PFC Inc. is dedicated to helping businesses understand their loan options and how to obtain financing for the growth of their business. Below is information that you may find informative to secure a loan for your business for working capital, equipment financing or leasing, debt consolidation, leasehold improvements, or expansion. For additional information please email phewett@pfcfinance.com. Website: www.pfcfinance.com
Money is one of the most important aspects of your entire life. Some of life’s greatest disappointments stem from your decisions about money. Whether you experience great peace of mind or constant anxiety will depend on getting your finances under control”
Robert G. Allen
While Poor Management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second.
http:// www.sba.gov
What you need to know
Sufficient ready capital is essential
Knowledge and planning to manage it is essential
The most common mistakes are:
• Securing the wrong type of financing
• Miscalculating the amount needed
• Underestimating the cost of borrowing money
•
What to ask yourself before inquiring about financing
• Do you need more capital or can you manage with your existing cash flow
• How do you define your need?
• Do you need more capital or can you manage with your existing cash flow
• How do you define your need? Do you need money to expand or as a cushion against risk?
• How urgent is your need?
• How great are your risks?
• In what state of development is the business? Initial stage most critical
• For what purpose will the capital be used?
• What is the state of your industry?
• Is your business seasonal or cyclical?
• How strong is your management team?
• How strong is your business plan?
If you don’t have a business plan that is a Top Priority
(www.sba.gov or www.pfcfinance.com can help define how to write a business plan)
How do I prepare to secure a loan
How to Prepare a written loan proposal
Description of Business – include:
• Type of Organization
• Date of information
• Location
• Product or service
• Brief history
• Proposed Future Operation
• Competition
• Customers
• Suppliers
How do I prepare to secure a loan
Management Experience/CV
Personal Financial Statements – include:
• Personal Debt and Income
• Loan Repayment Plan
• Existing business
3 years financial statements
Interim financial statement for current year
Bank statements
• Projections
Other Options:
Hire consultant to put together detailed business plan which will help ensure a plan that will answer all of the underwriters questions. This is the best money you will spend.
Decide where you will apply for loan
HIRING A FINANCE CONSULTANT FOR THIS AVENUE IN TODAYS BUSINESS ENVIRONMENT COULD BE ESSENTIAL FOR SECURING A LOAN
How do I write a business plan?
The body can be divided into four distinct sections:
• Description of the business
• Marketing
• Finances
• Management Elements of a Business Plan
• Cover sheet
• Statement of purpose
• Table of contents
The Business
• Description of business
• Marketing
• Competition
• Operating procedures
• Personnel
• Business insurance
Financial Data
• Loan applications
• Capital equipment and supply list
• Balance sheet
• Breakeven analysis
• Pro-forma income projections (profit & loss statements)
• Three-year summary
• Detail by month, first year
• Detail by quarters, second and third years
• Assumptions upon which projections were based
• Pro-forma cash flow
Supporting documents
• Tax returns of principles for last three years
• Personal financials statement (all banks have these forms)
• For Franchised businesses, a copy of franchise contract and all
supporting documents provided by the franchisor.
• Copy of proposed lease or purchase agreement for building
space
• Copy of licenses and other legal documents
• Copy of resumes of al principles
• Copies of letters of intent from supper, etc
Sample Plans
Review examples of real business plans.For Additional Information:
SBA’s Startup Guide
Business Plan Workshops
How do I determine start up costs?
• Identify all expenses that your business will have in startup phase
• Determine what is essential or optional
• Divide essentials into fixed (overhead) and
variable (cost of doing business)
• Work sheets are available at www.sba.org under: Business Know-How Start Up Calculator
Process to Determine Loan Needs
Compile Comprehensive Business Plan:
• Long Term Projections
• Start Up Costs including soft costs, working capital, and equipment
• Breakeven Analysis to determine when business will be profitable
• Overview of Business
• Personal Resume
Determine Personal Cash Available for Business Investment
Determine Start Up Costs Needs
Applying for a Loan
What do I need
• Loan Proposal (if no consultant)
• Business Plan
• Personal Financial Statements
• Detail of Personal and Business debt
• CV
• Bank Statements
• Last 3 years personal and business tax returns
• Additional items that may be required
Articles of Incorporation
List of collateral available
Real estate lease documents
References
Types of Financing
Equity
• Comes from colleagues, friends, individuals
• Venture Capitalists
• SBA
Small Business Investment Companies
Minority Enterprise Small Business Investment companies
(Nike, Apple, Federal Express all used this avenue for growth)
Debt Financing
Offered by:
• Banks
• Savings and Loans
• Commercial Finance Companies
• SBA
• State or local government programs
Bank/Savings Loans financing
Short term lender for:
• Demand Loans
• Seasonal Lines of Credit
• Single-purpose loans for hard assets (example: laser)
May require personal and business lien of all assets
Requires personal interest or investment
Due to tightening financial market and pressure from FDIC harder to secure and will take an intensive amount of information and time
SBA guaranteed bank loans are main source for long term loans
Bank/Savings Loans options
SBA loans – Guaranteed by government which makes securing easier
• Used to finance Leasehold Improvements, Debt Consolidation, Working Capital, Construction, Building Costs
• Paperwork intensive
• Personal investment of 10-20% of overall loan
• Large up front costs
• Interim interest as funds paid out
Line of Credit
• Short term loan
• Business and personal lien
• Bank may call loan at any time
• Should only be used for short term financial needs
• Higher payments
Single Purpose Loans
• Used for equipment/machinery
Accounts Receivable/Equity Financing
Offers funds based on a % of accounts receivables due
Short term loan
Commercial Finance Options
• Equipment Loan/or Lease
• Leasehold Improvement Loans
• Working Capital Loans
Types of Equipment Leases
May allow for a start up deferral of up to one year vs. bank loan with 10-20% down
• $1 out lease
• Stream of Payment payoff
• Capital Sale Loan for tax reasons
• Own Equipment at end with $1 buyout
• Lien on equipment only
•
FMV Lease – fair market residual at end of term
Multiple end of term options
• Purchase equipment for FMV
• Return equipment
• Renew lease
• Negative automatic renewals
• High residual to own
• Operating lease-monthly payments vs. depreciation
10% Purchase (10% PUT)
Purchase equipment for a predetermined 10% end of term
• Finance Agreement/Loan
• May allow for early payoff with principal only
• Capital Sale Tax Write Offs
10% Purchase Option
• Lower payments than $1 out or loan during term
• May have automatic renewal clause
• May return equipment at end of term
• Capital Sale for tax purposes
• Lower payment during term
Leasehold Improvement Loan
Build out construction financing
• Healthcare Finance Companies/SBA
• Requires collateral of equipment
• Most lenders will lend a ratio of 25-50% soft costs to equipment
Cash Loan to pay for start up costs
Use equipment as collateral for lower rates and to secure up to 25% working capital to equipment
Working Capital Loan (May require additional security)
• Business lien
• Personal lien
• Real Estate lien
High risk may deem higher rates
Private Finance
Know the 5 C’s of Credit
• Capacity: To repay loan is the most critical element for the lender
• Capital: Money you personally have invested in the business
• Collateral: Guarantees are additional forms of security you can provide the lender if you cannot repay loan
• Conditions: Focus on the intended purpose of the loan
• Character: Personal impression you make on the potential lender or investor
Additional Resources: www.sba.gov
SBA’s Preparing and Presenting a Loan Proposal
SBA’s Loan Package Checklist
Today’s Banking Environment
• Rates are going down
• The ability to secure loans is becoming more difficult
• FDIC pressuring banks to pull back on loans
• Credit criteria and information is becoming more stringent
• Businesses with low cash flow or with owners with medium to low credit scores will suffer
HIRING A FINANCE CONSULTANT CAN HELP
• Protect your credit score
• Ensure you get the maximum funds you will qualify for
• Simplify the process–save time
• Protect your credit
Once your credit has been viewed a few times banks and lenders are hesitant to lend…
A consultant can protect you from this
Here are some additional questions you may want to know:
• Should I check my credit score?
• What could affect my credit adversely?
• What is a FICO score?
• How do I view my credit report?
• How does my credit score effect my ability to qualify for a loan?
• Can I improve my credit score?
• What is the process for qualifying for a loan?
• What steps can I take to establish credit for my business?
• How long will the approval process take?
• What fees will I have to pay?
For additional information view www.pfcfinance.com
