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Access to cap sbw (may) (2)

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  • 1. Access to Capital Robert F. Polito Jr., SVP Director of Government Guaranteed Lending rpolito@ websterbank.com 860-612-5433 1
  • 2. Agenda • Tips on Approaching a Bank • General Bank Requirements • Proper Use of Bank Capital • Cash Cycle • Business Plan • Cash flow • Collateral • Personal credit • Cash Injection • SBA • How Well Do You Know Your Banker? • Optimism • When Can We Close? • Q&A 2
  • 3. TipsPrepare an executive summary: Educate yourbanker. To be your advocate, your banker needsto know all about your business, including itshistory, ownership, business operations andindustry. Many bankers are generalists. Theyknow a little about many industries. Educatingthem on the specific of your business and marketniche means they can knowledgeably advocatefor your loan request, giving the bank and itsunderwriters the confidence they need toapprove your loan request. 3
  • 4. TipsDemonstrate adequate cash flow: In every case, abank will analyze the business’s ability to repay the debtthat has been requested. If the business can’t repaythe debt based on historical financial statements, arethere projections with underlying assumptions thatindicate the ability to repay in the future? Are theassumptions reasonable and grounded in fact? Bankswant to know you have adequate cash flow not only forday-to-day operations but also if you encounter asetback or unexpected expenses. 4
  • 5. TipsProvide comprehensive financial documentation:A banker is impressed when a business can provideimmediate documentation without delay. Repeatedrequests do not instill confidence that the businesskeeps timely and accurate reports. It’s also importantto be able to explain the financials in a clear andcompelling way that demonstrates a big-pictureunderstanding of how the business functions. Beingable to answer questions completely and preciselywill impress the banker and give him or herconfidence in your abilities. 5
  • 6. TipsArticulate your business model: A banker isimpressed when a business owner can articulate thebusiness model, including how the business operatesand makes a profit. For example, what is the typicaltiming of the operating cycle? Who are thecustomers? What is the sales process? How is billinghandled? Is there something in the operations that isatypical or proprietary? What are the business’sfuture prospects short- and long-term? 6
  • 7. TipsKnow how you’ll use the funds: Believe it or not,some businesses apply for credit but don’t know howthey’ll use the funds. Borrowers need to show exactlywhat the funds will be used for. Do you need a line ofcredit for short- term needs or is there a longer-termneed?? If the need is short-term, what will is be usedfor? Payroll, inventory, lease payments? If the needis long-term, what needs to be paid immediately?Maybe there is a combination of s short- and long-term need. Your banker may make suggestions, butyou must identify the initial use of funds. 7
  • 8. TipsGet your personal credit in shape: A bad personalcredit score can sink any loan request. It is best topull the personal credit score of all owners of thebusiness and have them available for the banker’sinitial review. Everyone should pull their own creditreport annually to review for any inaccuracies or evenfraud. If a business owner’s credit score needs help,it’s best to work through the issues before submittinga loan request to a bank. 8
  • 9. General Bank Requirements• Three years of personal tax returns• Three years of corporate tax returns• CPA-prepared financial statements• Interims• Projections (if needed)• Personal financial statement• Invoices, plans & specs, etc. 9
  • 10. Proper Use of CapitalCapital Structure:Line of credit versus term loan 1 0
  • 11. Cash Cycle-Short TermTHINK CASH! 1 1
  • 12. Cash Cycle-Long Term 1 2
  • 13. Business PlanA business plan provides goals, short & long-term.The only way to know if your business is achievingits objectives is to have a written set of pro formafinancial statements (income statement, balancesheet, and cash flow statement) to compare againstactual results. If your business is not meeting itsnumbers, then the best time to make changes isearly on, before you run out of alternative options. Agood written business plan establishes theseobjectives, so as a business owner, you knowexactly where you stand. – Barbara Carellas 1 3
  • 14. Cash Flow• #1 factor in granting a loan request• Can the business afford to repay?• Can the business afford to repay on a projected basis?• Has revenue declined?• Margin decline?• How did management respond?• Is revenue diversified?• What is the expectation for the future? 1 4
  • 15. Collateral• Short-term assets v. long-term assets• Discounting Values• Personal Guarantee• Pledge of Personal Assets 1 5
  • 16. Personal Credit• Critical to a loan approval• Creditkarma.com• Annualcreditreport.com• Partner’s credit? Spouse’s credit? 1 6
  • 17. Cash Injection• Skin in the Game• Down payment• Sources (the good/the bad)• Seller debt 1 7
  • 18. U.S. Small Business Administration• What is small?• Temporary size standards• < $15 million in new worth• < $5 million in NPAT (2-yr avg).• 97% of U.S. businesses eligible 1 8
  • 19. U.S. Small Business Administration-7a• 7a-Term debt – $5 million – Start-ups – Business Acquisition – Refinances – Machinery & equipment• SBAExpress-LOC’s & Term• Patriot Express & Export Express 1 9
  • 20. U.S. Small Business Administration-504• 504 – $5.5 million – 90% financing, 10% down payment – Purchase M&E – Purchase commercial real estate – Owner-occupied – Refinances (new!) 2 0
  • 21. SBA Scenario• Industry• Cash flow• Collateral• Asking open-ended questions; the bank interview – Use of the Loan Proceeds – Need a longer loan amortization? – Need a lower down payment? – How has the economy impacted you? – Compared to 2008, how were business operations for 2009 and 2010? Forecast for 2011 & 2012 – Revenue and net earnings decline? – Working capital? 2 1
  • 22. How well do you know your banker?• Do you have a banker? Every business needs a bank, but few have a banker. Find one who believes in you!• Do they keep changing?• Do they understand your business, its needs and future plans?• Have they visited your site? Invite them!• Does your banker know your lawyer or CPA? (Host a luncheon meeting with all three)• Keep in touch. Ask your banker what he/she thinks about an important topic: strategy, competition, sales, financial structure. 2 2
  • 23. Optimism?• AMEX Open poll: 44% of those polled plan on capital investments in 2011and 35% plan on hiring.• SBA budget intact through recent budget negotiations• Energy prices• Recent terrorism gains• Gallup Small Business Survey: Financial Situation – 58% noted “very or somewhat good” – 22% noted “very or somewhat poor”• SBA loans up 200%, from $823 million in FY09• SBA loans increased to $2.5 billion in YTD in FY11 2 3
  • 24. When Can We Close?• Is the Business Plan prepared?• Are you investing cash, assets (your risk)?• Have you considered all sources of capital?• How is your banker? Is he/she listening?• Are you properly structured?• How is your personal credit?• Questions! 2 4