tips for a successful loan negotiation
Post on 15-Sep-2014
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Learn the various funding sources available, review pros and cons of each, determine which fits the client best, and learn to negotiate a good deal.TRANSCRIPT
Tips for Successful Loan Negotiation
hennesseycap.com
Toby DahmSenior Vice President Hennessey Capital
Over 25 years of experience in commercial lending
Traditional, workout, factoring and asset-based lending experience
Expertise in underwriting, portfolio management, marketing and product development
Former entrepreneur
Recognized and trusted expert – Automation Alley, Tech Town, etc.
Goals of this session
Understand the various funding sources available
Review pros and cons of each
Determine which fits the client best
Learn to negotiate a good deal
Seed CapitalAngel Investment
early stage equity investment
Financing Spectrum
Poll Question #1
For a company in the rapid growth stage of its business life cycle, which of the following sources of financing is the most appropriate?
a. Seed capital b. Asset based financingc. Conventional bank loan d. Equipment lease
The First Step
Business Plan
What value does your business provide? How does that translate into profits? Where are you in the business life cycle? What are your financing needs? What finance structure should you request?
Business Plan Assistance
Michigan Small Business Technology Development Centers (MI-SBTDC)
Mission is to support business growth 42 office throughout the state http://misbtdc.org
Poll Question #2
Preparing a business plan is a cost-prohibitive endeavor for a small business.
a. Trueb. False
Seed Capital Used for New Businesses to fund initial idea or prototype
Sources Include:• Friends and family• High net worth individuals• Company or organization• More patient investor, provides mentorship, co-investment opportunities, industry expertise, smaller investment.
Seed Capital Assistance
Tech Town First Step Fund
A partnership of the Invest Detroit Foundation, Tech Town, Ann Arbor Spark and Automation Alley
It is a revolving loan pool that provides funding up to $50,000 to support the development and growth of businesses in Southeast Michigan
http://www.investdetroit.com/managed-funds/first-step-fund
Seed Capital Assistance
Automation Alley
Has a pre-seed fund which offers qualified companies in competitive edge technologies funding of up to $250,000 as well as consulting services
The Alley also provides connection to other funding sources
www.automationalley.com
Seed Capital Assistance
Ann Arbor Spark
Provides consulting services & connections with seed capital funding sources for Ann Arbor-based firms.
www.annarborusa.org
Poll Question #3
Which of the following is NOT a source of seed capital to support the launch of a new business?
a. Tech Town First Step Fund b. Main Street Bank c. Automation Alley d. Ann Arbor Spark
Angel Investment
Investor(s) provide capital for a new business, usually in exchange for convertible debt or ownership equity
Funds used primarily for moving from concept to production Entrepreneurs need a business plan, compelling story and a convincing exit strategy
Angel Investment Assistance
Great Lakes Angels
Expressed resurgence under the leadership of David Weaver
www.glangels.weebly.com
Angel Investment Assistance
New Enterprise Forum
Provides consulting, including connection to funding sources. Not limited to Ann Arbor – they assist company throughout the Midwest.
www.newenterpriseforum.org
Angel Investment Assistance
Grand Angels
Provides consulting and investment in businesses in Michigan with a preference for those located in Kent, Ottawa and Muskegon counties.
www.grandangels.org
Poll Question #4
Angel investors prefer to maintain a low profile and invest alongside other angel investors.
a. Trueb. False
Factoring Used by business to business sales companies
Used by companies with limited track record or rapid growth
Advance 75% to 90% of invoice for immediate cash
Bridge A/R collection and A/P payment gap
Can be used in conjunction with current bank facility
This form of financing has been used since the 15th century to help businesses grow
Asset-Based Finance Asset-Based Line of Credit
Used by established B2B sales companies
Used to restructure current bank debt or as succession financing to factoring
Leverage asset classes to maximize cash-accounts receivable, inventory, machinery and equipment or real estate
Stepping stone to traditional bank relationship
Learn more at www.cfa.com
Equipment Finance How It Works
Asset-specific finance vehicle
True lease and capital leases
Leverages 100% of asset value
Ability to ‘bundle’ and finance the cost of related software and services
Flexible terms (step payments, end-of-lease options, etc.)
Equipment Finance
Best suited for companies with: • Multi-year track record• Demonstrable ability to pay out of cash flow (or guaranty)• Strong collateral value
Equipment finance has a low barrier to entry.
SBA Lending Available to all business stages • Start-up• Limited Track Record • Existing (2+ years)
Two typically used loan programs: 7a and 504 • 7a can be used for commercial real estate purchase/expansion/ground- up, equipment purchase, business acquisitions, debt refinance, working capital (no lines of credits) • 504 can be used only for commercial real estate purchase/expansion/ground-up and equipment
SBA loan sizes can start at $10,000
Conventional Bank Lending
Companies with established track record of sales and performance (at least 2 years)
Full relationship with multiple bank products in addition to loans
Lower rates and looser terms than earlier term financing
Long-term relationship
Poll Question #5
Which form of financing has the earliest origin?
a. Conventional bank loansb. Equipment leasing c. Venture capital d. Factoring
Poll Question #6
Due to the focus on the assets that provide the collateral to secure the loan, which of the business segments below would qualify for an asset based loan?
a. Service b. Distribution c. Manufacturing d. All of the above
Poll Question #7
If an entrepreneur has a bank loan, it will prohibit him/her from obtaining an asset based line of credit to fund growth financing needs.
a. Trueb. Falsec. Maybe
Preparation Financial Documentation
• Historic balance sheet and income statement (3 yrs).• Current period balance sheet and income statement.• Projections including cash flow and income statements. • Proforma balance sheet, if applicable.• Accounts receivable and accounts payable agings.• Contracts or purchase orders.• Customer list.• Personal financial statements and resume (s).• Inventory reports, building or equipment appraisals.• 2 years personal and business tax returns.
Communication Treat as personal and business interview.
Confident but not combative.
Describe opportunities and recognize challenges.
What else should the lender / investor know now that they will probably find out on their own?
If no, ask for advice and use as opportunity for next presentation.
Tips for Finding Funding #1 Understand the financing landscape and where your “ask” fits in the spectrum of players.
#2 Leverage professional advisors for mentoring and coaching.
#3 Be prepared and explain your needs and business in a concise but complete manner.
#4 If turned away, ask for direction and steps required for a “yes.” Don’t be defensive.
#5 Network, network and network.
Poll Question #8
In order to obtain the best possible financing, it is important to conceal business’s weaknesses to showcase the company in the most favorable light.
a. Trueb. False
Due Diligence
Due diligence is the verification of data submitted, for whatever source you are submitting it to.
Due Diligence Due diligence consists of: • Business in good standing • Personal credit • Business and personal litigation • Criminal background check • A review of any business liens • Personal and business references • Vetting of customer relationships and forecasts • Field examination • Appraisals • Review of important contracts • Discrete inquiries (non-supplied references)
Negotiating with Lenders/Investors What is most important to you?
Availability of funds?Cost? Freedom from restrictions? A trusting relationship?
Maintain Options
Negotiate with multiple parties Keep “Plan B” alive
Negotiating with Lenders/Investors Choose your battles wisely Fight for what is most important Don’t’ create hypothetical “horribles” Empathize with the other party Make a business case to support your stance
Settle when possible
Recognize the value of a bird in hand Can you adjust to make the agreement work? Will your partner re-visit the issue and what will change their position?