1. Borrowing Money in 2010 (it’s a jungle out there) “ Success seems to be largely a matter of hanging on after others have let go.” - William Feather Sam Thacker 512-990-8756 Office [email_address]
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4. Chart that will make you dizzy! Number of SBA 7 (a) loans made in Central Texas (pop 1.5 mil) for federal FY 2009. Top four lenders. On the bottom, the largest bank in the U.S. made a total of 4 SMB SBA loans in Central Texas (a huge market for them) with an average loan of $36,250.
5. Three “C”s of Lending Character Collateral Capacity Is borrower’s character strong enough that repayment is reasonably assured? Is there enough collateral to support the loan the borrower is requesting? Does the company have sufficient cash flow / resources to repay the loan?
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14. Matching Assets with Loans Examples of Short-Term Assets Matched to Loan 1 year or no longer than contract term Contract Mobilization Match to A/R turn Accounts Receivable *varies Inventory
15. Matching Assets with Loans Examples of Long-Term Assets Matched to Loan 5-7 year loan or lease Furniture and Fixtures 5-7 year loan or lease Vehicles/trucks 5-15 years variable rate or lease Equipment (long life) 36 month lease Equipment (Computers) 15-30 year fixed rate Real estate
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18. Other SBA Loan Considerations Tip: While SBA loans are very good vehicles for financing long-term assets, the standard practice of SBA lenders is to file a “blanket” UCC-1 on all assets (including short-term assets). Only a small amount of an SBA loan can be used for working capital purposes, so if working capital is a strong need, negotiate the loan so accounts receivable and inventory are not included in SBA loan collateral before the loan is made.
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22. Cost of Working Capital Self-funded Bank LOC ABL Factoring 0% APR 8-12% 2.75% 11-14% 16+% Often unavailable Equity often used better for other purposes Depletes cash reserve Most appropriate for mature, slow growth businesses Low leverage of assets Usually has call provision “ knee jerk” reactions Easy to “evergreen” Must have strong historical financials Not for fast-growing businesses Borrowing base of A/R, Inv, Equip Often private lenders (non-regulated) Good for rapid growth Good for recapitalization Min size $750m consistent borrowing High leverage of A/R (avg 80%) Often private lenders (non-regulated) Excellent for rapid growth Can have losses, tax liens, neg. retained earnings $20,000-$3 million
23. The Cash Flow Cycle PURCHASES CASH INVENTORIES SALES RECEIVABLES
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29. Conclusion and Q & A For more information contact: Sam or Leslie Thacker BFS-USA Group LLC 512-990-8756 [email_address]