In our continued quest to discover new lenders willing to assist our industry with its diverse growth financing needs we decided to join the Mortgage Bankers Association and attend their recent annual conference in Orlando, Fla. Coming from the realm of a petroleum industry associate confined to a 10’ x 10’ booth-cage for over four hours a day at our trade show events, it was quite a change being one of the bag-clutching booth strollers feigning interest in the pitches served up by eager bankers looking to loan millions upon millions of dollars to whomever seemed to wander up with an interesting commercial proposition.
Over this three day bankers event I understood what John Dillinger meant when he said that he robbed banks because “that’s where the money is.” The same can be said about an MBA convention…money is no object. The worst happy hour poolside event bested the best convenience-store event by miles. In fact, Disney’s House of Blues club was exclusively rented for two consecutive nights by both a European and U.S. bank to host a couple of top-shelf events with headliner bands that were open to all attendees. There were so many quality giveaway items that it was hard to carry all the calculators, computer gear and other imprinted promotional stuff. All-in-all, my initial impression was that these bankers had piles of cash to loan and were aggressively looking for places to plant it.
So it seemed until I mentioned that I was from the retail petroleum industry looking for lenders to help our clients grow their businesses. Given the negative reaction that I generally received at this news, you would have thought that I was about to contaminate them with a unique strain of the avian flu virus. I was left feeling quite uncomfortable and suddenly unwelcome. Gripping my high-end freebie while dejectedly leaving one booth I realized that our industry still has a long way to go to again be loved by the overall financial community.
All was not a total loss, however, when in the end we were successful in uncovering a handful of lenders to add to our roster of reliable financing resources. Although the overall financing alternatives for our industry are still somewhat limited, we have made steady progress over the years since the securitized financing bubble burst. Growth oriented marketers do have some viable options available when looking for an acquisition loan or to refinance existing debt and clear the decks for growth.
Besides traditional banks, for larger acquisitions life insurance companies and credit unions are offering competitive fixed rate mortgages with longer amortizations and in amounts greater than most banks offer. The resultant cash flow benefits will deliver enhanced business value and they are usually fixed at lower rates than the floating rate mortgages that in this rising interest environment have marketers waking up at night in a cold sweat worrying about their next rate adjustment. These types of loans require 25 percent equity and are designed for stores that one plans on keeping into the future.
For aggressive growth-oriented marketers several equity groups are also offering financing programs in amounts that enable the acquisition of higher valued larger blocks of stores. Although they have somewhat higher interest rates, these loans require reduced levels of borrower equity. Short term in nature, they are ideal for situations where a marketer wants to workout an acquisition by selling off some sites from a store package prior to placing more permanent financing on the keepers. Some of these equity groups will even consider partnering with a marketer on one or more deals to add further financial clout. When considering this type of financing arrangement remember that the lender offsets the reduced borrower equity requirements with higher interest rates, loan origination fees and typically wants to be refinanced out of the deal in a couple of years.
In summary, the overall growth-financing climate is slowly but surely improving for our industry. We predict that the next year to eighteen months will see continued industry consolidation and oil company retail divestiture, making it an exciting time for conservative growth oriented marketers. And although lenders will still be playing hard-to-get, a few more each year will come to love our industry.
Mark Radosevich is a member of the NPN Experts Online program and the president of PetroProperties & Finance, a division of PetroConsulting, Inc. His firm specializes in mergers and acquisitions, financing and strategic business services to the retail petroleum industry. If you would like to ask Mark a question, please contact him at (305) 667-0855 ext. 3 or firstname.lastname@example.org or visit npnweb.com/expertsonline/default.asp.