What You Need Before You Go to the Bank October 19-20, 2006 Jeff Walker Earl Stanfield.

What You Need Before You Go to the Bank

October 19-20, 2006

Jeff Walker

Earl Stanfield

Gather Information

– Pay stubs (1 month period)– Signed income tax returns (2 or 3 yrs.)– Bank statements (2 months)– Purchase contract– Construction contract/plans– Copy of deed– Business plan (start-up or transfer)

Business Plan

The “road map” for the business. Tells where you want to go and what you need to do to get there.

Business Plan

• If your idea is feasible

• How much the venture will cost to start

• How much volume you will need to do to stay in business

• What legal structure is best for your situation

Business Plan

Key Elements:

• Business Description

• Market Description & Analysis

• Operations Plan

• Financial Information & Analysis

• Appendix (Supporting Information)

Business Description

• Business location

• Owners

• Legal form of business

• History and/or start date

• Recent sales and profit figures

• Classification of business

• Business advisors

Market Description & Analysis

• Product or service• Target market• Market research & strategy• Competitive analysis• Pricing strategy• Promotional strategy• Distribution• Location synopsis

Operations Plan

• Logistics

• Suppliers

• Operating regulations

• Human resources

• Risks, problems, & future plans

Financial Information & Analysis

• Financial statements (last 3 yrs.)

• Interim financial statements (YTD)

• List of all notes & leases payable

• Personal financial statements

• Pro forma statements (projections)

• Break-even analysis

Evaluate Your Credit

• Credit bureaus–Equifax (800) 685-1111

–Experian (888) 397-3742

–TransUnion (800) 888-4213

• www.AnnualCreditReport.com

What’s in Your Credit Report

• Identifying information• Trade lines–Mortgage– Installment– Revolving

• Inquiries• Public record & collection items

How Scoring Works

• Your score is your “FICO” score

• Range is 300 to 850

• No one “score cutoff”

What a FICO Score Considers

• Payment history (35%)

• Amounts owed (30%)

• Length of credit history (15%)

• New credit (10%)

• Types of credit in use (10%)

Tips for Raising Your Score

• Pay your bills on time• Keep balances low in relation to credit

limits on revolving credit accounts• Avoid opening a lot of new accounts too

rapidly• Do your rate shopping for a given auto or

mortgage loan within a focused period of time

What the Lender Considers

5 C’s of Credit

ConditionsCharacterCapitalCapacityCollateral

Conditions

• Amount & purpose of loan

• Terms/structure of loan

• Environment/industry considerations

• Operational assessment

• Other lending relationships

Character

• Identification of legal structure• Evaluation of honesty & integrity• Assessment of management ability– Production–Marketing– Financial

• Assessment of credit history

Capital

• Liquidity–Working capital– Current ratio

• Solvency– Equity ratio– Debt-to-asset ratio

• Trend• Comparison to peers

Capacity

• Profitability• Cash flow• Reliability of source(s) of repayment– Primary– Secondary

• Capital replacement needs & family living expenses

• Comparison to peers

Collateral

• Loan-to-value relationship

• Liquidity

• Degree of specialization

• Stability of value

• Durability

• Environmental concerns

Business Entity Options

• Sole proprietorship• Partnership– General– Limited

• Limited Liability Company (LLC)• Corporations– S Corp.– C Corp.

Key Documents Needed for Formation

Sole Proprietorship–DBA filing

Key Documents Needed for Formation

Partnership–Partnership agreement

Key Documents Needed for Formation

Limited Liability Company–Articles of Organization

–Operating Agreement

Key Documents Needed for Formation

Corporations– Articles of Incorporation– Bylaws– Organizational Board– Resolutions to Borrow– Stock Certificates– Stock Ledger

In Review

• Gather & organize your information

• Get your credit standing in order

• Satisfy legal entity requirements