Quickstart Financing 4 Rev4

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Overview of criteria for loan success and collateral requirements

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Quickstart Financing 4 Rev4

  1. 1. O r a n g e C o u n t y<br />SCORE®<br />Quick Start Financing (4)<br />Collateral Evaluation<br />Startups & Franchise Considerations<br />January 19, 2010<br />
  2. 2. Presentation By<br />John P. Lafare<br />Management Counselor<br />SCORE – Orange County Chapter<br />
  3. 3. How do I get a loan?<br />Prepared by John Lafare<br />
  4. 4. Alternatively, the five “C”s<br />
  5. 5. Is collateral always required?<br />Requirements vary by lender, type of loan<br />Some programs do not require collateral <br />Higher risk means more collateral<br />Strong business plans and solid financial projections can reduce collateral needs <br />Borrower needs to provide reasonable reassurance of repayment from earnings<br />Collateral not a substitute for repayment ability <br />
  6. 6. What are the lender’s collateral requirements?<br />Often the last hurdle to clear<br />If no collateral, may need a co-signer with collateral to pledge<br />Any asset of value can be pledged<br />Up to or above 100% of loan principal amount<br />Actual percentage a function of:<br />Risk on your loan<br />Accumulation of institutional risk<br />
  7. 7. What are the SBA requirements?<br />
  8. 8. What are the SBA personal guarantee expectations?<br />For all SBA loans, personal guarantees are required for:<br />Every owner of 20% or more of the business<br />Other individuals in key management positions <br />Whether a guarantee will be secured by personal assets is based on:<br />The value of the assets already pledged <br />The value of the assets personally owned relative to the amount borrowed<br />
  9. 9. When is an owner-occupied residence required as collateral?<br />
  10. 10. Which assets can be pledged?<br />
  11. 11. Factoring of receivables<br />Can be used to convert credit sales for immediate cash flow <br />Outright sale of receivables to a factor: <br />Receivables sold at a discount to book value<br />May charge interest on the balance until collected<br />Often withhold some money to establish a reserve fund<br />Value assigned to receivables:<br />Depends on the age of the receivables<br />Older than 90 days typically not financed<br />
  12. 12. How are collateral assets valued?<br />
  13. 13. Collateral valuation examples<br />
  14. 14. Who is lending?(Source: FY10 SBA Rankings Through 12/09)<br />SBA loans by <br />top 10 lenders<br />up 105% YOY<br />
  15. 15. Challenges for start-up businesses<br />
  16. 16. Franchises and collateral<br />Systems listed in The Franchise Registry:<br />Eligible for expedited loan processing<br />Control provisions acceptable to SBA / lenders<br />For those not on the list, collateralization may be limited by franchisor requirements<br />Lenders also prefer franchisees who are buying rather than leasing a store and land<br />Currently, banks may not only require more collateral but may also reduce valuations <br />http://www.franchiseregistry.com/<br />

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