Small Businesses: Becoming Loan Ready

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

6Becoming Loan Ready

Fixed Capital• Building• Land• Equipment

Types of capital and uses



Working Capital•Pay Bills•Wages/Salaries•Inventory•Short-term Operations



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


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

Becoming Loan Ready

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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

Becoming Loan Ready

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

Becoming Loan Ready

Private capital market required rate of return

Commercial loan options

Commercial loan options

Commercial credit options


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

Becoming Loan Ready

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

Becoming Loan Ready

3Absolute musts when seeking

capital

3Absolute musts when seeking

capital


1. Enthusiasm

Absolute must when seeking capital


2. Solid Business Plan

*Lenders and investors want facts, research and accurate projections



3. Know Exactly What You Want and/or Need


Are you loan ready?

Are you loan ready?


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

Becoming Loan Ready

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?”

Becoming Loan Ready

Business PlanBusiness plan


2. Have clear and accurate financials

“If the cash don’t flow, loan don’t go.”

Financials


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?

Becoming Loan Ready

Financials

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Income Statement

Budget Income & Expenses

Does it reflect the health of

your business?

Is your business growing?

Becoming Loan Ready

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?

Becoming Loan Ready

Financials


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

Becoming Loan Ready

Who is on the loan?


4. Know your ratios“Showing your ability to repay, brightens the lender’s day.”

Ratios


Current Assets

Current Liabilities

Ratios


Total

Liabilities

Equity

Ratios


Debt

Income

Ratios


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

Becoming Loan Ready

You are ready when…

• DUNS Credit Rating

• May view personal credit

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Review your personal credit profile: www.annualcreditreport.com

Becoming Loan Ready

Know your credit


Other considerations for financing

• Ability to repay loan

• Ensure diverse revenue sources and/or customer base

• Insurance to protect your business


Other considerations for financing

• Incorporating for protection and tax purposes

• Trigger points and other safeguards

• Other contingencies or conditions


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


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?


Timeframe and process

• Process is longer than consumer

• Pre-approval is not an approval

• Loan purpose, complexity and preparedness determine turnaround time

Get an Insider To Review If You Are Loan Ready

210.767.5202 or

[email protected]

Upcoming Workshops at GFCU

Get Connected & Learn More

www.MyGenFCU.org

Email: [email protected]

Thank You

Bonnie AguilarVP of Business DevelopmentGenerations Federal Credit [email protected]/in/bonniemgarcia

Small Businesses: Becoming Loan Ready

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