lending 101 201

Getting your Lender to Say Yes!Getting your Lender to Say Yes!

Felix Ngoussou, Innovative Business Advisor

www.iredo.org

Felix Ngoussou, Innovative Business Advisor

www.iredo.org

Best ways to impress your LenderBest ways to impress your Lender

[email protected]@iredo.org

Business Loan ApplicationBusiness Loan Application

A- Use and Amount of Loan ProceedsA- Use and Amount of Loan Proceeds

1- Working Capital Needs 1- Working Capital Needs 2- Inventory Needs 2- Inventory Needs 3- Fixed Asset Purchase 3- Fixed Asset Purchase 4- Lease Improvements 4- Lease Improvements 5- Etc…..5- Etc…..

B- Repayment SourcesB- Repayment Sources1- Primary 1- Primary 2-Secondary 2-Secondary 3-Tertiary 3-Tertiary


Description of your BusinessDescription of your Business

Type and Ownership of the businessType and Ownership of the business• SoleSole• LLCLLC• C/S CorporationC/S Corporation

How the Business was startedHow the Business was started::• How?How?• Who has responsibility for operationsWho has responsibility for operations• Copies of business license, Copies of business license, • Corporation Resolution ,Corporation Resolution ,• Articles of incorporation, orArticles of incorporation, or• Partnership AgreementsPartnership Agreements


Key Management PersonnelKey Management Personnel

Describe Management ExperienceDescribe Management Experience Attached ResumesAttached Resumes Attached any franchise or other business Attached any franchise or other business

training programstraining programs Provide your potential succession planProvide your potential succession plan


Market Place InformationMarket Place Information

A- What I should Know?A- What I should Know?•What is your product or Service?What is your product or Service?•Who are your Customers?Who are your Customers?•Who is the competition?Who is the competition?•What is the strategy to improve your market What is the strategy to improve your market position?position?B- Why Should I believe you?B- Why Should I believe you?•FactsFacts•FiguresFigures•NamesNames•Where possible?Where possible?


Secure your LoanSecure your LoanA-Collateral•Business Assets with Dollar values•Personal Assets with Dollar ValuesB- Personal Financial Information•Last three years of personal signed IRS Tax returnsC- Business Financial History•Three years of historical financial information•Most recent interim year financial statement not more than 90 days old•Last three years of signed Business Tax Return•Aging of Accounts payable, Accounts Receivable and Taxes payable as of the most recent statement


Financial Projections

12 month projected Income Statement if your business generate Accounts Receivable

12 month projected Cash Flow statement Projected Balance Sheet including the

proposed loan. Please DO NOT FORGET to attach a copy

of your Lease Agreement if applicable


Collateral: What you should Collateral: What you should Know about Personal AssetsKnow about Personal AssetsType Advance Percentage

Cash 100%

Stock/Bonds 50-66%

Vehicles (Non Commercial) 75% of the Blue Book Value

REAL ESTATE Example

Assessed Value (Appraised) $250,000

Discounted (Potential Liquidation Value 75%)

$250,000*0.75= $187,500

Less First Deed of Trust (150,000) What you have to pay to your bank

Equity = $187,000- $150,000= $37,000

Can you be denied? NOT ONLY [email protected]@iredo.org

Collateral: What you Collateral: What you should know about should know about Business Assets?Business Assets?Type Typical Advance %

(SBA)Traditional Banks %

Accounts Receivable 20% 75%

Line of Credit Up to 80% N/A

Inventory 20% 0%-50%

Machinery and Equipment 50% Up to 75%

Leasehold Improvements 5% 0%-10%

Commercial Real Estate 80% Up to 75%

504 Program Up to 90% Varies on program

Unimproved Land 50% 0%-50%

Furniture and Fixtures 10% 0%-10%

Residential Real Estate 80% Varies on program


Personal Monthly Personal Monthly Debt-To-Income RatioDebt-To-Income Ratio

Debt –To-Income Ratio = { [Gross Monthly Debt Payments]/ [Gross Monthly Income]}Debt –To-Income Ratio = { [Gross Monthly Debt Payments]/ [Gross Monthly Income]}

Gross Monthly Debt Payments comprised of:•Mortgage/Rent•Vehicle Loan•Credit Card payments•Any other Fixed Monthly Obligations

Gross Monthly Debt Payments comprised of:•Mortgage/Rent•Vehicle Loan•Credit Card payments•Any other Fixed Monthly Obligations

Gross Monthly Income comprised of:•Salaries/Wages•Rental Income•Interest/Dividend Income•Any other Income

Monthly Debt-To-Income Ratio Maximum: 35%-40%Monthly Debt-To-Income Ratio Maximum: 35%-40%


Business Financial MeasuresBusiness Financial Measures Liquidity Measures

Defined as the company’s ability to repay current Liabilities with Current assets quantifiable through:

WORKING CAPITAL = Current Assets – Current LiabilitiesWORKING CAPITAL = Current Assets – Current Liabilities LeverageDefined as Debt-To-Equity Ratio:

Debt-To-Equity Ratio = Total Liabilities / Total EquityDebt-To-Equity Ratio = Total Liabilities / Total Equity

Start UpsStart Ups: 2.00 to 1.00 to qualify for most SBA guaranty : 2.00 to 1.00 to qualify for most SBA guaranty programs unless the loan amount is under $100,000programs unless the loan amount is under $100,000

Purchase of Existing businesses: can be up to 3.00 to Purchase of Existing businesses: can be up to 3.00 to 1.001.00

Existing Business Acquisition: 3.00 to 4.00:1.00 Existing Business Acquisition: 3.00 to 4.00:1.00 depending on the industry.depending on the industry.


Business Financial Business Financial Measures-EquityMeasures-Equity

Equity Equity Includes:Includes: A- Sole ProprietorshipA- Sole Proprietorship: : Owner Equity/Contribution Retained Owner Equity/Contribution Retained

EarningEarning

B- Partnership:B- Partnership: Partner Equity/Contribution Retained Partner Equity/Contribution Retained

EarningEarning

C- Corporation:C- Corporation: Common Stock/Paid in Capital/ Retained Common Stock/Paid in Capital/ Retained

EarningEarning


Business Financial Measures:Business Financial Measures:Cash Flow & Debt Coverage Cash Flow & Debt Coverage

RatioRatio

Cash-FlowCash-Flow : : Net Profit or Net LossNet Profit or Net Loss + Depreciation Expense+ Depreciation Expense + Interest Expense+ Interest Expense + Amortization Expense+ Amortization Expense = Traditional Cash Flow= Traditional Cash Flow Debt Coverage Ratio:Debt Coverage Ratio: Traditional Cash-FlowTraditional Cash-Flow Amount of the Loan PaymentAmount of the Loan PaymentTYPICALLY NEEDs TO BE 1.25:1.00TYPICALLY NEEDs TO BE 1.25:1.00


Income Statement/Cash Flow Income Statement/Cash Flow Projections Projections

Projected Income Statement:• Assumptions regarding Sales/Revenues• Assumptions regarding Costs of Good Sold (if the

company is inventory based)• Assumptions regarding Operating Expenses (Equally

distributed over the 12 month period)

Projected Cash Flow:• Assumptions regarding the collection of Sales/Revenues• Assumptions regarding Accounts Receivable (Provide

timing assumptions regarding the collection period)• Assumptions regarding Operating Expenses


THANK YOU

By Felix Ngoussou, InnovativeBusiness Advisor

[email protected]

By Felix Ngoussou, InnovativeBusiness Advisor

[email protected]


APPROACHING YOUR LENDERAPPROACHING YOUR LENDERWith ConfidenceWith Confidence

Lending 201Lending 201

By Felix NgoussouBy Felix Ngoussou


Approaching your Lender about BUSINESS LOANS?

Make advance appointment with Make advance appointment with Business Loan officer.Business Loan officer.

Be prepared with a written business plan Be prepared with a written business plan that includes total cost of project with a that includes total cost of project with a breakout of what $$ are expected to be breakout of what $$ are expected to be borrowed and what $$ are expected to be borrowed and what $$ are expected to be injected by you as the owner!injected by you as the owner!


EXPECT FROM A LENDER?

A commitment from the lender to review the A commitment from the lender to review the business plan by a specified date business plan by a specified date oror an up- an up-front explanation of why that lender does not front explanation of why that lender does not want to do that type of loan. want to do that type of loan.

Expect the lender to ask for your SSN and a Expect the lender to ask for your SSN and a copy of your ID so they can authorize a credit copy of your ID so they can authorize a credit report .report .

Expect to receive from the lender their Expect to receive from the lender their institution Loan Application, list of required institution Loan Application, list of required documentation and SBA paperworks to fill outdocumentation and SBA paperworks to fill out


NEGOTIATION ITEMS & LENDER DISCLOSURE

Interest rateInterest rate Term of loanTerm of loan Who will personally guaranty loanWho will personally guaranty loan What fees will be chargedWhat fees will be charged Time frame range in expecting an answer “YES Time frame range in expecting an answer “YES

or NO” and time frame to expect on or NO” and time frame to expect on disbursement of fundsdisbursement of funds

Other services lender can provide Other services lender can provide


WHY DOES A LENDER SAY “YES”?

Likes balance of credit factors – strengths outweigh weaknesses

Lender’s institution has favorable experience with that industry

Your credit risk fits in with lender’s target portfolio Your Cash Flow shows you can pay back the loan Your Debt-To-Income Ratio is acceptable All your 5 Cs ( Character, Capacity, Collateral,

Cash Flow, and Capital) look good or are acceptable

Lending officer is willing to be your advocate in loan committee


WHY DOES A LENDER SAY “NO”?

Weaknesses of individual deal outweigh strengths in areas such as:• Sales volume is optimistic or expenses are

underestimated or industry in turmoil• Management has no direct experience • Lender risk too high in loan amount

compared to applicant’s injection – D/E• Credit or character history is marginal or

poor• Collateral offered doesn’t offset other risks

Lender’s institution has unfavorable experience with that industry


TIPS FOR FINANCIAL TIPS FOR FINANCIAL PREPARATIONPREPARATION

FIRST be prepared-• Asking for $$ before plan is in place is likely

to create poor first impression with lender - you only get one chance to make a good first impression!

Understand the loan process and consider how their application will be compared to their peers!

You need to establish time frame for decision making that is realistic and decide if lender can meet those needs..


THANK YOUTHANK YOU

LET’S HELP YOU GROW YOUR LET’S HELP YOU GROW YOUR BUSINESSBUSINESS


lending 101 201

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