Financing for out-of-favor industries
By Jenny C. McCune • Bankrate.com

Out-of-favor often equals out-of-luck when it comes to raising capital.

Just ask TBC Consolidated Fuels Marketing and Management Corporation. The Houston-based company has credentials that any investor or lender should love. It has a great niche, is profitable and only needs expansion capital so it can produce more deals.

But after being rejected by 37 bankers, it's pretty clear that TBC is a borrower non grata.

The problem lies not within TBC, but its industry. It's an energy company.

When its CEO Peter Bryant approaches banks, they immediately think Enron and quickly brush him off. TBC is like a lot of other companies in energy or the Internet, another one-time investor darling that went bust. Companies in these now out-of-favor industries frequently find that potential financiers walk away without hearing their stories.

In the case of TBC, the story is decidedly positive. It procures energy for Fortune 500 companies such as FedEx, Miller Brewing and Texas Instruments. TBC is a lean corporation (just 12 employees), has no debt and boasts a solid management team and is looking for money to guarantee purchases. Bryant says TBC's current $20 million in revenue could easily grow to $150 million if it could just land expansion capital.

"Doing business the way I'm doing it is a better investment than a CD," Bryant says. "Our return pays better. But we are always getting classified with marketing or trade organizations in spite of our efforts to explain and show what we have."

The official reasons banks give for rejecting TBC's applications are that the lenders have made as many loans in the energy field as they're going to this year or that the lending market has changed and no loans are going to any energy companies right now.

In response to those rejections, Bryant has taken a number of steps to secure financing. His advice may help other companies stuck in an industry of ill repute.

Reposition your lending reputation. Find out in a nonthreatening way why your loan was rejected. "I use this information for next time," Bryant says. "It doesn't do me any good to make the same mistake 50 times. I might as well learn from my mistakes."

Through his dealings with 37 lenders, Bryant has corrected some loan application glitches and honed his approach.

And don't start believing that all rejections are your company's fault. "Don't buy into all the no's you receive," Bryant says. "Most of the people don't know what they're talking about. That's why they're working for somebody and why you're working for yourself."

Ask for advice from your business colleagues. Bryant turned to a friend, an international commodities broker, and asked him what to do. His friend quickly pointed out that while banks in the United States weren't interested in lending to energy companies, TBC might get a better reception overseas. The friend's advice proved right on target. TBC has been in touch with banks based in Ireland, South Africa and France. "They [the overseas banks] have been aggressively pursuing loans with companies like TBC," Bryant says.

Look to well-heeled suppliers for help. In TBC's case, a supplier is extending the company extra credit which is helping to finance more deals for the energy company. Both companies benefit from the resulting increased business. "Don't underestimate the supplier in your corner," Bryant says. "You can double, triple or even quadruple your market share if a supplier is willing to work with you. Credit is credit whether it comes from a bank or a preferred supplier."

Persist. "You have to be like a bulldog and not let go," Bryant says. For example, in large banks people only are familiar with their own departments. Make it your job, not theirs, to find the right people to talk to. Don't rely on people to pass along your loan request or phone message.

Keep your eyes peeled for opportunities. In Bryant's case, that meant approaching lenders abroad. But it can also mean simply seeing and then seizing off-the-beaten-path ways to acquire capital.

Right now, TBC is in the due-diligence stage with several overseas banks. While Bryant isn't crazy about dealing with a foreign lender because of the added red tape, he'll do it to land the money that TBC needs to grow.

Jenny C. McCune is a contributing editor based in Montana.

-- Posted: Oct. 16, 2002