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Screentrade Magazine - Inside the Black Box - The Bank Credit Approval Process

February 28, 2014

You make a finance-raising application for your cinema project and the deal goes through fine... but, ever wondered what happens between you or your broker's input and the bank's final decision? EFA Partners explains the 'black box' of the bank credit approval process. 

Whether you’re looking to borrow to successfully grow your movie theatre business, or are simply refinancing existing debt, all avenues involve a loan-approval process, which can sometimes become a frustrating ordeal. If you’ve already been through this process, then you've probably traced the following steps:

You spent days preparing a detailed presentation that included company highlights, historical financials, projections, and an overview of the Exhibition industry so that the bank can better understand your business and credit profile. Next, you contacted numerous lenders, followed - potentially - by myriad calls and meetings. Some lenders weren’t interested for reasons ranging from ‘your business is too small’, ‘too large’ or ‘we don’t lend to film exhibitors.’ 

However, if you were fortunate and one or more prospective lenders provided you with proposals, you likely selected a lender after hours of arduous comparison. Then it was time to answer more ITAL bank questions, fill out more forms, and supply additional materials. After all of this, it was time to sit and wait for the final verdict on your loan. 

Did you wonder what bank personnel actually did during the approval process, how they made their decision and who became involved? This process can be the most frustrating part, as the decision potentially most crucial to your success may ultimately be decided by people you’ve never even met during the process. For this reason, when applying for credit, it’s particularly important to have at least a basic understanding of the mysterious 'bank approval black box’ if to enhance your likelihood of receiving the loan.

EARLY STAGE PROPOSALS 

You may receive various proposals or term-sheets during the early stages of your process. Some you may receive only a few days after providing lenders with your information, while others may not be seen for weeks. While it may seem encouraging to have a proposal so early in the process, it’s important to understand its source. Has your bank rep. already vetted your company with their credit group, or did he only provide indicative terms that still need to be reviewed by credit personnel? If the latter, then there’s a possibility that the proposed terms are simply what a sales rep. wanted you to hear and may not ultimately be approved.

HOT TIP: Therefore, it’s highly recommended to ask your bank rep. which specific personnel have reviewed proposals to ensure that the terms have a reasonable chance of being approved.

INTERNAL BANK PRESENTATIONS

As banks go through their approval processes, all the info you’ve supplied is usually condensed by your bank rep. into a deal summary for a credit committee presentation. The deal summary template requires certain items to be included before being submitted to the credit group. Hence, you should understand that there’s a good reason for some of the ‘excessive’ questions and material requests you'll receive from your bank rep. and that the rep. needs to ‘check the box’ for his or her summary.

CREDIT COMMITTEE LEVELS 

Banks typically have different internal approval levels that depend upon several criteria such as loan size, company size, company maturity or industry. For smaller loans with well-established companies within industries with which the bank is more readily familiar, the approval process may only involve one credit committee meeting. For other loans falling outside of these criteria, the approval process may include an additional meeting with senior bank management. Loans needing approval at this level often only get one bite at the apple, so a rejected loan likely won’t get a second chance. With this in mind, your bank rep. should be armed with more info to prepare for any potential questions that may arise. 

THE DECISION-MAKER 

Bank approval meetings typically involve personnel from bank sales reps. to senior credit officers. While most people in these meetings have a voice, often there is 'The Guy' who is the ultimate decision-maker on credit matters. This person is usually a senior bank officer, so other bank personnel may be leery of voicing opposing opinions. In short, if this person doesn’t approve the loan terms, then the loan will be rejected or may be further modified under terms that may be unacceptable to you.

HOT TIP: Since it’s possible that this senior person won’t be involved in the loan-approval process until the latter stages, it’s again good to ask your bank rep. which personnel have already reviewed your loan paperwork and which have yet to see it throughout the process.

SUMMARY
It’s critical to have appropriate materials prepared when seeking financing. It’s equally important to approach several banks so that a competitive bidding process may result in your getting the most favorable market terms. During this process, ask detailed questions about the bank’s approval process, which may influence your lender-selection process. After you select a lender, it’s also wise to answer any and all questions that arise during the credit approval process, even if they seem repetitive or unnecessary. Bank personnel understand their internal approval processes and know what may be expected during their meetings. Questions or requests for materials which, on the surface, seem pointless could be strategic for certain aspects or certain people involved in the final approval process.

HOT TIP: Doing everything you can to understand what goes on inside the bank’s ‘black box’ could ultimately have a direct impact upon the bank printing out a sheet that states “Loan Approved”.    

Leading provider of digital media services for film and television

Background: Seasoned management team formed new film and television digital media services company and approached EFA to arrange financing for potential acquisition targets.

EFA Process: The company retained EFA to arrange acquisition financing and EFA approached several banks and specialty lenders.

Result: Closed debt financing to support two company acquisitions

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Television broadcast company owning and operating WGGB-TV and WGGB-TV D2, the ABC and FOX network affiliates serving the Springfield-Holyoke, MA market

Background: Initially approached by Gormally Broadcasting to arrange financing to recapitalize the company and fund planned acquisition growth. EFA became company’s sell-side advisor when industry changes and market forces made exploring a sale a more advantageous and financially rewarding strategic option for the company.

EFA Process: EFA was successful in securing financing commitments to fund a recapitalization and several acquisitions during the initial engagement focus. However, marketplace dynamics noted above resulted in EFA recommending a company sale. EFA provided a tailored, results-oriented approach from start to finish.

Result: EFA identified Meredith Corporation (NYSE: MDP) as the leading buyer and managed all aspects of the sale, maximizing the sales price received for the company.

start quoteIt was a pleasure working with Dave Harrington and the team at EFA. Through Dave’s deep industry knowledge, relationships and marketplace expertise, we were able to maximize the ultimate value of our company’s broadcast assets. end quote

John Gormally,
Founder, Owner and President of Gormally Broadcasting

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Growing movie theatre company that provides an in-theatre dining experience with over 100 screens throughout the US

Background: Longtime client that initially approached EFA seeking junior capital to grow its business.

EFA Process: After reviewing the company's capital structure and growth plans EFA recommended a financing structure that would recapitalize the company and provide significant growth capital.

Result: Closed two financings that recapitalized the company and provided growth for new theatres. Studio Movie Grill remains an EFA client for M&A opportunities.

start quoteWe were delighted to work with the EFA Partners team on our second successful financing with them. Their wide range of capital markets experience, banking relationships and deep knowledge of the cinema and location-based entertainment industries made them the perfect choice to assist with our financing efforts, which support SMG's active growth strategy. end quote

Brian Schultz,
Owner, founder and President of Studio Movie Grill

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Television and motion picture post-production and digital content management services

Background: Company approached EFA seeking refinancing of its debt subsequent to other advisors attempting to do so with a combination of senior debt and equity.

EFA Process: After reviewing its capital structure EFA recommended a debt structure to fully refinance the company's debt.

Result: Closed senior debt facility that refinanced the company's existing debt, which was much more cost-effective than equity.

start quoteThe EFA team proposed a creative strategy to recapitalize Modern VideoFilm that met our needs in a way that was unique and different from what other financial advisory firms proposed to us. We appreciated their understanding of the entertainment industry and EFA's extensive financial relationships and we look forward to continuing our relationship. end quote

Moshe Barkat,
CEO and President of Modern VideoFilm

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Mark Cuban and Todd Wagner's well established movie theatre company - with almost 300 screens located throughout the US

Background: Landmark approached EFA for an equipment financing to convert its screens from 35mm to digital projection.

EFA Process: While the company had many financing options given its strong ownership, its management was busy with business operations and retained EFA to handle the digital conversion financing process.

Result: Closed equipment financing facility utilized for all of its digital projectors. EFA led all aspects of the financing including negotiation of complex digital cinema conversion agreements.

start quoteEFA's unique knowledge and experience with film exhibition and digital cinema was extremely helpful in leading our financing process. Landmark prides itself in providing the best customer experience to its patrons and we are excited that this financing will allow us to continue that with our digital conversion. end quote

Sky Hansen,
Chief Financial Officer of Landmark Theatres

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Growing upscale restaurant entertainment company with venues that provide dining, bowling, arcades and live entertainment

Background: Company approached EFA seeking capital to refinance debt at its inaugural location in Jacksonville, FL.

EFA Process: After reviewing its capital structure and growth plans, EFA recommended a two-stage approach to provide development capital and equipment financing for new locations.

Result: Initially, closed a financing to refinance debt at its existing site and provided capital to develop two new sites. Subsequently closed an equipment financing for the new sites. Latitude 360 remains an EFA client for refinancing and M&A opportunities.

start quoteWe're excited to continue our relationship with the EFA team. They understand the location-based entertainment industry and have deep relationships with financiers as well as strategic industry participants, all of which will help us execute on our growth plans. end quote

Brent Brown,
Founder and President of Latitude 360

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Television industry management group formed to manage and operate US TV stations

Background: Huntington approached EFA seeking capital for potential television station acquisitions.

EFA Process: EFA understood that private equity firms and lenders are seeking experienced management teams to back for acquisition opportunities in the television sector.

Result: EFA has introduced the company to several private equity firms as well as senior lenders, resulting in bids for groups of television stations and the company continues to seek other opportunities, with EFA’s assistance.

start quoteWe are acutely aware of the trends that are transforming the local broadcast TV business and have recently begun to explore opportunities to acquire stations. We are very excited about the prospects for the industry and the opportunities to capitalize upon. We are also pleased to have EFA Partners as our financial advisor as their many years of media industry experience and extensive financial relationships will help us accomplish our goal of building a best-in-class station group.

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David Tynan,
CEO of Huntington Broadcast Management Group

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