Business Financing Options Workshop Batesville July
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Transcript of Business Financing Options Workshop Batesville July
© ASBTDC 2012 All Rights Reserved
Business Financing
Basics
ASU 052112
Small Business Resources
Training◦ Classes for new ventures and existing businesses◦ Special conferences
Research◦ Sample business plans/Industry start-up guides
Consulting◦ One-on-one advisory services
Web Site: http://asbtdc.ualr.edu◦ BizFact documents and on-line consulting tools◦ E-news service: Biz Bytes & Tech Track
© ASBTDC 2012 All Rights Reserved
Know what financial information is vital to operating your business
Know exactly where you stand at all times
Understand the difference between profit and cash flow
How does my banker interpret my financial statements and my credit report
How your credit report can affect your ability to operate your business
Run your business.Don’t let your business run
you.
© ASBTDC 2012 All Rights Reserved
Foundation Documents
Transaction Journals
General Ledger
Trail Balance
Adjusted Trial Balance
Financial Statements
◦ Income Statement
◦ Statement of Owners’ Equity
◦ Balance Sheet
Vital Financial Information
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Understand the difference between profit and cash flow? Never, never, ever, ever, run out of cash!
Cash flow and profit are different. Cash flow is the money that flows in and out of the firm from operations, financing activities, and investing activities. Net income is what remains from sales revenue after all the firm's expenses are subtracted.
Cash flow is actually more important for the small business owner to focus on than profit. Companies can make a profit but still have a negative cash flow and not be able to pay their bills. Not recognizing this difference is one of the biggest mistakes a small business owner can make.
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Profit vs. Cash Flow
YOUR CREDIT REPORT IS IMPORTANT!
Your credit record affects all financial
transactions
Review your credit report and know your
credit score
How is my credit score calculated?
The banker relies on your credit history
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Credit Reports
Your credit report is a compilation of your payment habits and usage of credit over time
Monitor it for suspicious activity i.e. identity theft
Get a free copy of your report once every 12 months from the major credit-reporting agencies:
Equifax TransUnion Experian
AnnualCreditReport.com
Federal Trade Commission (ftc.gov/credit)
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Review Your Credit Report
Private investment
Grants
Conventional financing
Government-backed programs
Alternative lending programs
Sources of Financing
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Sources of Financing
Private Investment
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Owners Equity is the contribution of capital and other assets
Angel investors provide capital for a percentage of ownership
Venture capitalists provide capital and exercise control over company operations
Private Investment
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Savings Accounts Relatives or Friends Credit Cards Second Mortgage Retirement Plans
Sources of Capital
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Sources of Financing
Grant Resources
Myth #1: It is easy to get a small business grant
Myth #2: Grants are available for any type of business
Myth #3: There are special government grants for women and minorities to start businesses
Myth #4: The government tries to keep grants a secret
Myths About Grants
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Recipients are typically nonprofit organizations
Grants are for industry-specific and R & D purposes
Grant sources are plentiful but locating them is difficult
Obtaining grants is highly competitive
The ASBTDC and the SBA do not provide grants
Truths About Grants
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Available in print or on the Internet
Updated twice a year
Deals with all types of federal government
assistance
www.cfda.gov
Catalog of Federal Domestic Assistance
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SBIR/STTR Participating Agencies
SBIR & STTR◦ Dept. of Defense◦ Health and Human
Services (National Inst.Of Health; Centers for Disease Control; FDA)
◦ National Science Foundation
◦ Dept. of Energy◦ NASA
SBIR Only◦ Dept. of Agriculture◦ Environmental Protection
Agency◦ Dept. of Transportation◦ Dept. of Education◦ Dept. of Homeland
Security◦ Dept. of Commerce
(NOAA, NIST)
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Grants for science and energy related research projects
Agency solicitation notices
Competitive proposals required
http://science.doe.gov/grants/index.asp
U.S. Department of Energy
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Technology Grants◦ Technology Transfer Assistance Grants (TTAG)◦ Technology Development Program (TDP)◦ Seed Capital Investment Program (SCIP)
Research & Development Tax Credit Program◦ Allows credits against a taxpayer's Arkansas state
income tax for making certain qualified research expenditures
www.asta.arkansas.gov
Arkansas Science &Technology Authority
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Better Beginnings Incentive Grants Division of Child Care and Early Childhood
Education◦ Staffing and retention expenses◦ Training materials◦ Management software◦ CPR/American Red Cross training
CDA Scholarships http://www.arbetterbeginnings.com
Arkansas Departmentof Human Services
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IDA (Individual Deposit Account) Program Matches savings 3:1 to maximum of $2,000-
$4,000
Opening or expanding small business one of three approved uses
Applicants must reside in service area and meet income guidelines
http://www.cadc.com
Central ArkansasDevelopment Council
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IDA (Individual Deposit Account) Program
Works with IDA Programs throughout Arkansas
Terms are same as CAPD’s
For a list of program offices, contact
http://www.southerngff.org
Southern Good Faith Fund
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The Foundation Center
◦ The Foundation Directory
Online database at http://foundationcenter.org
◦ National Directory of Corporate Giving
Investigate the Foundation
◦ Their Purpose
◦ Types of Awards Typically Made
◦ Eligibility
Examine Application Requirements
Private Foundation Grants
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Sources of Financing
Conventional Financing
Sack of money Low mark-up Deduct interest Payback over time in deflated dollars
What a Deal!
What is a Business Loan?
Executive Summary
Financing Proposal
Company Description
Industry Analysis
Products and Services
Market Analysis
Organization and Management
Operational Plan
Financials
Business Plan Essentials
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Invested capital Trade financing
◦ Payables and receivables Short-Term financing
◦ Bank lines of credit◦ Credit cards◦ Factoring
Long-term loans and leases◦ Property, plant, and equipment
Types of Financing
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The 5 Cs of Credit
◦ Conditions
◦ Character
◦ Capacity
◦ Capital
◦ Collateral
Loan Underwriting Guidelines
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The 12 Magic Numbers
◦ Liquidity
◦ Profitability
◦ Efficiency
◦ Leverage
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Sources of Financing
Government Backed Programs
What is an SBA Loan?
Credit Requirements
Terms
Interest Rate
www.sba.gov
Small Business Administration(SBA) Loans
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Takes forever to get money Requires a “ton” of paperwork Offers low interest rates Provides grants
Common Myths about SBA
Real estate investments Other speculative activities Lending activities Not-for-profit ventures Pyramid sales or distribution businesses Illegal activities Religious indoctrination Activities of a sexual nature Businesses not open to the general public
Ineligible Businesses
Businesses must meet SBA size standards to qualify (maximums):◦ Manufacturing: 500 to 1,500 employees◦ Wholesaling: 100 employees◦ Services: $7 to $35.5 million in average annual
receipts◦ Retailing: $7 to $35.5 million average annual
receipts◦ General Construction: $7 to $33.5 million
average annual receipts
http://www.sba.gov/content/summary-size-standards-industry
Eligible Businesses
Borrowers on probation or parole Borrowers with serious criminal histories Borrowers that are 90 days or more
delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.)
Borrowers of poor character
Ineligible Borrowers
Finance floor plan needs (specific program for that)
Purchase real estate for investment purposes Disbursements to owners or principals Pay delinquent trust accounts (withholding or
sales tax) Refinance delinquent debt within a bank Acquisition of less than 100% of a business
Ineligible Uses
SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements
Eligible Uses of Proceeds
7(a) Loan Guaranty Program SBA Express Patriot Express 504 Loan Program MicroLoans
SBA Loan Programs
SBA guarantees (insures) the loan, reducing the risk to the lender.
Borrower must secure a participating lender. No minimum loan size. Maximum loan size
is $5 million.
7a Loans
25 years Real Estate 10 years Equipment 7 years Inventory, Accounts Receivable,
Working Capital
SBA Loan Maturities
Fixed or variable Maximum: Prime + 2.75% for terms of 7yrs
or more
SBA Loan Interest Rates
2% for loans of $150,000 or less 3% for loans over $150,000 to $700,000 3.5% for loans over $700,000 Guaranteed portion over $1,000,000:
$35,000 + 3.75% on guaranteed portion over $1 million
SBA Loan Fees
Lender must be PLP Maximum loan $350,000 Lender applies for 50% loan guaranty Lender handles approval and issuance
SBA Express
Loans up to $500,000 by lender approved for SBA Express (PLP)
Lender applies for 85% guaranty for loans of $150,000 or less
Lender applies for 75% guaranty for loans over $150,000 up to $500,000
Interest rates same as 7(a) loans Lender handles approval and issuance
Patriot Express
Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital)
Loan backed by a debenture sold to investors
Maximum debenture: ◦ $1.5 million for business that create certain
number of jobs or improve the economy of the locality
◦ $2 million for businesses meeting a specific public policy goal
◦ $4 million for manufacturers
504 Loan Program
Temporary program allowing for refinance of existing real estate debt
Loan must have maturity or balloon before Dec. 31, 2012
Borrower must work with SBA approved CDC and third party lender
504 Refinance Loan Program
Draft a business plan Prepare loan proposal (SBTDC assistance) Present loan proposal to lender Lender reviews and forwards applications to
SBA Processing Center (Hazard or Citrus Heights) for consideration
How do I apply?
Repayment Ability Management Ability Equity Position Collateral
SBA Loans: How do I Qualify
SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations.◦ Cash Flow◦ Working Capital
Repayment Ability
Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt.
Projections will be compared to industry standards and demographics will be considered.
Repayment Ability: Cash Flow
Start-up Expenses Accounts Receivable Contingencies & Emergencies
◦ Rule of Thumb: 3 months fixed expenses
Repayment Ability: Working Capital
Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management.
Management Ability
SBA does not approve 100% funding requests.
Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk.
Equity Position
SBA will not decline a loan ONLY due to a lack of collateral.
To protect taxpayer dollars, loans must be secured as fully as possible.
Collateral
TERMS TERMS TERMS
Advantages of SBA Loans
No pre-payment penalty on loans with maturity of less than 15 years
No balloons Patient partners Relaxed credit requirements Flexible loan terms
Other Advantages
U.S. Department of Agriculture◦ Business & Industry Guaranteed Loans◦ Rural Economic Development Loans◦ Farm Loans◦ Export Financing
http://www.rurdev.usga.govhttp://www.usda.gov
U.S. Department of Agriculture
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Administered through Arkansas Department of Rural Services
Funded by U.S. Department of Commerce 8 districts in Arkansas Revolving loan funds focus on job creation 1 job for each $15,000 loaned Equity requirement is 10% Emphasis on businesses owned by minorities and
women www.arkansas.gov/drs/projects.html
Planning and Development Districts
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Economic Development Programs
◦ Beginning Farmer Loan Program
◦ Capital Access Program
◦ Disadvantaged Business Enterprise Program
◦ Farm Mediation Program
◦ Industrial Development Bond Guaranty Program
◦ Tourism Development Loan Program
www.state.ar.us/adfa/
Arkansas DevelopmentFinance Authority
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© ASBTDC 2012 All Rights Reserved
Sources of Financing
Alternative Lending
Specialty Programs
• Boefly• www.boefly.com
• Southern Bancorp Capital Partners• www.banksouthern.com
• Arkansas Economic Development Commission• www.arkansasedc.com
• TAB Bank-Transportation and equipment financing• https://www.tabbank.com/business.jsp
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• Financing Ozarks Rural Growth & Economy(FORGE
• www.forgeonline.com
• Hope Enterprise Corporation• www.hope-ec.org
• BORSA plans-utilizing retirement funds to fund a new business venture or purchase
• Individual Development Accounts-starting or expanding a business• http://www.southerngoodfaithfund.org
Specialty Programs
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Funding areas Medical Dental Veterinary Optometry
Lenders Newtek Financial Services (SBA Preferred Lender) Bank of America Small Practice Solutions Wells Fargo Practice Finance
Medical and Professionals
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Alt Consulting
Arkansas Baptist College
Kiva
Accion
Opportunity Fund
Sam’s Club
Microlenders($100-$50,000)
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SBA SDB Certification Disaster Loans
Other SBA Assistance
National certification program to certify socially and economically disadvantaged businesses to help secure government contracts for goods and services.
Recognized by state, federal, and local governments and prime contractors
SBA Contact: Wanda May 501.324.7379
Small Disadvantaged Business Certification
Physical disaster loans Economic injury disaster loans SBA Contact: Fort Worth Disaster Office
800.366.6303
Disaster Loans
Draft business plan Complete pre-application loan worksheets Gather requested information Schedule appointment (870.972.3517)
◦ Robert Bahn, Business Consultant◦ Laura Miller, Lead Business Consultant◦ Herb Lawrence, Center Director
The Next Step
ASU Delta Center for Economic Development319 University Loop West
Jonesboro, AR 72401Or P.O. Box 2650 State University, AR 72467
(870) 972-3517
http://www.astate.edu/a/business/sbtdc/Blog: http://www.asbtdc-asu.com
http://www.Facebook.com/asu.sbtdchttp://www.twitter.com/asbtdc_asu
Email us: [email protected]© ASBTDC 2012 All Rights Reserved