1.
Borrowing to Fund Business Growth
Presented by:
Ken Rosenberg, Vice President
Jamila Braithwaite, Vice President

2.
Capital One Bank
Today, Capital One Bank is one of the top 10 banks in the country,
with a network of more than 1,000 branch locations across NY, NJ,
CT, TX, LA, DC, MA and VA
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3.
Objectives
• Identify and explain key aspects of debt financing
• Understand the key elements of successful borrowing
• Discuss the key aspects of evaluating a company’s
creditworthiness
• Review financial ratios
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4.
Growth: The Increasing Demands for Cash
4

5.
Cash Flow Is the Gas in the Engine That Powers
an Entity’s Growth
$
$ $ $
$ $
Bus ine s s g ro wth fund e d by Bus ine s s g ro wth fund e d by
o p e ra ting c a s h flo w e x te rna l s o urc e s o f c a p ita l
External sources of capital often accelerate
and support growth

6.
Primary Sources of External Capital
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7.
Matching Offerings to the Needs of the Business
TYPES & KEY ASPECTS
OF FINANCING

8.
Debt Financing Options
8

9.
Debt Financing Options
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10.
Debt Financing Options - continued
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11.
Debt Financing Options - continued
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12.
Optimizing the Chances of a Desired Outcome
KEYS TO SUCCESSFUL
BORROW ING

13.
5 Cs of Credit
• Does the borrower demonstrate a commitment to honor
Character his or her transactions and keep promises even under
Character adverse circumstances?
• Does the business demonstrate the capacity to apply the
loan funds? Does management have a business plan?
Capacity
Capacity Are the plant and equipment sufficient? Are marketing
and product delivery well developed?
• What are the economic and market conditions that could
Conditions impair the company’s ability to service the debt and repay
Conditions the loan? Does the company recognize these risks and
have plans to mitigate them?
• Does the company have sufficient net worth to absorb
Capital
Capital normal business risk?
• Is the collateral sufficient as a secondary source of
Collateral repayment? If the collateral must be liquidated, is the
Collateral realizable value enough to repay principal and outstanding
interest, and
cover the bank’s administrative costs of liquidation?
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14.
Be Prepared
• Evaluate your business by considering the following:
• Strengths and opportunities
• Weaknesses and challenges
• Current financial situation and needs going forward;
be realistic and try to avoid subsequent unplanned
credit request that can jeopardize credit standing and
overall relationship
• Develop information that can be shared with prospective
lenders.
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15.
Build an Effective Dialogue
• Build an open and honest dialogue:
• Provide an understanding of the company’s current state and
vision for the future
• Discuss key objectives, acknowledging key risks and related
remediation plans
• Gain an understanding of the lender’s loan products or
alternative solutions and related requirements
Sta rt e a rly : I us ua lly ta ke s o ne m e e ting to g e t the be s t
t
bo rro wing s o lutio n.
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16.
The Loan Application
• Ensure that the loan application is complete and accurate
• Core loan application information often includes:
o Historical business financial information (2 years)
o Business and owner’s personal tax returns (2 Years)
o Personal Financial Statement
o Interim financial statements of the business and its owner for
the current & prior year, along with accounts receivable and
payable aging reports
Maintain open, balanced and responsive communication throughout
the process
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17.
Sources of Repayment
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18.
Cash Flow From Operations -
Questions to Consider
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19.
Guarantor Support & Collateral/
Security -
Questions to Consider
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20.
The Importance of Metrics in the Application Process
KEY RATIOS &
RELATED GUIDELINES

21.
Key Ratios
Lenders typically look at ratios, focusing on the sufficiency
of cash flow to fund debt service as well as the overall level
of debt relative to invested capital (equity)
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22.
Business Debt Service Coverage Ratio
Cash Flow Debt Service
• To ta l So urc e s o f Ca s h • To ta l De bt Se rv ic e (inte re s t &
• N t p ro fit (lo s s )
e p rinc ip a l; e x is ting d e bt p lus re q ue s te d
• De p re c ia tio n & a m o rtiz a tio n a m o unt)
• I re s t e x p e ns e • M rtg a g e
o
nte
• O the r (i. e . , re nt e x p e ns e • A lo a ns /le a s e s
uto
if s wa p p ing re nta l • Te rm lo a ns
fo r o wne rs hip ) • Line s o f c re d it
Business Debt Service Coverage Ratio is a measurement of an entity's
ability to produce cash to cover its debt payments; a higher ratio suggests
the business is better able to fund additional debt obligations
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23.
Business Leverage Ratio
Total Liabilities Equity + Subordinated Debt
• To ta l Lia bilitie s • Eq uity
• Lia bilitie s m inus • Eq uity p lus
s ubo rd ina te d d e bt s ubo rd ina te d d e bt
Business Leverage Ratio is an indicator of the level of investments
made by the business owner(s) versus lenders; a lower ratio
generally indicates lower level of default risk
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24.
Personal Debt to Income Ratio
Personal Debt Personal Income
• To ta l De bt Se rv ic e (inte re s t & p rinc ip a l) • To ta l So urc e s o f I o m e
nc
• M rtg a g e
o • Wa g e s , s a la rie s , e tc .
• A lo a ns /le a s e s
uto • I re s t & d iv id e nd s
nte
• N te s p a y a ble /te rm lo a ns
o • Pe ns io ns & a nnuitie s
• Line s o f c re d it & re vo lving c ha rg e • Re nta l inc o m e
o blig a tio ns • O the r
• O the r d e bt
Personal Debt to Income Ratio is a measurement of the sufficiency of
an individual's ability to fund its existing debt payments; a lower ratio
suggests the individual is better able to fund additional debt obligations
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25.
Ratio Guidelines
• Thresholds for ratios vary by lender; the nature, type
and amount of financing requested; the level of
collateral/security provided; and the industry of the
applicant. Typical minimum levels are:
N te : A a p p lic a nt’s lo w Pe rs o na l De bt to I o m e ra tio m a y be ta ke n
o n nc
into c o ns id e ra tio n whe n c o ns id e ring bus ine s s -re la te d ra tio s (De bt
Se rv ic e & Le v e ra g e )
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26.
Thank you for attending