3.3.22

1. Julie L. Graham
VP, Financial Sales Manager,
Jacksonville, Fl
February 17, 2022
Financial Literacy – Small Business Lending

2. ®
Preparing for a Loan Request
 Importance of assessing your personal financial picture
and understanding your personal credit.
 Understanding the 5 C’s of Credit.
 Identifying the types of business loans
 Financial information required to review a loan request.
 Choosing the right banking partner for you and the
importance of a successful business/banker relationship.
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3. ®
Personal Credit
Your personal credit score is an important aspect to business lending. Having a
good credit score may help your company access better terms on business
loans and credit cards. A good credit score speaks to the financial strength and
creditworthiness of your business.
Your credit score, also known as your FICO score (FICO stands for Fair Isaac
Corporation, the company that originally created the formula), can range from
300–850, and just like a score on a test, the higher your score the better.
FICO Score Credit Rating
 730 and above Excellent
 700–729 Good/above average
 670–699 Good
 585–669 Fair
 584 and below Poor
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4. ®
Strengthening Your Business Credit Score
 Register for an EIN early in the process of starting your
business. To build business credit, you need an
Employer Identification Number, or EIN.
 Open a business credit card. A business credit card is a
fast and effective way to start building your score.
 Pay vendors on time. Overdue debts or bills sent to
collection will hurt your score.
 Have vendors report your payments.
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5. ®
Understanding
the
5 C’s of Credit
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6. ®
The 5 C’s of Credit
Together, the 5 C’s of Credit serve as a way for lenders to evaluate the
creditworthiness of potential borrowers. Banks and lenders generally look
at your ability to repay, level of debt, collateral you have to offer and how
you plan to use the funds.
 Character
 Subjective and factual.
 Personal integrity & good standing of business owners – how you treat
your employees, customers, take responsibility and the timeliness in
fulfilling obligations.
 Communication – forthcoming with good information in a timely manner,
even if it’s not good news.
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7. ®
The 5 C’s of Credit
 Capacity
 Ability to repay the loan.
 Cash flow & repayment sources
 How much debt can your business handle and how do you intend to
repay the debt.
 Identify sources of repayment – primary & secondary.
 Debt Service Coverage – ratio of cash available to service debt.
 Global Cash Flow
 Cash flow, guarantor support & liquidation of collateral.
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8. ®
The 5 C’s of Credit
 Capital
 Financial Commitment – “skin in the game.”
 Banks want to see that you have contributed from your own assets and take on
personal risk to establish the business.
 Conditions
 Economic and environmental conditions – important to both the business and the
banker.
 Identify the current economic conditions & determine how your company fits in.
 Is your business / product sensitive to economic downturns?
 What are the industry trends & other issues that could impact the business?
 How will your business address and hurdles?
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9. ®
The 5 C’s of Credit
 Collateral
 Asset pledged to secure debt – banks prefer to lend against assets.
 Common types of collateral – A/R, inventory, cash, equipment, commercial
real estate and personal real estate.
 Advance Rates on Collateral (non SBA)
 Owner-occupied commercial real estate – up to 85%
 A/R – 65% to 85% of eligible A/R
 Inventory – up to 50%
 Equipment – new up to 100%
 Cash / CDs – 100%
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10. ®
Types of Financing: Short Term vs. Long Term
Financing
 “Matching Principle” – identify the financial need and match with
the asset being financed.
 At some point, most successful businesses will require additional
capital to sustain and / or finance growth.
 Generally speaking, short term loans are used to sustain current
operations and long term loans are used to finance growth.
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11. ®
Types of Business Loans
Short Term Financing (finance operations)
Typically one year or less in term
 Line of Credit
*** Line of credit should revolve. Ideally paid down to 0 for a month
every year.
 Inventory Purchases
 Letters of Credit
Long Term Financing
 Real Estate
 Tenant Build out
 Equipment
 Guidance Lines of Credit
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12. ®
Popular SBA Loans
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13. ®
Credit Attributes for Bank Financing
 In business 2 + years – general rule of thumb; there are
exceptions.
 Acceptable global debt service.
 Leverage acceptable for industry.
 Business and owner have satisfactory credit history.
 Existing customer.
 Secured loans / collateral.
 Proven management teams with identified succession plan.
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14. ®
Prepare Financial Information
 Your most recent business and personal tax returns,
multiple years if available.
 You may also need the year-to-date income statement and
current balance sheet from your accountant or your firm's
accounting software program.
 For larger lines of credit, AR aging and/or inventory aging
may be needed
 Personal Financial Statement
 Debt Schedules
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15. ®
Additional important items to share
 Any large one time expense/income in previous or
current year
 How has COVID impacted your business (positive or
negative)
 Did you receive PPP funding? If so, has it been
forgiven?
 Any large upcoming jobs?
 Any major changes in your operations?
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16. ®
Choosing
the
Right Banking Partner
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17. ®
Choosing the Right Banking Partner
Things to consider when choosing a banking partner:
 Bank’s ability to address all current and future needs – small or large bank?
 Will you have one-on-one access to a local banker?
 Will that local banker have lending authority?
 What is the lending approval process?
 Does the bank work with the SBA?
 Does the bank have experience in your industry?
 Does the bank provide a branch network that will meet you needs now and in
the future?
 Set expectations with your banker early to ensure they understand your current
and future needs, position in the industry and your value proposition.
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18. ®
Importance of a Successful Business and
Banker Relationship
Maintain a relationship with your banker in order to take advantage of
the many benefits they can offer your business:
 Trusted Financial Advisor – Provide you with expert financial advice,
answer your finance questions, help you strategize ways to grow
your business and reach your financial objections.
 Source of Business Contacts – By capitalizing on your banker’s
knowledge and contacts, you can find prospective vendors, partners,
service providers, CPAs, etc.
 Financing and Loans – When you have developed and maintained a
relationship with your bank and banker, you have a much better
chance of getting a loan because the bank already knows you and
your business.
 Testimonials of Your Behalf – A testimonial from your banker can
help you find new customers and possibly break into new markets.
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19. Cashflow
and Q & A
Julie L. Graham | Vice President
13860 Old Saint Augustine Road
Jacksonville, FL 32258
904.394.2280