Corrections or additions?

This article by Kathleen McGinn Spring was prepared for the

February 14,

2001 edition of U.S. 1 Newspaper. All rights reserved.

Second Chance Lending: Ted Kompa

A recession may be upon us. Businesses that want to

survive need to be ready to make difficult cost cutting decisions

if they want to get financing to see them through, says Ted Kompa,

co-founder, president, and CEO of Business Alliance Capital Corp. an

asset-based

lender with offices in 300 Alexander Park.

Kompa speaks as part of a panel discussion, "Your Company is

Running

Out of Cash — Can You Get a Second Chance?," on Tuesday,

February

20, at 11:30 a.m. at Venture Association NJ at the Westin (formerly

the Governor Morris Hotel) in Morristown. Cost: $45. Call

973-631-5680.

Kompa, a 1964 graduate of Villanova who holds a master’s degree from

Drexel, is enthusiastic about the Venture Association, which provides,

he says, an unusual opportunity for entrepreneurs to meet investors

looking for promising new companies. At each meeting, Kompa says,

two or three entrepreneurs make presentations about their startups.

While he isn’t sure how much money flows into the young companies

as a result of the presentations, Kompa says the presentations often

do get the companies into discussions with prospective backers.

This is shaping up to be a challenging year for many young companies

as a slowdown in consumer spending collides with a backlash against

dot coms, but Kompa says financing is available for many companies

that have run out of initial funds from venture capitalists and angel

investors. He offers the following suggestions for keeping a company

attractive to investors:

Check assets. Kompa’s company lends based on tangible

assets, including inventory, equipment, and accounts receivable. Other

lenders, he says, will look at intangibles such as patents,

copyrights,

contracts and intellectual property. Banks may not be open to making

loans to businesses without a track record, but other lenders may

take on the risk, he says. "Our loans are bridge loans," Kompa

says of the financing asset-based lenders like his company typically

provide. Generally, the term is 18 months to three years, just enough

to get a company over a difficult period. Rates, he says, are above

those charged by banks, because the loans are riskier and also because

they are more labor intensive. "Each company has an account

executive

who works with them daily, monitoring collateral," he says.

Evaluate problems. In making loan decisions, Kompa’s

company

looks carefully at management. Experience is important, and so is

a firm grasp of reality. Anyone can make a mistake, Kompa says, but

it is important to recognize where the mistakes are. "We’ll

discuss

their plan," he says of the process of evaluating a company.

"If

they don’t have a plan, that’s our answer."

If there is a plan in place, Kompa says there is no extensive number

crunching, but rather "we listen to their assumptions for their

numbers. In that process, we get a very good idea if these people

have their feet on the ground and understand their problems."

Keep heads out of the sand. Denial is one of the main

reasons that companies go under, Kompa says. There often comes a time

when companies realize they should have gotten financial help six

months ago or a year ago, he says. When a company is losing market

share, sales are declining, and it is getting difficult to cover

expenses,

management needs to act. Companies need to seek help before they start

to lose money at a rate where bleeding is too rapid to stop, he says.

When it is no longer possible to get financing to cover expenses,

when a company is so over-leveraged that it can’t bootstrap itself

up, it is probably too late to obtain additional financing.

Cut costs. As sales slow, companies need to be aggressive

in cutting costs. This is not easy to do, Kompa acknowledges,

particularly

when lay-offs are involved, but it is essential. "These people

will be the winners when the economy gets better," he says of

those who cut business expenses. And it’s not just personnel costs

that have to be examined. "A lot of things creep into the budget,

and you just carry them from year to year," Kompa says. That may

be fine when times are good, but when sales slow, he says, it’s

necessary

to look at every line item.

"That’s the way the cycle goes," Kompa says of periodic

slowdowns.

"If you don’t react, you’re a statistic."


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