Last week we discussed the pros and cons of billboard lease financing.  Today we discuss the pros and cons of bank and private loan financing. Banks usually have the cheapest loans because they have a low cost deposit base.  And banks are often big enough to grow with you as your company’s credit needs expand from $1 million to $20 million.  Some things to think about.

Pricing is always an issue.

The assumption typically is that when you deal with a commercial bank you will always get the lowest interest rates.  That may very well be true, but interest rates can fluctuate so always focus on interest rate.  Also ask if the rate if fixed or if it floats (or changes) with fluctuations in the prime interest rate.

Private lenders can be more nimble and flexible than regulated banks and also are usually willing to make smaller loans, but the loans can be more expensive.  Ask a private lender in your first call what their rates are.

All of your company assets may be tied up.

Bank and private lenders are underwriting the prospects of your company.  They most likely will  take a security interest in all the assets of your company.  The lender will file  a UCC on your cash, receivables and equipment and probably will take an assignment of your material agreements.   A leasing company normally limits collateral only to the equipment financed.

Lengthy approval

Leasing companies can approve your transaction in a matter of days as they know the equipment they are financing.  A bank or private lender can take weeks or even a month or two to close a transaction as they are more regulated and are underwriting the prospects of your company as opposed to a specific piece of equipment.

Covenants

Bank and private loan agreements have loan covenants which are designed to preserve the liquidity and financial resources of your company to protect payment of the loan.  This means your company has less flexibility.  Covenants may include

• Limits on annual capital spending.
• Limits on other debt.
• A requirement to submit monthly and annual financials.
• Restrictions of selling assets.
• A Debt/Cashflow limit.
• A Cashflow/Debt Service test.

Leases put few operating restrictions on your company as the leasing company owns and controls the equipment it is financing until it is paid off.

Prepayments

Some bank and private loans carry a prepayment penalty and some don’t.  Read the fine print.

Insider’s take:  Bank financing can be less expensive and banks can usually grow the loan with your company. But the approval process takes time, the loan will tie up all the assets of your company and the loan will contain covenants which limit your flexibility.  Private loans may be quicker to obtain than bank financing but will be more expensive and will also tie up your company assets and have loan covenants.  And always ask about prepayment penalties.

Later this week we’ll provide an updated list of lenders and leasing companies which finance billboards.  If you wish to be on the list email billboardinsider@gmail.com or let Insider know that you finance billboards using the form below.

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