1. Access to Capital
Robert F. Polito Jr., SVP
Director of Government Guaranteed Lending
rpolito@ websterbank.com
860-612-5433
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2. 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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3. 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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4. 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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5. 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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6. 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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7. 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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8. 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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9. 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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10. Proper Use of Capital
Capital Structure:
Line of credit versus term loan
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11. Cash Cycle-Short Term
THINK CASH!
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12. Cash Cycle-Long Term
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13. 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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14. 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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15. Collateral
• Short-term assets v. long-term assets
• Discounting Values
• Personal Guarantee
• Pledge of Personal Assets
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16. Personal Credit
• Critical to a loan approval
• Creditkarma.com
• Annualcreditreport.com
• Partner’s credit? Spouse’s credit?
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17. Cash Injection
• Skin in the Game
• Down payment
• Sources (the good/the bad)
• Seller debt
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18. 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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19. 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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20. 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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21. 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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22. 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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23. 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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24. 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!
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