1. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Debt Financing Sources for Types of Businesses

2. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Debt Financing Sources by Term of Financing

3. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Sources of Debt Financing The principal SOURCES OF BORROWED CAPITAL include: Trade credit Commercial bank financing Line of credit loans Time-sales finance Term loans Chattel mortgages and equipment loans Conditional sales contracts Plant improvement loans Commercial finance companies Factoring Leasing companies

4. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Key Steps in Obtaining a Loan

5. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 How Your Banker Interprets the Income Statement

6. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Personal Guarantees and the Loan Part A: When to Expect Them 1.If you are under collateralized. 2.If there are shareholder loans or lots of “due to” and “due from” officer accounts. 3.If you have had a poor or erratic performance. 4.If you have management problems. 5.If your relationship with your banker is strained. 6.If you have a new loan officer. 7.If there is turbulence in the credit markets. 8.If there has been a wave of bad loans made by the lending institution, and a crackdown is in force. 9.If there is less understanding of your market. WHEN TO EXPECT THEM:

7. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Personal Guarantees and the Loan Part B: How to Avoid Them and How to Eliminate Them Transparency Master 16-6B HOW TO AVOID THEM: 1.Good to spectacular performance. 2.Conservative financial management 3.Positive cash flow over a sustained period. 4.Adequate collateral. 5.Careful management of the balance sheet. HOW TO ELIMINATE THEM: 1.See “How to Avoid Them.” 2.Develop a financial plan with performance targets and a timetable. 3.Negotiate elimination upfront when you have some bargaining chips, based on certain performance criteria. 4.Stay active in the search for backup sources of funds.

8. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 TLC of a Banker Tips to improve your relationship with your banker: 1.Your banker is your partner, not a difficult minority shareholder. 2.Be honest and straightforward in sharing information. 3.Invite the banker to see your business in operation. 4.Always avoid overdrafts, late payments, and late financial statements. 5.Answer questions frankly and honestly. Tell the truth. Lying is illegal and undoubtedly violates loan covenants. 6.Understand the business of banking. 7.Have an “Ace in the Hole.”

9. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Total Present Value

10. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Jiffy Lube International Overhead #1 Transparency Master 16-9 1985 1986 19871988 # of Service Centers 208 348 561 823 Total Sales (millions)$14.5 $29.5 $44.1$78.2 Net Income (000s) $603$1,212 $3,466$6,909 Earnings per Share$0.09 $0.16 $0.28$0.44 Total Assets (millions)$34.2 $50.7 $102.4$225.8

11. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Jiffy Lube International, Inc. Overhead #2 Transparency Master 16-10 1985198619871988 Working Capital$.375 4.5 2.811.98 Long-term & Sub-debt$10.219.726.779.2 Capital Lease Obligations$2.3 9.619.036.1 Stockholders Equity $4.5 6.839.579.4 Max. Stock Price n.a.18.0036.0025.25 (in millions)

12. Timmons/Spinelli New Venture Creation, sixth edition © Jeffrey A. Timmons, 2003 Jiffy Lube International, Inc. Overhead #3: Free Cash Flow Characteristics FREE CASH FLOW CHARACTERISTICS 3/31/86 3/31/87 3/31/88 Net Income $1,212 3,466 6,909 Plus Interest 1,197 1,362 2,138 Plus Taxes 720 3,333 5,003 Earnings Before Interest and Taxes 3,129 8,161 14,040 Earnings Before Interest After Taxes* 1,689 5,386 9,266 Plus depreciation and amortization 1,140 1,261 2,773 2,829 6,647 12,309 Change in Working Capital 4,492 2,760 11,983 Present Working Capital (357) (4,492) (2,760) (Current Assets less Current Liabilities less prior fiscal Year working capital Change in Working Capital 4,135 (1,732) 9,223 Less Change in Working Capital (4,135) 1,732 (9,223) Less Capital Expenditures (14,695)(42,077)(83,886) Less Change in Other Assets (2,338)(10,466)(17,468) (18,339)(44,164)(98,518) *tax rate assumed are 34 percent for 1988 and 1987, and 46 percent for 1986.