Post on 25-Jun-2015
description
Becoming Loan Ready
Sip & Social 9/25/2014
Bonnie AguilarVP of Business Development
Becoming Loan ReadyBecoming Loan Ready
Agenda
• What is capital?• Types of financing• Commercial loan options• Seeking capital• Are you loan ready?• Loan process
Executing an Effective Trade Show
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What is capital?What is capital?
Capital is financial resources available for
use
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Fixed Capital• Building• Land• Equipment
Types of capital and uses
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Types of capital and uses
Working Capital•Pay Bills•Wages/Salaries•Inventory•Short-term Operations
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Types of capital and uses
Growth Capital•Business Expansion•Change in Direction•New Big Projects
What kind of financing do you
really need?
What kind of financing do you
really need?
Equity vs. Debt financing
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Financing
EquityCapital in exchange
for ownership
-Personal Funds
-Family/Friends
-Investors
DebtCapital in exchange
for repayment
-CUs/Banks
-Micro lenders
-Vendor/Supplier
Grant or GiftCapital in exchange
for *________
-Government
-Foundation
-Family/Friends
Pros & Cons of Equity financing
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+ More cash flow
+ Focus on making products profitable
+ Ability to invest more in business
+ Quick capital from friends and family
- Dilution of ownership
- Investors may want a say
- Strain in personal relationships
- Maxed out personal finances
Equity Financing
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+ Owner maintains control
+ Interest may be tax deductible
+ Repayment terms are flexible
- Requires regular monthly payments
- Can tarnish/strain credit
- Mostly limited to businesses with solid track records
Debt Financing
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Pros & Cons of Debt financing
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ABL=Asset-Based Lender Mezz=Mezzanine Funds PEG=Private Equity Groups VC=Venture Capital Firms
Source: Pepperdine University - 2013 Capital Markets Report
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Private capital market required rate of return
Commercial loan options
Commercial loan options
Commercial credit options
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Commercial Real Estate Loan
10 year+
Purchase or refinance commercial real estate
Loan Type Credit Card
Term Revolving
Purpose
Travel, entertainment and office supplies
Term Loans
Based on term
Short-term items like inventory
Equipment/Vehicle Loan
Up to 7 years
Purchase or refinance business equipment and/or vehicles
Line of Credit
Revolving
Short-term cash-flow needs
Carry accounts receivable
Unexpected events
SBA backed loans
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• Government backed loans offered through approved CU’s/Banks
– Often mistaken as a federal grant
– Various SBA loan products including:• 7(a) (most popular)• SBA Express Programs• 504 for Economic Development• Small Loan Advantage
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Common reasons lenders say no
Common reasons lenders say no
Reasons lenders say no
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Insufficient Collateral
Poor Credit
Insufficient Capacity
Inexperience
High Risk Industry
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3Absolute musts when seeking
capital
3Absolute musts when seeking
capital
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1. Enthusiasm
Absolute must when seeking capital
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2. Solid Business Plan
*Lenders and investors want facts, research and accurate projections
Absolute must when seeking capital
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3. Know Exactly What You Want and/or Need
Absolute must when seeking capital
Are you loan ready?
Are you loan ready?
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1. Have a solid business plan!“If you have no plan, your loan is canned.”
Business plan
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Business Plan1. Executive Summary2. Business Concept3. Market Analysis4. Management Team5. Marketing Plan6. Financials & Projections7. Mgt. & Operations Plan
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Business PlanBusiness plan
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Business
Plan
Can the lender understand
your business?
Do they know how their funds would be used?
Have you demonstrated you
can repay the loan?
How’s your credit score?
Do you have enough
collateral?
What’s your “skin in the
game?”
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Business PlanBusiness plan
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2. Have clear and accurate financials
“If the cash don’t flow, loan don’t go.”
Financials
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1.Balance Sheet
2.Income Statement
3.Cash Flow Statement
Financials
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Balance Sheet
Snapshot of the BusinessAssets = Liabilities +
Capital
Is your status in the black or
red?
Do you have sufficient liquidity?
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Financials
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Income Statement
Budget Income & Expenses
Does it reflect the health of
your business?
Is your business growing?
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Financials
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Cash Flow Statement
Is your cash flow positive or negative?
Do you have the ability to maintain
day-to-day operations?
Will you be able to handle any new debt?
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Financials
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3. Know who will be on the note“Unless their stake is diluted, they must be included.”
Who is on the loan?
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>20%Ownership
Stake•Must be included
<20%Ownership
Stake
•Doesn’t have to be included
Everyone <20%Ownership
Stake
•Majority owner and/or everyone must be included
Loan
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Who is on the loan?
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4. Know your ratios“Showing your ability to repay, brightens the lender’s day.”
Ratios
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Current Assets
Current Liabilities
Ratios
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Total
Liabilities
Equity
Ratios
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Debt
Income
Ratios
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Annual Net Income
Amortizatio
n Depreciati
on
Interest
Expense
Other(non-cash)
Principal Interest Repayment
Debt Service Coverage Ratio
Ratios
Does the lender think you are loan
ready?
Does the lender think you are loan
ready?
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Loan Ready
Owner Equity“Skin”
Feasible Business
Plan
Good Credit
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You are ready when…
• DUNS Credit Rating
• May view personal credit
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Review your personal credit profile: www.annualcreditreport.com
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Know your credit
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Other considerations for financing
• Ability to repay loan
• Ensure diverse revenue sources and/or customer base
• Insurance to protect your business
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Other considerations for financing
• Incorporating for protection and tax purposes
• Trigger points and other safeguards
• Other contingencies or conditions
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Are there any assets pledged?
Are your tax returns current
and in good standing?
What is your monthly household
income and expenses?
Do you have life insurance, and what is the face or cash value?
Any judgments, liens or legal
claims against you or the business?
Common questions from lenders
Logistically- Summary of financial need- Application- Business plan- Financial statements (3 years)- Tax returns (3 years)- Projected cash flow statements (1 year)- Collateral (business and/or personal)- Resume
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Logistical items needed
What to expect and how long will the loan process
take?
What to expect and how long will the loan process
take?
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Timeframe and process
• Process is longer than consumer
• Pre-approval is not an approval
• Loan purpose, complexity and preparedness determine turnaround time
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Get an Insider To Review If You Are Loan Ready
210.767.5202 or
smallbiz@mygenfcu.org
Upcoming Workshops at GFCU
Get Connected & Learn More
www.MyGenFCU.org
Email: SmallBiz@MyGenFCU.org
Thank You
Bonnie AguilarVP of Business DevelopmentGenerations Federal Credit Unionbonnie.aguilar@mygenfcu.orgwww.linkedin.com/in/bonniemgarcia