Access to Capital presented by Webster Bank

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Access to Capital

Robert F. Polito Jr., SVPDirector of Government Guaranteed Lending

rpolito@ websterbank.com860-612-5433

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Agenda• Tips on Approaching a Bank

• General Bank Requirements

• Proper Use of Bank Capital

• Cash Cycle

• Business Plan

• Cash flow

• Collateral

• Personal credit

• Cash Injection

• SBA

• How Well Do You Know Your Banker?

• Optimism

• When Can We Close?

• Q&A

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Tips

Prepare an executive summary: Educate your banker. To be your advocate, your banker needs to know all about your business, including its history, ownership, business operations and industry. Many bankers are generalists. They know a little about many industries. Educating them on the specific of your business and market niche means they can knowledgeably advocate for your loan request, giving the bank and its underwriters the confidence they need to approve your loan request.

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Tips

Demonstrate adequate cash flow: In every case, a bank will analyze the business’s ability to repay the debt that has been requested. If the business can’t repay the debt based on historical financial statements, are there projections with underlying assumptions that indicate the ability to repay in the future? Are the assumptions reasonable and grounded in fact? Banks want to know you have adequate cash flow not only for day-to-day operations but also if you encounter a setback or unexpected expenses.

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Tips

Provide comprehensive financial documentation: A banker is impressed when a business can provide immediate documentation without delay. Repeated requests do not instill confidence that the business keeps timely and accurate reports. It’s also important to be able to explain the financials in a clear and compelling way that demonstrates a big-picture understanding of how the business functions. Being able to answer questions completely and precisely will impress the banker and give him or her confidence in your abilities.

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Tips

Articulate your business model: A banker is impressed when a business owner can articulate the business model, including how the business operates and makes a profit. For example, what is the typical timing of the operating cycle? Who are the customers? What is the sales process? How is billing handled? Is there something in the operations that is atypical or proprietary? What are the business’s future prospects short- and long-term?

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Tips

Know how you’ll use the funds: Believe it or not, some businesses apply for credit but don’t know how they’ll use the funds. Borrowers need to show exactly what the funds will be used for. Do you need a line of credit for short- term needs or is there a longer-term need?? If the need is short-term, what will is be used for? Payroll, inventory, lease payments? If the need is long-term, what needs to be paid immediately? Maybe there is a combination of s short- and long-term need. Your banker may make suggestions, but you must identify the initial use of funds.

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Tips

Get your personal credit in shape: A bad personal credit score can sink any loan request. It is best to pull the personal credit score of all owners of the business and have them available for the banker’s initial review. Everyone should pull their own credit report annually to review for any inaccuracies or even fraud. If a business owner’s credit score needs help, it’s best to work through the issues before submitting a loan request to a bank.

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General Bank Requirements

• Three years of personal tax returns• Three years of corporate tax returns• CPA-prepared financial statements• Interims• Projections (if needed)• Personal financial statement• Invoices, plans & specs, etc.

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Proper Use of Capital

Capital Structure:

Line of credit versus term loan

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Cash Cycle-Short Term

THINK CASH!

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Cash Cycle-Long Term

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Business Plan

A business plan provides goals, short & long-term. The only way to know if your business is achieving its objectives is to have a written set of pro forma financial statements (income statement, balance sheet, and cash flow statement) to compare against actual results. If your business is not meeting its numbers, then the best time to make changes is early on, before you run out of alternative options. A good written business plan establishes these objectives, so as a business owner, you know exactly where you stand. – Barbara Carellas

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Cash Flow

• #1 factor in granting a loan request• Can the business afford to repay?• Can the business afford to repay on a projected

basis?• Has revenue declined? • Margin decline?• How did management respond?• Is revenue diversified?• What is the expectation for the future?

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Collateral

• Short-term assets v. long-term assets• Discounting Values• Personal Guarantee• Pledge of Personal Assets

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Personal Credit

• Critical to a loan approval• Creditkarma.com• Annualcreditreport.com• Partner’s credit? Spouse’s credit?

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Cash Injection

• Skin in the Game• Down payment• Sources (the good/the bad)• Seller debt

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U.S. Small Business Administration

• What is small?• Temporary size standards• < $15 million in new worth• < $5 million in NPAT (2-yr avg). • 97% of U.S. businesses eligible

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U.S. Small Business Administration-7a

• 7a-Term debt– $5 million– Start-ups– Business Acquisition– Refinances– Machinery & equipment

• SBAExpress-LOC’s & Term• Patriot Express & Export Express

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U.S. Small Business Administration-504

• 504– $5.5 million– 90% financing, 10% down payment– Purchase M&E– Purchase commercial real estate – Owner-occupied– Refinances (new!)

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SBA Scenario

• Industry • Cash flow• Collateral• Asking open-ended questions; the bank interview

– Use of the Loan Proceeds– Need a longer loan amortization?– Need a lower down payment?– How has the economy impacted you?– Compared to 2008, how were business operations

for 2009 and 2010? Forecast for 2011 & 2012– Revenue and net earnings decline?– Working capital?

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How well do you know your banker?

• Do you have a banker? Every business needs a bank, but few have a banker. Find one who believes in you!

• Do they keep changing?• Do they understand your business, its needs and

future plans?• Have they visited your site? Invite them!• Does your banker know your lawyer or CPA?

(Host a luncheon meeting with all three)• Keep in touch. Ask your banker what he/she

thinks about an important topic: strategy, competition, sales, financial structure.

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Optimism?

• AMEX Open poll: 44% of those polled plan on capital investments in 2011and 35% plan on hiring.

• SBA budget intact through recent budget negotiations

• Energy prices• Recent terrorism gains• Gallup Small Business Survey: Financial Situation

– 58% noted “very or somewhat good”– 22% noted “very or somewhat poor”

• SBA loans up 200%, from $823 million in FY09 • SBA loans increased to $2.5 billion in YTD in FY11

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When Can We Close?

• Is the Business Plan prepared?• Are you investing cash, assets (your risk)?• Have you considered all sources of capital?• How is your banker? Is he/she listening?• Are you properly structured?• How is your personal credit?

• Questions!