small business financing options workshop

© ASBTDC 2012 All Rights Reserved

Business Financing

Options

ASU 052112

*In Your Packets:

Registration form

and evaluation form

–Please fill out the Attendee Record Form at the

beginning of the seminar

Copy of the slide presentation

Additional handouts

Download the powerpoint at our website

http://www.astate.edu/a/sbtdc/

http://www.astate.edu/a/sbtdc/

*YOUR CREDIT REPORT IS IMPORTANT!

*Your credit record affects all financial

transactions

*Review your credit report and know your

credit score

*How is my credit score calculated?

*The banker relies on your credit history


Credit Reports

*Review Your Credit Report

Your credit report is a compilation of your payment habits and usage of credit over time

Monitor it for suspicious activity i.e. identity theft

Get a free copy of your report once every 12 months from the major credit-reporting agencies:

*Equifax

*TransUnion

*Experian

AnnualCreditReport.com

Federal Trade Commission (ftc.gov/credit)


*Sources of Financing

*Private investment

*Grants

*Conventional financing

*Government-backed programs

*Alternative lending programs


Private Investment



*Private Investment

*Owners Equity is the contribution of capital and other assets

*Angel investors provide capital for a percentage of ownership

*Venture capitalists provide capital and exercise control over company operations

*Crowd Funding/Crowd Sourcing http://storify.com/asbtdc_asu/crowd-funding-basics

*KickStarter http://www.kickstarter.com/


http://storify.com/asbtdc_asu/crowd-funding-basics

http://storify.com/asbtdc_asu/crowd-funding-basics

http://www.kickstarter.com/

*Sources of Capital

*Savings Accounts

*Relatives or Friends

*Credit Cards

*Second Mortgage

*Retirement Plans


Grant Resources


*Myths About Grants

*Myth #1: It is easy to get a small business grant

*Myth #2: Grants are available for any type of business

*Myth #3: There are special government grants for women and minorities to start

businesses

*Myth #4: The government tries to keep grants a secret


*Truths About Grants

*Recipients are typically nonprofit organizations

*Grants are for industry-specific and R & D purposes

*Grant sources are plentiful but locating them is difficult

*Obtaining grants is highly competitive

*The ASBTDC and the SBA do not provide grants

*Federal Home Loan Bank of Dallas EDP Plus program https://www.fhlb.com/community/cip_edpplus.html


https://www.fhlb.com/community/cip_edpplus.html

*Catalog of Federal Domestic Assistance

*Available in print or on the Internet

*Updated twice a year

*Deals with all types of federal government assistance

*www.cfda.gov


http://www.cfda.gov/

*SBIR & STTR*Dept. of Defense

*Health and Human

Services (National Inst.

Of Health; Centers for Disease Control; FDA)

*National Science Foundation

*Dept. of Energy

*NASA

*SBIR Only*Dept. of Agriculture

*Environmental Protection Agency

*Dept. of Transportation

*Dept. of Education

*Dept. of Homeland Security

*Dept. of Commerce

(NOAA, NIST)

*SBIR/STTR Participating Agencies


*U.S. Department of Energy

*Grants for science and energy related research projects

*Agency solicitation notices

*Competitive proposals required

http://science.doe.gov/grants/index.asp


http://science.doe.gov/grants/index.asp

*Arkansas Science &Technology Authority

* Technology Grants

* Technology Transfer Assistance Grants (TTAG)

* Technology Development Program (TDP)

* Seed Capital Investment Program (SCIP)

* Research & Development Tax Credit Program

* Allows credits against a taxpayer's Arkansas state income tax for making certain qualified research expenditures

www.asta.arkansas.gov


http://www.asta.arkansas.gov/

*Arkansas Departmentof Human Services

Better Beginnings Incentive Grants

*Division of Child Care and Early Childhood Education

*Staffing and retention expenses

*Training materials

*Management software

*CPR/American Red Cross training

*CDA Scholarships

*http://www.arbetterbeginnings.com


http://www.arbetterbeginnings.com/

*Private Foundation Grants

The Foundation Center

*The Foundation Directory

Online database at http://foundationcenter.org

*National Directory of Corporate Giving

*Investigate the Foundation

*Their Purpose

*Types of Awards Typically Made

*Eligibility

*Examine Application Requirements


http://foundationcenter.org/


Conventional Financing


*What is a Business Loan?

*Sack of money

*Low mark-up

*Deduct interest

*Payback over time in deflated dollars

What a Deal!

*Business Plan Essentials

*Executive Summary

*Financing Proposal

*Company Description

*Industry Analysis

*Products and Services

*Market Analysis

*Organization and Management

*Operational Plan

*Financials


*Types of Financing

*Invested capital

*Trade financing

*Payables and receivables

*Short-Term financing

*Bank lines of credit

*Credit cards

*Factoring

*Long-term loans and leases

*Property, plant, and equipment


*Loan Underwriting Guidelines

*The 5 Cs of Credit

*Conditions

*Character

*Capacity

*Capital

*Collateral


The 12 Magic Numbers

◦ Liquidity

◦ Profitability

◦ Efficiency

◦ Leverage


Government Backed Programs


*Small Business Administration

(SBA) Loans

*What is an SBA Loan?

*Credit Requirements

*Terms

*Interest Rate

www.sba.gov


http://www.sba.gov/

*Common Myths about SBA

*Takes forever to get money

*Requires a “ton” of paperwork

*Offers low interest rates

*Provides grants

*Ineligible Businesses

*Real estate investments

*Other speculative activities

*Lending activities

*Not-for-profit ventures

*Pyramid sales or distribution businesses

*Illegal activities

*Religious indoctrination

*Activities of a sexual nature

*Businesses not open to the general public

*Eligible Businesses

*Businesses must meet SBA size standards to qualify (maximums):*Manufacturing: 500 to 1,500 employees*Wholesaling: 100 employees*Services: $7 to $35.5 million in average annual

receipts*Retailing: $7 to $35.5 million average annual

receipts*General Construction: $7 to $33.5 million

average annual receipts

http://www.sba.gov/content/summary-size-standards-industry

*Ineligible Borrowers

*Borrowers on probation or parole

*Borrowers with serious criminal histories

*Borrowers that are 90 days or more delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.)

*Borrowers of poor character

*Ineligible Uses

*Finance floor plan needs (specific program for that)

*Purchase real estate for investment purposes

*Disbursements to owners or principals

*Pay delinquent trust accounts (withholding or sales tax)

*Refinance delinquent debt within a bank

*Acquisition of less than 100% of a business

*Eligible Uses of Proceeds

*SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements

*SBA Loan Programs

*7(a) Loan Guaranty Program

*SBA Express

*Patriot Express

*504 Loan Program

*MicroLoans

*7a Loans

*SBA guarantees (insures) the loan, reducing the risk to the lender.

*Borrower must secure a participating lender.

*No minimum loan size. Maximum loan size is $5 million.

*SBA Loan Maturities

*25 years Real Estate

*10 years Equipment

* 7 years Inventory, Accounts Receivable, Working Capital

*SBA Loan Interest Rates

*Fixed or variable

*Maximum: Prime + 2.75% for terms of 7yrs or more

*SBA Loan Fees

*2% for loans of $150,000 or less

*3% for loans over $150,000 to $700,000

*3.5% for loans over $700,000

*Guaranteed portion over $1,000,000: $35,000 + 3.75% on guaranteed portion over $1 million

*SBA Express

*Lender must be PLP

*Maximum loan $350,000

*Lender applies for 50% loan guaranty

*Lender handles approval and issuance

*Patriot Express

*Loans up to $500,000 by lender approved for SBA Express (PLP)

*Lender applies for 85% guaranty for loans of $150,000 or less

*Lender applies for 75% guaranty for loans over $150,000 up to $500,000

*Interest rates same as 7(a) loans

*Lender handles approval and issuance

*504 Loan Program

*Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital)*Loan backed by a debenture sold to investors*Maximum debenture: *$1.5 million for business that create certain

number of jobs or improve the economy of the locality*$2 million for businesses meeting a specific

public policy goal*$4 million for manufacturers

*504 Refinance Loan Program

*Temporary program allowing for refinance of existing real estate debt

*Loan must have maturity or balloon before Dec. 31, 2012

*Borrower must work with SBA approved CDC and third party lender

*How do I apply?

*Draft a business plan

*Prepare loan proposal (SBTDC assistance)

*Present loan proposal to lender

*Lender reviews and forwards applications to SBA Processing Center (Hazard or Citrus Heights) for consideration

*SBA Loans: How do I Qualify

*Repayment Ability

*Management Ability

*Equity Position

*Collateral

*Repayment Ability

*SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations.

*Cash Flow

*Working Capital

*Repayment Ability: Cash Flow

*Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt.

*Projections will be compared to industry standards and demographics will be considered.

*Repayment Ability: Working Capital

*Start-up Expenses

*Accounts Receivable

*Contingencies & Emergencies

*Rule of Thumb: 3 months fixed expenses

*Management Ability

*Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management.

*Equity Position

*SBA does not approve 100% funding requests.

*Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk.

*Collateral

*SBA will not decline a loan ONLY due to a lack of collateral.

*To protect taxpayer dollars, loans must be secured as fully as possible.

*Advantages of SBA Loans

*TERMS

*TERMS

*TERMS

*Other Advantages

*No pre-payment penalty on loans with maturity of less than 15 years

*No balloons

*Patient partners

*Relaxed credit requirements

*Flexible loan terms

*U.S. Department of Agriculture

*U.S. Department of Agriculture

*Business & Industry Guaranteed Loans

*Rural Economic Development Loans

*Farm Loans

*Export Financing

http://www.rurdev.usda.gov/

http://www.usda.gov


http://www.rurdev.usda.gov/

http://www.usda.gov/

*Planning and Development Districts

*Administered through Arkansas Department of Rural Services

*Funded by U.S. Department of Commerce

*8 districts in Arkansas

*Revolving loan funds focus on job creation

*1 job for each $15,000 loaned

*Equity requirement is 10%

*Emphasis on businesses owned by minorities and women

www.arkansas.gov/drs/projects.html


http://www.arkansas.gov/drs/projects.html

*Arkansas DevelopmentFinance Authority

Economic Development Programs

*Beginning Farmer Loan Program

*Capital Access Program

*Disadvantaged Business Enterprise Program

*Farm Mediation Program

*Industrial Development Bond Guaranty Program

*Tourism Development Loan Program

www.state.ar.us/adfa/


http://www.state.ar.us/adfa/


Alternative Lending


*Specialty Programs

• Boefly• www.boefly.com

• Southern Bancorp Capital Partners• www.banksouthern.com

• Arkansas Economic Development Commission• www.arkansasedc.com

• TAB Bank-Transportation and equipment financing• https://www.tabbank.com/


http://www.boefly.com/

http://www.banksouthern.com/

http://www.arkansasedc.com/

https://www.tabbank.com/

*Specialty Programs

• Financing Ozarks Rural Growth & Economy(FORGE

• www.forgeonline.com

• Hope Enterprise Corporation• www.hope-ec.org

• BORSA plans-utilizing retirement funds to fund a new business venture or purchase http://www.drdacpa.com/content/borsa/borsa.asp

• Individual Development Accounts-starting or expanding a business

• http://www.nrfc.org/arkansas.asp


http://www.forgeonline.com/

http://www.hope-ec.org/

http://www.drdacpa.com/content/borsa/borsa.asp

http://www.nrfc.org/arkansas.asp

*Medical and Professionals

Funding areas

*Medical

*Dental

*Veterinary

*Optometry

Lenders

*Newtek Financial Services (SBA Preferred Lender)

*Bank of America Small Practice Solutions

*Wells Fargo Practice Finance


*Microlenders($100-$50,000)

*Alt Consulting http://altconsulting.org/

*Kiva http://www.kiva.org/

*Accion http://www.accion.org/

*Opportunity Fund http://www.opportunityfund.org/

*Sam’s Club


http://altconsulting.org/

http://www.kiva.org/

http://www.accion.org/

http://www.opportunityfund.org/

http://www.samsclub.com/sams/pagedetails/content.jsp?pageName=sbaLoanProgram

*Other SBA Assistance

*SBA SDB Certification

*Disaster Loans

* Small Disadvantaged Business Certification

*National certification program to certify socially and economically disadvantaged businesses to help secure government contracts for goods and services.

*Recognized by state, federal, and local governments and prime contractors

*SBA Contact: Wanda May 501.324.7379

*Disaster Loans

*Physical disaster loans

*Economic injury disaster loans

*SBA Contact: Fort Worth Disaster Office 800.366.6303

*The Next Step

*Draft business plan

*Complete pre-application loan worksheets

*Gather requested information

*Schedule appointment (870.972.3517)

*Robert Bahn, Business Consultant

*Laura Miller, Lead Business Consultant

*Herb Lawrence, Center Director

ASU Delta Center for Economic Development319 University Loop West

Jonesboro, AR 72401Or P.O. Box 2650 State University, AR 72467

(870) 972-3517

http://www.astate.edu/a/business/sbtdc/Blog: http://www.asbtdc-asu.com

http://www.Facebook.com/asu.sbtdchttp://www.twitter.com/asbtdc_asu

Email us: [email protected]


http://www.astate.edu/a/business/sbtdc/

http://www.asbtdc-asu.com/

http://www.facebook.com/asu.sbtdc

http://www.twitter.com/asbtdc_asu

mailto:[email protected]

small business financing options workshop

Education

lender applies

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credit report

working capital

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asbtdc 2012