Business Financing Options Workshop Batesville July

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© ASBTDC 2012 All Rights Reserved Business Financing Basics ASU 052112

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Powerpoint presented at the Batesville Area chamber of Commerce July 19th for Business Financing Options workshop by the ASU Small Business and Technology Development Center

Transcript of Business Financing Options Workshop Batesville July

Page 1: Business Financing Options Workshop Batesville July

© ASBTDC 2012 All Rights Reserved

Business Financing

Basics

ASU 052112

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Small Business Resources

Training◦ Classes for new ventures and existing businesses◦ Special conferences

Research◦ Sample business plans/Industry start-up guides

Consulting◦ One-on-one advisory services

Web Site: http://asbtdc.ualr.edu◦ BizFact documents and on-line consulting tools◦ E-news service: Biz Bytes & Tech Track

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Know what financial information is vital to operating your business

Know exactly where you stand at all times

Understand the difference between profit and cash flow

How does my banker interpret my financial statements and my credit report

How your credit report can affect your ability to operate your business

Run your business.Don’t let your business run

you.

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Foundation Documents

Transaction Journals

General Ledger

Trail Balance

Adjusted Trial Balance

Financial Statements

◦ Income Statement

◦ Statement of Owners’ Equity

◦ Balance Sheet

Vital Financial Information

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Understand the difference between profit and cash flow? Never, never, ever, ever, run out of cash!

Cash flow and profit are different. Cash flow is the money that flows in and out of the firm from operations, financing activities, and investing activities. Net income is what remains from sales revenue after all the firm's expenses are subtracted.

Cash flow is actually more important for the small business owner to focus on than profit. Companies can make a profit but still have a negative cash flow and not be able to pay their bills. Not recognizing this difference is one of the biggest mistakes a small business owner can make.

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Profit vs. Cash Flow

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YOUR CREDIT REPORT IS IMPORTANT!

Your credit record affects all financial

transactions

Review your credit report and know your

credit score

How is my credit score calculated?

The banker relies on your credit history

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Credit Reports

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Your credit report is a compilation of your payment habits and usage of credit over time

Monitor it for suspicious activity i.e. identity theft

Get a free copy of your report once every 12 months from the major credit-reporting agencies:

Equifax TransUnion Experian

AnnualCreditReport.com

Federal Trade Commission (ftc.gov/credit)

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Review Your Credit Report

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Private investment

Grants

Conventional financing

Government-backed programs

Alternative lending programs

Sources of Financing

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Sources of Financing

Private Investment

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Owners Equity is the contribution of capital and other assets

Angel investors provide capital for a percentage of ownership

Venture capitalists provide capital and exercise control over company operations

Private Investment

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Savings Accounts Relatives or Friends Credit Cards Second Mortgage Retirement Plans

Sources of Capital

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Sources of Financing

Grant Resources

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Myth #1: It is easy to get a small business grant

Myth #2: Grants are available for any type of business

Myth #3: There are special government grants for women and minorities to start businesses

Myth #4: The government tries to keep grants a secret

Myths About Grants

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Recipients are typically nonprofit organizations

Grants are for industry-specific and R & D purposes

Grant sources are plentiful but locating them is difficult

Obtaining grants is highly competitive

The ASBTDC and the SBA do not provide grants

Truths About Grants

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Available in print or on the Internet

Updated twice a year

Deals with all types of federal government

assistance

www.cfda.gov

Catalog of Federal Domestic Assistance

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SBIR/STTR Participating Agencies

SBIR & STTR◦ Dept. of Defense◦ Health and Human

Services (National Inst.Of Health; Centers for Disease Control; FDA)

◦ National Science Foundation

◦ Dept. of Energy◦ NASA

SBIR Only◦ Dept. of Agriculture◦ Environmental Protection

Agency◦ Dept. of Transportation◦ Dept. of Education◦ Dept. of Homeland

Security◦ Dept. of Commerce

(NOAA, NIST)

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Grants for science and energy related research projects

Agency solicitation notices

Competitive proposals required

http://science.doe.gov/grants/index.asp

U.S. Department of Energy

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Technology Grants◦ Technology Transfer Assistance Grants (TTAG)◦ Technology Development Program (TDP)◦ Seed Capital Investment Program (SCIP)

Research & Development Tax Credit Program◦ Allows credits against a taxpayer's Arkansas state

income tax for making certain qualified research expenditures

www.asta.arkansas.gov

Arkansas Science &Technology Authority

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Better Beginnings Incentive Grants Division of Child Care and Early Childhood

Education◦ Staffing and retention expenses◦ Training materials◦ Management software◦ CPR/American Red Cross training

CDA Scholarships http://www.arbetterbeginnings.com

Arkansas Departmentof Human Services

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IDA (Individual Deposit Account) Program Matches savings 3:1 to maximum of $2,000-

$4,000

Opening or expanding small business one of three approved uses

Applicants must reside in service area and meet income guidelines

http://www.cadc.com

Central ArkansasDevelopment Council

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IDA (Individual Deposit Account) Program

Works with IDA Programs throughout Arkansas

Terms are same as CAPD’s

For a list of program offices, contact

http://www.southerngff.org

Southern Good Faith Fund

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The Foundation Center

◦ The Foundation Directory

Online database at http://foundationcenter.org

◦ National Directory of Corporate Giving

Investigate the Foundation

◦ Their Purpose

◦ Types of Awards Typically Made

◦ Eligibility

Examine Application Requirements

Private Foundation Grants

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Sources of Financing

Conventional Financing

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Sack of money Low mark-up Deduct interest Payback over time in deflated dollars

What a Deal!

What is a Business Loan?

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Executive Summary

Financing Proposal

Company Description

Industry Analysis

Products and Services

Market Analysis

Organization and Management

Operational Plan

Financials

Business Plan Essentials

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Invested capital Trade financing

◦ Payables and receivables Short-Term financing

◦ Bank lines of credit◦ Credit cards◦ Factoring

Long-term loans and leases◦ Property, plant, and equipment

Types of Financing

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The 5 Cs of Credit

◦ Conditions

◦ Character

◦ Capacity

◦ Capital

◦ Collateral

Loan Underwriting Guidelines

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The 12 Magic Numbers

◦ Liquidity

◦ Profitability

◦ Efficiency

◦ Leverage

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Sources of Financing

Government Backed Programs

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What is an SBA Loan?

Credit Requirements

Terms

Interest Rate

www.sba.gov

Small Business Administration(SBA) Loans

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Takes forever to get money Requires a “ton” of paperwork Offers low interest rates Provides grants

Common Myths about SBA

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Real estate investments Other speculative activities Lending activities Not-for-profit ventures Pyramid sales or distribution businesses Illegal activities Religious indoctrination Activities of a sexual nature Businesses not open to the general public

Ineligible Businesses

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Businesses must meet SBA size standards to qualify (maximums):◦ Manufacturing: 500 to 1,500 employees◦ Wholesaling: 100 employees◦ Services: $7 to $35.5 million in average annual

receipts◦ Retailing: $7 to $35.5 million average annual

receipts◦ General Construction: $7 to $33.5 million

average annual receipts

http://www.sba.gov/content/summary-size-standards-industry

Eligible Businesses

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Borrowers on probation or parole Borrowers with serious criminal histories Borrowers that are 90 days or more

delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.)

Borrowers of poor character

Ineligible Borrowers

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Finance floor plan needs (specific program for that)

Purchase real estate for investment purposes Disbursements to owners or principals Pay delinquent trust accounts (withholding or

sales tax) Refinance delinquent debt within a bank Acquisition of less than 100% of a business

Ineligible Uses

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SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements

Eligible Uses of Proceeds

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7(a) Loan Guaranty Program SBA Express Patriot Express 504 Loan Program MicroLoans

SBA Loan Programs

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SBA guarantees (insures) the loan, reducing the risk to the lender.

Borrower must secure a participating lender. No minimum loan size. Maximum loan size

is $5 million.

7a Loans

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25 years Real Estate 10 years Equipment 7 years Inventory, Accounts Receivable,

Working Capital

SBA Loan Maturities

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Fixed or variable Maximum: Prime + 2.75% for terms of 7yrs

or more

SBA Loan Interest Rates

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2% for loans of $150,000 or less 3% for loans over $150,000 to $700,000 3.5% for loans over $700,000 Guaranteed portion over $1,000,000:

$35,000 + 3.75% on guaranteed portion over $1 million

SBA Loan Fees

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Lender must be PLP Maximum loan $350,000 Lender applies for 50% loan guaranty Lender handles approval and issuance

SBA Express

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Loans up to $500,000 by lender approved for SBA Express (PLP)

Lender applies for 85% guaranty for loans of $150,000 or less

Lender applies for 75% guaranty for loans over $150,000 up to $500,000

Interest rates same as 7(a) loans Lender handles approval and issuance

Patriot Express

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Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital)

Loan backed by a debenture sold to investors

Maximum debenture: ◦ $1.5 million for business that create certain

number of jobs or improve the economy of the locality

◦ $2 million for businesses meeting a specific public policy goal

◦ $4 million for manufacturers

504 Loan Program

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Temporary program allowing for refinance of existing real estate debt

Loan must have maturity or balloon before Dec. 31, 2012

Borrower must work with SBA approved CDC and third party lender

504 Refinance Loan Program

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Draft a business plan Prepare loan proposal (SBTDC assistance) Present loan proposal to lender Lender reviews and forwards applications to

SBA Processing Center (Hazard or Citrus Heights) for consideration

How do I apply?

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Repayment Ability Management Ability Equity Position Collateral

SBA Loans: How do I Qualify

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SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations.◦ Cash Flow◦ Working Capital

Repayment Ability

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Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt.

Projections will be compared to industry standards and demographics will be considered.

Repayment Ability: Cash Flow

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Start-up Expenses Accounts Receivable Contingencies & Emergencies

◦ Rule of Thumb: 3 months fixed expenses

Repayment Ability: Working Capital

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Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management.

Management Ability

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SBA does not approve 100% funding requests.

Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk.

Equity Position

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SBA will not decline a loan ONLY due to a lack of collateral.

To protect taxpayer dollars, loans must be secured as fully as possible.

Collateral

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TERMS TERMS TERMS

Advantages of SBA Loans

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No pre-payment penalty on loans with maturity of less than 15 years

No balloons Patient partners Relaxed credit requirements Flexible loan terms

Other Advantages

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U.S. Department of Agriculture◦ Business & Industry Guaranteed Loans◦ Rural Economic Development Loans◦ Farm Loans◦ Export Financing

http://www.rurdev.usga.govhttp://www.usda.gov

U.S. Department of Agriculture

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Administered through Arkansas Department of Rural Services

Funded by U.S. Department of Commerce 8 districts in Arkansas Revolving loan funds focus on job creation 1 job for each $15,000 loaned Equity requirement is 10% Emphasis on businesses owned by minorities and

women www.arkansas.gov/drs/projects.html

Planning and Development Districts

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Economic Development Programs

◦ Beginning Farmer Loan Program

◦ Capital Access Program

◦ Disadvantaged Business Enterprise Program

◦ Farm Mediation Program

◦ Industrial Development Bond Guaranty Program

◦ Tourism Development Loan Program

www.state.ar.us/adfa/

Arkansas DevelopmentFinance Authority

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Sources of Financing

Alternative Lending

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Specialty Programs

• Boefly• www.boefly.com

• Southern Bancorp Capital Partners• www.banksouthern.com

• Arkansas Economic Development Commission• www.arkansasedc.com

• TAB Bank-Transportation and equipment financing• https://www.tabbank.com/business.jsp

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• Financing Ozarks Rural Growth & Economy(FORGE

• www.forgeonline.com

• Hope Enterprise Corporation• www.hope-ec.org

• BORSA plans-utilizing retirement funds to fund a new business venture or purchase

• Individual Development Accounts-starting or expanding a business• http://www.southerngoodfaithfund.org

Specialty Programs

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Funding areas Medical Dental Veterinary Optometry

Lenders Newtek Financial Services (SBA Preferred Lender) Bank of America Small Practice Solutions Wells Fargo Practice Finance

Medical and Professionals

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Alt Consulting

Arkansas Baptist College

Kiva

Accion

Opportunity Fund

Sam’s Club

Microlenders($100-$50,000)

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SBA SDB Certification Disaster Loans

Other SBA Assistance

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National certification program to certify socially and economically disadvantaged businesses to help secure government contracts for goods and services.

Recognized by state, federal, and local governments and prime contractors

SBA Contact: Wanda May 501.324.7379

Small Disadvantaged Business Certification

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Physical disaster loans Economic injury disaster loans SBA Contact: Fort Worth Disaster Office

800.366.6303

Disaster Loans

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Draft business plan Complete pre-application loan worksheets Gather requested information Schedule appointment (870.972.3517)

◦ Robert Bahn, Business Consultant◦ Laura Miller, Lead Business Consultant◦ Herb Lawrence, Center Director

The Next Step

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ASU Delta Center for Economic Development319 University Loop West

Jonesboro, AR 72401Or P.O. Box 2650 State University, AR 72467

(870) 972-3517

http://www.astate.edu/a/business/sbtdc/Blog: http://www.asbtdc-asu.com

http://www.Facebook.com/asu.sbtdchttp://www.twitter.com/asbtdc_asu

Email us: [email protected]© ASBTDC 2012 All Rights Reserved