ProfitStars Client Bulletin Commercial Lending Update June 2011

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1 ProfitStars Client Bulletin Commercial Lending Update June 2011 WELCOME BACK! Welcome back to the ProfitStars Commercial Lending Solutions bi-monthly Client Bulletin! The Client Bulletin is designed specifically for ProfitStars Commercial Lending Clients. As always, we hope to bring you insightful, timely and pertinent information to help you make the most of your current lending program and bring the most relevant information for you to share with your loan officers, internal lending personnel and merchant customers. TABLE OF CONTENTS Letter from Managing Director 2 Industry Trends 3 Credit Corner 4 Recent BusinessManager Fundings 5 BusinessManager Training 7 Regional Manager s Perspective 8 Introducing MMi 9 PEC Save the Date 9 With this issue, we are excited to announce a re-launch of our Commercial Lending Online Knowledge Center. The new and improved site is packed with news, tips and tools to help you in your day-to-day lending activities. Please visit us at Thank You and Enjoy! copyright 2011 Jack Henry & Associates, Inc. ProfitStars is a registered trademark of Jack Henry & Associates, Inc.

2 Letter from Todd Shiver: Ever heard of the term win-win? I believe that with any relationship to have longevity, there must be a positive answer to the question of what s in it for me? from both parties. In my experience, one-sided relationships don t last very long. BusinessManager can be a win-win type of relationship with your borrower. At our recent ProfitStars Educational Conference, we invited a small business owner to speak to our bankers. This owner/operator of a transportation company spoke to the challenges she was having with cash flow. In fact, here is a quote from her presentation: We were profitable, but having trouble with cash flow because our line of credit was maxed out. We changed banks to take advantage of BusinessManager. Now I can manage my cash position remotely. We even saved enough money to take advantage of this real estate market and buy our own building. Where else can you find a solution that adds the control and risk mitigation features that lenders and examiners are looking for, combined with the value added benefits your borrowers are looking for? BusinessManager offers this win-win relationship between your small business borrowers and your bank. With BusinessManager, your lenders aren t just out there pricing deals to beat the competition, they are bringing value and differentiation that sets your bank apart. Sincerely, Todd Shiver Managing Director Lending and Website Solutions ProfitStars ProfitStars Client Bulletin Commercial Lending Update June

3 Industry Trends Business and Professional Services According to First Research, U.S. corporate profits, an indicator of corporate demand for business services, rose 18.3% in the fourth quarter of 2010 compared to the same period in Both business and professional services have been a standard for the BusinessManager program throughout its history, together accounting for more than 10% of nationwide funding. While growth is expected to be modest in the range of 3 4% this year, we are seeing a consistent flow of these deals. Within these sectors, the largest four-digit SIC code is temporary staffing, but we are also seeing many other businesses that provide services to other business entities. Here is a brief description of these industries from First Research: The U.S. business services sector consists of about 390,000 establishments (single-location companies or units of multi-location companies) with combined annual sales of about $570 billion. Companies in the sector provide support services to businesses in a variety of industries and, in some cases, to households. Offerings include office administration, hiring and placing of personnel, document preparation and similar clerical services, travel planning, solicitation, collection, security and surveillance services, cleaning, pest control, and waste disposal. The US professional services industry includes about 700,000 firms with combined annual revenue of more than $1 trillion. The professional services industry includes accounting, advertising and marketing, architectural, consulting, engineering, IT, legal, and scientific research services. The industry does not include insurance, securities, or real estate brokerage services. BusinessManager relationships in these industry sectors often involve regular fee-based work. The invoices are funded once the work has been completed. It may be consistent work from month to month, like security or janitorial services. It may also be work that is irregular throughout the year, like seasonal waste removal, research services or marketing services. The large majority is for trade credit transactions between two businesses rather than between a business and a consumer. It is important to keep these companies in mind as you review BusinessManager prospects. They may even be some of the same companies you do business with to meet your bank s needs. ProfitStars Client Bulletin Commercial Lending Update June

4 BusinessManager Works Well Alongside SBA 7a Loans While the economy continues its slow progression toward recovery, there has been one bright spot in the commercial lending arena. The U.S. Small Business Administration reports that guaranteed loan volume was up significantly during the fourth quarter of 2010 and the first quarter of They report that average weekly volume has doubled during the period. Last year, more than 1,100 lenders returned to SBA guaranteed lending after being inactive since Throughout its history, BusinessManager lines have worked well to accompany 3 5 year SBA guaranteed working capital loans to small businesses. We have now begun to see more activity in that market. In some cases, these are new borrowers. In most though, these are existing businesses utilizing the SBA guarantee program to finance a long term capital need and supplementing that with BusinessManager to meet their revolving need. In order to accommodate such transactions, the bank must obtain a subordination of accounts receivable, but that has not been an obstacle as long as the business has been in good standing on their credit obligations. In the typical progression, the bank has made an initial SBA loan to the business without a revolver. As the business grows, perhaps a year to eighteen months into the relationship, the need for a revolving credit facility arises. That is often the point where we see the use of BusinessManager as a controlled vehicle to manage the ebbs and flows of the business cash cycle, allowing enhanced timing of cash flow for discounts and new business opportunity. In some cases, excess reserve account sweeps are even used to pay a portion of the SBA loan obligation. For more information regarding BusinessManager and how it might work alongside an SBA loan, please talk with your Business Development Manager or a ProfitStars Risk Manager. ProfitStars Client Bulletin Commercial Lending Update June

5 BusinessManager Funding Announcements #1 Business Description: Tool and Die Shop Lead Source: New bank customer Company has landed the elephant account which was more than double their annual revenue from $300,000 to $650,000. This account requested 45 day payment terms. At the same time, an opportunity to acquire a competitor came up which would push their annual revenue over $1 million dollars during the first year. A traditional line of credit would not be sufficient to finance the growth. An SBA 7a loan would be used for the acquisition, and the bank was looking for a source of ongoing working capital financing. Benefit to the Business: The day one A/R was the source of the SBA required equity injection for the acquisition. The program allows shop to continue to grow the business by adding new customers through the acquisition and business development activities. Stronger relationship with the lender The reserve account sweeps will be used to pay the SBA term debt. Benefit to the Bank: Stronger relationship with the business The anticipated yield on the Business Manager account of 11.63%, based on a 60 day turn of accounts receivable. The anticipated average core deposits generated are $30,000, with an average anticipated outstanding Business Manager line balance of $165,000. The bank is using credit and fraud insurance to assist with the mitigation of risk. The bank gets paid first and uses the excess reserve to pay the SBA term loan. #2 Business Description: Trucking and Transportation Lead Source: Trucking and Transportation Benefit to the Business: Program provided cash flow to support growth and allowed business to take on several new customers. Adequate cash flow allows the business to attract/retain top drivers. Adequate cash flow also allows the business to participate in a group fuel buying plan. Benefit to the Bank: The bank was able to attract a quality, well respected customer back to the bank (customer left the bank years ago). The bank also was able to place the sister trucking company on Business Manager with both deals yielding in excess of 10%. The safety and soundness provided by AVS and the lockbox made the bank comfortable with the Business Manager working capital line to a very capital intensive growing company. ProfitStars Client Bulletin Commercial Lending Update June

6 #3 Business Description: Natural gas services company specializing in roadway clearing Lead Source: The customer heard about the program from a current BusinessManager client (from another bank) and approached his bank. Benefit to the Business: The business was growing very quickly and had difficulty keeping up with payroll and expenses. The owner had to turn away work. The improved cash flow will allow much greater business growth and profit. With the initial purchase of accounts, the business plans to payoff payables and other debt and starting taking advantage of discounts from their fuel suppliers. Benefit to the Bank: The bank was able to provide an affordable solution to longtime customers, while still earning a 12% yield. Bank retained a good customer as he heard about another bank s program. The bank felt more comfortable and in control to be able to monitor the businesses progress through the new BusinessManager Gold solution. #4 Business Description: Oilfield trucking company Lead Source: This was a current bank customer with a fully funded line of credit. Benefit to the Business: The business needed to enhance the timing of cash flow to support growth. With the initial purchase of accounts, the business was able to pay-off the LOC and also eliminate the debt associated with two equipment loans. The total debt paid off was nearly $600k. The business also was able to keep nearly $150k additional cash in their operating account after paying off these obligations. Benefit to the Bank: The bank was able to provide the working capital needed for a fast-growing customer. From the bank s perspective, the BusinessManager line offered the ability to monitor this client s working capital needs more effectively that with a traditional line. ProfitStars Client Bulletin Commercial Lending Update June

7 TRAINING 2011 Lending Solutions Training (Brentwood, TN) There are several key factors that result in bank success when offering the BusinessManager program. Near the top of the list is training of the BusinessManager Process Coordinator and Program Director. We know that our clients often move new personnel into these positions and encourage you to have them trained at our Brentwood, TN, facility as soon as possible. This two-day event will provide your employees with strong working knowledge of our systems and how to deploy them in the field. The Program Directors will also learn the best practices associated with underwriting, pricing, documentation and credit management of a BusinessManager portfolio. If you would like to enroll yourself or an employee of your organization, we encourage you to consider one of our 2011 training events listed here: Training Dates July 7-8 August September 8-9 October 6-7 November 3-4 December 1-2 For more information regarding BusinessManager training or to register for a seminar, contact the BusinessManager training department at (option 1, then 2). ProfitStars Client Bulletin Commercial Lending Update June

8 Regional Managers Perspective Developing Centers of Influence Earlier this month, I was traveling with a Business Development Manager (BDM) on behalf of one of our client banks. The bank wants to increase both its commercial lending volume and market share. With that goal in mind, bank management requires the lenders to maintain a list of their top 50 centers of influence (COI s). One of the main professional groups on these lists is CPA firms. During our trip, we made several business calls, but the bank will most likely get the most traction from the two meetings we had with CPA s. A lender set up one of the calls and attended it with us, while the other was scheduled by the BDM from a prior calling effort. The first call was with two partners of a ten-employee CPA firm. After introductions, we started with a basic outline of BusinessManager, describing how it could benefit their clients. Based on the initial questions from one of the partners, I knew he was confusing us with more invasive financing alternatives. He asked about sending invoices and making collection calls, so we asked him about the type of receivable financing he was familiar with, and of course he described factoring. We doubled back and reviewed how the BusinessManager program worked, and discussed the partnership between the bank and Profitstars. We then described some recent deals including pricing examples and an overview of how the program has accelerated cash flow and enhanced operations for various businesses. From that point on, the questions being asked were of a more specific nature, pertaining to their current clients. The second CPA call was to one of the main partners of much larger firm. We had limited time, so we cut to the chase and described the differences between BusinessManager and the types of accounts receivables financing he said he was familiar with. He immediately saw the benefits and differences of BusinessManager and agreed to hold a follow-up meeting to include 15 to 20 associates of the firm. Both of these calls are likely to reap benefits for the bank that include BusinessManager as well as other commercial products. In the past, many CPA s have not presented the program to their clients due to the widespread availability of other working capital facilities. That has changed over the last few years. By relaying recent stories about pricing, deal size and the benefits of using BusinessManager, their COI s will be more likely to recommend the program. Due to the financial stress of the last several years, many businesses are dealing with reduced lines of credit. This can cause some businesses to walk away from new sales opportunities because they would not be able to carry the accounts receivables or inventory given their current line availability. This is a great time to meet with CPA s, now that tax season has passed and their client reviews are fresh. For many, these reviews have uncovered the need for the enhanced cash flow that BusinessManager can offer. Developing your centers of influence and explaining the differences between BusinessManager and other financing vehicles can pay long term dividends for the bank. ProfitStars Client Bulletin Commercial Lending Update June

9 Resource Center Powerful Hosted Solution to Boost Loan Revenue & Increase Your Net Interest Margin A perfect fit for our BusinessManager clients! Do you have the strategies and tools you need to compete effectively and win more business in today s challenging environment? If not, you can change that today. The new Margin Maximizer Interactive (MMi) loan pricing solution from ProfitStars helps your lenders understand the profitability of every pricing decision, win more profitable business, know the pricing power of deposits, understand the impact loan size has on profitability, and effectively factor credit risk into the pricing equation on every deal. Your bank or credit union can now be up and running almost instantly thanks to our new hosted platform that utilizes Microsoft Silverlight and Microsoft Windows Azure technology and helps make Margin Maximizer more accessible and affordable than ever before. Log on to the Commercial Lending Knowledge Center to learn more, and to listen to a demo. SAVE THE DATE! ProfitStars Educational Conference is scheduled for March 2012 ProfitStars has announced that it will hold its 2012 Educational Conference (PEC) on March 7th through 9th at Caesars Palace in Las Vegas. During recent years, BusinessManager clients have seen this event as a wonderful forum to discuss the program with other bankers and with the ProfitStars management team. It is a great way to learn the latest trends regarding the product, the newest features of the software and the methods banks are using to achieve success. Through group and peer group discussion, you will be able to ask questions and seek feedback regarding best practices in key areas such as marketing, business development, underwriting, credit management, insurance and more. We encourage you to save the date for 2012 and begin planning to see us in Las Vegas. ProfitStars Client Bulletin Commercial Lending Update June