeks, right now).  The list also includes whether the franchise uses the SBA’s Franchise Addendum (Form 2462) or has negotiated their own version

·         A clarification that a borrower that leases space to any business engaged in any activity that is illegal under federal, state or local law is ineligible for SBA financing.  This appears to be in response to recent state approvals for marijuana-related businesses

·         Start-up businesses must contribute at least 10% of the total project costs

·         If a change of ownership occurs between partners, the pro-forma equity must represent at least 10% of the total assets.  If not, then the buyer must contribute additional equity to comply with the 10% equity requirement

Getting Creative With Loan Structures

In 2017, Landry Oil Services* was having trouble obtaining a loan. The 25-year-old Louisiana-based oilfield services company needed to invest in technology, new equipment and geographic expansion, but found lenders in the area were averse to lending to an oil and gas company. Then John Landry, Owner of Landry Oil Services received a recommendation to connect with Cardinal Capital. They reached out to Cardinal Capital in mid 2017 and partnered in late 2017.

Cardinal Capital’s deal with Landry Oil Services is just one example of how the company sees opportunity where others can see red flags. I sat down with Chris Reid, Partner with Cardinal Capital, to learn more about the firm’s strategy.

What is Cardinal Capital?

Cardinal Capital is a commercial finance consulting firm.  In short, we help companies obtain and manage their funding.  Ninety-nine percent of what we do is debt based serving the small to mid-cap markets across the United States. We seek a fit between our clients and funding whether that is asset-based revolving debt facilities backed by inventory and accounts receivable, factoring lines for accounts receivables, term loans backed by machinery and equipment, real estate and intellectual property, in amounts ranging from $250,000 on up. Our mission is to provide clients with the right kind of capital so they can achieve their goals. 

What differentiates Cardinal Capital from other lenders in the market?

We don’t lend directly.  We work with lending institutions like banks, insurance companies, pension funds, etc. to find debt structures that help our clients.  Additionally, our team is not made up of bankers. Cardinal Capital’s team is comprised of individuals who have extensive backgrounds in company operations, marketing and corporate finance so we look at transactions objectively from an operating and our client’s standpoint. We are industry agnostic because basic business process applies across all industries. Partnerships are successful when you can structure financing solutions cooperatively with a borrower, and then the borrower is able to manage expenses and execute its business according to its plan and timeline. We don’t assume risks in the same way that most lenders do given their lack of operational experience and lack of creativity when structuring a financing product.

What is the typical journey that leads borrowers to Cardinal Capital?

Many of the companies we service have historic operating losses, are scraping together resources, and realize they’re in a bind. They have a compressed timeline. Companies will typically look first to banks, often to no avail. Due to compliance and regulations, banks are looking for clean credit with little risk. Then these companies seek us out.  This is where we shine.  We have over 4000 sources of funds and we go to work.

What advice can you give to company owners?

Obtaining a loan does not happen overnight. Even in Cardinal Capital’s case, it can take months, although we have performed a few miracles under a month. Finding a company like Cardinal Capital who can get the company to trustworthy lenders is also key, as a debt raise is difficult to do without good contacts in the finance industry.

Be open-minded to debt. An appropriate amount of debt can help launch a company to new heights through top line sales improvements, improved processes, improvements to hard infrastructure, and improvements to workforce quality.

Avoid paralysis by analysis (to quote Cardinal Capital’s Partner, Gary Anderson). Don’t spend an extraordinary amount of time analyzing debt offerings and continually going out to the market in an attempt to determine that you achieve the best price. CEOs rarely factor internal and external opportunity costs for the perpetual delay.

Contact Cardinal Capital today at 225-308-3700 for more information.


*Name changed on this case. 


The following is based on an actual case.  The names have been changed in accordance with the confidentiality agreement between Cardinal Capital and its clients.  However, the results are accurate and reflective of the client’s situation.


When Adam Geautreau invested in WorkSmart Software, a Lafayette, Louisiana H.R. software firm, he knew he wasn’t interested in financing the business like a typical tech company. The majority of these firms look for Angel or VC money to start up, then do several rounds of that type of funding. But Geautreau planned to finance the company with personal equity and long term debt. He wanted to avoid the complications of taking on investors during the early growth stage of the company.

WorkSmart isn’t Geautreau’s first venture. In the 90’s, he sold his first software company for a moderate profit.  Additionally, Geautreau has been involved in over 20 real-estate deals and software company’s since then across the Gulf Coast.  He knows his way around a set of financials.

Geautreau was well aware that taking on equity early on would mean giving up control before having the chance to increase value. He wasn’t interested in the legal and accounting expenses that come with investors or in high dilution at an early stage. He knew he had the experience and resources to grow WorkSmart on his own, in part by deferring pay and using personal financing.


For the first two years, the company was able to scale with bank term loans and loans from his own investments. Last year, however, Geautreau was seeking long-term funding for growth capital. “We needed funding for cycles in the business, as well as for technology development, which often takes 12-16 months before revenue is realized,” says Geautreau.

Geautreau turned to Cardinal Capital for help. “Cardinal provided a unique portfolio of solutions, including small bridge loans, lines of credit, and pension fund lending sources. Through Cardinal Capital we were connected with a variety of options to fund WorkSmart. Within weeks of our introduction to Cardinal Capital, we closed the first of two long-term loans, with unique terms for growing technology companies,” says Geautreau.


Raising Capital, Keeping Control

By June 2017, Geautreau was seeking growth funding for the business. Still averse to taking on equity, he used Cardinal Capital to get a sense of the landscape of available debt offerings. “The Cardinal Capital services produced quick responses from valuable contacts as soon as we joined,” Geautreau says.

When Geautreau connected with a non-bank funding source, “it was immediately clear that they were very, very different” from other lenders. “It’s literally a better option with no personal guarantees. That’s a big deal, especially for people who already have money from prior ventures. They allowed us to scale without losing control. Many of Cardinal Capital’s funding sources are led by people in the same situation I am in.”

Cardinal Capital was able to find capital that provides revenue-based financing, focusing on long-term financing needs for early-stage B2B SaaS businesses. “We address a portion of the market which rarely sees any investment or financing outside of potential seed capital or pre-series A funding. And we do that via non-dilutive instruments which are structured as debt,” says Gary Anderson, Partner at Cardinal Capital. “Being able to retain equity at that early stage is definitely a huge value.”

Says Gautreau, “they really get start-ups and tech companies. They know how to finance a cash flow deal with start-ups, and understand that most tech companies are going to lose money at some point before crossing over to profitability. They were able to convey that message to the funding sources in a credible, reliable manner.”


Looking Forward

Today, OfficeWork is trending profitable and cash-flow positive. Geautreau projects the company will grow at least a hundred percent in sales this year, while growing headcount slowly from around 30 in the U.S. and overseas this year.

“We’ll keep focusing on getting better at what we do and continuing to provide better solutions to customers,” says Geautreau. Customer service is a huge emphasis for the business. “We guarantee the best service in the industry. No one will respond faster or solve a problem or give a quote faster than we do. Those are things we control, and that’s our culture.”

Hiring and retaining a team with the skillset and attitude to maintain this culture is imperative. “My goal is to make this company the best company anyone’s ever worked at.” OfficeWorks doesn’t shy away from perks: they provide 100% 401k matching and 100% mental, dental, and vision insurance. But an even bigger component of Geautreau’s philosophy has to do with trust. “We give people a lot of personal flexibility, and really focus on performance and results. We encourage family life and healthy living.”

The strategy seems to be paying off: only one employee left OfficeWork last year. “We’re confident in our people — they’re smart, and they have a lot of experience — and we’re confident in our ability to deliver the best technology to our customers,” says Geautreau.


Cardinal Capital

Cardinal Capital provides financial and C-Suite services to all sectors – from oil-field to start-up SaaS organizations across the United States.  With thousands of funding sources and an unlimited financial tools, Cardinal Capital can connect your business to capital.  Contact Cardinal Capital today at

EBITDA: What should and should not be included in the calculation.

At Cardinal Capital, we often find ourselves in a position of comparing organizations in Louisiana with similar firms elsewhere in the United States.  The search for apples-to-apples is sometimes a challenge because, as we all know, we’re unique at this end of the Mississippi River and not all business are alike.  I recently wrote about the NPS (Net Promotor Score) as an indicator and ‘normalizer’ of business performance.  Another ‘normalizer’ is EBITDA.  A staple metric for finance and operations folks.

EBITDA is a basic and widely accepted normalizing adjustment for businesses.  It serves as a proxy for cash-flow when deriving business value.  It is a hind-site measure – it tells you what you did historically not what will happen tomorrow - where NPS is a forward-looking indicator.  EBITDA adds expenses from the income statement like interest, corporate income taxes, depreciation and amortization back into net income to determine the firm’s cash flow. An accepted metric or indicator of organizations overall ‘health’.

Normalizing EBITDA before seeking any macro financial transaction can help present the business in a more accurate position. We often find ourselves advising clients to be cautious with the level of “owner’s perks,” and other adjustments, they charge to the business. Below are four categories we run across when advising clients on EBITDA. 

1. Non-Recurring Expenses – These are expenses (or benefits) incurred by a business that wouldn’t normally affect the business’ profitability. Adjustments to this category might include (but aren’t limited to) insurance payouts, moving expenses, and losses from discontinuing operations (like flood losses). However, other typical non-recurring expenses like lawsuits may be questioned by a potential acquirer or lender if the business is in an industry known for frivolous lawsuits. In cases such as these, an acquirer or lender may deem lawsuits a normal, and recurring, business expense that needs to be accounted for in the financial statements and should not be normalized.

2. Personal Expenses – A broad category to say the least. Expenses like travel, meals, entertainment, personal insurance policies, and discretionary bonuses tend to get lumped into this section. Although these expenses can be normalized, that doesn’t mean they should be. We advise the expenses not related to business activities should not be charged to the business.

Here are a few examples:

  • Travel expenses: Recognizing that some may bill travel expenses not associated with the business activities through the business, owners can typically normalize these expenses.
  • Auto expenses: These are typical and acceptable adjustment, since some executives receive compensation or reimbursement for automobiles. The idea here is that an executive shouldn’t drive a car that would make them embarrassed to meet a client.
  • Meals: In most instances, meals should not be eligible. However, exceptions do apply. For example, meal expenses related to selling the business, which are non-recurring in nature and are not related to normal business operations, but are related to the ongoing nature of the business can be included.
  • Entertainment: Entertainment can be vague, which makes it a popular area for owner perks like LSU and Saints tickets. Like other categories, entertainment should be related to business activities, but when exceptions do take place, they can be included.
  • Personal insurance policies, cell phones, and other related perks: These are generally acceptable since they are usually related to the business owner’s involvement in the business.

3. Excess Family Member Salaries – Like personal expenses, some owners provide family members with compensation in excess of what they would pay someone else to do the same job. Considering expenses like these would go away following a sale or refinance – presumably the acquirer would only pay fair market wages.

4. Charitable Contributions – Charitable contributions may be good for your karma and can be normalized in most instances. However, if, for example, a business works with healthcare operations like hospitals, then normalizing charitable contributions to an existing or prospective client’s fishing tournament may be considered a sales and marketing expense.

We hope this quick explanation on EBITDA adjustments provides some clarity on what is (and is not) generally accepted as reasonable expense adjustments. Also keep in mind that from an ethical and transactional point of view, improperly charging expenses to the business may save some money now, but it could cost you more in the long run. We recommend reaching out to Cardinal Capital to address any lingering questions or concerns.


9 Things You Need to Know About Small-Business Loans


Here's a few tips on working with lenders to get the funding your small business needs.

Small businesses may be the engine of our economy, but many small business owners view the lending process as complicated and frustrating.

Too often, growing enterprises find themselves shut out when they attempt to obtain small business loans. In theory, it should be difficult to obtain funding--lenders are in the business of making money, not providing charity. Still, there are many ways to improve your odds of getting a loan.

Here are some things to consider.

1.             Put yourself in the lender's shoes--why should they lend you money? When applying for a loan, treat it as if you're applying for a job. Instead of a great resume, however, you need a stellar application. That means understanding your financial situation and deciding what you can use for collateral, which might include your house. A business person who does the latter shows they believe in their business. Cash flow and credit quality are other key factors. And dress professionally; if you look like you don't need the money, you're more likely to get it.

2.    Figure out how much money you really need. Businesses too often seek less money than they really need.  Think about closing costs, legal fees, unplanned contingency, operating costs and the like.  We typically work with the “Rule of 3’s”:  Three times as costly, three times the amount of time and three times as frustrating.  Plan accordingly and present your thoughts.

3.    Learn from your mistakes. If one lender rejects you, figure out why. When you go to the next small business lender, address that deficiency.

4.    Those with poor credit in a business-to-business environment that have receivables can use them as collateral. Alternative lenders, such as so-called Internet lenders, will charge higher interest rates, but generally have more relaxed standards.

5.    Always consider--in most cases it should be your first consideration--working with Small Business Administration-backed (SBA) lenders. Many businesses incorrectly assume they aren't eligible. SBA loans often feature low interest rates and generous repayment terms. Also note that just because one SBA lender turns you down, not all lenders will do likewise.

6.    Know what you're getting into. That means learning the annual percentage rate (APR) of the loan. Know what the fees will be, as well as any prepayment penalties. Be an informed shopper.

7.    As mentioned earlier, online lenders may provide funding (and quickly) if other alternatives fail, especially for those with bad credit. Aside from higher interest rates, Internet lenders are known for onerous terms and poor transparency, so be sure you really need the money--and can pay it back--if you go this route.

8.    Small banks are likely to be more helpful than bigger banks that prefer working with larger customers.

9.    Contact an expert in commercial lending that works for you.  Banks work for themselves, not you.  They are in the business of getting themselves the best deal which is understandable – as we said, they are in the business of making money too.  Let an expert, working for you, guide you through the process of obtaining a loan.  You are your-business-focused.  Commercial lending experts, like Cardinal Capital, work for you in the commercial lending world. 

Are You Currently Raising Money for Your Business?

Are you currently raising money--whether it's in equity or debt? If you are, you are probably focused on a total amount you are trying to raise. Here is a simple exercise that can get you to the finish line faster.

Let's say you're currently looking for a $1,000,000. Take out a blank piece of paper, and write down what you will use the money for over the next 12 months. And also write down your expected revenue you will generate and the milestones you believe that your business will achieve with the money.

Now take a deep breath, put the piece of paper in a drawer and do the exact exercise for a raise of $500,000.

And to finish the exercise, put that piece of paper to the side and do the same thing for a raise of $250,000.

Now it's time to compare the three plans. You have to evaluate if the incremental money is worth the dilution or the extra time it might take to get it.

Typically, entrepreneurs think big and typically that means more money than they really do. They're either not bootstrapping, or they have too long of a horizon ahead of them. Sometimes, when you're trying to raise too much money for the current stage of your business, you risk wasting months and months of time.

Take your three plans and ask a mentor, or professional commercial capital advisor, for advice. Present the three alternatives and ask them to debate the pros and cons with you. The tension between the three alternatives will help you figure out what makes sense for you. Perhaps if you go with the smaller amount, you can do it with debt, and not give up equity. Or in the discussion about the different plans, you might think about creative ways to finance some of your needs – incrementally, over time.

Here’s a typical scenario: It takes months to get a meeting with potential investors. You stay awake for hours on end building the "perfect model" in excel for what you would do with $2,000,000 (or whatever the figure). You sit down at the meeting with your freshly printed business plan from Kinko's--which no one actually reads and they ask you what you could do with $200,000.

You feel rejected.  Your stomach is in knots and you feel like you’ve wasted time.  You second guess yourself. But in fact, they were correct. You take the money and get started. The opposite of that funding is zero and that gets you know-where fast.  If you had waited for the $2,000,000—you’d still be looking for the money.

As you head into the second quarter of 2017, challenge your assumptions about how much money you think you need. Consult experts in the field that have your goals in mind. You might be surprised with the outcome.    


Small Business Lending: Finding, Fitting, Financing



Access to capital is consistently raised as a pressure point for small businesses. However, simply saying it’s challenging to obtain capital isn’t all that helpful without getting to the crux of the issue. We recently gathered a group of Goldman Sachs 10,000 Small Businesses  alumni to probe more deeply into their experiences getting capital. One result of our discussion was a breakdown of their capital search into a series of definable steps:

  • Finding - identifying the available sources of capital
  • Fitting - deciding which source is the best fit for you and your business
  • Financing - determining what are the most important components of the deal

One thing is crystal clear, small business owners and capital providers would both benefit from a better understanding of the financing process - from both sides of the table. While equity is a choice for a few (very few), for the purpose of this piece, we have focused on the process of securing debt financing.


Babson data on Goldman Sachs 10,000 Small Businesses participants finds those who acquire external capital more often report growing to a greater degree. While this may not be surprising, it is important that we can measure this impact. As a small business owner, where do you start in your search for a loan?  The vast majority of business owners rely on financial institutions for the capital they need to grow their businesses.  Most start with their own financial institutions, then move into looking at materials from organizations such as the Small Business Administration (SBA) or the Minority Suppliers Development Council (MSDC), local Community Development Financial Institutions (CDFIs), conducting internet searches, and speaking with other business owners.  However, the search is not just about which bank, but also about which banking product.


Capital seekers need to understand the business requirements of the capital providers in order to find the best fit. Banks typically assess borrowers on the 5 C’s of credit:  capital, collateral, character, capacity, and conditions.  Fittingly, these should be considered from the seekers side as well.

  • Capital – how much do you need? And, of course, how much are you able to qualify for, given your credit score and borrowing history. Different providers specialize in providing capital in different levels.
  • Collateral – do you have any – personally or in your business? All banks and most lenders will want to be secured by collateral and also want a personal guarantee from business owner(s).
  • Character – what is the reputation of the capital provider?
  • Capacity – what can you afford, and when? How much time do you have to put into this?  Do you value time and rate equally?
  • Conditions – is it the right time to be borrowing given any external economic conditions and/or industry trends?

Financing: Terms and the Funding Process

Businesses tend to evolve in their funding experiences as their companies grow, even over just a few years.  Perinkulam Raju, who founded a technology consulting firm, EyeCube Solutions, in 2013, connected with a bank and received an SBA loan guarantee for three years and was recently approved for a revolving line of credit, notably with no real collateral. Owner of Nation Waste, Maria Rios’s funding experience similarly evolved with growth though her business is very collateral intensive – it takes a lot of trucks and equipment to manage waste.  Maria started her relationship with her bank with a small line of credit which she converted to a long/term loan while she also kept growing her line of credit over time.

The numbers show that business owners who have a relationship with their banker are more likely to grow. These relationships can take many different forms. For Maria Rios, her relationship with her bank has been an important contributor to her company’s growth as they have provided guidance and contacts, helping her evolve to the point that banks ask, and in some cases, compete, for her business.

Changing the world of small business lending…

The small business owners in this group were dedicated to growing their businesses and had a clear vision for the possible role of acquiring external capital to support that growth.  Their suggestions, for seekers and providers of capital, include:


Broaden your horizons.  For seekers, explore a variety of types of capital providers, look at different financial institutions, and learn about the new sources such as online lending or crowdfunding or existing sources such as CDFIs.  Connect with others to learn about your options.  For providers, understand that small businesses have different fundamental needs than large businesses.  However, they can be rock solid economic citizens, with families and employees who can also utilize a range of financial products.


Take the time to learn the business model/requirements of each other and understand what might work for you – and what won’t.   For the borrower – the goal is to become so adept at fitting with the lender business requirements that they are ultimately pursuing you for your business.  For the lender, understanding the businesses better may lead to providing more flexibility in lending.


Speak each other’s language.  For the borrowers, you absolutely must be financially literate – to speak the language of finance in order to best represent your business and to understand the terms being offered to you.  For the providers, speak small business and understand the products that best fit your small business clients.

1:1 Marketing and Sales Funnel. A Better Approach.

Marketing and Sales folks… this is for you.  “How were your sales last year”?  Hear that question much these days?  My bet is yes; you’ve heard it quite a bit lately.


Marketing & Sales ROI is always a hot topic, especially this time of the year. We put tons of effort into tying marketing programs directly to revenue. But if you’re using the traditional funnel method, wherein marketing generates the leads, qualifies them and hands them over to sales, you’ve probably been frustrated a time or two when that revenue question comes up.

The marketing funnel has some serious challenges. Mainly, if the sales team doesn’t follow up on marketing leads. In 2016, more than 60% of B-to-B marketers found generating high-quality leads their biggest challenge, and 73% of B-to-B leads were not sales-ready. An industry report had another surprising stat: of average B-to-B companies targeting mid-to-large-size companies, marketing activities accounted for only 10% of the pipeline. The other 90% came from sales. This is a typical scenario if your company doesn’t have a volume business and especially if you have existing customers you sell and upsell to.

Sales says it doesn’t have adequate marketing coverage for its pipeline needs, and that the leads marketing provides are not always useful or “qualified.” Even further, most marketing leads that sales teams are able to close generate small deals, the “small fish.” Sales tends to follow the money with a targeted approach and go after the "big fish," those that fit the ideal profile, offer upsell opportunities and likely to generate the big bucks. So they tend not to jump on the smaller leads from marketing.

Other drivers include the buying process and changing of target audiences. We’ve reached the point where the old way of marketing—building a funnel of 100 leads and disqualifying 90 of them—doesn’t work. 

Here’s what I’m suggesting:  Dump the funnel measurements and implement the ‘micro’ or ‘1:1’ Funnel methodology.  While I’m a big proponent of this process, I find myself and my business partners at Cardinal Capital wrestle with it often.  But it works and like any new approach, it takes discipline of application to execute properly.  

What’s a 1:1-funnel?

The 1:1-funnel approach is about identifying the specific customers you want, and chasing them until you land them. 

You probably already know which companies you want: those that are most likely to have the problem your company solves, that are in your target verticals and in the ideal revenue bracket. You might even know the specific people you want to talk to. In the era of Big Data, proliferation of networking events in South Louisiana and your own internal database, all this information is at your fingertips. This way of generating a pipeline is typically referred to as a “target account” strategy, or recently tagged as account-based marketing (ABM).

Here’s the real opportunity for marketing and sales collaboration: rather than using traditional marketing tactics to generate leads—e.g. blasting a huge list of prospects with low-value content to entice a small percentage to show mild interest—you can turn the funnel on its head. You can empower sales to pursue their own very targeted accounts or “1:1-funnels.” 

How It Works

Instead of blasting a list and searching for leads, start with specific potential customers. Cherry-pick the perfect ones, and build outreach programs specifically for them. Research them, discover their pain points and business goals, and identify the right people who could be your buyers or champions. However, buyers are increasingly knowledgeable and sophisticated, so make this outreach needs highly valuable and relevant. Your goal is to get them interested from the first point of contact, so start the relationship with the highest-value, most relevant content.

Thankfully, that’s what good marketers do: build engaging, value-driven experiences, powered by content. With ABM, the marketers develop the content and strategy, and sales uses the content to send personalized engagements to key targets.

With this model, each target account is its own funnel as they all go through the process of awareness, interest and engagement. When they become a customer, the process continues with providing value, proving ROI and expansion.

The Secret to Success

For the strategy to be successful, there’re four important factors for marketers and sales forces to consider:

  1. There must be a real partnership with Sales, not the typical marketing and sales alignment song and dance. This is about marketing empowering sales. Fortunately, sales has a high incentive since the partnership will land them a better pipeline.

  2. The 1:1-funnel strategy means content and messaging development will evolve. Content must be heavily personalized and relevant, or it won’t be meaningful to prospects. 

  3. Marketers need to be responsive to input from sales. Sales teams have intimate knowledge of customer needs, pain points and business goals.

  4. The program must be designed to work at scale since each account will be its own funnel. Marketing and sales teams aren’t usually set up to support every individual account, but there is a growing number of tools and platforms out there that can help with scale.

Marketing and Sales should be held to higher standards, with collaborative revenue focus.  With targeted 1:1-funnels, marketing empowers sales to build and nurture, instead of broad marketing funnels that generate leads sales may or may not use.  So, how were your sales?




6 Traits Olympians and Successful Business Owners Share

If you watched any of the recent Olympic Games in Rio de Janeiro, you know how inspiring the personal stories of Olympians can be. They've worked hard, stayed passionate and focused, overcome obstacles and beat the odds to live out their dreams. Successful small business owners have done the same. And although every business owner — just like the Olympic athletes — must ultimately find his or her own path to success, you can give yourself an edge by learning from highly successful competitors. Olympians and entrepreneurs succeed when they:

Stay focused. When you have challenging goals, you need to focus on what's required to achieve them. You can't get distracted by the daily stress or the possibility of failure. Olympic mountain bikers know that even as they're forced to adapt to tough and varied terrain, they can't look down or at what's immediately ahead of them. They steer with their eyes and focus on the destination. Go for the gold: Create a plan for your business and review it regularly. Success can only be achieved when you can focus on the end goal.
Persevere. With tenacity, you keep working toward your goal, no matter what obstacles arise, like Olympic kayaker Ashley Nee. She qualified for the U.S. national team at age 17 in 2007. But a shoulder injury kept her out of the 2008 Olympics. She just missed making the U.S. team for the 2012 Olympics. This summer, she not only made it to the Olympics, she advanced to the semifinals of the women's kayak single slalom event. Analogously, a Deluxe Corporation survey of small business owners found that 77 percent would rather learn from failure than not try at all. Go for the gold: Be scrappy and resourceful; find a way to overcome setbacks and unexpected obstacles.
Relish competition. Neither Olympians nor small business owners can be content to rest on their laurels. Fair and productive competition helps you improve. You can even learn from failure by analyzing how your competitor won and reassessing your strengths and weaknesses. Go for the gold: Improve your products and services and do more to please customers.
Remain passionate. According to the Deluxe survey, 20 percent of owners started their small businesses out of a passion for what they do. This core strength can give you the drive to keep going when challenges arise. Go for the gold: A passion for what your product or service can do for customers will drive you to learn what makes customers tick and how best to meet their needs.
Take risks. Olympians and small business owners alike step out of their comfort zone to take smart risks. Dreaming big can mean a larger chance of failure, but it also means reaping greater rewards when you succeed. Go for the gold: Be aware of and educated about the risks you take.
Stay optimistic. A positive attitude can help you succeed. Having the right mindset can help you get through difficult situations, preparing you to bounce back from setbacks and face adversity head on. Go for the gold: Think outside the box and put your best resources to use.
In addition to these personal characteristics, Olympians also understand the value of a good coach. Cardinal Capital brings seasoned experience, customized financial financial solutions to help you achieve your goals and milestones.

Source:  2016 Rio Olympics, NBC, California Bank & Trust


Invoice Factoring vs. Business Line of Credit

It’s not unusual for small and midsize businesses to experience cash flow problems from time to time. As a matter of fact, many growing businesses encounter financial problems as a result of their fast growth. Often, the only way to improve cash flow and fix the problem is to use financing.

Two common financing solutions that help improve cash flow are lines of credit and invoice factoring. This article helps you understand both products, along with their advantages and disadvantages. This information enables you to select the solution that is best for your business.

How does a business line of credit work?

A line of credit works much like a credit card. The lending institution provides you with a maximum credit limit. Whenever your business needs money to pay expenses, you request a draw from the line. This draw provides you with funds, but it reduces your available credit. When you remit a payment to repay the line, your available credit increases.

Lenders provide lines of credit based on the three Cs: collateral, cash flow, and credit. They expect that your business has the collateral to secure the line and the cash flow to make payments as needed. Lines also have covenants – contractual provisions that you must follow to keep the line operational. Lastly, it is not unusual for lines to be secured by both corporate and personal assets.

How does invoice factoring work?

One of the main reasons why business owners have cash flow problems is that they have to offer payment terms to clients. These terms give clients 30, 40, or even 60 days to pay. The problem is that growing businesses can’t afford to wait that long for payment. And if businesses demand immediate payments and don’t offer terms, they risk losing clients.

Invoice factoring allows your company to sell your invoices to a factoring company. The factoring company provides you with an immediate payment, while they wait to get paid by your customer.

Factoring companies usually finance invoices in two installment payments. The first installment covers up to 85% of the invoice and is paid as soon as you factor the invoice. The remaining 15%, less their discount fee, is paid once your client pays the invoice in full. The line is revolving, which means that you can finance invoices on an ongoing basis.

Factoring vs. Line of Credit

In this section, we compare both products across the eight most important product features.

1. Cost: Lines of credit are cheaper

Lines of credit are one of the cheapest forms of financing in the market. Generally, lines are priced based on the prime rate, plus an incremental portion. The price often looks like this: “prime rate + X%”, where “X%” is the incremental portion.

Factoring lines, on the other hand, can be comparatively expensive. Consequently, they work best for companies whose profit margins are high. In general, profit margins at or above 15% work well. However, in some cases, factoring can work with lower margin transactions.

2. Qualification: Getting a line of credit can be difficult

Lines of credit have stringent qualification requirements. Credit lines are a low-cost solution because lenders work with low-risk clients. Companies usually need to have a couple of years’ worth of operating experience. They must have enough cash flow and assets to repay the line. Lastly, the owners usually need to have good credit. In some cases, personal assets may have to be pledged as collateral.

The qualification requirements for invoice factoring are much easier. The most important requirement is that the company (your customer) paying the invoice must have good commercial credit. Aside from that, your company must not be at risk of an immediate bankruptcy and your accounts receivable must be free of UCC liens.

3. Time frame: Lines of credit can take weeks (or months) to get

The time it takes to open a line of credit varies. It can take a couple of weeks or a couple of months. It really depends on how quickly you can provide information to your lender and how long the lender takes to evaluate it.

In general, factoring lines can be established in a week or two.

4. Credit limit: Factoring has flexible credit limits

The credit limit of a line of credit is set by a combination of your need, your available cash flow, and your assets. However, lenders expect to be fully covered by your cash flow and collateral and take those into consideration when setting the credit limit.

The credit limit of a factoring line is determined by a combination of the amount of accounts receivable you have from creditworthy customers, your ability to deliver services/products to your clients, and your needs.

5. Maintenance: Lines of credit can be hard to maintain

Most lines of credit come with covenants, which are rules that your company must follow in order to keep the credit line in place. Covenants vary by lender but usually the require that your company:

Maintain good financial records
Keep accurate track of inventory
Keep a certain net worth
Keep financial ratios at a certain level
Advise the lender of any material changes
Most factoring lines do not have covenants. All you have to do to keep an invoice factoring line in place is avoid a material default (e.g., bankruptcy) and finance invoices for completed work payable by commercially creditworthy clients.

6. Access to funds: Getting funds is relatively easy for both solutions

To access the funds from your line of credit, you usually submit a draw request to the financial institution, which is honored fairly quickly. Depending on the specific product, you can either submit a borrowing base certificate or draw from the loan account.

To get an advance from your factoring line, you must submit a schedule of accounts to the factor. The request must include a tally of the invoices you want to finance, along with copies of the invoices.

7. Line increases: You can increase your factoring credit limit quickly

The process to increase the credit limit of a factoring line is simple. You have to provide the factoring company with information about the anticipated customers and expected volume. The process usually takes a day or so. As long as your account is in good standing and the new customers meet the factoring company’s criteria, your chances of getting an increase are good.

Getting an increase on a line of credit is more complicated. Your company must have the cash flow and the assets to justify the increase. Also, your line must have been in place for a certain time – often a year – before you can request an increase. Lastly, the lender may need to repeat part of its underwriting, which can take a few weeks.

8. Collateral: Both products require collateral

Most lines of credit need to use all your corporate assets as collateral. Lenders do make exceptions that are handled on a case-by-case basis.

At a minimum, a factoring company needs to have your accounts receivable as collateral. However, some factoring companies request more. There is some flexibility here, as long as the accounts receivable is clear of liens.

Which solution is best?

There is no best solution per se. Each product is good at solving a specific set of problems. Remember that no product is perfect.

Consider factoring if your business:

  • Is relatively new
  • Is growing quickly
  • Has very good commercial clients that pay within 60 days
  • Has (or had) financial problems
  • Cannot produce accurate financial reports
  • Is out of covenant with an existing line of credit

Consider a line of credit if your business:

  • Is established
  • Has achieved growth maturity
  • Can provide timely and accurate financial statements
  • Has solid assets
  • Can abide by the line of credit covenants

If you need either factoring or a line of credit, contact us today!  225-308-3700 or

Don't Do This...

What not to do when going through a change in capital structure.

By Rob Powell, Partner, Cardinal Capital


Recapitalizing, going public, seeking growth capital is a daunting task.  Cardinal Capital deals with these issues daily.  The following are a few “what not to do’s” when going through this process.


1. Don’t combine your personal identity with your business identity. 

You are not your business.  You hopefully have separate goals and aspirations.  While one may enable the other, you do have a life after business.  Keep the two separate.

2. Don’t forget the three P’s

Purpose, people and processes.  Keep your eye on those three and you’ll survive (hopefully thrive) the refi, growth, or capitalization process.  

3. Don’t exit when things are bad

Giving up and selling or leaving when things are down is not always the best strategy.  You should look to exit or get out at your highest valuation – when things are good.  This is counterintuitive to most business owners and CEO’s because they are enjoying the fruits of their labor… but that’s the time to go make something else happen.

4. Don’t get advice from the cool-aide drinkers.

If you’re surrounded by people who buy into your business, no matter how successful they are, you’ll always get the answers you want to hear.  Get an outside opinion from people or groups like Cardinal Capital who can provide objective advice in times of confusion, as well as times of clarity.  An outsiders view may not always be exactly what you want to hear but it’s valuable.

5. Don’t forget tomorrow

Cardinal Capital asks business leaders hard questions.  We challenge them to look in the future – after refinance, sale or merger/acquisition.  Many business leaders don’t think ahead to make the most after they make a move.

6. Forgetting your exec team

If you’ve hired right, you need to lean on your C-suite during a transaction. The business of doing a deal becomes a full-time job. We’ve seen many situations where owners have taken their eye off the ball — their trailing revenue suffers, and company valuation falls.

7. Not holding yourself accountable

Cardinal Capital sometimes tell owners what they don’t want to hear. As they’re going through the process, we help them through the challenges. We always ask them, ‘are you sure you want to do that?’ and we’re always honest through the process. Most of the time they find value because they know they will get the complete truth. Everyone needs to be accountable to someone. Absolute power corrupts.  Cardinal Capital holds them accountable.”  

8. Underestimating stress

The rule of 3’s applies here.  Cardinal Capital has learned that most things are typically three times as expensive, take three times as long and is three times as frustrating.  All of that increases stress on the stakeholders. It’s important to recognize that because during stressful times we overlook things we shouldn’t and it wears you down.  You need to stay strong over the long haul.

9. Letting a good opportunity go

Timing is critical. If you lose an opportunity it may never come again… Market conditions often dictate the time to sell, refinance, borrow or merge.

10. Forgetting about the customer

During a transaction, you’ve always got to keep the customer at the center of whatever you’re doing. The customer is depending on you to add value and so if that’s already built into the way you operate, it’s going to help during any deal.

11. Losing discipline

Structure is crucial. Have regular disciplined check-ins with your management team. The urgency of the deal is important, but it can quickly overcome operational issues of the business. You need to delegate as much as you can. Slowly bring key members into the process. Schedule at least 50% of your time to the deal.

12. Not knowing what you want

“It always gets back to the question of what you want. Do you want a check, do you want a legacy, do you want to go out and acquire before you sell? Cardinal Capital is constantly working with CEOs to help them clarify what their goals are so that they can formulate a strategy for their decision-making process. At the end of the day, many don’t know what they want so it can be hard for them to get there. CEOs and owners are constantly coming from a place of fear. It comes back to security and safety, and sometimes they just need a little bit of reassurance.

13. Forgetting your family

Be real with your family about how hard a process this will be. There are seasons when you are busier than others, and this process may go on for a year or more. You need people to support you in that. If you don’t have that support, it can be very difficult.

14. Not creating a deal team

Selling, merging, or restructuring your business is an exciting and emotional time. Having objective feedback and being challenged will maximize your outcome.  When you decide to sell your business, you will need a team. So many times CEOs focus on the deal and forget to run the business.

15. Trying to keep a secret

If you’re going to share that you’re going through a transaction with your employees, depending on how open your organization is, Cardinal Capital’s advice would be to keep people informed. If you try to keep a secret, it adds another layer of complexity. We strongly encourage you to have a contingency plan in that case, because it will leak. Even when people sign NDAs, it always leaks. Think about whether you want to be on the front end telling people, or the back end reacting.

16. Banking on sweat equity

You don’t get paid on sweat equity. Sure, you built the business, and that sounds really nice. But it’s not worth anything. This goes the same with goodwill.  What is your company worth in terms of assets, A/R and others things.  Sweat equity won’t cut it.

17. Falling in love

Often times the owner gets emotionally involved in a transaction, so as the deal ebbs and flows, we work through the issues. We try to keep the owner from falling in love. You need to be able to step back and understand whether the deal is really a good thing or not. You need to constantly ask yourself, ‘Does this still make sense?’

18. Not having the right network

Oftentimes, CEOs seem to be the most well-connected people — they have a large reach as far as people around them, but they don’t necessarily have people who can help them pressure-test their ideas and expand the way they’re thinking and broaden their perspective. This is hard to do with a board member — they have certain expectations. It’s hard to do with your team — you don’t want to scare them by thinking out loud without full-formed thoughts. It’s hard to take it home to your family. A group like Cardinal Capital has experience and is an objective body who can help pressure-test ideas.

19. Assuming the deal is done

No deal and no promise is done until there’s actually ink on the paper. There are so many things that can go wrong up to the transaction being completed. 

20. Leaning on hope

Hope is not a strategy. You don’t have to have a perfect plan, but you need a strategy with goals. You need a management framework and a cadence to review that framework on a monthly or quarterly basis. Everyone needs to obsess over the strategy, otherwise going through a transition is going to be even more difficult.  


Source:  Axial Forum, Inc. Magazine, Individual interviews. 

CEO's, this is for you!



I want to talk to the CEO’s, Owners, Managing Partners and head honchos.  Those of you who are in charge of your business.  This article is for you.   

As you have realized, you play an essential role in raising capital for your business.  Talking to investors, banks and financial institutions isn’t typically a delegated responsibility – it’s on your desk.  If banks or investors are going to put their capital behind your business, they must believe in YOU. 

Even for the most successful companies, fundraising, banking and M&A activity is a time of extreme scrutiny, uncertainty, and rejection. As the leader of your organization, you better get ready!

So here we go.  In this article I’ll talk about:

·      What’s the best time to raise money

·      Why you need help

·      How to walk the fine line between humility and hype

·      When to implement investor feedback, and when to ignore it

If you’re like most CEO’s you started the business because you wanted to run it not because you wanted to raise money for it. It can be extremely tempting to get frustrated by having your business, business model, and business performance picked apart at investor meetings, at a time when you feel you don’t have a spare moment to devote to anything other than operational items. But investors have to deliver performance too, so get used to this aspect of your job if you want to raise outside capital.  

If you just gave me the money, I could get back to the business, is something you may be guilty of thinking during more than one investor or bank meeting.  We see this all the time at the Cardinal Capital offices. 

But to do the process right and get the best outcome for both sides, you need to be fully devoted to the process. “Investors (and some astute bankers) really need you in the room,” says Gary Anderson, Partner in Cardinal Capital. “You’re the person who can provide them with context and insight into the past and future of the business.”

Is Now the Right Time?

If taking your eye off the ball in order to raise money sounds terrifying, you’re not alone. It’s normal.  The Organizational Behavior wing of Cardinal Capital deals with this on a weekly basis.  The anxiety of diving into raising capital is daunting for even the most seasoned C-suite exec.

“That said, if you’re legitimately worried that you don’t have the time or resources to run a successful process and keep the business going, maybe now isn’t the right time,” says Anderson.

He recommends every CEO ask the following questions:

  • Who do you have supporting you in running the business?
  • Who do you have supporting you in the financing process?

If the answer to both questions is “no one,” that’s an awfully bad place to be. Your options vary depending on the current financial state of your company.

  • If your business is break-even or profitable… and you don’t have the right support system, put the financing process on hold. First, get at least one key executive into your business who can handle some core operations, and consider hiring an investment banker to support you in the financing process.
  • If your business isn’t profitable… the choice is less clear. You either have to dramatically cut the expenses of the business, or you have to go out and raise money. “Either option is a huge risk and not a good position to be in,” Anderson admits. If you go with the latter, you’re taking your eye off the business — which any banker will tell you never to do. It’s going to be a grueling, risky period, but as an entrepreneur, you’re in the business of finding a way over, under, or around. This is no different.

Getting Help

A note on groups like Cardinal Capital — granted, I’m biased; however, there’s a reason that we’re in high demand, even in the age of LinkedIn, Google, online deal sourcing platforms, and crowdfunding. Running a financing process requires specific expertise and takes an enormous amount of time.

This isn’t to say that you shouldn’t do your homework. You’re going to be selling yourself to people that do nothing but M&A and banking all day, everyday. They have a sizable advantage when it comes to deal-making. “Learn as much as you can before diving in,” Anderson recommends. “Talk to as many people as possible who’ve sat at both sides of the table.” Then hire an expert of your own – we blatantly encourage a look at Cardinal Capital.

In a sense, a group like Cardinal Capital is a little like a real estate agent. No one’s stopping you from selling your house without one. But if you do, you’ve got to be home every time a prospective buyer stops by. In addition to educating yourself, you have to devote time to market research, advertising, communication, negotiation, and paperwork.

Alternately: you can hire an experienced agent and take the kids to the mall while he or she is showing the house.

“Most middle-market businesses become profitable by keeping a close eye on costs and expenses. The idea of spending the cash to hire a group like Cardinal or senior managers who can serve as your surrogate while you raise money might feel reckless,” says Anderson. But investing in a team will pay dividends down the line.

“During a capital raise, the frugality that drove success for your current business could prove pennywise and pound-foolish.”

Investors want to see a strong team. Having your company’s value excessively tied up in the CEO can hurt your financing success just as much as high customer concentration.

There also comes a point in time when it’s important not to have dependency on yourself for the business to function effectively. Good lieutenants are required for your business to grow in value as it matures.

“Having a healthy and experienced team in place at Cardinal Capital while I’m out — whether for investor meetings or other external responsibilities — is a milestone in the company’s continued progress,” Anderson says.


There’s no overemphasizing the importance of preparation in a capital raise. Most fundamentally, you need to have a clean and clear presentation of financials. “It’s stunning how fast messy numbers can kill a transaction,” Anderson says. “Unless you’re a seed stage business, there’s no quicker way to ruin your credibility and your business’ prospects.”

“It’s stunning how fast messy numbers can kill a transaction.”

You should also be prepared to answer a wide range of questions from investors about the past, current, and future of the business. Anderson recommends every CEO think carefully about these two in particular:

1) What metrics do you use to run the business?

Notes Anderson, “Your answer will signal to investors how operational you are. How much structured, critical thinking have you done around measuring inputs and outputs? What metrics do you obsess over? How do you determine success or failure?”

Investors and banks want to see that you’ve done the hard work to develop frameworks to evaluate the business’s operations and financial performance. They also need to hear the answer from your perspective in order to effectively corroborate it with answers from senior management and signals from inside the business. Your answer doesn’t necessarily have to be identical to that of your CFO or VPs, but there should be a clear narrative for investors to pick out.

2) How would you use $100,000 vs. $1 million vs. $10 million?

The numbers here may vary depending on how much capital you’re looking for. What investors are trying to get at with this question is how you think about investing capital in the business.

  • How fleshed out are your plans?
  • Is your orientation around spending in line with theirs?
  • Do you know who would be in control of those resources and have the ROI hypotheses been built out rigorously?

“Investors want to hear your plans and priorities for the company firsthand, and feel confident that you would manage growth and allocate capital in a way that feels aligned,” says Anderson.  

Managing Expectations

Success in a capital raise requires two things:

  • A clear plan for the business
  • Effective communication of that plan

Think carefully about how you present your vision, to whom.

“Investors have different levels of risk tolerance. Banks also.  Neither are typically interested in being paid back with a 5-6% coupon,” says Anderson. But depending the type of investor you’re targeting, they may be solving for 2x, 5x, or 100x.

Similarly, where one investor may be drawn to a more measured, deliberate CEO, another may be turned off by a CEO who doesn’t seem ambitious or audacious enough to create a breakout company.

Think carefully about how you present your vision, to whom.

“Be true to who you are, but be ready to flex a little bit in one direction or another depending on who you’re talking to,” says Anderson

Your presentation style can have important implications for the nature of the offer. “A big vision might get you a higher valuation, but investors may add more downside protection into the way they structure the term sheet. If you hit your mark, everyone wins. But if you miss, they’re protected and you might not be.”

Plus, if you sell an investor on a pipe dream, your job is going to be pretty stressful after the deal close

Doing Your Homework

“Successful companies meet investors and commercial bankers through referrals a few years prior to announced funding. The more lead time to build credibility and rapport, the better,” says Anderson.

Talking to as many people as you can (as discreetly as possible) is the best way to learn bad actors, weaknesses, or other information that investors won’t trumpet on their websites. Ask tactical questions like:

  • What is their current portfolio made of and what are their expectations?
  • How do they underwrite investments?
  • What returns are they looking for, in what timeframe?
  • What’s the average tenure of their relationships? How long do they typically hold companies?

This is information you can corroborate with investors directly during meetings. Don’t be afraid to have a peer-to-peer conversation. “I know from experience it’s easy to get unnecessarily deferential in these environments. Be respectful, but assert yourself as an equal immediately in order to calibrate the alignment of the partnership,” Anderson recommends.

(It goes without saying that you should be mindful of your tone and approach. Posing thoughtful inquiries in the course of conversation will be much more effective than firing off a line of non-stop questions.)

Gathering Feedback

In the course of a financing, you will hear “no” more than once. Rejection can sting, but don’t let it cause you to overlook one of the most interesting and productive parts of the process: feedback from expert critics.

“I really appreciate those banks and investors who were willing to spend 20 or 30 minutes explaining why they passed in more detail,” says Anderson. He asked every investor who passed one question:

“What would you need to have seen in order to move forward right now?”

“This isn’t a last-ditch effort to get them to change their minds,” says Anderson. Instead, it’s a technique to get an investor to bring down her guard so you can learn why she passed in a more honest way.  

Good funding sources don’t pick their investments based on whether or not they like a business. Even if they love your company, they have to evaluate if right now is the right time — given the market, their current portfolio, your outlook, your weaknesses, trends in your industry, the state of your customers’ businesses, and a million other factors small and large. “A would-be commercial banker’s answer to this question may help improve your pitch process, target more appropriate investors, or see the defects in your business more clearly.”

As you gather feedback, remember that it’s OK to set some of it aside for now. There’s a huge amount of insight in banks’ concerns. But they also have a tendency to overanalyze the current business, even though what they expect from you is a vision for the future. If you react to every investor criticism, you’ll always be a step behind.

Instead, use their thoughts as starting points for business improvements. Keep a steady head, listen without judgment, and keep moving forward.

Cardinal Capital has over 60 years collective experience in the commercial finance world.  We can help you through this process.


Source/Referrence: Axial Forum, Inc. Magazine, Financial Times.


Forget The Algorithms, Hire a Commercial Loan Broker (Bloomberg reprint)

Alternative lenders, nonbank firms that provide short-term commercial credit at expensive rates, have been around for years. Today, companies such as OnDeck and CAN Capital boast that their cutting-edge data-gathering techniques and software analytics allow them to make loans to small businesses that banks consider too risky. 

Yet these alternative lenders rely heavily on a low-tech method to find borrowers: loan brokers, who funnel cash-strapped small business owners to companies that offer short-term cash advances and other types of high-cost financing. There’s a catch. Loan brokers’ generous commissions can double the cost of already expensive loans, according to industry insiders and paperwork describing commission structures viewed by Bloomberg Businessweek.

Under the terms outlined in a document produced by a CAN Capital subsidiary, a business borrowing $50,000 over six months would end up paying back $65,500, with the broker getting $8,500 for delivering the customer—more than the lender would make on the loan. The 17 percent commission far outstrips the 1 percent or 2 percent brokers earn on loans backed by the U.S. Small Business Administration.

Some lenders worry that brokers are steering costly loans to small businesses that can’t afford them. “It’s a direct parallel to what happened in the subprime mortgage space,” says Mark Pinsky, chief executive officer of Opportunity Finance Network, an umbrella group for community lenders. “Things got out of control because of the incentives to [mortgage] brokers who had no skin in the game.” Jeremy Brown, CEO of alternative lender RapidAdvance, says the high commissions remind him of last decade’s lending frenzy: “The brokers are getting outsize influence again.”

In the U.S., two dozen alternative lenders that specialize in small, short-term loans provided roughly $3 billion to small businesses last year, estimates Marc Glazer, CEO of Business Financial Services, a lender based in Coral Springs, Fla. The loans, typically less than $100,000 and lasting less than a year, are marketed to businesses that don’t qualify for regular bank loans or don’t want to jump through the hoops of applying. Many alternative lenders pitch products called merchant cash advances. In these arrangements, lenders advance a lump sum and collect payments automatically by diverting a daily cut of the merchant’s credit card sales. 

Contracts between alternative lenders and borrowers typically express borrowing costs as a multiple of the loan amount over a specified term. When calculated on an annual basis, the loans can carry the equivalent of triple-digit interest rates. 

Lenders rely heavily on online ads, an expensive and unreliable way to drum up business, says Kris Roglieri, CEO of New York-based Commercial Capital Training Group, which charges $23,000 for a weeklong course for would-be loan brokers. By paying brokers only when they close a deal, lenders get more value from their marketing dollars, he says. 

As alternative lenders grow bigger and have more money to put to work—some have obtained credit lines from Wall Street firms including Goldman Sachs and Fortress Investment Group—competition for borrowers is increasing. That’s led to bigger incentives for brokers. “The new battlefield for funders is over who can offer brokers the most dynamic commission package,” says Jay Ballentine, co-founder of New York-based startup Buynance, which says it matches lenders and borrowers at a lower cost. Ballentine says brokers, in addition to charging hefty commissions, sometimes demand closing fees of as much as $5,000 that borrowers don’t learn about until they’re ready to sign a contract.

Brokers’ agreements with lenders, which borrowers don’t see, show how much more the middlemen can add to the cost of a loan. The broker agreement used by the CAN Capital subsidiary shows the lender expects to be repaid 14 percent more than the amount it advances on a six-month loan. But its preferred brokers can tack on an additional 17 percent, bringing the total borrowing cost to 31 percent of the loan. CAN Capital declined to make executives available for an interview. In an e-mailed statement, the company said it uses “a variety of marketing channels and commission structures” and that charges depend on “our proprietary scoring model and the history of that particular company.”

OnDeck, which counts Google Ventures among its backers, adds up to 12 percent of the loan amount in transactions involving brokers, according to spokesman Jonathan Cutler. He says that on average, the company’s independent brokers earn commissions of 7.5 percent.

Many in the alternative lending industry don’t see rich broker fees as a problem. Most “reputable companies” don’t let brokers tack on more than 12 percent of the loan amount in extra costs, says David Goldin, CEO of lender AmeriMerchant and president of industry trade group the North American Merchant Advance Association. 

Some entrepreneurs are working to drive down brokers’ fees. Ballentine, a former broker himself, started Buynance in February to let borrowers compare loan offers from multiple lenders. Jared Hecht started a site called Fundera in February to help business owners select the best deals from alternate lenders. Both companies charge fees that top out at 3 percent of the loan amount, a fraction of what brokers collect. “In other industries, the Internet replaces the broker,” says Hecht, noting that websites such as succeeded by giving travelers price transparency they didn’t get from travel agents. That hasn’t happened for small business loans yet.


How Advisors Add Value in the New Middle Market

M&A is finally emerging from the dark ages. Today’s middle-market CEOs have more transparency into deal-related information and relationships than ever before. Successful investors and buyers proactively connect with CEOs to discuss opportunities; peer networks and online platforms provide CEOs access to industry data and trends; and CEOs meet capital providers at industry events. 

In this new landscape, what’s the role of a M&A advisor? 

In the past, advisors’ primary value-add was their access to the information and relationships CEOs needed to transact effectively. That’s no longer the case.

In the new middle market, M&A advisors earn their keep by charging for two resources more scarce than information and relationships: time and experience.

Time is a zero-sum game. An hour spent one place is an hour that cannot be spent elsewhere. Optimizing company operations is the highest-impact activity a CEO can undertake to maximize his company’s valuation. Hours spent on other activities, like managing the nuances of such a complex transaction, can amount to dollars sacrificed at deal close.

When you consider that the loss of every dollar in revenue or EBITDA will be multiplied to calculate a company’s valuation, it’s easy to see how costly a distracted CEO can be. By hiring M&A advisors to run a deal, your buy yourself time to build a more valuable business. 

Experience can’t be reproduced. In hiring an M&A advisor, smart executives are choosing to leverage years of transaction experience. CEOs want a seasoned advisor in their corner when building a book to market your business, sourcing potential buyers, navigating due diligence, negotiating final terms, and closing the deal. 

A CEO’s counterparty is virtually guaranteed to bring representation in the deal. Just like you wouldn’t walk into legal proceedings without your own lawyer, walking into a deal without an advisor can put CEOs at a grave disadvantage.

For M&A advisors in today’s middle market, the key to earning great fees is focusing on areas where you can add true value. Those areas are no longer around general M&A information and relationships with capital providers. Instead, advisors need to focus on what they have that others don’t — experience from past deals, and the time to get them done right.


Need Cash?

This is a reprint of an analysis printed on 

Short of capital?
Risk of underinvestment while oil price is lower for longer
lower-for-longer oil price environment has taken a toll on the capital spending of exploration and production (E&P) companies. Actual and announced capex cuts have gone below the minimum required levels to offset depletion, let alone meet any expected growth. But, how much does the industry need to spend at a minimum to ensure its long-term sustainability? And, will companies have enough cash flows to fund even these reduced capex levels over the next five years? These are some of the questions and perspectives this report explores.

Planning for a resource-constrained future

he crude oil and natural gas industry worldwide has slashed its capital spending by about 50 percent in 2015 and 2016, risking future availability of supplies. In 2015, conventional discoveries of oil and gas outside North America were reported to have dropped to the lowest levels since 1952. This lower-for-longer price environment will challenge E&P companies to achieve full reserve replacement, especially considering capex is not their only priority.

Because of capex reduction, or underinvestment, the industry would quickly dip into its existing non-OPEC, convenient resources. While this strategy would help sustain production without over-burdening cash flows in the near term, it is going to leave high-cost and/or riskier barrels for the future. Although technology and innovation may again come to the rescue of the industry, the key is to manage capital and tailor business models to the new normal of lower for longer.

At a minimum, E&P capex of $3 trillion is needed during 2016–2020 

Although oil prices have recovered to about $50/bbl, the industry's capex cycle will take time to stabilize and recover in this lower-for-longer price environment. Even with a weak demand and reduced costs outlook, we estimate the global upstream industry will need to invest a minimum of about $3 trillion (ex-MENA capex of $2.7 trillion, real 2015 dollars) during 2016–2020 to ensure its long-term sustainability.

At a commodity level, natural gas will likely need more investments than oil due to large exploitation of reserves in the past, a switch in investment from gas to oil, and large unmet demand potentially, particularly in Asia Pacific. Prioritization of development over exploration in the past 10 years and the resulting fall in the discoveries of new resources call for an increase in exploration spend share to about 20 percent by 2020.

Global upstream industry faces a $2 trillion funding gap over five years

nvesting more than $3 trillion is not the only challenge. E&P companies also have to shore up balance sheets, service upcoming debt maturities, and maintain the already reduced dividend payouts. Over the next five years, about $590 billion of the industry’s debt is maturing, and shareholders will expect about $600 billion in already reduced payouts. This takes up total cash-flow obligations of integrated oil companies (IOCs), listed national oil companies (NOCs), and independent E&P companies to more than $4 trillion from 2016 to 2020.

On the other hand, the industry’s estimated cash inflows at an average oil price of $55/bbl would only be $2 trillion, leaving an equivalent funding gap. Capex alone on a standalone basis has a minimum gap of about $750 billion if no debt repayments or investor payouts occur. Correcting balance sheets and maintaining the already reduced payouts will most likely be a top priority, leaving far less cash available for capex over the next five years.

Deloitte's capital trail series

his report is part of Deloitte's ongoing capital trail report series, assessing the impact of the crude downturn on the oil and gas industry and exploring changes in companies’ capital strategies and business models.



EBITDA is NOT Cash Flow

There is a misconception in corporate finance that EBITDA (Earnings Before Interest, Depreciation, and Amortization) is synonymous with cash flow. The metric gained prominence with the arrival of the LBO industry in the 1980’s as buyout firms used it to estimate how much debt a company could take on, a key component of the LBO strategy. As standardized as EBITDA has become in company valuation – purchase prices and loan covenants are often quoted as multiples of EBITDA – the metric is not uniformly defined under GAAP standards and its calculation varies from company to company, leading to disparities and misunderstandings about the true cash-generative abilities of a business.

EBITDA does not take into account any capital expenditures, working capital requirements, current debt payments, taxes, or other fixed costs which analysts and buyers should not ignore. The cash needed to finance these obligations is a reality if the business wishes to grow, defend its position, and maintain its operating profitability.

Here are three costs that are not included in the EBITDA calculation and by omitting tends to overstate operating cash flows:

Capital Expenditures

Certain industries like heavy manufacturing, shipping, aviation, telecom, clean technology and oil and gas require heavy ongoing or up front investments in equipment. EBITDA does not take into account capex, the line item that represents these significant investments in plant and equipment. Ignoring capital expenses to inflate EBITDA by $3.8B precipitated the bankruptcy of WorldCom. Essentially, the company capitalized operating expenses, allowing them to be depreciated over time, thus decreasing operating expenses and boosting EBITDA.


“The biggest problem I encounter is an over or underestimation of capital expenses for asset-heavy companies such as trucking. Adding back all depreciation for a company like this without leaving an allowance for capex can grossly overestimate the available cash flow. However, not adding back any depreciation can underestimate the cash flow, especially if the company uses accelerated depreciation,” advises Axial Member Jaime Schell of Plethora Businesses. There have been more insidious cases of companies manipulating depreciation schedules to inflate EBITDA, such as Waste Management in the mid-nineties extending the useful lives of its garbage trucks and overstating their salvage value.

Working Capital Adjustments

Businesses need to invest revenue back into the company to keep expanding. EBITDA does not account for changes in working capital (current assets minus current liabilities) and the cash required to run the daily operating activities. Ignoring working capital requirements assumes that a business gets paid before it sells its products. Very few companies operate this way. Most businesses provide a service and get paid in arrears. Ideally a business collects up front for its services and pays in as much time as possible to remain as liquid as possible and to quickly reinvest cash into profitable investments like inventory purchases. This relationship between sources and uses of cash speaks to a company’s ability to take on more projects such as higher debt payments in the case of an LBO.

While EBITDA is useful in that it allows for a back-of-the-envelope comparison of two companies with similar business models or in the same industry, a 2000 letter to Berkshire Hathaway shareholders written by Warren Buffet put EBITDA in its place: “References to EBITDA make us shudder…We’re very suspicious of accounting methodology that is vague or unclear, since too often that means management wishes to hide something.”

David Simmons at Forbes magazine once called EBITDA the “device of choice to pep up earnings announcements.” It does not exist in a vacuum and is irrelevant on a standalone basis. It does help when comparing similar companies under time constraints, but is by no means a thorough valuation tool when making an important investment decision.


Oil and Gas - Financial Management

Oil & Gas Companies get creative
Financial Management 


With oil prices beginning to stabilize near $60 per barrel, the probability of a V-shaped recovery is unlikely. To prepare for a prolonged environment of depressed oil prices, the energy sector has shifted its focus to cash management and liquidity. 


For large upstream energy companies, the renewed focus on cash management will come in the form of operational improvements and increased capital discipline for new investments. For select issuers with strong balance sheets, new debt and equity capital may even be available. However, for smaller companies with less operational flexibility and limited access to liquidity via the public or private capital markets, alternative solutions may be required to stay afloat and preserve equity value.  Strategic solutions such as mergers/acquisitions, divestiture of non-core assets, or a balance sheet restructuring should be explored to survive a prolonged downturn.

Fueled by high oil prices and large profit margins, the oil and gas industry experienced record levels of expansion in 2012 and 2013 as new capital flooded the market to capitalize on the U.S. Shale Boom. Investors eagerly deployed new capital into the energy sector seeking to develop the new unconventional resources made available by technological improvements in fracking and horizontal drilling. U.S. resource expansion in tandem with a low interest rate environment allowed energy companies relatively easy access to cheap debt financing. Figure 1 illustrates how the debt/total capitalization ratio for a subset of major oilfield services firms has increased over the last 10 years.

The oil and gas sector is a capital intensive business, and a substantial amount of new debt capital was brought into the industry in recent years to fund new project development that could not be financed purely through internal cash flow.

However, for the oilfield companies who assumed risky levels of debt during the recent expansion, the dip in oil prices left them in a precarious position.

Liquidity crunch hampers overleveraged businesses. Companies in danger of missing interest payments or tripping financial covenants are facing considerable financial headwinds that threaten future operations.

Burdened with high fixed costs and pricing pressures upstream, many smaller oilfield service companies are facing major difficulty in meeting their debt service. In addition, for companies with maturing debt, refinancing has also proved an arduous task as lenders look to reduce exposure to the industry.

The reduction in credit availability is most visible for E&P companies at the top of the supply chain. The drop in oil prices has resulted in redeterminations of borrowing bases of reserve backed loans (RBL), the primary method by which established E&P companies obtain financing. RBLs are bank credit facilities that use oil reserves as collateral for the loan.  RBLs are generally structured as revolving credit facilities based on the net present value of producing reserves where oil price represents a direct input to the NPV calculation.

Borrowing base redeterminations for RBLs are an easy way for banks to reduce their exposure to the sector without having to alter existing credit agreements materially. RBLs play an important role in the working capital financing for well operators, for example. With the reduction in credit availability, operators have retrenched on investment in new projects and are focusing attention on the management of existing projects.


Oilfield service companies hurt by upstream capex cutbacks. Next in the supply chain, oilfield service companies have been directly impacted by the decrease in upstream capital expenditures. Overall, the reduction in upstream investment has decreased revenues and squeezed margins.

Major oilfield service company Halliburton recently announced 9,000 job cuts, or approximately 10% of the company workforce, to reduce overhead costs. The company reported a Q1 2015 loss of $641 million, a year-over-year drop of greater than 200%.

For smaller oilfield service companies, there is less leeway in making such major operational changes. Oilfield service companies unable to generate revenues that fully absorb overhead costs have experienced deteriorating EBITDA margins. Coupled with consistently high maintenance capital expenditure requirements, negative free cash flows have eroded cash balances significantly in recent months. Negative free cash flows, upcoming debt maturities, and the extension of trade supply are all telltale signs of a company in financial distress.

Financial restructuring as a possible solution. For companies experiencing financial distress, a full assessment of the strategic options is required.  Possible solutions include seeking deferral of interest payments, extending the maturity of the debt, exchanging existing debt for equity, or potentially raising new debt or equity capital.

Many commercial banks view the current $50-$60 per barrel oil price environment as a transition period. Although lenders are looking to cut overall exposure to the industry, forcing a distressed company into default is often not in a lender’s best interest. In the current environment, lenders will be focused on optimizing the recovery of assets and improving their standing for a potential future default. This may manifest itself in the perfection of additional liens or more stringent covenants.

Conversely, equity holders seek to avoid dilution of their existing equity and to extend the maturity of existing liabilities. If properly negotiated, a restructured credit agreement can achieve the goals of both the owners and lenders and right-size the company balance sheet for prosperity even through a prolonged period of low commodity prices.


Private Equity Trends

Veteran PEGs raise funds to capitalize on distressed prices. With assets available at distressed prices and strategic buyers focusing on internal cash management, the plight of the energy industry has surfaced a major opportunity for savvy private equity groups (PEGs). Veteran PEGs such as GSO Capital Partners, Oaktree Capital Management, and The Carlyle Group have all raised new funds targeting distressed energy assets. While the first quarter of 2015 experienced only light deal flow, we expect energy focused private equity to become more active in acquisitions as more distressed situations arise.

Energy deal volume hits trough. Despite lower valuation multiples, smaller PEGs without major experience in the energy sector are taking a step back from oil and gas opportunities until oil prices stabilize. For generalist firms, the lack of clarity in the sector poses too much risk for limited partners. Further, oil and gas focused funds are devoting their attention to managing existing portfolio companies and potential bolt-on acquisitions. New platform acquisitions, especially opportunities with material exposure to the drilling market, have been put on hold and for good reason.


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Cardinal Capital, LLC, Financial Consultants  No License Required, Baton Rouge, LA