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Sbdc lenders san marcos 8 25-10


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Presentation made by at the San Marcos Texas Chamber of Commerce Business Expo 8-26-2010.

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Sbdc lenders san marcos 8 25-10

  1. 1. Borrowing Money in 2010 (it’s a jungle out there) “ Success seems to be largely a matter of hanging on after others have let go.” - William Feather Sam Thacker 512-990-8756 Office [email_address]
  2. 2. Goal of Presentation <ul><li>Provide basic understanding of how various types kinds of bank and non-bank business financing work and how they can be used best for business. </li></ul><ul><li>Have each participant leave today with a practical understanding of the lending landscape in today’s environment. </li></ul>
  3. 3. Lenders - Unique Personalities <ul><li>Every lending institution has a different personality and appetite </li></ul><ul><li>Capital is available for credit worthy borrowers, but they may have to try several institutions </li></ul><ul><li>Working with a lending organization that looks at your whole picture is best </li></ul>
  4. 4. Chart that will make you dizzy! Number of SBA 7 (a) loans made in Central Texas (pop 1.5 mil) for federal FY 2009. Top four lenders. On the bottom, the largest bank in the U.S. made a total of 4 SMB SBA loans in Central Texas (a huge market for them) with an average loan of $36,250.
  5. 5. Three “C”s of Lending Character Collateral Capacity Is borrower’s character strong enough that repayment is reasonably assured? Is there enough collateral to support the loan the borrower is requesting? Does the company have sufficient cash flow / resources to repay the loan?
  6. 6. Types of Banks <ul><li>Mega Banks </li></ul><ul><ul><li>The top 50 banks in the country </li></ul></ul><ul><li>Regional Banks </li></ul><ul><ul><li>Over $1 billion in assets (but not top 50) </li></ul></ul><ul><li>Community Banks </li></ul><ul><ul><li>Less than $1 billion in assets </li></ul></ul><ul><ul><li>Community based – relationship focused </li></ul></ul>
  7. 7. Mega Banks <ul><li>Like to make a few big loans or many small ones </li></ul><ul><li>The largest 50 banks in U.S. </li></ul><ul><li>Bank fees can be high </li></ul><ul><li>Some are not SMB friendly </li></ul>Goliath National Bank
  8. 8. Regional Banks Empty commercial office building Las Vegas - 2010 <ul><li>Small and mid-sized businesses use them </li></ul><ul><li>Some are highly vulnerable to real estate assets </li></ul><ul><li>Strong & weak ones </li></ul><ul><li>More to fail in 2010 </li></ul>
  9. 9. Community Banks <ul><li>7,500 in U.S. </li></ul><ul><li>Serve local / state geographic market </li></ul><ul><li>Community banks offer best chances of loans </li></ul>Community banks are regaining market share lost last 10 years
  10. 10. Credit Unions <ul><li>Fairly new to business lending </li></ul><ul><li>Only 30% of U.S. credit unions make business loans </li></ul><ul><li>Great resource for small loans (<$50,000) </li></ul>
  11. 11. Community Lenders <ul><li>People Fund </li></ul><ul><li>Acción Texas </li></ul><ul><li>Big Austin </li></ul><ul><li>Texas Mezzanine Fund </li></ul>
  12. 12. Community Lender Criteria <ul><li>Create jobs for community </li></ul><ul><li>Serve minority and underserved businesses </li></ul><ul><li>Max loan $250,000 </li></ul><ul><li>Hands on and helpful </li></ul><ul><li>Look at entire picture </li></ul>
  13. 13. Concept of “Micro-Lending” <ul><li>Generally loan amounts small ~$50k </li></ul><ul><li>Community based </li></ul><ul><li>Create Jobs </li></ul><ul><li>Often help minority businesses or businesses that employ over 50% minorities </li></ul><ul><li>Often located in low income area </li></ul>
  14. 14. Matching Assets with Loans Examples of Short-Term Assets Matched to Loan 1 year or no longer than contract term Contract Mobilization Match to A/R turn Accounts Receivable *varies Inventory
  15. 15. Matching Assets with Loans Examples of Long-Term Assets Matched to Loan 5-7 year loan or lease Furniture and Fixtures 5-7 year loan or lease Vehicles/trucks 5-15 years variable rate or lease Equipment (long life) 36 month lease Equipment (Computers) 15-30 year fixed rate Real estate
  16. 16. SBA Loans for Long-Term Assets <ul><li>Two programs </li></ul><ul><ul><li>7(a) </li></ul></ul><ul><ul><li>504 </li></ul></ul><ul><li>7(a) </li></ul><ul><ul><li>Proceeds used to buy long-term assets </li></ul></ul><ul><ul><li>Terms depend on assets financed </li></ul></ul>
  17. 17. SBA Express Loan up to $300k <ul><li>Lender flexibility </li></ul><ul><li>Can be used as term loan or line of credit </li></ul><ul><li>Lower docs and quicker turn-around </li></ul><ul><li>Can be used for working capital </li></ul>
  18. 18. Other SBA Loan Considerations Tip: While SBA loans are very good vehicles for financing long-term assets, the standard practice of SBA lenders is to file a “blanket” UCC-1 on all assets (including short-term assets). Only a small amount of an SBA loan can be used for working capital purposes, so if working capital is a strong need, negotiate the loan so accounts receivable and inventory are not included in SBA loan collateral before the loan is made.
  19. 19. Working Capital Loans <ul><li>Very hard to get through traditional banks right now </li></ul><ul><li>Easier to get from commercial finance companies </li></ul><ul><li>Buyer beware – commercial finance companies are unregulated </li></ul><ul><li>Many good finance companies helping businesses </li></ul>
  20. 20. Why Use Alternative Lending? <ul><li>Uneven profitability </li></ul><ul><li>Seasonal business </li></ul><ul><li>Rapid growth </li></ul><ul><li>Cyclical businesses </li></ul><ul><li>Need more leverage of assets </li></ul>
  21. 21. Factoring’s Reputation <ul><li>Factoring industry has become more respectable as it has grown. </li></ul><ul><li>Competition in factoring has caused cost to client to significantly decline. </li></ul><ul><li>In most cases today, debtors do not assume that because a company is factoring, it is in trouble. </li></ul>Number of companies who use factoring has grown exponentially during last 10 years.
  22. 22. Cost of Working Capital Self-funded Bank LOC ABL Factoring 0% APR 8-12% 2.75% 11-14% 16+% Often unavailable Equity often used better for other purposes Depletes cash reserve Most appropriate for mature, slow growth businesses Low leverage of assets Usually has call provision “ knee jerk” reactions Easy to “evergreen” Must have strong historical financials Not for fast-growing businesses Borrowing base of A/R, Inv, Equip Often private lenders (non-regulated) Good for rapid growth Good for recapitalization Min size $750m consistent borrowing High leverage of A/R (avg 80%) Often private lenders (non-regulated) Excellent for rapid growth Can have losses, tax liens, neg. retained earnings $20,000-$3 million
  24. 24. Cash Flow Warning Signs <ul><li>Five Warning Signs of CF Trouble: </li></ul><ul><ul><li>Decreased Liquidity </li></ul></ul><ul><ul><li>Missed Trade Discounts </li></ul></ul><ul><ul><li>Late Vendor Payments </li></ul></ul><ul><ul><li>Slow Collections </li></ul></ul><ul><ul><li>Less safety cash in bank </li></ul></ul>
  25. 25. Create a Cash Flow Forecast <ul><li>A cash flow forecast will assist you managing through the period of tight cash. </li></ul><ul><li>A good (free) cash flow Excel based cash flow forecast with directions can be downloaded here: </li></ul>
  26. 26. Asset-Based Lending (ABL) <ul><li>B2B sales </li></ul><ul><li>Borrowing base of A/R, Inventory, equipment </li></ul><ul><li>$1MM line min, $750m consistent borrowings </li></ul><ul><li>General working capital uses </li></ul><ul><li>Excellent for recapitalization </li></ul><ul><li>Isolated losses – balance sheet deterioration </li></ul><ul><li>Excellent for rapid growth </li></ul>
  27. 27. Sm Business Owner’s Strategy <ul><li>Don’t focus on the credit score </li></ul><ul><li>Focus on the underlying credit report </li></ul><ul><li>Get all three credit reports every year </li></ul>
  28. 28. Strategy - Continued <ul><li>Look for lenders who look at the entire credit report instead of just a FICO score </li></ul><ul><li>Look for a “commercial lender” </li></ul><ul><li>If you use personal credit cards for business – understand that your credit score may be negatively affected </li></ul>
  29. 29. Conclusion and Q & A For more information contact: Sam or Leslie Thacker BFS-USA Group LLC 512-990-8756 [email_address]