Business Financing Options Workshop Batesville July

Business Financing
Basics

ASU 052112 © ASBTDC 2012 All Rights Reserved

 Training
◦ Classes for new ventures and existing businesses
◦ Special conferences

 Research
◦ Sample business plans/Industry start-up guides

 Consulting
◦ One-on-one advisory services

 Web Site: http://asbtdc.ualr.edu
◦ BizFact documents and on-line consulting tools
◦ E-news service: Biz Bytes & Tech Track

© ASBTDC 2012 All Rights Reserved

 Know what financial information is vital to operating your
business

 Know exactly where you stand at all times

 Understand the difference between profit and cash flow

 How does my banker interpret my financial statements and
my credit report

 How your credit report can affect your ability to operate your
business


 Foundation Documents
 Transaction Journals
 General Ledger
 Trail Balance
 Adjusted Trial Balance
 Financial Statements
◦ Income Statement
◦ Statement of Owners’ Equity
◦ Balance Sheet


Understand the difference between profit and cash flow?
Never, never, ever, ever, run out of cash!

 Cash flow and profit are different. Cash flow is the money that flows
in and out of the firm from operations, financing activities, and
investing activities. Net income is what remains from sales revenue
after all the firm's expenses are subtracted.

 Cash flow is actually more important for the small business owner to
focus on than profit. Companies can make a profit but still have a
negative cash flow and not be able to pay their bills. Not recognizing
this difference is one of the biggest mistakes a small business owner
can make.


 YOUR CREDIT REPORT IS IMPORTANT!
 Your credit record affects all financial
transactions
 Review your credit report and know your credit
score
 How is my credit score calculated?
 The banker relies on your credit history


 Your credit report is a compilation of your payment
habits and usage of credit over time
 Monitor it for suspicious activity i.e. identity theft
 Get a free copy of your report once every 12 months
from the major credit-reporting agencies:
 Equifax
 TransUnion
 Experian
 AnnualCreditReport.com
 Federal Trade Commission (ftc.gov/credit)


 Private investment
 Grants
 Conventional financing
 Government-backed programs
 Alternative lending programs


Private Investment


 Owners Equity is the contribution of capital and
other assets

 Angel investors provide capital for a percentage
of ownership

 Venture capitalists provide capital and exercise
control over company operations


 Savings Accounts
 Relatives or Friends
 Credit Cards
 Second Mortgage
 Retirement Plans

Grant Resources


 Myth #1: It is easy to get a small business grant

 Myth #2: Grants are available for any type of
business

 Myth #3: There are special government grants for
women and minorities to start businesses

 Myth #4: The government tries to keep grants a
secret


 Recipients are typically nonprofit organizations

 Grants are for industry-specific and R & D
purposes

 Grant sources are plentiful but locating them is
difficult

 Obtaining grants is highly competitive

 The ASBTDC and the SBA do not provide grants


 Available in print or on the Internet
 Updated twice a year
 Deals with all types of federal government
assistance
 www.cfda.gov


 SBIR & STTR  SBIR Only
◦ Dept. of Defense ◦ Dept. of Agriculture
◦ Health and Human ◦ Environmental Protection
Services (National Inst. Agency
Of Health; Centers for ◦ Dept. of Transportation
Disease Control; FDA) ◦ Dept. of Education
◦ National Science ◦ Dept. of Homeland
Foundation Security
◦ Dept. of Energy ◦ Dept. of Commerce
◦ NASA (NOAA, NIST)


 Grants for science and energy related research
projects

 Agency solicitation notices

 Competitive proposals required

http://science.doe.gov/grants/index.asp


 Technology Grants
◦ Technology Transfer Assistance Grants (TTAG)
◦ Technology Development Program (TDP)
◦ Seed Capital Investment Program (SCIP)

 Research & Development Tax Credit Program
◦ Allows credits against a taxpayer's Arkansas state
income tax for making certain qualified research
expenditures

www.asta.arkansas.gov


Better Beginnings Incentive Grants
 Division of Child Care and Early Childhood
Education
◦ Staffing and retention expenses
◦ Training materials
◦ Management software
◦ CPR/American Red Cross training

 CDA Scholarships
 http://www.arbetterbeginnings.com


IDA (Individual Deposit Account) Program
 Matches savings 3:1 to maximum of $2,000-
$4,000

 Opening or expanding small business one of three
approved uses

 Applicants must reside in service area and meet
income guidelines

http://www.cadc.com


IDA (Individual Deposit Account) Program

 Works with IDA Programs throughout Arkansas

 Terms are same as CAPD’s

 For a list of program offices, contact

http://www.southerngff.org


The Foundation Center
◦ The Foundation Directory
Online database at http://foundationcenter.org
◦ National Directory of Corporate Giving
 Investigate the Foundation
◦ Their Purpose
◦ Types of Awards Typically Made
◦ Eligibility
 Examine Application Requirements


Conventional Financing


 Sack of money
 Low mark-up
 Deduct interest
 Payback over time in deflated dollars

What a Deal!

 Executive Summary
 Financing Proposal
 Company Description
 Industry Analysis
 Products and Services
 Market Analysis
 Organization and Management
 Operational Plan
 Financials


 Invested capital
 Trade financing
◦ Payables and receivables
 Short-Term financing
◦ Bank lines of credit
◦ Credit cards
◦ Factoring
 Long-term loans and leases
◦ Property, plant, and equipment


 The 5 Cs of Credit  The 12 Magic Numbers
◦ Conditions ◦ Liquidity
◦ Character ◦ Profitability
◦ Capacity ◦ Efficiency
◦ Capital ◦ Leverage
◦ Collateral


Government Backed Programs


 What is an SBA Loan?

 Credit Requirements

 Terms

 Interest Rate

www.sba.gov


 Takes forever to get money
 Requires a “ton” of paperwork
 Offers low interest rates
 Provides grants

 Real estate investments
 Other speculative activities
 Lending activities
 Not-for-profit ventures
 Pyramid sales or distribution businesses
 Illegal activities
 Religious indoctrination
 Activities of a sexual nature
 Businesses not open to the general public

 Businesses must meet SBA size standards to
qualify (maximums):
◦ Manufacturing: 500 to 1,500 employees
◦ Wholesaling: 100 employees
◦ Services: $7 to $35.5 million in average annual
receipts
◦ Retailing: $7 to $35.5 million average annual
receipts
◦ General Construction: $7 to $33.5 million
average annual receipts

http://www.sba.gov/content/summary-size-
standards-industry

 Borrowers on probation or parole
 Borrowers with serious criminal histories
 Borrowers that are 90 days or more
delinquent on other federal government
guaranteed loans
(FHA, VA, USDA, HUD, student loans, etc.)
 Borrowers of poor character

 Finance floor plan needs (specific program for that)
 Purchase real estate for investment purposes
 Disbursements to owners or principals
 Pay delinquent trust accounts (withholding or sales
tax)
 Refinance delinquent debt within a bank
 Acquisition of less than 100% of a business

 SBA loan proceeds can be used for most
business purposes including real
estate, buildings, equipment, inventory, worki
ng capital, and leasehold improvements

 7(a) Loan Guaranty Program
 SBA Express
 Patriot Express
 504 Loan Program
 MicroLoans

 SBA guarantees (insures) the loan, reducing
the risk to the lender.
 Borrower must secure a participating lender.
 No minimum loan size. Maximum loan size
is $5 million.

 25 years Real Estate
 10 years Equipment
 7 years Inventory, Accounts Receivable,
Working Capital

 Fixed or variable
 Maximum: Prime + 2.75% for terms of 7yrs or
more

 2% for loans of $150,000 or less
 3% for loans over $150,000 to $700,000
 3.5% for loans over $700,000
 Guaranteed portion over $1,000,000:
$35,000 + 3.75% on guaranteed portion over
$1 million

 Lender must be PLP
 Maximum loan $350,000
 Lender applies for 50% loan guaranty
 Lender handles approval and issuance

 Loans up to $500,000 by lender approved for SBA
Express (PLP)
 Lender applies for 85% guaranty for loans of
$150,000 or less
 Lender applies for 75% guaranty for loans over
$150,000 up to $500,000
 Interest rates same as 7(a) loans
 Lender handles approval and issuance

 Long-term, fixed rate financing for
acquisition and/or renovation of capital
assets including land, buildings and
equipment (no working capital)
 Loan backed by a debenture sold to
investors
 Maximum debenture:
◦ $1.5 million for business that create certain
number of jobs or improve the economy of the
locality
◦ $2 million for businesses meeting a specific
public policy goal
◦ $4 million for manufacturers

 Temporary program allowing for refinance of
existing real estate debt
 Loan must have maturity or balloon before
Dec. 31, 2012
 Borrower must work with SBA approved CDC
and third party lender

 Draft a business plan
 Prepare loan proposal (SBTDC assistance)
 Present loan proposal to lender
 Lender reviews and forwards applications to
SBA Processing Center (Hazard or Citrus
Heights) for consideration

 Repayment Ability
 Management Ability
 Equity Position
 Collateral

 SBA is a Repayment Lender, meaning their
primary concern is the ability to repay the
loan from business operations.
◦ Cash Flow
◦ Working Capital

 Historical financial statements and/or
projections must demonstrate that cash flow
is sufficient to service proposed level of debt.
 Projections will be compared to industry
standards and demographics will be
considered.

 Start-up Expenses
 Accounts Receivable
 Contingencies & Emergencies
◦ Rule of Thumb: 3 months fixed expenses

 Application must demonstrate that, through
education or experience, borrower is capable
of successfully operating the business or has
hired competent management.

 SBA does not approve 100% funding requests.
 Net worth of existing businesses and/or
borrower injection must establish a
reasonable equity position, reasonable being
determined by the risk.

 SBA will not decline a loan ONLY due to a lack
of collateral.
 To protect taxpayer dollars, loans must be
secured as fully as possible.

 TERMS
 TERMS
 TERMS

 No pre-payment penalty on loans with
maturity of less than 15 years
 No balloons
 Patient partners
 Relaxed credit requirements
 Flexible loan terms

 U.S. Department of Agriculture
◦ Business & Industry Guaranteed Loans
◦ Rural Economic Development Loans
◦ Farm Loans
◦ Export Financing

http://www.rurdev.usga.gov
http://www.usda.gov


 Administered through Arkansas Department of
Rural Services
 Funded by U.S. Department of Commerce
 8 districts in Arkansas
 Revolving loan funds focus on job creation
 1 job for each $15,000 loaned
 Equity requirement is 10%
 Emphasis on businesses owned by minorities and
women
www.arkansas.gov/drs/projects.html


Economic Development Programs
◦ Beginning Farmer Loan Program
◦ Capital Access Program
◦ Disadvantaged Business Enterprise Program
◦ Farm Mediation Program
◦ Industrial Development Bond Guaranty Program
◦ Tourism Development Loan Program
www.state.ar.us/adfa/

Alternative Lending


• Boefly
• www.boefly.com

• Southern Bancorp Capital Partners
• www.banksouthern.com

• Arkansas Economic Development Commission
• www.arkansasedc.com

• TAB Bank-Transportation and equipment financing
• https://www.tabbank.com/business.jsp


• Financing Ozarks Rural Growth & Economy
(FORGE
• www.forgeonline.com

• Hope Enterprise Corporation
• www.hope-ec.org

• BORSA plans-utilizing retirement funds to fund a new
business venture or purchase

• Individual Development Accounts-starting or expanding a
business
• http://www.southerngoodfaithfund.org


Funding areas
 Medical
 Dental
 Veterinary
 Optometry

Lenders
 Newtek Financial Services (SBA Preferred Lender)
 Bank of America Small Practice Solutions
 Wells Fargo Practice Finance


 Alt Consulting

 Arkansas Baptist College

 Kiva

 Accion

 Opportunity Fund

 Sam’s Club


 SBA SDB Certification
 Disaster Loans

 National certification program to certify
socially and economically disadvantaged
businesses to help secure government
contracts for goods and services.
 Recognized by state, federal, and local
governments and prime contractors
 SBA Contact: Wanda May 501.324.7379

 Physical disaster loans
 Economic injury disaster loans
 SBA Contact: Fort Worth Disaster Office
800.366.6303

 Draft business plan
 Complete pre-application loan worksheets
 Gather requested information
 Schedule appointment (870.972.3517)
◦ Robert Bahn, Business Consultant
◦ Laura Miller, Lead Business Consultant
◦ Herb Lawrence, Center Director

ASU Delta Center for Economic Development
319 University Loop West
Jonesboro, AR 72401
Or P.O. Box 2650 State University, AR 72467
(870) 972-3517

http://www.astate.edu/a/business/sbtdc/
Blog: http://www.asbtdc-asu.com
http://www.Facebook.com/asu.sbtdc
http://www.twitter.com/asbtdc_asu
Email us: asusbtdc@astate.edu

Business Financing Options Workshop Batesville July

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