FINANCING YOUR BUSINESS Workshop V2.2 FINANCING YOUR BUSINESS

4 Manasota SCORE Workshops Handouts 1 Visual #1 #2 #3 Starting or Buying a Business Overview 2 3 4 Small Business Start-up and Management Guide Business Planning Marketing & Sales Financing Available for $15

Workshop Objectives Financing Your Business Determine amount of capital needed Identify information needed by lender Identify types and sources of funds Present key credit approval criteria

How Much Capital is Needed? 3 Major Considerations To open the business doors To stay open until you make profit To manage periodic “ups” and “downs”

1. Capital to Open Doors Fixed Assets - Real estate, leases, equipment Soft Costs - Insurance, liability, legal, accounting supplies, compensation, utilities . . . Inventory - Product ready to sell

2. Capital Until Making Profit Monthly projection of cash flow - Based on Business Plan Add cash flow short fall for initial months Operational working capital requirements - Until “cash in” exceeds “cash out”

3. Periodic “Ups’ & “Downs” Cash Flow projections for 12 months - After business becomes profitable Analyze seasonal variances - Anticipated profit fluctuations - Unanticipated market changes Determine additional capital that may be needed and when

Investor’s Primary Needs Assurance that repayment will be made in timely manner as promised Detailed Business Plan from which their decision will be made: - YES (grant loan) - NO (deny loan) – too high a risk Have you begun developing your Business Plan?

Business Plan Outline (Typical) Table of Contents (Easy Reference) Executive Summary . . . . . . . . . . Company Description & Mission Products and Services . . . . . . . . Marketing Plan . . . . . . . . . . . . . . . Operational Plan . . . . . . . . . . . . . Management and Organization . Personal Financial Statement . . . Start-up Expenses & Capitalization Financial Plan . . . . . . . . . . . . . . . . Appendices . . . . . . . . . . . . . . . . . . 3 5 7 9 11 13 16 20 24 26

Five C’s of Lending Character - Resume, references & experience Credit - Personal & Business credit reports Capital - Borrower’s investment in venture Cash Flow - Ability to operate at sufficient level to repay Collateral - Assets pledged to secure loan

Projected Financial Statements Opening Balance Sheet - Assets and Liabilities Projected Monthly Cash Flows - For each of first 12 months References - Credit and Professional

Types of Capital Equity - Owners investment at stake - Normally 30% or more Credit & Debt - Borrowed funds and leases

Why is allocating personal equity such Savings Investments Home Equity Family and/or Friends Partners Life Insurance Cash Value Angels/ SBDC’s Combination of Above Why is allocating personal equity such an important decision?

Credit Financial Institution Loans Trade Supplier Credit Seller Financing or Fixed Assets Operating Lease - Short Term or Long Term Franchisor Loans CDC and/or SBDC Loans

Limited guarantees to qualified lenders SBA Basic Loans Limited guarantees to qualified lenders Loan Amount Prime Plus Repayment Criteria < $25,000 (Express) 4.25% < 7yrs Character < $25,000 (Express) 4.75% > 7yrs Character $25,000 to $50,000 3.25% < 7yrs Business Plan $25,000 to $50,000 4.25% > 7yrs Business Plan Over $50,000 2.25% < 7yrs Business Plan Over $50,000 2.75% > 7yrs Business Plan

Limited guarantees to qualified lenders SBA 504 Loans Limited guarantees to qualified lenders 504 Loan – Fixed Assets - Land plus new building construction - Renovate existing buildings - 10% Down - 40% SBA - 50% Bank Loan - 10 to 20 year repayment

Grants Very Limited Availability! Most provided for research - Institutions of Higher Learning Sources for Grants: Grants.gov Gulf Coast Community Foundation (941) 486-4600 Angel Capital – startups in FL (941) 544-2686 Venture Capital – Brokerage Firms

Venture Capital Lenders in Area Other Sources Venture Capital Lenders in Area BusinessFundingResource.com Economic Development Corporation of Sarasota

Loan Package Cover Letter Up-to-date Business Plan - Personal Financial Statement - Projected Financial Expectations - Credit References (Typically 3) - Professional References (Typically 3) Specific Loan Request - Amount, Term & Sources of Repayment

Potential Lenders in Area Bank of Venice - Mark Wilcox (485-3699) Landmark Bank - Doug Johnson (954-5100) Horizon Bank - Jeff Chapin (753-2265) Fifth Third Bank - Chris Perkins (343-2077) Comerica - Andrew Reeves (951-7333) Bank of America - Leslie Woodard (952-2791) AmSouth - JJ Miranda (924-3494) Northern Trust - Helen Nugent (329-2763)

Loan Approval Criteria (6 P’s) People (Honest, dependable & capable) Purpose (Legitimate business need) Payment within reasonable period - High probability of repayment Protection (Repayment alternative source) Perspectives (Profit needs & expectations) Policy (Types of loans and acceptable risks)

1. People Good Credit History Related Management Experience Related Business Experience Solid References - Character - Background - Dependability

How will your venture yield adequate 2. Purpose Legal - Type of Business Logical - Relation to background & experience Productive - Will yield cash for repayment How will your venture yield adequate cash for repayment?

3. Payment Source of Prepayment - Tied to use of loan proceeds Projected Financials - Reflect ability to repay on time Collateral - Alternate sources for repayment

4. Protection Pledge of Assets of Business Personal Guarantees SBA Limited Guaranty for: - Startups - Low Equity - Low Collateral Loans

5. Perspective Risk/Reward Relationship Lender Profit and Loss Interest Income 6.50% Interest Expense 3.00% Operating Costs 2.00% PROFIT 1.50% 1 Bad Loan = Profit on 67 good ones!

6. Policies Bank’s philosophy Bank’s risk strategy No two banks alike

Examples of Types of Credit Lines – Short term (90 day) projection Term – Long term (Real Estate & Equity) Revolvers – Accounts Receivable Financing Operating Lease – Short term rental Financial Lease – Long term rental Credit Card – Convenient but very costly Home Mortgage – Long term

Financing Your Business Small Business Start-up and Management Guide Loads of valuable information for only $15 Other Workshops Business Planning Marketing & Sales Starting or Buying a New Business Live Your Dream. SCORE Can Help. To find the office nearest you, call SCORE toll-free at 1-800/634- 0245, or visit www.score.org and click on “Find SCORE.”