1. Finding Funding Sources for Client Start-Ups and Expansions 2008 Community Food Security Coalition/FoodBin Conference Diane Holtaway

2. Capital…A fundamental need for establishing a new business …. Personal Cash shortfalls Credit card limits No available cushion Late receivables Cash on delivery Large upfront security deposits Start-up operating costs Long sales cycle Large working capital needs 2

3. ... Or For A New Business, Expansion or Venture? A client has a strong business idea with great financial potential? There’s a ready market that needs this product or service? Client is ready to expand their business – facilities, production, open up new markets, etc. Client desires to launch a new product 3

4. The Reality of Small Business Financing Today 4 Over 2/3 of small businesses feel that they are being affected by the credit crunch. National SBA 9/2008

5. The Reality of Small Business Financing Today Nearly 1/3 of small businesses feel bank loan interest rates and fees are higher than 6 months ago. 5 National SBA 9/2008

6. The Reality of Small Business Financing Today According to a Federal Reserve Survey, nearly 2/3 of banks have tightened lending standards to small businesses. 6 Federal Reserve Survey 2008

7. Funding A Business Today Who Can Help ? Spectrum of Funding Sources Presenting Your Company To The Financial Community 7

8. The Good News: Funding is still available You just have to harder …..and prepare better than the competition 8

9. First Ask: Why Might Investors/Bankers Say “No” Team Concept and Market Potential Competition Sustainability “Big Picture” Willingness to Share Control Underestimation of Startup Costs Pumped-up Revenue Projections Communication Skills Trust Risk “Fit” within Investment Criteria 9

10. First Ask: Why Might Investors/Bankers Say “No” Businesses want money for nothing. They want money without any strings attached. “Give me a check but don’t tell me how to run my business” Business owners overvalue their company. Many entrepreneurs look at how much control they are willing to relinquish and base their valuation on owning at least 51% of the company after they take in outside capital (pre-capital value + cash = post-capital value) Companies need more money than they actually think they do. Need to partner with an investor whose deep pockets can write a check at a crucial moment. Adam Borden, Managing Partner, Bradmer Foods LLC, VC firm 10

11. Funding Your Business Who Can Help? Spectrum of Funding Sources Presenting Your Company To The Financial Community 11

12. The Funding Spectrum 12 State economic development programs include low interest loans, loan guarantees, tax incentives, bridge financing, temporary real estate locations, entrepreneurial training, and other support. Grants: ― Federal USDA ― Foundations Small Loans ― Family & friends ― Personal loan - banks ― Federal SBA & USDA ― State & community economic develop. Credit Cards/ Vendors ― Major cards ― Vendor cards/terms (Caution – keep current) Commercial/Asset Loans ― Commercial, S&L banks ― Assets based lenders Government Loans ― Federal SBA ― State economic develop. Angel Capital (<$1 M) ― High net worth investors ― Designated funds Venture Capital (>$1 M) ― Small to medium funds (Usually industry focus) ― Corporate funds Strategic Partners Venture Capital ― Large funds; to restructure capital Strategic Partners Initial Public Offering ― Commercial banks ― Investment banks Commercial/Asset Loans ― Commercial banks ― Asset based lenders Public Bond ― Commercial banks ― Investment banks ― State economic authority Startup/Early Stage Growth Stage Later Stage

13. The Funding Spectrum 13 Startup/Early Stage Grants: ― Federal USDA ― Foundations Small Loans ― Family & friends ― Personal loan - banks ― Federal SBA ― State & community economic develop. Credit Cards/ Vendors ― Major cards ― Vendor cards/terms (Caution – keep current) Just thinking of an idea? Have a management team? business plan?  Talk to friends and family  Visit SBA, SBDC or Business Incubator and consider services and programs and consider services and programs  Network with industry trade associations  Perform risk assessment: personal, market and financial market and financial  Meet service providers (lawyers, accountants, business advisors) accountants, business advisors)  Maybe meet financial providers (banks, SBA, economic development groups, SBA, economic development groups, angel investors ) angel investors )  Fine tune business plan

14. Financial Risk Assessment: Can the Money be Paid Back? Debt Financing Character / Credentials – trustworthy, industry knowledge, business experience Credit History – good credit history Cash Flow – profit levels high, low working capital, low capital requirements Capital – equity resources available Collateral – real estate, equipment, account receivables 14

15. The Funding Spectrum 15 Later Stage Venture Capital Strategic Partners Initial Public Offering Commercial/Asset Loans Public Bond Ready to enter a large new market? Major plant expansion? Acquisitions?  Network with service providers and trade associations trade associations  Meet with large venture capitalist, commercial and investment banks, commercial and investment banks, economic development groups economic development groups  Prepare comprehensive offering document, private placement document, private placement memorandum – i.e. fancy business plan memorandum – i.e. fancy business plan  Identify and consider strategic partners

16. Which Type Of Funding Is Best? 16 Advantages No interest No required repayment Equity provides security for banks and customers Disadvantages Ownership dilution Possible transfer of control Possible dividends would affect cash flow; non- deductible Usually investor has board representation EQUITY High Business Risk Advantages No interest No repayment Helps raise matching funds Disadvantages Limited dollar amount May be difficult to obtain because of qualifications Often not available if don’t get match Reports required Reimburse expenses GRANTS Very Early Stage DEBT Low Business Risk Advantages No ownership dilution Interest cost known Interest tax deductible No board representation Disadvantages Must be repaid Must pay interest Covenants may be restrictive Rarely available at early stage without collateral May require warrants Reports required

17. Government Funding Programs 17

18. Economic Development Serves All Stages of Growth... 18 Focus: Business development, job creation, community revitalization; small business core focus Focus: Business development, job creation, community revitalization; small business core focus Types of Funds: Bonds, loans, loan guarantees, incentives Types of Funds: Bonds, loans, loan guarantees, incentives Amounts : Purchase or Renovation of a Building; machinery or equipment for business growth: Loans up to $1.25 million; loan guarantees up to $1.5 million for a total EDA exposure of $2.75 million Amounts : Purchase or Renovation of a Building; machinery or equipment for business growth: Loans up to $1.25 million; loan guarantees up to $1.5 million for a total EDA exposure of $2.75 million Additional : Loan opportunities for business growth in urban municipality (see njeda.com) Additional : Loan opportunities for business growth in urban municipality (see njeda.com) Incentive Grants : to Businesses creating at least 25 new jobs in NJ; 10 in the tech or biotech sectors Incentive Grants : to Businesses creating at least 25 new jobs in NJ; 10 in the tech or biotech sectors Rates: variable or fixed, longer repayment schedules than traditional lenders Rates: variable or fixed, longer repayment schedules than traditional lenders Eligibility : 5 to 100 employees, 1-5 years in business, partial to women and minority owned businesses, technology and life sciences, manufacturing, logistics, financial services, arts, tourism and retail Eligibility : 5 to 100 employees, 1-5 years in business, partial to women and minority owned businesses, technology and life sciences, manufacturing, logistics, financial services, arts, tourism and retail Collateral: Assets-financed and personal guarantees Collateral: Assets-financed and personal guarantees Example, NJ Economic Development Authority (NJ EDA):

19. SBA Programs The Small Business Administration provides loan guaranties, through private lenders and non-profit institutions, for viable small businesses that have real potential, but cannot qualify for loans from traditional sources. 7(a) program : –Business plan required –Guarantee : up to 150K 85%; 75% of loans over $150,000 to $2.0MM –Use of funds: expand or renovate facilities, construction of new facilities, land and buildings, machinery, equipment, lease improvements, working capital –Terms: 7 years or less, 2.25% above prime (max), 7-25 years 2.75% above prime (max), usually 10 year maximum –Individual negotiates best rate –Eligibility: Operating for profit, Qualifies as small business –Collateral: Must pledge sufficient assets 19

20. SBA Programs Micro loans: –$1,000 to $35,000 – Avg. $13,000 –Available through SBA intermediaries – for ex. in NJ, the Cooperative Business Assistance Corp., Regional Business Assistance Corp, Greater Newark Business Development Consortiums –Business Plan required –Collateral required –Rates – between 8-13% 20

21. SBA Programs 504 Program : –Focus: Business expansion and job creation –Long term, fixed rate mortgage financing for acquisition and or renovation of capital assets, including land, buildings and equipment –Characteristics: Business plan required Lower down payment – 10% Rate usually below market rate – (Sept. rate 6.5%) Use of Funds: Construction/renovation, purchase of facility or capital equipment >$50,000 to $4.0MM Eligibility: Small business, for profit, retail, service, wholesale or manufacturing Collateral: assets-financed –www.sba.gov 21

22. SBA Has Strong Lending Track Record Business & Industry Guaranteed Loan Program –Barrel O’ Fun Snack Food Company, Perham, MN received $11.5 million to construct 95,000 sq. ft. building and buy equipment, to expand production and warehouse capacity 22 SBA – Ben & Jerry’s –Initial expansion loan was awarded to assist this rapidly growing ice cream manufacturer. Hampshire Pet Products, Joplin, MO, a manufacturer of dog biscuits and treats, received $9.5 million to add equipment and expand production and employment.

23. Why SBA May Not Guarantee a Loan Applicant has poor credit At least 20% equity required (not borrowed) Business plan must demonstrate pay back according to loan terms Initial lack of collateral 23

24. USDA Business & Industry Guarantee Loan Program Goal: to create jobs and stimulate rural economies by providing financial backing for rural businesses Guarantees 80% ($5MM or less) of loan made by commercial lender Amount: up to $10MM to any one borrower –Exceptions: $25 MM under certain circumstances, and up to $40MM for rural cooperatives that process value-added agricultural commodities Geographic limitation: Only designated rural areas Use of funds: working capital, machinery and equipment, buildings and real estate and certain types of debt refinancing Eligibility: Any legally organized entity, including a cooperative, corporation, partnership, trust or other profit or non-profit entity Terms: Maximum 30 years, real estate; machinery and equipment, 15 years or useful life; working capital 7 years or less 24

25. USDA Focuses On Rural Areas Bed & Breakfast Inn, Lambertville, NJ $335,000 USDA B & I 80% Guaranteed Loan to purchase this business 25 The Catering Company, Retail Food Sales & Catering, Blawenburg, NJ $350,000 USDA B&I 80% Guaranteed Loan to Purchase & Renovate

26. Take Advantage of State Agency Services & Networking –General/Small Business Financing - Loans and Guarantees, bond financing export financing –Environmental Issues, such as site selection services, from “prime sites to brownfields” –Geographic & Urban Redevelopment programs –Clean Energy Programs – financing and assistance –Work force training and funding – job creation & retention incentives –Energy tax credits (firms > 500 fulltime employees) 26

27. Funding Your Business Who Can Help Spectrum of Funding Sources Presenting Your Company To Funding Sources 27

28. A Business Plan Is A Good Place To Start 1.Business overview and focus 2.Industry and competitive assessment 3.Marketing plan – who is the customer? 4.Operations detailed growth plan 5.Management and employees 6.Financial projections and analysis 28

29. Clearly describe your firm and goals Be focused, Be realistic, Know yourself, Know where you want to go and how you plan to get there. Understand the Features and Benefits of your Product – “Features Tell, Benefits Sell” Demonstrate your business’ competitive advantages 29 1. Business overview and focus

30. Describe the industry size, growth and environment Describe competitive and substitute products Demonstrate your business’ competitive advantages 30 2. Industry and competitive assessment

31. Who is the customer? Be Clear! What is the customer’s need? What is your product’s value proposition? Detail marketing plan to reach customer –Direct marketing, collateral, ads, website, public relations, word-of- mouth, etc. Sales and distribution strategy Competitive and value pricing 31 3. Marketing plan – who is the customer?

32. Detailed operating plan includes goals, milestones, and resources needed Identifies regulatory issues, facility and technology requirements, key vendors, strategic partnerships and service providers 32 4. Operations detailed growth plan

33. Competent and passionate management team; and employee growth plan Detailed staffing requirements, including seasonal and temporary staffing issues Identify regulatory issues and trade related issues 33 5. Management and employees

34. Financial Forecast Must Mirror Operating Plan How much does your business need? How will you spend the money? How will you pay it back? 34 Forecast Must Answer : 6. Financial projections and analysis

35. 35 EQUITY High Business Risk GRANTS Stage DEBT Low Business Risk Return on Investment Financials Management Operations Marketing/Sales Industry/ Competition Critical to hit target ranges that vary with type of business Critical to show enough detail and reasonable estimates Strong emphasis on 5 C’s and impressive in-person meeting Details thought out Reasonable strategy Large market; clear competitive advantage Clear/differentiated; patent preferred Product Becoming more important Management credentials key Of interest to grantor Clear/differentiated Focused on ability to repay debt and adhere to covenants Necessary to show credibility with enough detail and reasonable estimates Emphasis on 5 C’s and recommend in-person meeting; Market size to match profit potential Clear/differentiated Target Presentation to Audience

36. Rutgers Food Innovation Center Contact Information Lou Cooperhouse, Director cooperhouse@aesop.rutgers.edu Diane Holtaway, Associate Director, Client Services holtaway@aesop.rutgers.edu –Phone 856-459-1900 –Fax – 856-459-3043 –450 East Broad Street Bridgeton, NJ 08302 Website: www.foodinnovation.rutgers.edu 36