financing for a small business hudson library & historical society february 11 th, 2013...

Financing for a Small BusinessFinancing for a Small Business

Hudson Library & Historical SocietyHudson Library & Historical Society

February 11February 11thth, 2013, 2013

Presented By:Presented By:

Jon Novak, PNC Business Banking OfficerJon Novak, PNC Business Banking Officer

Lisa O. Rucker, PNC VP SBA Business Development OfficerLisa O. Rucker, PNC VP SBA Business Development Officer

PNC BUSINESS BANKING SOLUTIONS 2

Introduction to PNC

Cash Flow: Quick Points

Lending to Small Businesses - What Bank’s Look At

Lending to Small Businesses - Underwriting

PNC Conventional Loan Products

SBA

SBA Documentation and Key Factors

Resources

Q & A

Overview of Today’s Presentation

PNC BUSINESS BANKING SOLUTIONS

PNC Financial Services Group, Inc. is a highly diversified and growing financial services organization.

Ranked among top small business lenders

One of the top 10 bank wealth managers according to Barron’s

Grow Up Great – A $350 Million multi-year initiative started in 2004

One of the largest banks in the United States based on deposits and branches

Approximately 57,000 Employees in the U.S. and abroad

Approximately 6.5 million checking account customers

Approximately 2,900 branches in 19 states & the District of Columbia with close to 7,300 ATM’s

Introduction to PNC


Introduction to PNC

Awards and Recognition

Most admired Companies. Fortune magazine (2012)

Fortune 200 company – No. 165 on Fortune 500 listing (2012)

One of the World’s Strongest Banks, Bloomberg Markets magazine (2012)

Great Workplace Award for Employment Engagement, Gallup (2012)


ICE BREAKER…….

What business do you own or plan on starting?

What do you hope to learn or take away from this presentation?


Why are we here?

Most business owners, or those that would like to start a business, do not focus on the current banking environment. You are not supposed to be an expert in banking but rather an expert in your respective field. That is the roll that we

take as business bankers. We help in all aspects of cash flow including credit.

Think of us as a business partner.


Cash Flow: Quick Points

Online Banking Pinacle Express Select - modules

ACH Debit Deposit Now Merchant Services

ACH Credit Business Credit Card Wires-out (web/verbal)

ECR – Earning Credits Sweeps PNCi

Wires-in Lockbox

Speed up receivables, slow down payables; take control of your cash flow and prevent fraud!


Credit: What Banks Look At

Start-Up Businesses• What’s the plan? A thorough and thought-out business plan.

• What we’d like to see in a start-up business plan:

• Time in industry/related business (non-compete?)

• Competitive advantage and how success will be obtained

• Realistic costs and first 2-3 years expected return

• Fancy binders don’t help

• Liquidity. After you’ve paid to finance the start-up, what type of reserve will you have? Is this enough to sustain anticipated growing pains?

• Collateral?

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Credit: What Banks Look At

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In Business 2+Yrs.• Three Years Business Tax Returns

• Is there a trend? If it is positive or negative, what has created it and what is being done to correct or sustain?

• Expected sales and margins for following fiscal year?

• Anticipated future borrowing needs?

• What will the money be used for?

• Two Years Personal Tax Returns of Principal Owners

• Personal Financial Statement of each Guarantor

• Collateral?


Underwriting

• Industry Risk

• Global Debt Service Coverage

• Business + Personal Debt Service. Personal income is discounted to compensate for ‘normal’ living expenses

• Business must support current and proposed debt

• Difficult to measure with start-up; need supporting factors to decision

• Loan to Value (LTV). Is the request within bank/regulative guidelines?

• Does the request make sense? Is it the correct facility to accommodate both the client and the bank?

• Relationship with Bank

• 4 C’s of Underwriting: Collateral, Character, Credit, Cash Flow

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Conventional Loans

Turn for Current PNC Loan Options – Term Credit Products ≤ $3 Million


What loans are available?Product

TypePurpose Loan Size Pricing Collateral/

GuaranteesTerms

Unsecured Term Loan

Short-Medium Term Financing for General

Business Purposes

$5,000 –$100,000

• Fixed or Variable Rate, Prime Based

•Origination Fee

•Unsecured

•Required for All Principals12 to 48 Months

Secured Business Term Loan

Medium Term Financing for Fixed Asset Purchases (i.e.

equipment, improvements)

$10,000 – $3,000,000

•Fixed or Variable Rate, Prime Based

•Origination Fee

•Business or Personal Assets (AR, Inventory, Equipment, Liquid Assets)

•Required for all Principals

24 to 84 Months

Business Equity Installment Loan

Long-TermFinancing Needs

$10,000 –$3,000,000

•Fixed rate, rates typically lover than other term loans •Origination Fee. Third party costs

•Secured by 1st or 2nd (PNC in first position) mortgage on Residential Real Estate (Primary Residence) or Owner-User Commercial Property requires 1st Lien.

•Required for all Principles

Up to 240 months for

residential real estate; up to 120

months for owner/user CRE

Commercial Mortgage

Purchase/Refinance Owner Occupied

Commercial Property

$50,000 –$3,000,000

•Fixed Rate

•Origination Fee. Third party costs

•1st Mortgage on owner-occupied commercial property; Investment Property requires 1st lien.

•Required for All Principles

≤$100,000 - 10 year term fully amortized> $100,000 5 and 10 year options with maximum 25 year amortization

Business Vehicle Loan

Purchase Business Use Vehicle

$10,000 – $250,000

•Fixed Rate Pricing •Secured by Titled Vehicle•Financing of New & Used Autos/Trucks

•Required for all Principles

12 to 60 Months


Conventional Lines of Credit

Please Turn for Current PNC LOC Options – Revolving Credit Products ≤ $3 Million


Product Type Purpose Loan Size Pricing Collateral / Guarantees

Terms

PNC Visa Products•Visa Business•Points Visa Business•Travel Rewards Visa Business•Business Options

•T&E•Vendor/Supplier Purchases•Small Working Capital Needs•Optional Overdraft Protection

$1,000 - $50,000

Current Options Cap: $250,000

•Variable Rate •No Annual Fee•Best in Class Rewards Program

•Options Card; Annual fee waived based on activity

•Unsecured

•Personal Guarantee for the owner/signer

•Employees are not liable

Demand Revolving

Unsecured Line of Credit

Short term financing for growth in Current (Short Term) Assets; Seasonal Needs; General Business Purposes: Optional Overdraft Protection

$5,000 - $100,000

•Variable rate, Prime based, risk-based•Annual fee due first billing cycle. May be waived/discounted based on checking type•Auto Payment from PNC Bank deposit account required

•Unsecured


Stated Maturity; Payment amount is 1.5% of the balance;

Reviewed every 12 months

Secured Business Line of Credit

Short term financing for growth in Current (Short Term) Assets; Seasonal Needs; General Business Purposes: Optional Overdraft Protection

$100,001 - $3,000,000


•Business or Personal Assets (AR, Inventory, Equipment, Liquid Assets)


Interest only payments monthly;

Reviewed every 12 months

Business Equity Line of Credit

Financing for General Business Purposes; Optional Overdraft Protection

$10,000 - $3,000,000


•Secured by 1st or 2nd mortgage on Residential Real Estate or Owner-User Commercial Property; Investment Property requires 1st lien. •Required for all Principals

7 year revolving term (interest only), followed by 10 year term of equal principle and interest payments

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PNC’s SBA Finance Group


Leading the Way Along Your Journey

PNC Bank’s SBA Finance Group has a history of solving tough financial challenges for thousands of businesses. We understand that our ability to deliver helps you manage your business effectively. Over time, you will see what sets PNC’s SBA Finance Group apart:

Reliable SBA Lender that has the ability to work through and structure difficult loan requests

Rapid loan decisions by an underwriting team that specializes in only SBA transactions

Responsive closing team that takes pride in assisting customers right up to the day of closing

Innovative financing strategies and overall Full Service Business Banking solutions backed by the 5th largest depository institution in the country

14th largest SBA 504 lender in the nation closing 51 loans for $40.3 million


Provide a single point of contact.

Coordinate a team of experienced specialists.

Identify appropriate solutions for your clients.

Keep you abreast of the programs that are relevant to your business

Bring in-depth knowledge of your industry.

Work to ensure high client satisfaction at all times.

• Be there as your personal SBA advisor

Dedicated, Local Team

As a Business Development Officer, I ensure a positive borrowing experience for you and your clients. My commitment to you will be to:

PNC Business

Development Officer

YourBusiness


The PNC Advantage

Why PNC?

The teamwork in PNC’s SBA Finance group results in precise solutions that the customer expects to meet their financing needs.

With experts in the SBA Finance Group, PNC understands the nuances of the program, while providing a high level of personalized service.

PNC delivers a consistent level of customer service - no empty promises.

Committed to developing new resources to make it easy to work with us and help accelerate your business objectives

One of the top SBA lenders in the nation, closing over $100 million in SBA 7(a) & 504 loans in FY 2012

The PNC Advantage.


Why go SBA?

The SBA program requires less equity injection than in a conventional loan

SBA terms are longer reducing monthly payments

SBA loans are available for industries that are considered a little more riskier for a conventional loan

SBA is an alternative to conventional financing when the borrower doesn’t have as much collateral to support the loan, but they have sufficient cash flow

SBA financing is available for approved franchise start-ups

SBA Financing vs. Conventional Financing


SBA 7(a)

Used for business acquisitions, expansions or franchise loan requests

51% owner/user occupied commercial real estate or improvements

Equipment, inventory or working capital

Injection typically between 15 – 20%

— 25% injection minimum for start-ups

— Commercial Real Estate between 10 – 20%

Loan amounts up to $5 million

Maturity depends on use of proceeds

No balloon payments

No prepayment penalty on maturities less than 15 years

SBA Products at a Glance


SBA 504

Used for major fixed asset financing such as commercial real estate, improvements, renovations, or equipment

Three party loan structure

—50% Lender

—40% Certified Development Company (CDC)

—10% borrower*

Rates vary based on use of proceeds

Maturities vary based on use of proceeds

Long term fixed rate and no balloon on CDC portion

*Equity injection may be greater than 10% in some cases



SBA Express

Largely used for Working Capital lines of credit

May be used for smaller term facility

Any loan amount not to exceed $350,000.00

Express loans can be done in conjunction with SBA 7(a)

Minimal SBA paperwork



Documentation & Key Factors

SBA


Profiles of companies that are typically best suited for SBA financing include:

Insufficient collateral to secure the loan on a discounted basis Erratic earnings but are well-managed and have a track record of financial

success Growing but have a debt/worth that slightly exceeds conventional guidance

but falls within SBA limits Wish to preserve capital through lower down payments Well capitalized but are looking to restructure their balance sheet to

increase cash flow Want or need a longer amortization beyond what conventional guidelines

will allow to meet satisfactory debt service requirements Industry and Business segments include (but are not limited to):

• Franchises with a well-established track record and/or appearing on the Franchise approved list

• Manufacturers with knowledgeable and successful management that are reasonably well-capitalized

• Professionals who are established with several years of operations and solid management

Profiles of Companies Suited for SBA Financing at PNC


Eligibility Guidelines at PNC for SBA loans

No bankruptcy in the last 10 years

Commercial real estate requires 51% of the building to be occupied by owner (60% if new construction)

The business operates for profit

The business is located in the PNC footprint

Customer has direct industry experience

Business has been in operation for at least two years (less than two qualifies as a start-up)

Company is not in a high risk industry

Customer can show they have 15-20% in liquid assets

Personal Credit Score

Maximum loan amount

• SBA Express: $350,000.00

• SBA 7(a): $5 million

• SBA 504: No max $ for total project ($5.5MM max for 40% CDC portion)

Eligibility Considerations for SBA at PNC


SBA Ineligible Use of Proceeds

There are certain restrictions on SBA loans, which cannot be used for these purposes:

To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing

To effect a partial change of business ownership or a change that will not benefit the business

To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business’s continuance until the loan supported by SBA is disbursed

To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow

For a non-sound business purpose


General credit considerations at PNC includes:

Customer must show sufficient cash flow to repay the proposed debt

• Target is 1.25x but SBA programs can mitigate down to 1.0x

Startups are considered on a select basis

Business acquisitions are entertained and are subject to a sensitivity analysis that reduces current income by ~15%, resulting in a higher DSC requirement

Financing for expansions should support a reasonable and well-defined purpose (e.g. purchase equipment, increase in permanent working capital, etc.)

Construction is acceptable with proper controls in place

Credit Considerations for SBA at PNC


SBA Loan Package

2 years of Federal Personal Tax Returns, including all schedules on all owners greater than 20%

Jointly prepared and signed PNC Personal Financial Statement by all owners greater than 20%

3 years of Federal Business Tax Returns, including all schedules (if business acquisition, seller must provide)

Balance Sheet and Income Statement not older than 90 days (if business acquisition, seller must provide)

Accounts Receivable and Accounts Payable aging as of same date as Balance Sheet and Income Statement (if business acquisition, seller must provide)

To speed up the loan approval process, the following are typical items that need to be collected from the borrower for loan submission:

Note: Other documentation may be requested by the business development officer or underwriter.


Resources:SCORE – www.akron.score.org

Cash Flow!?

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Akron SCORE Chapter 81 Facts

HQ : 175 S. Main St. Akron, OH 44308

Founded: 1965

Org. Type: Nonprofit association that is a resource partner with the U.S. Small Business Administration. Nationally, SCORE has more than 370 chapters with approx. 13,200 members.

Purpose: Dedicated to entrepreneur education and the formation, growth and success of small business through counseling and mentoring.

Services: Conducts workshops, face-to-face counseling and special outreach programs throughout it’s four-county service are (All services are free).

No. of Counselors: 70 veteran area executives and small business owners who donate their time and expertise to assist new and existing businesses.

Types of Workshops: Business Basics, Business Plan, Marketing, Customer Service, Financial Management, QuickBooks, Not for Profit and Resume Preparation, Simple Steps for Starting Your Business (five sessions).

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Questions?


Thank You!

• Jon Novak PNC Business Banking Officer:

• 330-375-8026

• [email protected]

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• Lisa Rucker PNC VP SBA Business Development Officer:

• 216-222-3435

• [email protected]

Thank you for your time!

If you have any questions after leaving tonight please do not hesitate to contact Jon or Lisa.

financing for a small business hudson library & historical society february 11 th, 2013...

Documents

pnc slide

business bankers

business owners

business partner

startup business plan

small business lenders

thoughtout business

industryrelated business