Insider received some terrific feedback from readers after our article on the potential for increasing rates and tightening lending criteria – which may be causing uncertainty among OOH operators. Stephen P. Haggard, President and CEO of Metro Phoenix Bank is chiming in to explain how an operator can best preposition themselves should financial market shifts occur.

Here are his thoughts.

We have seen some historic rock-bottom interest rates for quite some time and based on monetary policy forecasts, it seems imminent that rates will rise across the board. However, that doesn’t mean OOH operators will see lending stop or become limited in its availability. Metro Phoenix Bank has been lending to OOH operators since 2009 and has remained active during robust market conditions and recessionary market conditions. In fact, during the pandemic when markets were highly unpredictable and some sectors experienced shutdowns, MPB continued to lend in this space and now has a lending presence in 23 states and counting. Why is MPB bullish about OOH lending? Because we understand OOH cash flow, evaluations, the profile of a good operator, and we have weathered the pandemic storm alongside operators.

Based on our track record with experienced operators, occupancy is ramping up to pre-pandemic levels or beyond, balance sheets remain strong, and this niche market is once again booming. If one wants to ensure they can tap into capital when the need arises (organic expansion, acquisition, working capital, etc.), a good practice would be to analyze your baseline cash flow then stress it based on rising rates in incremental increases of 1% and 2%. This may also mean re-evaluating ad rates to offset the rising cost of doing business (to include increasing interest expense). Regardless of what business approach you take, absorbing the additional cost of business or passing it on to your customers, an important piece of your success will be in seeking a lender who understands the OOH industry. I cannot stress this last statement enough. The reason why it’s important to establish a relationship with an experienced OOH banker is that some institutions may be unaware of the nuances inherent to OOH lending, in turn prematurely tightening or cutting off lending opportunities at a time when it’s needed most. It is also worth noting that company cash flow is always the primary driver of Metro Phoenix Bank’s credit decisions. Be cautious of lenders that disregard sound cash flow analysis in lieu of just outsized collateral value. These types of deals don’t always end well.

How do you know when a bank is all in and truly understands the OOH market? I would ask: are they active members of some key OOH organizations? Do they have a presence at conferences where they meet face to face with operators? Do they support this industry by utilizing billboard advertising for themselves? Do they have an understanding of supply side challenges (steel, fabrication, and digital conversions)? Having market insight has been a big part of MPB’s success in growing its OOH Lending program and why we are actively seeking to expand it further. MPB also has a dedicated team allocated to just OOH lending –led by manager Nick Gonzales, who has been with the Bank for over 11 years now.

The bottom line is, establish a lending relationship with someone who knows this niche because even if there are economic shifts, an experienced OOH lender will not only understand market trends and your unique circumstances, but will be there to offer solutions that will help you achieve your business goals.

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