Nation’s Credit Crisis Hitting Close to Home
Torrance, Calif. — Mirroring a national trend, the credit crisis engulfing Wall Street is affecting the ability for some security contractors to get loans, experts in alarm business financing and others say.
Although the electronic security industry is fairing much better than sectors elsewhere in the dour U.S. economy, small installation business owners especially are facing a harder time financing their firms. Many are finding their business plans and cash-flow projections under much greater scrutiny, as are their business and personal finances.
“Smaller alarm companies, who very often were using their credit cards or home equity, are finding it difficult to get new lines of credit and are now strapped,” says Tony Smith, president of Security Finance Associates Inc. (SFA), a private investment banking firm in Pasadena, Calif.
Smaller owners traditionally have relied on either small business loans or a relationship with a local lender. For some, the financial pressure cooker is mounting as loans made a few years ago are now coming due.
“The ones that will come out winners in that category are those that have a good, strong recurring revenue base already built up so that they can weather the storm we’re going through,” Smith says.
Even larger, well-established companies are not immune to credit tightening.
“It is drying up all over the place. There are some exceptions in that you can get financing if you have an incumbent bank you’ve been working with, but the difference is you are going to pay for it,” says Amy Kothari, president and CEO of Alarm Capital Alliance (ACA) of Media, Pa. “You are going to see that your cost to capital is going to go up by about 50 percent, if not more.”
Especially troubled are companies of all sizes that rode a singular wave during the housing boom and ended up too vested in the builders’ market, which has become a desolate wasteland since its recent heyday. In fact, the National Association of Home Builders (NAHB) housing market index in November showed that less than one in 10 builders is optimistic about the market for new single-family homes, with builders particularly discouraged about the pace of sales and the dearth of potential buyers.
“I have dealers who relied on the builder market and now are really struggling; some of them are actually going out of business,” says Kothari. “Large, midsize and small, they just can’t make it right now.” Both SFA and ACA offer installing companies alternatives to traditional financing. For instance, Kothari says her company makes bulk account acquisitions, which can provide a dealer necessary capital to continue operating their business without having any interest payments tied to it. The dealer also continues to service the accounts.
SFA offers a funding program whereby companies with good credit can receive third-party leasing, allowing companies to acquire security products, for example, and use them over the term of the lease until it’s paid off. Installers can thereby open their cash flow so they can be paid up front for whatever asset they install.
In these stormy times, installing companies can also look to a familiar silver-lining expression: the electronic security industry is recession proof. That’s not proving to be altogether true in this current economic mess, says Mike Miller, president of the National Burglar & Fire Alarm Association (NBFAA), but there is cause to be positive.
There are scores of dealers across the nation that are experiencing an influx of installations, in part, because of the public’s increased awareness about rising crime rates during periods of economic hardship. “If times are tough, people want to protect what they have even more,” Miller says.
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