Banks are lending money and Tom Kennedy is here to prove it. The Fort Myers entrepreneur explains how he got a $2 million loan recently from KeyBank to acquire a competitor.
Who says banks aren't lending?
While loan growth on the Gulf Coast isn't what it used to be, bank assets from Tampa to Naples still grew by $2.2 billion in the year ended June 30, according to the latest data from the Federal Deposit Insurance Corp.
One of those beneficiaries is Tom Kennedy, the managing partner of Real Time Solutions, a property management company based in Fort Myers that specializes in maintenance of safety equipment from fire alarms to extinguishers and sprinkler systems.
Kennedy is one of those rare birds in business now: a creditworthy banking customer. In addition, the federal government is taking a big share of the risk because lender KeyBank arranged a $2 million loan backed by the U.S. Small Business Administration.
Bankers get bad press for not lending to more businesses. But the truth is that poor sales and big debt loads make many prospective customers high risk in the eyes of increasingly conservative lenders. And regulators are watching banks closely, forcing many to set aside money for loan losses that would have otherwise been available to lend.
Fact is, easy money is gone.
Banking on solid business
Kennedy is a conservative entrepreneur who started his company with savings. He reinvested profits and never borrowed to grow the business.
Real Time Solutions services and maintains life-safety devices such as fire sprinklers in 90,000 stores and office buildings across the country, Guam, Canada and Puerto Rico. Kennedy won't reveal who his 50 customers are, but the largest ones include well-known home-improvement and video-rental chains.
To do that, Real Time has a network of 2,000 subcontractors it can call on make repairs or perform routine maintenance. It has 30 employees at its headquarters in Fort Myers, most of whom handle calls around the clock.
But it took perseverance to grow the business from when Kennedy and business partner Tommy Goff started the company in 2002. “We had a business plan, no customers and no employees,” Kennedy chuckles. “The first year we at a lot of baloney sandwiches.”
Kennedy, 57, is an old hand at this business. He started learning on the job in 1971 as an installer and maintenance technician in California, rising to become the chief operating officer for Master Protection Corp. In 2001, giant conglomerate Tyco acquired the business.
Rather than continue to work for Tyco, Kennedy and fellow Master Protection alumnus Goff started their own company doing the same thing in Fort Myers, where they had most recently been based (Goff left all his neckties hanging on the door of his office when he left Tyco). After all, they knew how to build and operate the business because they had done it before for someone else.
The pair used their savings to start the business. “We didn't even expect to get financing at the time,” Kennedy says. They didn't go the venture-capital route either, preferring to control their own destiny rather than answer to outside shareholders.
But while Kennedy won't say how much investment startup he used, he says the costs were fairly inexpensive. These included software systems, servers and phones. “The biggest thing is knowledge,” Kennedy says. He and Goff have a deep network of real estate managers they've called on over the years.
To land new customers, they show the cost savings of having one company maintain all the life-safety equipment in buildings scattered in different locations. These savings can range from 15% to 40% over hiring a different firm in each area that the customer has a building or a store. What's more, Real Time can provide one-time electronic billing to its customers, some of whom have hundreds or thousands of locations.
Kennedy declines to divulge financial information such as overall or per-location revenues. But it helps that the law mandates maintaining life-saving equipment such as sprinklers in public buildings. “We were profitable in 18 months,” Kennedy says, noting that revenues have grown at a 20% annual clip since he and Goff launched the company in 2002.
Finding reliable subcontractors was not difficult, even during the construction boom a few years ago. “I know a lot of these people,” Kennedy says. “I knew their dads.” When he doesn't know any subcontractors in a town, he seeks referrals from local building and fire departments.
By January 2009, Real Time Solutions' revenues were slowing as the economy continued to decline. Fortunately, only two of its 50 customers had filed for bankruptcy (60% of the company's revenues are tied to retailing customers who own stores in multiple locations; the rest are mostly restaurants and hotels).
Kennedy learned that a competitor in Chicago wasn't faring as well and was willing to sell his company. But Kennedy and Goff had never borrowed to grow their business. “We didn't do it lightly,” Kennedy says.
But Kennedy figured that this would be a good opportunity to grow the company. Although he declines to reveal the terms of the deal, he said it was a fair price that would double Real Time's revenues overnight.
Still, Kennedy knew he had to borrow money to make the acquisition because he didn't have the cash. Through his business banking contact at KeyBank, he secured a $2 million loan. The backing of the U.S. Small Business
Administration on the loan meant Kennedy didn't have to put up more than 40% as collateral. “This was a cash-flow deal from the beginning,” says Jason Fidurski, vice president with KeyBank in Fort Myers who arranged the 10-year variable loan, pegged at 2.75 percentage points over the prime rate.
The bank wasn't reluctant to make the loan. After all, what's not to like? Kennedy is a seasoned operator, he built his company with no debt and the government backs a large part of the loan. “These guys from KeyBank know our business,” he says. “They encouraged us.”
Kennedy closed the Chicago-based company's operation and added 10 employees in Fort Myers. Still, he says it was a one-time deal that he's not going to repeat soon with any of the dozen competitors in his field. “We have no desire to be the biggest,” Kennedy says.