Asked by a client CFO why companies on the west coast get better deals than companies in his state, a banker from a national bank environmental group replied, “It’s that damn Andy Rose pricing!"
Borrower and Lender Criteria
Companies in this industry can borrower for everything from carts, containers, and trucks to transfer station/material recovery or energy generation facility development. Most companies borrow money from banks on a “full recourse” basis. That is, all the company’s revenues and assets are “pledged” to the lender.
A bank without experience will use “traditional” techniques and concentrate on “tangible collateral” like how many trucks a borrower owns and what its facilities are worth. They may even demand personal guarantees for smaller companies or refuse 100% financing on new assets. Those types of things actually have little to do with the value of a solid waste management company and a bank that relies on them will perceive the risk of banking an industry company is higher than it really is. That costs borrowers money.
Getting the Right Lender
The major factors in a bank’s decision to lend are: successful and experienced management; the nature and value of the assets of the borrower and how much debt it has compared to its EBITDA, (earnings before interest, taxes, depreciation and amortization). For the experienced banks in the solid waste management, recycling and renewable energy industries, cash flow represented by EBITDA is “king” and because for these companies, that cash flow is reasonably stable, we can arrange better terms and pricing for our industry companies than for many other types of entities.
A bank or banker without that experience will revert to what we call “banking by the book” which does not recognize the uniqueness of the industry. This can lead to banks often writing a new loan for you every time you need something or, worse yet, periodically try to sell you financial “products” like more expensive equipment leasing. That costs money in administration, interest costs, and makes it impossible to customize terms to maximize your flexibility in using borrowing power, and it invites the lender to give you less than 100% of what you need.
The publicly traded national solid waste companies certainly don’t have to borrow anew each time they need something. There is no reason that smaller companies shouldn’t have the same advantage with integrated credit facilities that provide for flexible borrowing. We have helped change the borrowing structures for some eighty plus clients and can likely do it for you too. For more information on recourse financing, such as how to possibly save even more money with “tax exempt” financing, click here.
How We Can Help
We can get you the right bank.
We can probably get you better – and possibly significantly better – pricing. Because we represent so many companies, we have negotiating power on both pricing and terms that no single company has, even the largest of the family owned companies.
We would know what you are paying, and obviously know what our other clients are paying. The banks know we know that!
Pricing is only one part of a financing structure. There are many “customized” terms in credit agreements that we’ve negotiated that increase your flexibility to use your resources, and save you money and me. For example, 5‐7 year loans on equipment is inappropriate when the useful life of that equipment can range from 10‐15 years or more.
If you are big enough to need more than one bank, we can help with that too. You do not want your lead bank to choose participant banks. Quite simply, your interests and that of the “agent” bank are not exactly aligned.