Financing for Small Business (Wells Fargo)

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Presented by Wells Fargo for SWaMFest VII.

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Financing for Small Business (Wells Fargo)

  1. 1. Wells Fargo SBA Business Loans Dave Phillips Business Development Officer As of September 1, 2011 © 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  2. 2. Small Business Environment <ul><li>A tougher economy for small businesses </li></ul><ul><ul><li>Financial results and cash-flow are strained </li></ul></ul><ul><li>Businesses that are ready to grow may still need or want to conserve capital and preserve cash-flow </li></ul><ul><li>Limited financing options </li></ul><ul><ul><li>Banks have tighter credit standards </li></ul></ul><ul><ul><li>Typical bank loans require high down-payments </li></ul></ul><ul><li>An essential time to have sound financial advice </li></ul><ul><li>SBA financing can be a viable financing solution </li></ul>
  3. 3. Overview of SBA Loans <ul><li>SBA 7(a) – Flagship Program </li></ul><ul><ul><li>Loan Sizes – up to $5MM </li></ul></ul><ul><ul><li>Utilized for many business purposes including: </li></ul></ul><ul><ul><ul><li>Real estate purchase, construction and refinance </li></ul></ul></ul><ul><ul><ul><li>Business acquisition / partner buy-out </li></ul></ul></ul><ul><ul><ul><li>Equipment purchase, expansion and start-up financing </li></ul></ul></ul><ul><ul><ul><li>Combination of all – with one loan </li></ul></ul></ul><ul><li>SBA 504 – Real Estate Program </li></ul><ul><ul><li>Loan Sizes – up to $9MM; Project Sizes – up to $12MM </li></ul></ul><ul><li>Size limitations –most businesses qualify </li></ul><ul><li>For-Profit business only </li></ul>
  4. 4. SBA Program Qualifiers <ul><li>Size of Business </li></ul><ul><li> Retail - $6-8MM annual sales </li></ul><ul><li> Distribution – 100 or less employees </li></ul><ul><li> Manufacturing – 500 or less employees </li></ul><ul><li>SBA regulation has increased size eligibility to <$15MM in Tangible Net Worth and <$5MM annually in profits over past 2years </li></ul><ul><li>Size of loan needed: </li></ul><ul><li> Loans from $100,000 to $9,000,000 will be considered. </li></ul><ul><li>Types of deals considered: </li></ul><ul><li> Acquisition of Owner occupied commercial real estate </li></ul><ul><li> Acquisition of existing business </li></ul><ul><li> Expansion to new location </li></ul><ul><li> Refinance of existing loans </li></ul><ul><li> Business Start Ups </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  5. 5. Wells Fargo SBA Lending <ul><li>Largest Dollar Volume SBA lender in the country and in Virginia </li></ul><ul><li>Lends in all 50 States </li></ul><ul><li>National Preferred SBA Lender </li></ul><ul><li>130 Business Development Officers nationwide </li></ul><ul><li>5 Credit Centers, 4 Closing Centers </li></ul><ul><li>Three Business Development Officers in Virginia </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  6. 6. Primary Product Focus <ul><li>Business Acquisition Financing </li></ul><ul><ul><li>Mergers/Partner Buyouts </li></ul></ul><ul><ul><ul><li>We can recognize existing equity on the Balance Sheet for Partner Buyouts </li></ul></ul></ul><ul><ul><li>Direct Acquisitions by Individual Buyers </li></ul></ul><ul><li>Refinances / Debt Restructure </li></ul><ul><li>Commercial Real Estate Financing </li></ul><ul><ul><li>Acquisitions/Expansions </li></ul></ul><ul><li>Business Start Ups </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  7. 7. Primary Product Focus Business Acquisition Financing <ul><ul><li>85% Financing for New Buyers if loan is <$1MM </li></ul></ul><ul><ul><li>80% Financing for New Buyers if loan is >$1MM </li></ul></ul><ul><ul><ul><li>In both cases, minimum cash injection from buyers is 10%, balance can be seller note on Full Stand By for minimum of 5 years. Realize that reduced injection from buyer will be weakness that must be mitigated by other strength </li></ul></ul></ul><ul><ul><li>90% Financing on Real Estate Component </li></ul></ul><ul><ul><li>10 year term, more if Real Estate is in the deal </li></ul></ul><ul><ul><li>Up to $1.75M loan – if deal has no real estate </li></ul></ul><ul><ul><li>Can include working capital </li></ul></ul><ul><ul><li>Can include new equipment </li></ul></ul><ul><ul><li>New Buyer MUST have direct or translatable experience (see next slide for details) </li></ul></ul><ul><ul><li>No bankruptcies 7 years; No judgments 2 years; Minimum Credit Score 650 </li></ul></ul><ul><ul><li>1.6X historic debt service if collateral <50% LTV </li></ul></ul><ul><ul><li>Positive trends, no significant concentrations </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  8. 8. Management Experience for Buyers <ul><li>Translatable industry experience encompasses all facets for the type of business being purchased, including managing a similar number of people and managing revenues and budgets of similar size, having the specific technical expertise required, understanding the industry risk and having the operational skills (sales, manufacturing, financial, etc.) required to run the business. </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  9. 9. SBA “Intangible Assets” Rule <ul><li>If the purchase price includes >$500,000 in Intangible Assets: </li></ul><ul><ul><li>An equity injection of 25% will be required. This can be in the form of a 15% cash injection from the Buyer, and a 10% Seller Note on Full Standby for 2 years . (Note – WFSBA will require the note be interest only for the 3 rd year, and have a 5 year term after that) </li></ul></ul><ul><ul><li>If equity injection is <25%, deal can be submitted to SBA for approval, obviously this means it must be a very strong deal. </li></ul></ul><ul><ul><li>If purchase price includes <$500,000 in intangible assets, our normal equity injection rules will apply. </li></ul></ul><ul><ul><li>Asset values can be determined either by book value on the balance sheet or by appraisal. </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  10. 10. What does WFSBA Need? <ul><li>From the Buyers </li></ul><ul><ul><li>Complete Loan Application including PFS (must be signed by spouse), 912 Form, and Authorization to Release Information </li></ul></ul><ul><ul><li>Personal Tax Returns for 3 years (all pages) </li></ul></ul><ul><ul><li>Business Tax Returns & Financial Statements if they own other businesses </li></ul></ul><ul><ul><li>Detailed resume showing direct or translatable experience </li></ul></ul><ul><ul><li>For all owners of 20% or more </li></ul></ul><ul><ul><li>Business Plan including Projected P&L for two years, first year by month </li></ul></ul><ul><li>From the Seller or Broker </li></ul><ul><ul><li>Seller’s Tax Returns for 3 years and interim financials (P&L + Balance Sheet + A/R A/P Detail Aging Report) </li></ul></ul><ul><ul><li>Broker’s CBR or Offering Memorandum </li></ul></ul><ul><ul><li>Copy of the Purchase Agreement or LOI with an allocation of the purchase price if possible </li></ul></ul><ul><ul><li>Complete Notes Payable Schedule </li></ul></ul><ul><ul><li>Equipment List </li></ul></ul><ul><ul><li>Copy of Existing Lease Agreements </li></ul></ul><ul><ul><li>Detailed Evidence of all Exceptional Add Backs </li></ul></ul><ul><ul><li>Legal description of real estate if included </li></ul></ul><ul><ul><li>Signed IRS 4506T </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  11. 11. Primary Product Focus Refinances / Debt Restructure <ul><li>Must cut debt service on each individual note by 10% or more </li></ul><ul><li>Cash out up to 90% LTV on eligible real estate if cash used for business purpose </li></ul><ul><li>Any note with a balloon payment is automatically eligible </li></ul><ul><li>Equipment leases, working capital loans, seller notes are eligible. </li></ul><ul><li>Credit cards eligible but VERY difficult </li></ul><ul><li>Can be mixed with other loan uses of proceeds </li></ul><ul><li>Cash flow >1.25X – 1.5X depending on nature of deal. </li></ul>
  12. 12. What does WFSBA Need? <ul><li>Complete Debt Schedule </li></ul><ul><li>Copy of each note or lease to be refinanced </li></ul><ul><li>Last three years of tax returns on business </li></ul><ul><li>Interim Financial Statements on business to include P&L, Balance Sheet, A/R A/P Detail Aging Report </li></ul><ul><li>Description of business, industry, and market served </li></ul><ul><li>IRS Form 4506T </li></ul><ul><li>Complete asset list </li></ul><ul><li>Completed loan application </li></ul><ul><li>Last three years of personal tax returns </li></ul><ul><li>Personal Financial Statement, SBA Form 912, Authorization to Release Information, IRS Form 4506T </li></ul><ul><li>Management Resume </li></ul><ul><li>Business Plan and Projected P&L for next two years on business </li></ul><ul><li>Copy of lease if business in rented space </li></ul>
  13. 13. Primary Product Focus Commercial Real Estate Financing <ul><li>Financing programs for expanding businesses </li></ul><ul><ul><li>Cash flow >1.25X universal debt service </li></ul></ul><ul><li>Must be owner occupied to qualify </li></ul><ul><ul><li>Stand alone buildings </li></ul></ul><ul><ul><li>Condos </li></ul></ul><ul><li>Projects from $300,000 to $12,000,000 </li></ul><ul><li>Up to 90% financing on most projects </li></ul><ul><ul><li>Can include property improvements, equipment, working capital, other uses </li></ul></ul><ul><li>Loan Terms </li></ul><ul><ul><li>Up to 25 years </li></ul></ul><ul><ul><li>Pre-payment penalty varies from 3 – 10 years </li></ul></ul>
  14. 14. What does WFSBA Need? <ul><li>Complete Debt Schedule </li></ul><ul><li>Copy of executed LOI or Purchase Agreement on building </li></ul><ul><li>Last three years of tax returns on business </li></ul><ul><li>Interim Financial Statements on business to include P&L, Balance Sheet, A/R A/P Detail Aging Report </li></ul><ul><li>Description of business, industry, and market served </li></ul><ul><li>IRS Form 4506T </li></ul><ul><li>Complete asset list </li></ul><ul><li>Completed loan application </li></ul><ul><li>Last three years of personal tax returns </li></ul><ul><li>Personal Financial Statement, SBA Form 912, Authorization to Release Information, IRS Form 4506T </li></ul><ul><li>Management Resume </li></ul><ul><li>Business Plan and Projected P&L for next two years on business </li></ul><ul><li>Plans, drawings, and cost estimates for any improvements </li></ul>
  15. 15. Primary Product Focus New Business Start Up / Expansion <ul><li>50% - 70% Financing of Total Project Cost </li></ul><ul><li>Usually up to 10 Year Term </li></ul><ul><li>Can include leasehold improvements, equipment, inventory and working capital </li></ul><ul><li>Requires minimum of five years direct industry experience </li></ul>
  16. 16. What does WFSBA Need? <ul><li>Fully completed loan application </li></ul><ul><li>Complete business plan with detailed financial projections and assumptions </li></ul><ul><li>Complete management resume </li></ul><ul><li>Proposed lease for location </li></ul><ul><li>Drawings and written cost estimates on improvements </li></ul><ul><li>Written quotes on equipment and fixtures </li></ul><ul><li>Personal tax returns last three years </li></ul><ul><li>Business tax returns last three years and interim financials if expansion </li></ul>
  17. 17. Product Advantages <ul><li>Longer terms than conventional financing </li></ul><ul><li>No balloons, Call options, Restrictive Covenants </li></ul><ul><li>No pre-payment penalty on loan terms less than 15 yrs </li></ul><ul><ul><li>Up to 25 years for real estate financing, including </li></ul></ul><ul><ul><li>purchase, refinance and take-out of a construction loan </li></ul></ul><ul><ul><li>10 to 15 years for machinery and equipment </li></ul></ul><ul><ul><li>Up to 10 years for working capital </li></ul></ul><ul><ul><li>We include working capital in most acquisition loans </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  18. 18. More Product Advantages <ul><li>Lower Down payment (Up to 90% financing) </li></ul><ul><li>WFSBA does not charge points, only a reasonable packaging fee of $1,000 </li></ul><ul><li>Term of loan is significantly longer if real estate is included </li></ul><ul><li>WFSBA offers fixed rate and variable rate structures on most loans </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  19. 19. Credit Hot Buttons <ul><li>CASH FLOW </li></ul><ul><li>TRANSLATABLE INDUSTRY EXPERIENCE </li></ul><ul><li>BUYER’S PERSONAL CREDIT (>650 score) </li></ul><ul><li>EQUITY INJECTION </li></ul><ul><li>POSITIVE TRENDS (Sales, Profits, Cash Flow) </li></ul><ul><li>INDUSTRY </li></ul><ul><li>REAL ESTATE </li></ul><ul><li>LOAN SIZE </li></ul><ul><li>COLLATERAL </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  20. 20. INDUSTRIES WFSBA STAYS AWAY FROM <ul><li>Restaurants and Food Service </li></ul><ul><li>Hotels </li></ul><ul><li>New Construction (Commercial or Residential) </li></ul><ul><li>Vehicle Dealers (Cars, Trucks, RV, Boat, Motorcycle) </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  21. 21. Cash Flow Lending <ul><li>Cash Flow Lending based EBITDA- Plus </li></ul><ul><ul><li>Net Income </li></ul></ul><ul><ul><li>Interest </li></ul></ul><ul><ul><li>Depreciation & Amortization </li></ul></ul><ul><ul><li>Officer Compensation </li></ul></ul><ul><ul><li>Large One Time Expenses </li></ul></ul><ul><ul><li>Rent – if real estate is in the deal or if seller owns real estate and will charge less rent than in past </li></ul></ul><ul><ul><li>MUST take a charge for the buyer’s salary, increased rent, and interest for line of credit </li></ul></ul><ul><ul><li>All add backs must be documented! </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  22. 22. Cash Flow Lending <ul><li>Possible Add Backs </li></ul><ul><ul><li>Large One Time Legal Bills </li></ul></ul><ul><ul><li>Family Member Salaries (need W-2) </li></ul></ul><ul><ul><li>Major Renovations (non-cap) </li></ul></ul><ul><ul><li>Non-recurring expenses </li></ul></ul><ul><ul><li>Employee Pension Plans </li></ul></ul><ul><ul><li>One Time Consulting Fees </li></ul></ul><ul><ul><li>Board of Director Fees </li></ul></ul><ul><li>Unlikely Add Backs </li></ul><ul><ul><li>All Phone Expenses </li></ul></ul><ul><ul><li>Auto Expense </li></ul></ul><ul><ul><li>Owners Insurance </li></ul></ul><ul><ul><li>Adjustments to COGS </li></ul></ul><ul><ul><li>Owners Vacations </li></ul></ul><ul><ul><li>Associations & Dues </li></ul></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.
  23. 23. For More Information or to Discuss A Specific Deal Please Contact <ul><li>Dave Phillips </li></ul><ul><li>804-378-7501 (o) </li></ul><ul><li>800-673-0879 (f) </li></ul><ul><li>804-513-7700 (c) </li></ul><ul><li>[email_address] </li></ul>© 2009 Wells Fargo Bank, N.A. All rights reserved. For public use.

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