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  • Scoring models being tested
  • While traditional lenders may decline businesses for a less-than-perfect credit score, On Deck believes that a healthy cash flow tells a different story. A strong cash flow demonstrates the performance of your business and can help you to qualify for loans up to $100,000. By reviewing business performance, On Deck is able to extend loans to companies we believe in, but may have been considered too risky by traditional lenders. On Deck's loan system is designed for businesses that meet certain criteria so we can keep rates affordable. Your company is a good candidate if you have a separate business bank account, you have been open for business for over one year and process at least $3,000 in credit card transactions per month. Or if your company does not accept credit cards you should have been open for business for at least two years and have an average business bank account balance of at least $3,000 per month. An influx of capital will allow you to grow your business. Whether it is purchasing new inventory or equipment, making needed repairs or developing a marketing strategy, investing your new capital wisely will lead to success - maybe even in unexpected places.
  • While traditional lenders may decline businesses for a less-than-perfect credit score, On Deck believes that a healthy cash flow tells a different story. A strong cash flow demonstrates the performance of your business and can help you to qualify for loans up to $100,000. By reviewing business performance, On Deck is able to extend loans to companies we believe in, but may have been considered too risky by traditional lenders. On Deck's loan system is designed for businesses that meet certain criteria so we can keep rates affordable. Your company is a good candidate if you have a separate business bank account, you have been open for business for over one year and process at least $3,000 in credit card transactions per month. Or if your company does not accept credit cards you should have been open for business for at least two years and have an average business bank account balance of at least $3,000 per month. An influx of capital will allow you to grow your business. Whether it is purchasing new inventory or equipment, making needed repairs or developing a marketing strategy, investing your new capital wisely will lead to success - maybe even in unexpected places.
  • SCORE PRESENTATION
  • Rule of thumb have less than 100 employees and sales of less than 6 Million average of three (3) years. We do have size standards - prefer to www.SBA.gov - SBA’s web site
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Financing nonprofit developers working to create/retain affordable housing and foster economic revitalization in their neighbouuurhoods.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.
  • Provides technical and financial assistance to organizations seeking to create/retain affordable housing units in the DC Metropolitan Area.

Slide 1 - Washington, DC Economic Partnership - hm Slide 1 - Washington, DC Economic Partnership - hm Presentation Transcript

  • Funding Your Small Business During a Credit Crunch December 3, 2008
  • Welcome To: Financing Your Small Business During A Credit Crunch Presented by: Bill McDevitt Group Vice President Business Banking Chevy Chase Bank Sponsored by: Business Premier And the Washington, DC Economic Partnership
  • AGENDA
    • The Credit Crunch: How REAL is it?
    • How a Bank Views Your Business
    • Funding Your Small Business Today
    View slide
  • How Real is the Credit Crunch?
    • According to an August 2008 survey by the National Small Business Association, 67% of small business owners are affected by credit tightening compared to 55% in February 2008.
    View slide
  • The Credit Crunch: In Perspective ALERT: a virus by the name “Acute Viral Nasopharyngitis” is a highly contagious, viral infectious disease that attacks the upper respiratory tract and is spreading. It has no known cure, targets infants and young children and we are all at risk of contracting it.
  • The Credit Crunch is as REAL as The Common Cold
  • JUST LIKE A COLD…
    • You WILL BE affected, directly or indirectly, by the credit crunch if you have not been already
    • We each react to it in different ways based on our company’s immune system
    • The best defense IS a strong immune system
        • Watch what you eat (Discipline your Spending)
        • Exercise and keep your strength (Network & Grow)
        • Take vitamin C – but not too much (Credit)
  • Origins of the Credit Crunch
    • Think back to tech bubble bust of late 1990s
        • Stock market declines in 2000 - Recession
        • Fed lowers rates sharply to limit damage
        • Mortgage payments more affordable
        • Millions refinance and buy homes
        • To keep pace with rising home prices, new “Sub-Prime” products were born to approve larger mortgages to less qualified borrowers
        • Defaults and delinquency begin to rise over time
        • Hedge funds loaded with bad mortgages fail
  • Failure is Not an Option
        • Failure or takeover of Bear Sterns, Fannie Mae, Freddie Mac, Indy Mac, WaMu, Lehman Brothers, Merrill Lynch, AIG, and banks too!
        • Commercial paper devalued– a vital form of short term borrowing for banks
        • Banks no longer willing to lend to each other
        • Stock market continues to fall on confidence
        • House & Senate pass $700 billion Troubled Assets Relief Program or T.A.R.P. ) October 3 rd
        • Instead, banks use money for c apital r elief and a cquisition p rograms to bolster their balance sheets and acquire other banks.
    • Home owner defaults
            • Delinquency
            • Foreclosure
            • Housing market collapse
            • Bank losses
            • Related industry risk
            • (construction, contractors, suppliers, etc.)
            • Targeted credit tightening
            • Financial services confidence lost
            • Continued stock market losses
            • Scarcity of market capital
            • Industry wide job losses
            • Economic slowing – Recession
            • Wide scale credit tightening
            • (For general industries)
    EFFECT On CREDIT AVAILABILITY
    • Banks asking for additional collateral
        • Be prepared to put up your primary residence
    • Increased rates on new and in some cases existing loans
    • Increased minimum credit scores. What used to be 650 now could be as high as 700
    • Certain industries now considered “too risky”
    • Need more money down on a building you wish to purchase
    • Banks are likely to want 2 years in business
    What Could This Mean to ME?
  • THE MEDICINE
    • Arm yourselves with knowledge & surround yourselves with knowledgeable people
        • Mentors / Peers in your industry / Networks
        • Your attorney
        • Your Accountant/ CPA
        • A good Business Banker
    • COMMNICATE!
  • THE MEDICINE
    • Where you are on the borrowing spectrum?
    Higher rates and fees in exchange for higher risk. Often asset based. No deposit services. May accept less than one year of operations Generally minimum of 18 months in business Take lower risk & offer lower rates and fees. Often cash flow based decisions. Regulated & obligated to depositors. Serves as a bridge for eligible businesses by offering guarantees to lenders to take on additional risk And other guarantee programs Non-Traditional Funding Traditional Funding
  • HOW A BANK VIEWS YOUR BUSINESS (Generally for loans $50,000 or more)
    • Character
        • Personal credit
        • Willingness to personally guarantee the loan
        • Experience
        • Preparedness – know where you’ve been and where your going
        • Personal integrity
    • Capacity - Historical profits show ability to repay
    • Collateral - Assets that could be converted to cash
    • Capital
        • What you have put into the business
    • Conditions
        • Industry factors
        • Economic factors
  • Non-Traditional Funding Options
    • Personal Sources to get started
        • Business Purpose Home Equity Loans
        • Disciplined use of personal credit cards
    • Specialty lenders / Brokers
        • Niche markets: i.e. Dry Cleaners, Franchises
        • Hard Money Lenders
        • Leases
        • Business Acquisition Financing
        • Poor Credit / low cash flow / high debt scenarios
        • Receivable financing (Factoring)
    • Other Sources
        • Business Credit Cards
        • Merchant Capital Programs
  • ALTERNATIVE FINANCING RESOURCES
    • SBA (Of course you should start here)
        • www.SBA.gov
    • D&B for Small Business
        • www.allbusiness.com
    • Horizon Capital / Broker
        • www.Horizon-capital.com
    • Merchant Capital Funding
        • www.firstdata.com
  • SUMMARY & CLOSING
    • We’re all affected by the credit markets but in different ways:
        • You still have funding choices based on where you are in the borrowing spectrum
        • Stay disciplined and focused on what you do best
        • Surround yourself with the best advisors
    • Bank underwriting reflects economic uncertainty
        • Banks are reviewing portfolio performance
        • How do you stack up against the 5 C’s of credit?
    • Yes, non-traditional funding alternatives are available even in this economy
  • Get the Cart Before the Horse?
    • Business Owners say ,
        • “ banks only give you an umbrella when the sun is shining”
    • Lenders say,
        • “ Get an umbrella before it starts raining”
  •  
  • How the SBA Loan Process Works
    • Borrower applies to Qualified Lender for a Business Loan
    • Lender approves loan subject to SBA Guaranty
    • Lender submits guaranty request to SBA
  • Eligibility Issues
    • Must be for profit
    • Must be small
    • Must have an eligible purpose:
    • - no investment
    • - no speculation
    • - no lending
    • - must be a legal activity
    Eligibility
  • Eligibility Issues
    • No Multilevel Marketing – Pyramids
    • - Amway
    • - Mary Kay
    • No more than 30% of Revenues From Gambling
    • No Pornography
  • Borrower Requirements
    • Good Character – based on personal credit report
    • No outstanding judgments or liens
    • No delinquent child support or student loans
    • No open Bankruptcy
    • LPR Status
  • Where Are We?
    • From Fiscal Year 2007 to Fiscal Year 2008
    • 7(a) Loan Program
      • 99,606 to 69,434 (-30%)
      • $14.3Billion to $12.7Billion (-11%)
    • 504 Loan Program
      • 10,669 to 8,883 (-17%)
      • $6.3Billion to $5.3Billion (-16%)
  • What Caused This?
    • A Perfect Storm:
    • Tightened credit by lenders
    • Declining creditworthiness
    • Reduced demand for loans
  • How Has SBA Responded?
    • Encouraged lenders to work with borrowers
    • Acted to improve liquidity in the SBA secondary market
    • Provided base rate option with LIBOR
    • Worked with Congress to reduce the tax burden on small business
    • Provided Grants for Veterans
    • Offered new online training for small business exporters
    • Accelerated the launch of the Small Rural Lender Advantage Program
  • Encouraged Lenders to Work With Borrowers
    • SBA contacted every participating lender and strongly encouraged them to:
    • Work with borrowers on a case-by-case basis
    • Defer SBA guaranteed loan payments by up to 3 months
  • Acted to Improve Liquidity in the SBA Secondary Market
    • Worked with Federal Reserve Board to create $200 billion lending facility
    • Changed the rate structure for secondary market loan pools
    • Changed base rate to same rate that investors use for their capital purposes
  • Provided Base-Rate Option with LIBOR
    • SBA added the option of the London Interbank Offered Rate as the base rate for SBA guaranteed loans
  • Worked with Congress to Reduce the Tax Burden on Small Business
    • Small businesses can expense up to $250,000 in property purchased in 2008
    • Small businesses will have a 50% depreciation bonus + standard depr. Write-off
  • Provided Grants for Veterans
    • Provided $450,000 in Veteran Assistance and Services Grants to Small Business Development Centers
  • Offered New Online Training for Small Business Exporters
    • If you go to www.sba.gov/training , you will find a brand new online course for small business exporters
    • This is important because more than 97% of all U.S. exporters are small businesses.
  • Accelerated the Launch of the Small Rural Lender Advantage Program
    • Provides small volume lenders training and assistance in the SBA lending process
    • Provides these lenders with expedited loan processing within 3-5 days
  • THE END THANK YOU FOR YOUR PARTICIPATION
  • Washington Area Community Investment Fund Celebrating 21 Years A Bridge to Better Communities
  • WACIF’s Clients and Services
    • Small Businesses
    • Affordable Housing Developers
    • Childcare Centers
    • Community Organizations
    • Financial and Credit Literacy Training
    • Free Technical Assistance
    • Free Seminars
    • Almost Free SBA Microloans
    How does WACIF help? WACIF’s Products for Small Businesses
  • WACIF’s Products for Small Businesses
    • SBA Microloans
      • Application requirements are low, underwriting standards are high
      • Up to $35,000
      • Allowed: Furniture, Fixtures, Equipment, Working Capital
      • Disallowed: Debt Refinance
  • WACIF’s Products for Small Businesses
    • SBA Microloans
      • Strong character
      • Strong cash flow
      • Stellar credit not necessary (but there should at least be a good story)
      • Some form of collateral needed
  • WACIF’s Advice on Credit Repair During a Credit Crunch
    • www.annualcreditreport.com
      • Free to see Equifax, Experian, and/or TransUnion reports once a year
      • $7.95 to see actual score
    • Correct Inaccurate Information
      • Gather evidence
      • Present your case
      • Await verdict
  • WACIF’s Advice on Credit Repair During a Credit Crunch
    • Credit Scoring
      • 35% Payment History
      • 30% Amounts Owed
      • 15% Length of Credit
      • 10% New Credit
      • 10% Type of Credit
  • WACIF’s Advice on Credit Repair During a Credit Crunch
    • “ Nuclear Option” - Protect your resources
      • Secured versus Unsecured
    • No better time than the present
      • Credit repair is cheap
      • Cash versus Credit
    • Schedule of debts
      • Household
      • Business
  • WACIF’s Advice on Financing Your Business During a Credit Crunch
    • Surprise! Cash is still KING!
      • Cash is getting deals done
      • Think about investors if you are running low
    • Prudence is never out of style
      • Budgeting is not sexy but it works
        • Household
        • Business
  • Washington Area Community Investment Fund Celebrating 21 Years (202) 529 – 5505 www.wacif.org