Lending 101 201

Getting your Lender to Say Yes!Getting your Lender to Say Yes!
Felix Ngoussou, Innovative Business Advisor
www.iredo.org
Felix Ngoussou, Innovative Business Advisor
www.iredo.org
Best ways to impress your LenderBest ways to impress your Lender
admin@iredo.orgadmin@iredo.org

Business Loan ApplicationBusiness Loan Application
A- Use and Amount of Loan ProceedsA- Use and Amount of Loan Proceeds
1- Working Capital Needs1- Working Capital Needs
2- Inventory Needs2- Inventory Needs
3- Fixed Asset Purchase3- Fixed Asset Purchase
4- Lease Improvements4- Lease Improvements
5- Etc…..5- Etc…..
B- Repayment SourcesB- Repayment Sources
1- Primary1- Primary
2-Secondary2-Secondary
3-Tertiary3-Tertiary admin@iredo.orgadmin@iredo.org

Description of your BusinessDescription of your Business
Type and Ownership of the businessType and Ownership of the business
• SoleSole
• LLCLLC
• C/S CorporationC/S Corporation
How the Business was startedHow the Business was started::
• How?How?
• Who has responsibility for operationsWho has responsibility for operations
• Copies of business license,Copies of business license,
• Corporation Resolution ,Corporation Resolution ,
• Articles of incorporation, orArticles of incorporation, or
• Partnership AgreementsPartnership Agreements admin@iredo.orgadmin@iredo.org

Key Management PersonnelKey Management Personnel
Describe Management ExperienceDescribe Management Experience
Attached ResumesAttached Resumes
Attached any franchise or other businessAttached any franchise or other business
training programstraining programs
Provide your potential succession planProvide your potential succession plan

Market Place InformationMarket Place Information
A- What I should Know?A- What I should Know?
•What is your product or Service?What is your product or Service?
•Who are your Customers?Who are your Customers?
•Who is the competition?Who is the competition?
•What is the strategy to improve your marketWhat is the strategy to improve your market
position?position?
B- Why Should I believe you?B- Why Should I believe you?
•FactsFacts
•FiguresFigures
•NamesNames
•Where possible?Where possible?

Secure your LoanSecure your Loan
A-Collateral
•Business Assets with Dollar values
•Personal Assets with Dollar Values
B- Personal Financial Information
•Last three years of personal signed IRS Tax returns
C- Business Financial History
•Three years of historical financial information
•Most recent interim year financial statement not
more than 90 days old
•Last three years of signed Business Tax Return
•Aging of Accounts payable, Accounts Receivable
and Taxes payable as of the most recent
statement

Financial Projections
12 month projected Income Statement if your
business generate Accounts Receivable
12 month projected Cash Flow statement
Projected Balance Sheet including the proposed
loan.
Please DO NOT FORGET to attach a copy of your
Lease Agreement if applicable

Collateral: What you shouldCollateral: What you should
Know about Personal AssetsKnow about Personal Assets
Type Advance Percentage
Cash 100%
Stock/Bonds 50-66%
Vehicles (Non Commercial) 75% of the Blue Book Value
REAL ESTATE Example
Assessed Value (Appraised) $250,000
Discounted (Potential Liquidation Value
75%)
$250,000*0.75= $187,500
Less First Deed of Trust (150,000)
What you have to pay to your bank
Equity = $187,000- $150,000= $37,000
Can you be denied? NOT ONLY YES

Collateral: What you shouldCollateral: What you should
know about Business Assets?know about Business Assets?
Type Typical Advance %
(SBA)
Traditional Banks %
Accounts Receivable 20% 75%
Line of Credit Up to 80% N/A
Inventory 20% 0%-50%
Machinery and Equipment 50% Up to 75%
Leasehold Improvements 5% 0%-10%
Commercial Real Estate 80% Up to 75%
504 Program Up to 90% Varies on program
Unimproved Land 50% 0%-50%
Furniture and Fixtures 10% 0%-10%
Residential Real Estate 80% Varies on program

Personal MonthlyPersonal Monthly
Debt-To-Income RatioDebt-To-Income Ratio
Debt –To-Income Ratio = { [Gross Monthly Debt
Payments]/ [Gross Monthly Income]}
Debt –To-Income Ratio = { [Gross Monthly Debt
Payments]/ [Gross Monthly Income]}
Gross Monthly Debt Payments comprised of:
•Mortgage/Rent
•Vehicle Loan
•Credit Card payments
•Any other Fixed Monthly Obligations
Gross Monthly Debt Payments comprised of:
•Mortgage/Rent
•Vehicle Loan
•Credit Card payments
•Any other Fixed Monthly Obligations
Gross Monthly Income comprised of:
•Salaries/Wages
•Rental Income
•Interest/Dividend Income
•Any other Income
Monthly Debt-To-Income Ratio Maximum: 35%-40%Monthly Debt-To-Income Ratio Maximum: 35%-40%

Business Financial MeasuresBusiness Financial Measures
Liquidity Measures
Defined as the company’s ability to repay current Liabilities
with Current assets quantifiable through:
WORKING CAPITAL = Current Assets – Current LiabilitiesWORKING CAPITAL = Current Assets – Current Liabilities
Leverage
Defined as Debt-To-Equity Ratio:
Debt-To-Equity Ratio = Total Liabilities / Total EquityDebt-To-Equity Ratio = Total Liabilities / Total Equity
Start UpsStart Ups: 2.00 to 1.00 to qualify for most SBA guaranty: 2.00 to 1.00 to qualify for most SBA guaranty
programs unless the loan amount is under $100,000programs unless the loan amount is under $100,000
Purchase of Existing businesses: can be up to 3.00 to 1.00Purchase of Existing businesses: can be up to 3.00 to 1.00
Existing Business Acquisition: 3.00 to 4.00:1.00 depending onExisting Business Acquisition: 3.00 to 4.00:1.00 depending on
the industry.the industry.

Business Financial Measures-Business Financial Measures-
EquityEquity
EquityEquity Includes:Includes:
A- Sole ProprietorshipA- Sole Proprietorship::
Owner Equity/Contribution Retained EarningOwner Equity/Contribution Retained Earning
B- Partnership:B- Partnership:
Partner Equity/Contribution Retained EarningPartner Equity/Contribution Retained Earning
C- Corporation:C- Corporation:
Common Stock/Paid in Capital/ Retained EarningCommon Stock/Paid in Capital/ Retained Earning

Business Financial Measures:Business Financial Measures:
Cash Flow & Debt Coverage RatioCash Flow & Debt Coverage Ratio
Cash-FlowCash-Flow ::
Net Profit or Net LossNet Profit or Net Loss
+ Depreciation Expense+ Depreciation Expense
+ Interest Expense+ Interest Expense
+ Amortization Expense+ Amortization Expense
= Traditional Cash Flow= Traditional Cash Flow
Debt Coverage Ratio:Debt Coverage Ratio:
Traditional Cash-FlowTraditional Cash-Flow
Amount of the Loan PaymentAmount of the Loan Payment
TYPICALLY NEEDs TO BE 1.25:1.00TYPICALLY NEEDs TO BE 1.25:1.00

Income Statement/Cash Flow ProjectionsIncome Statement/Cash Flow Projections
Projected Income Statement:
• Assumptions regarding Sales/Revenues
• Assumptions regarding Costs of Good Sold (if the company is
inventory based)
• Assumptions regarding Operating Expenses (Equally
distributed over the 12 month period)
Projected Cash Flow:
• Assumptions regarding the collection of Sales/Revenues
• Assumptions regarding Accounts Receivable (Provide timing
assumptions regarding the collection period)
• Assumptions regarding Operating Expenses

THANK YOU
By Felix Ngoussou, Innovative
Business Advisor
www.iredo.org
admin@iredo.org
By Felix Ngoussou, Innovative
Business Advisor
www.iredo.org
admin@iredo.org

APPROACHING YOUR LENDERAPPROACHING YOUR LENDER
With ConfidenceWith Confidence
Lending 201Lending 201
By Felix NgoussouBy Felix Ngoussou

Approaching your Lender about
BUSINESS LOANS?
Make advance appointment with Business LoanMake advance appointment with Business Loan
officer.officer.
Be prepared with a written business plan thatBe prepared with a written business plan that
includes total cost of project with a breakout ofincludes total cost of project with a breakout of
what $$ are expected to be borrowed and whatwhat $$ are expected to be borrowed and what
$$ are expected to be injected by you as the$$ are expected to be injected by you as the
owner!owner!

EXPECT FROM A LENDER?
A commitment from the lender to review theA commitment from the lender to review the
business plan by a specified datebusiness plan by a specified date oror an up-frontan up-front
explanation of why that lender does not want toexplanation of why that lender does not want to
do that type of loan.do that type of loan.
Expect the lender to ask for your SSN and aExpect the lender to ask for your SSN and a
copy of your ID so they can authorize a creditcopy of your ID so they can authorize a credit
report .report .
Expect to receive from the lender their institutionExpect to receive from the lender their institution
Loan Application, list of required documentationLoan Application, list of required documentation
and SBA paperworks to fill outand SBA paperworks to fill out

NEGOTIATION ITEMS &
LENDER DISCLOSURE
Interest rateInterest rate
Term of loanTerm of loan
Who will personally guaranty loanWho will personally guaranty loan
What fees will be chargedWhat fees will be charged
Time frame range in expecting an answer “YESTime frame range in expecting an answer “YES
or NO” and time frame to expect onor NO” and time frame to expect on
disbursement of fundsdisbursement of funds
Other services lender can provideOther services lender can provide

WHY DOES A LENDER SAY
“YES”?
Likes balance of credit factors – strengths
outweigh weaknesses
Lender’s institution has favorable experience
with that industry
Your credit risk fits in with lender’s target portfolio
Your Cash Flow shows you can pay back the
loan
Your Debt-To-Income Ratio is acceptable
All your 5 Cs ( Character, Capacity, Collateral,
Cash Flow, and Capital) look good or are
acceptable
Lending officer is willing to be your advocate in
loan committee

WHY DOES A LENDER SAY
“NO”?
Weaknesses of individual deal outweigh
strengths in areas such as:
• Sales volume is optimistic or expenses are
underestimated or industry in turmoil
• Management has no direct experience
• Lender risk too high in loan amount compared
to applicant’s injection – D/E
• Credit or character history is marginal or poor
• Collateral offered doesn’t offset other risks
Lender’s institution has unfavorable experience
with that industry

TIPS FOR FINANCIALTIPS FOR FINANCIAL
PREPARATIONPREPARATION
FIRST be prepared-
• Asking for $$ before plan is in place is likely to
create poor first impression with lender - you
only get one chance to make a good first
impression!
Understand the loan process and consider how
their application will be compared to their peers!
You need to establish time frame for decision
making that is realistic and decide if lender can
meet those needs..

THANK YOUTHANK YOU
LET’S HELP YOU GROW YOURLET’S HELP YOU GROW YOUR
BUSINESSBUSINESS

Lending 101 201

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