By Ken Altena, Partner, Billboard Loans, LLC.
Did you know that in 1977 a bank almost put Lamar Advertising out of business? Here’s Keven Reilly Sr. quoted in Signs of Opportunity: How Lamar Advertising grew into the biggest billboard business in America.
In the spring of 1977…I received an emergency phone call from the loan officer at Third National Bank in Nashville…the bank was calling our loan, and in order to avoid foreclosure we would have to move it within 24 hours…the Tennessee Usury Law limited banks to charging individuals no more than 10%. Interest rates at the time were going crazy and the bank was obliged to swallow the difference between the 10% they were allowed to charge individuals and the Fed rate…They had declared the loan in default because we had traded in some trucks in the normal course of business…As soon as the session was over I rushed downtown to see our loan officer, John Henry Bateman, at the then Louisiana National bank…John got busy and placed the entire $1.8 million with some 15 banks…Without the marvelous support that John Henry Bateman gave us – the company would have gone out of business – just another casualty of “the Credit Crunch.”
Three takeaways.
#1 Diversify your banking relationships.
It’s never a good idea to put all your eggs in one financial basket. Lamar survived because it had multiple financial relationships. Banks change and banking priorities change. I’ve seen two tight credit periods (after 9/11 and during the 2009 great recession) where some banks exited the out of home business. It’s good to keep one more lender than you think is necessary – just in case.
#2 Watch the fine print in loan documents.
Read and know your banking covenants. Lamar got into a bind in 1977 when a bank chose to call the loan based on an unimportant financial covenant. Understand when and how a bank can call your loan. What are the notice requirements? Do you have the right to cure defaults? Is your bank allowed to call you loan for any reason or just on a major event of default?
#3 Keep a sustainable level of debt.
You will most likely be able to find a lender if your debt to cashflow (EBIDTA) is 4 times or less. Don’t push to the limit of the most aggressive lender because when they get nervous and want out, you’ll have no options. If you have sustainable debt, you’ll have financing options.
Billboard Loans, LLC. has been lending and investing in out of home companies for almost 30 years. You can contact Ken Altena at [email protected], 206-636-8478.
