Lending 101 201

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Lending 101 201

  1. 1. Getting your Lender to Say Yes!Getting your Lender to Say Yes! Felix Ngoussou, Innovative Business Advisor www.iredo.org Felix Ngoussou, Innovative Business Advisor www.iredo.org Best ways to impress your LenderBest ways to impress your Lender admin@iredo.orgadmin@iredo.org
  2. 2. Business Loan ApplicationBusiness Loan Application A- Use and Amount of Loan ProceedsA- Use and Amount of Loan Proceeds 1- Working Capital Needs1- Working Capital Needs 2- Inventory Needs2- Inventory Needs 3- Fixed Asset Purchase3- Fixed Asset Purchase 4- Lease Improvements4- Lease Improvements 5- Etc…..5- Etc….. B- Repayment SourcesB- Repayment Sources 1- Primary1- Primary 2-Secondary2-Secondary 3-Tertiary3-Tertiary admin@iredo.orgadmin@iredo.org
  3. 3. Description of your BusinessDescription of your Business Type and Ownership of the businessType and Ownership of the business • SoleSole • LLCLLC • C/S CorporationC/S Corporation How the Business was startedHow the Business was started:: • How?How? • Who has responsibility for operationsWho has responsibility for operations • Copies of business license,Copies of business license, • Corporation Resolution ,Corporation Resolution , • Articles of incorporation, orArticles of incorporation, or • Partnership AgreementsPartnership Agreements admin@iredo.orgadmin@iredo.org
  4. 4. Key Management PersonnelKey Management Personnel Describe Management ExperienceDescribe Management Experience Attached ResumesAttached Resumes Attached any franchise or other businessAttached any franchise or other business training programstraining programs Provide your potential succession planProvide your potential succession plan admin@iredo.orgadmin@iredo.org
  5. 5. Market Place InformationMarket Place Information A- What I should Know?A- What I should Know? •What is your product or Service?What is your product or Service? •Who are your Customers?Who are your Customers? •Who is the competition?Who is the competition? •What is the strategy to improve your marketWhat is the strategy to improve your market position?position? B- Why Should I believe you?B- Why Should I believe you? •FactsFacts •FiguresFigures •NamesNames •Where possible?Where possible? admin@iredo.orgadmin@iredo.org
  6. 6. Secure your LoanSecure your Loan A-Collateral •Business Assets with Dollar values •Personal Assets with Dollar Values B- Personal Financial Information •Last three years of personal signed IRS Tax returns C- Business Financial History •Three years of historical financial information •Most recent interim year financial statement not more than 90 days old •Last three years of signed Business Tax Return •Aging of Accounts payable, Accounts Receivable and Taxes payable as of the most recent statement admin@iredo.orgadmin@iredo.org
  7. 7. Financial Projections 12 month projected Income Statement if your business generate Accounts Receivable 12 month projected Cash Flow statement Projected Balance Sheet including the proposed loan. Please DO NOT FORGET to attach a copy of your Lease Agreement if applicable admin@iredo.orgadmin@iredo.org
  8. 8. Collateral: What you shouldCollateral: What you should Know about Personal AssetsKnow about Personal Assets Type Advance Percentage Cash 100% Stock/Bonds 50-66% Vehicles (Non Commercial) 75% of the Blue Book Value REAL ESTATE Example Assessed Value (Appraised) $250,000 Discounted (Potential Liquidation Value 75%) $250,000*0.75= $187,500 Less First Deed of Trust (150,000) What you have to pay to your bank Equity = $187,000- $150,000= $37,000 Can you be denied? NOT ONLY YES admin@iredo.orgadmin@iredo.org
  9. 9. Collateral: What you shouldCollateral: What you should know about Business Assets?know about Business Assets? Type Typical Advance % (SBA) Traditional Banks % Accounts Receivable 20% 75% Line of Credit Up to 80% N/A Inventory 20% 0%-50% Machinery and Equipment 50% Up to 75% Leasehold Improvements 5% 0%-10% Commercial Real Estate 80% Up to 75% 504 Program Up to 90% Varies on program Unimproved Land 50% 0%-50% Furniture and Fixtures 10% 0%-10% Residential Real Estate 80% Varies on program admin@iredo.orgadmin@iredo.org
  10. 10. Personal MonthlyPersonal Monthly Debt-To-Income RatioDebt-To-Income Ratio Debt –To-Income Ratio = { [Gross Monthly Debt Payments]/ [Gross Monthly Income]} Debt –To-Income Ratio = { [Gross Monthly Debt Payments]/ [Gross Monthly Income]} Gross Monthly Debt Payments comprised of: •Mortgage/Rent •Vehicle Loan •Credit Card payments •Any other Fixed Monthly Obligations Gross Monthly Debt Payments comprised of: •Mortgage/Rent •Vehicle Loan •Credit Card payments •Any other Fixed Monthly Obligations Gross Monthly Income comprised of: •Salaries/Wages •Rental Income •Interest/Dividend Income •Any other Income Monthly Debt-To-Income Ratio Maximum: 35%-40%Monthly Debt-To-Income Ratio Maximum: 35%-40% admin@iredo.orgadmin@iredo.org
  11. 11. Business Financial MeasuresBusiness Financial Measures Liquidity Measures Defined as the company’s ability to repay current Liabilities with Current assets quantifiable through: WORKING CAPITAL = Current Assets – Current LiabilitiesWORKING CAPITAL = Current Assets – Current Liabilities Leverage Defined as Debt-To-Equity Ratio: Debt-To-Equity Ratio = Total Liabilities / Total EquityDebt-To-Equity Ratio = Total Liabilities / Total Equity Start UpsStart Ups: 2.00 to 1.00 to qualify for most SBA guaranty: 2.00 to 1.00 to qualify for most SBA guaranty programs unless the loan amount is under $100,000programs unless the loan amount is under $100,000 Purchase of Existing businesses: can be up to 3.00 to 1.00Purchase of Existing businesses: can be up to 3.00 to 1.00 Existing Business Acquisition: 3.00 to 4.00:1.00 depending onExisting Business Acquisition: 3.00 to 4.00:1.00 depending on the industry.the industry. admin@iredo.orgadmin@iredo.org
  12. 12. Business Financial Measures-Business Financial Measures- EquityEquity EquityEquity Includes:Includes: A- Sole ProprietorshipA- Sole Proprietorship:: Owner Equity/Contribution Retained EarningOwner Equity/Contribution Retained Earning B- Partnership:B- Partnership: Partner Equity/Contribution Retained EarningPartner Equity/Contribution Retained Earning C- Corporation:C- Corporation: Common Stock/Paid in Capital/ Retained EarningCommon Stock/Paid in Capital/ Retained Earning admin@iredo.orgadmin@iredo.org
  13. 13. Business Financial Measures:Business Financial Measures: Cash Flow & Debt Coverage RatioCash Flow & Debt Coverage Ratio Cash-FlowCash-Flow :: Net Profit or Net LossNet Profit or Net Loss + Depreciation Expense+ Depreciation Expense + Interest Expense+ Interest Expense + Amortization Expense+ Amortization Expense = Traditional Cash Flow= Traditional Cash Flow Debt Coverage Ratio:Debt Coverage Ratio: Traditional Cash-FlowTraditional Cash-Flow Amount of the Loan PaymentAmount of the Loan Payment TYPICALLY NEEDs TO BE 1.25:1.00TYPICALLY NEEDs TO BE 1.25:1.00 admin@iredo.orgadmin@iredo.org
  14. 14. Income Statement/Cash Flow ProjectionsIncome Statement/Cash Flow Projections Projected Income Statement: • Assumptions regarding Sales/Revenues • Assumptions regarding Costs of Good Sold (if the company is inventory based) • Assumptions regarding Operating Expenses (Equally distributed over the 12 month period) Projected Cash Flow: • Assumptions regarding the collection of Sales/Revenues • Assumptions regarding Accounts Receivable (Provide timing assumptions regarding the collection period) • Assumptions regarding Operating Expenses admin@iredo.orgadmin@iredo.org
  15. 15. THANK YOU By Felix Ngoussou, Innovative Business Advisor www.iredo.org admin@iredo.org By Felix Ngoussou, Innovative Business Advisor www.iredo.org admin@iredo.org admin@iredo.orgadmin@iredo.org
  16. 16. APPROACHING YOUR LENDERAPPROACHING YOUR LENDER With ConfidenceWith Confidence Lending 201Lending 201 By Felix NgoussouBy Felix Ngoussou admin@iredo.orgadmin@iredo.org
  17. 17. Approaching your Lender about BUSINESS LOANS? Make advance appointment with Business LoanMake advance appointment with Business Loan officer.officer. Be prepared with a written business plan thatBe prepared with a written business plan that includes total cost of project with a breakout ofincludes total cost of project with a breakout of what $$ are expected to be borrowed and whatwhat $$ are expected to be borrowed and what $$ are expected to be injected by you as the$$ are expected to be injected by you as the owner!owner! admin@iredo.orgadmin@iredo.org
  18. 18. EXPECT FROM A LENDER? A commitment from the lender to review theA commitment from the lender to review the business plan by a specified datebusiness plan by a specified date oror an up-frontan up-front explanation of why that lender does not want toexplanation of why that lender does not want to do that type of loan.do that type of loan. Expect the lender to ask for your SSN and aExpect the lender to ask for your SSN and a copy of your ID so they can authorize a creditcopy of your ID so they can authorize a credit report .report . Expect to receive from the lender their institutionExpect to receive from the lender their institution Loan Application, list of required documentationLoan Application, list of required documentation and SBA paperworks to fill outand SBA paperworks to fill out admin@iredo.orgadmin@iredo.org
  19. 19. NEGOTIATION ITEMS & LENDER DISCLOSURE Interest rateInterest rate Term of loanTerm of loan Who will personally guaranty loanWho will personally guaranty loan What fees will be chargedWhat fees will be charged Time frame range in expecting an answer “YESTime frame range in expecting an answer “YES or NO” and time frame to expect onor NO” and time frame to expect on disbursement of fundsdisbursement of funds Other services lender can provideOther services lender can provide admin@iredo.orgadmin@iredo.org
  20. 20. WHY DOES A LENDER SAY “YES”? Likes balance of credit factors – strengths outweigh weaknesses Lender’s institution has favorable experience with that industry Your credit risk fits in with lender’s target portfolio Your Cash Flow shows you can pay back the loan Your Debt-To-Income Ratio is acceptable All your 5 Cs ( Character, Capacity, Collateral, Cash Flow, and Capital) look good or are acceptable Lending officer is willing to be your advocate in loan committee admin@iredo.orgadmin@iredo.org
  21. 21. WHY DOES A LENDER SAY “NO”? Weaknesses of individual deal outweigh strengths in areas such as: • Sales volume is optimistic or expenses are underestimated or industry in turmoil • Management has no direct experience • Lender risk too high in loan amount compared to applicant’s injection – D/E • Credit or character history is marginal or poor • Collateral offered doesn’t offset other risks Lender’s institution has unfavorable experience with that industry admin@iredo.orgadmin@iredo.org
  22. 22. TIPS FOR FINANCIALTIPS FOR FINANCIAL PREPARATIONPREPARATION FIRST be prepared- • Asking for $$ before plan is in place is likely to create poor first impression with lender - you only get one chance to make a good first impression! Understand the loan process and consider how their application will be compared to their peers! You need to establish time frame for decision making that is realistic and decide if lender can meet those needs.. admin@iredo.orgadmin@iredo.org
  23. 23. THANK YOUTHANK YOU LET’S HELP YOU GROW YOURLET’S HELP YOU GROW YOUR BUSINESSBUSINESS admin@iredo.orgadmin@iredo.org

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