Session 1 What s Your Score?

Transcription

1 Session 1 What s Your Score? Presenter: Rosemarie A. Drake Lender Relations Specialist Supervisor Georgia District Office

2 Established in 1953 Independent Federal Government Agency About the SBA

3 SBA s Mission Capital Contracts Counseling

4 SBA Loan Data

5 YTD Loan Volume for SBA Loan Programs October 2015 thru June 2016 Georgia 7a loans= #1,411 Totaling $943,845,300 National 7a loans= #47,475 Totaling $17,422,472, = #113 Totaling= $87,143, loans= 4,199 Totaling=$17,422,472,643 $1,030,988,300 YTD FY16 compared to $928,217,800 YTD FY15 $20,765,271,643 YTD FY16 compared to $19,121,746,300 YTD FY15 5

6 Breakdown of Georgia Loans by Industry FY 16 FY 15 Industry # % # % Accom. Food Serv % % Admin/Supp % % Agric/Forest/Fish % % Arts/Entert/Recr % % Construction % % Educational Serv % % Fin. & Insur % % Health Care/Soc % % Information % % Mgmt./Comp % % Manufacturing % % Minning % % Other Serv % % Prof/Sci/Tech/Serv % % Public Admin % % Real Estate/Rent % % Retail Trade % % Transport/Ware % % UNK 0.00% 0.00% Utilities % % Wholesale Trade % % Grand Total 1, % 1, % 6

7 Georgia 7a Loan Breakdown by $ Loan Sizes FY 16 FY 15 7(A) # % # % < = to $50, % % $50.01K - $100K % % $100.01K - $150K % % $150.01K - $250K % % $250.01K - $350K % % $350.01K - $500K % % $500K - $1M % % $1.01M - $2M % % $2.01M - $2.5M % % $2.501M - $3M % % $3.01M - $4M % % $4.01M - $5.5M % % Grand Total 1, % 1, % 7

8 8 Georgia 504 Loan Breakdown by $

9 What s in my FICO Score A credit risk measures for consumers. Equifax, Experian, Transunion Score Range

10 5 Categories FICO Score Breakdown

11 FICO does not take into consideration Ethnicity Age Gender Religious affiliation Residence Interest rate charge Certain Types of inquires*

12 How Does My Personal Credit Impact My Business Credit? Global cash flow Character Personal Guarantee

13 5 C s of Credit Character Industry and/or management experience. Credit history Capital Capacity Borrower s equity into the business (generally non borrowed) Measures the ability to repay the loan. Business and/or personal. Reviews credit (NW) Collateral Assets to secure debt Conditions Overall economy and borrower. Industry, competition, etc. What are the terms and purpose of the loan

14 CHARACTER FICO Score DUNS (Data Universal Number System Personal vs Business Credit SBA Personal History

15 CAPITAL Equity Injection (cash (*) not collateral) Secondary source of repayment Personal debt service

16 CAPACITY Repayment ability (historical or future) Business Cash Flow Personal Cash Flow Global Cash Flow Projections (with assumptions)

17 Traditional Cash Flow Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) Net Income (loss) +Interest Expense +Tax +Depreciation +Amortization =Net cash available to service debt

18 Sample IRS 1040 Schedule C & Debt Service Coverage Ratio

19 COLLATERAL All Available Assets (Business & Personal) Collateral vs Equity Collateral Valuations

20 CONDITIONS Purpose Market Condition Other Factors Uses and sources of proceeds Industry Competition and competitive advantage Lender s Risk Portfolio

21 Lender s Role Application Decision Closing & Disbursement Servicing Collection (i.e. liquidation) 21

22 Preparation for a loan request BASIC Financial statements 3 years business, affiliate business and personal federal tax returns Financial projections with written assumptions Personal financial statement* Business plan/executive summary Overview of business, & management Loan purpose: use of proceeds (C s of credit) Market demographics, competition SBA FORMS Statement of Personal History (912) SBA borrower application (1919)* Personal Financial Statement (413) *PERSONAL GUARANTY*

23 Are you Ready for Financing? Recap Know your numbers Mitigate the deficiencies Completed application with support documents

24 LINC Access: 24

25 Q&A

26 Rosemarie A. Drake

27 SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99) Name of proprietor Profit or Loss From Business (Sole Proprietorship) For information on Schedule C and its instructions, go to Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form OMB No Attachment Sequence No. 09 Social security number (SSN) A Principal business or profession, including product or service (see instructions) B Enter code from instructions C Business name. If no separate business name, leave blank. D Employer ID number (EIN), (see instr.) E J If "Yes," did you or will you file required Forms 1099? Yes No Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the Statutory employee box on that form was checked Returns and allowances Subtract line 2 from line Cost of goods sold (from line 42) Gross profit. Subtract line 4 from line Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) Gross income. Add lines 5 and Part II Expenses Enter expenses for business use of your home only on line Advertising Car and truck expenses (see instructions) Commissions and fees. 11 Contract labor (see instructions) 12 Depletion Depreciation and section 179 expense deduction (not included in Part III) (see instructions) Employee benefit programs (other than on line 19).. 15 Insurance (other than health) 16 Interest: a Business address (including suite or room no.) City, town or post office, state, and ZIP code F Accounting method: (1) Cash (2) Accrual (3) Other (specify) G Did you materially participate in the operation of this business during 2013? If No, see instructions for limit on losses. Yes No H If you started or acquired this business during 2013, check here I Did you make any payments in 2013 that would require you to file Form(s) 1099? (see instructions) Yes No Mortgage (paid to banks, etc.) 8 18 Office expense (see instructions) 9 19 Pension and profit-sharing plans. 20 Rent or lease (see instructions): 10 a Vehicles, machinery, and equipment 20a 11 b Other business property... 20b Repairs and maintenance Supplies (not included in Part III). 23 Taxes and licenses Travel, meals, and entertainment: a Travel b Deductible meals and entertainment (see instructions). 25 Utilities a 26 Wages (less employment credits). 26 b Other b 27a Other expenses (from line 48).. 27a 17 Legal and professional services 17 RADrake b Reserved for future use... 27b 28 Total expenses before expenses for business use of home. D: '00'5/15/2014 Add lines 8 through 27a... 8:18:51.. AM Tentative profit or (loss). Subtract line 28 from line Net Income= $71,500 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Add back Dep= $ 1,500 Simplified method filers only: enter the total square footage Add of: Back (a) your Interest= home: $ 1,500 and (b) the part of your home used for business: Cash Available to Service. Use Debt= the Simplified $74,500 Method Worksheet in the instructions to figure the amount Divided to enter on by line Net profit or (loss). Subtract line 30 from line 29. Proposed annual debt payment= $ 19, If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and Debt trusts, coverage enter on ratio= Form 1041, 3.75x line 3. RADrake 31 If a loss, you must go to line 32. D: '00'5/15/2014 8:14:42 AM 32 If you have a loss, check the box that describes your investment Lenders in this generally activity (see are instructions). looking for x or better. Loan request= $150,000 If you checked 32a, enter the loss on both Form 1040, line 12, (or Form 1040NR, line 13) and Rate= 6% on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and 32a All investment is at risk. SBA lenders are looking for 1.10x -1.15x or better. with the trusts, enter on Form 1041, line 3. Term= 10 years 32b Some investment is not average being 1.20x at risk. If you checked 32b, you must attach Form Your loss may be limited. Monthly Payment= 1, For Paperwork Reduction Act Notice, see the separate instructions. Cat. No P Annual Pmt 12= 19,884 Schedule C (Form 1040) 2013 } } a 24b 25 Yr 1 principal paid=11, Yr 1 interest= $7,903.34

28 Schedule C (Form 1040) 2013 Page 2 Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: a Cost b Lower of cost or market c Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If Yes, attach explanation Yes No 35 Inventory at beginning of year. If different from last year s closing inventory, attach explanation Purchases less cost of items withdrawn for personal use Cost of labor. Do not include any amounts paid to yourself Materials and supplies Other costs Add lines 35 through Inventory at end of year Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form When did you place your vehicle in service for business purposes? (month, day, year) / / 44 Of the total number of miles you drove your vehicle during 2013, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) c Other 45 Was your vehicle available for personal use during off-duty hours? Yes No 46 Do you (or your spouse) have another vehicle available for personal use? Yes No 47a Do you have evidence to support your deduction? Yes No b If Yes, is the evidence written? Yes No Part V Other Expenses. List below business expenses not included on lines 8 26 or line Total other expenses. Enter here and on line 27a Schedule C (Form 1040) 2013

29 The Business Plan when applying for a Small Business Loan Presenter: Sharon Macaluso, UGA SBDC

30 Overview The business plan is one of the first documents a lender is going to ask for. A viable business plan demonstrates to a loan officer you have organized your thoughts and gone through the process of thinking your business out. The business planning process is more valuable than the written plan. Do it yourself. Don t hire someone to do it for you.

31 Basic Components of a Business Plan Cover Page Table of Contents Executive Summary Business Description Who you are, what you sell, legal structure, location, etc. The Market & Market Analysis Target Markets Industry Analysis Competitive Analysis Marketing Plan Management Operations & Personnel Financial Analysis & Projections Supporting Documents

32 Presentation Matters Organization Page numbers, Headings and Sub-Headings, 3-Ring Binder Easy to read and understand Minimize technical terms Grammar, spelling, sentence structure Charts, pictures and graphs IF they make sense If lender doesn t understand, it will be passed over Is what is in your head, being clearly communicated? Based on facts and research Source your research and data Avoid fluff No longer than 20 pages Importance of the Executive Summary and Financial Section

33 Executive Summary At the beginning, but written last Should grab the readers attention and inspire them to read more After the Executive Summary, the lender will often flip to the Financial Section The Three M s should be covered in the Executive Summary Market Management Money

34 FINANCIAL PROJECTIONS AND LOAN PACKAGE It s All About The Numbers

35 The Financial Section of the Business Plan Statement of Financial Need / Sources and Uses of Funds Historical Financial Statements (existing business) Projected Financial Statements (start-up and existing businesses) Notes of Explanation to Financials / Assumptions

36 Steps in Financial Projections 1. Estimate fixed asset requirements. (Land, Buildings, Leasehold Improvements, Equipment, and Vehicles) 2. Estimate and itemize any start-up, one-time or unusual expenses. (Installation costs, Pre-opening marketing and legal fees) 3. Determine amount of inventory and initial need for operational and administrative supplies. 4. Estimate sales by month. If you have multiple product lines, estimate them individually.

37 Steps in Financial Projections 6. Calculate gross profit by product line(sales Price Cost of goods sold = Gross Profit) 7. Determine average collection period. 8. Determine how fast vendors must be paid. 9. Estimate fixed expenses by month. 10. List repayment schedule for existing loans.

38 Estimating Sales Research will be needed here. Talk with vendors. Check out industry averages or competitors. Estimate by product category. Estimate annual sales broken down into monthly expectations don t forget about seasonal fluctuations. Estimate average daily sales or traffic.

39 How to Estimate Expenses Estimate and itemize fixed expenses by month for at least one year: These usually include such things as rent, insurance, utilities, salaries, marketing, legal/accounting fees, loan payments, etc. Determine all categories which apply to your business. Get Quotes to support expenses.

40 Financial Projection Statements Income Statement Balance Sheet Cash Flow

41 Income Statement The income statement, also known as the profit and loss statement, includes all income and expense accounts over a period of time. This financial statement shows how much money the business will make after all expenses are accounted for.

42 Sample Income Statement Projection Sales $100,000 Cost of Goods Sold $50,000 Gross Margin $50,000 SG&A ($30,000) Interest ($6,000) Depreciation ($2,000) Net Profit before Taxes $12,000

43 Balance Sheet Includes what the business owns (assets), what the business owes (liabilities), and book value of the business (equity). Balance sheets are shown as a specific date or point in time as opposed the over a period of time, like an income statement shows.

44 Balance Sheet Assets Cash $5,000 Inventory $5,000 Furniture $1,000 Equipment $5,000 Improvements $10,000 Liabilities Acct. Payable $7,500 Bank Loan $10,000 Owner Equity Retained Earnings $8,500 Total Assets $26,000 Total L & OE $26,000

45 Cash Flow Projections The most important of all the projected financial statements. Business owners must have a fundamental understanding of what cash flow is and how cash flow works. Simple way to look at doing cash flow projection is to think of it as doing a budget. CAUTION: Failure to adequately understand cash flow can be fatal to a business. CASH IS KING! When you are out of cash, you are out of business.

46 Cash Flow Projections Includes all cash coming into the business. Includes all cash leaving the business. Obviously, a business cannot operate in the absence of cash. Must be included as part of monthly and annual projections.

47 Financial Plan Income Statement answers: How much profit will the business make? When will the profits be made? Balance Sheet answers: How much of a business do owners own? How much do creditors own? Can funds be borrowed? Cash Flow Statement answers: When does a business begin to cash flow? How much cash will the business generate?

48 Financial Plan Caution: It is important that the owner have ownership of the financial projections. Depending on the lender, projections generally should be prepared and presented on a monthly basis for the first three years. Understand the impact of any business cycle!

49 Sources of Money Total Project Cost: How much is needed? Equity Injection: How much will the owner invest?

50 Sources and Uses of Funds Sources Owner Investment $8,500 Bank Loan $17,500 TOTAL $26,000 Uses Improvements $10,000 Furniture & Equipment $6,000 Working Capital $10,000 TOTAL $26,000

51 How Do You Determine Your Working Capital Needs?

52 Break Even Analysis The amount of sales necessary to pay all fixed costs (and have zero profit) 1) Determine Gross Profit. Sales minus Variable Expenses (Cost of Goods Sold) 2) List and total all Fixed Expenses for a specific time period (usually one month.) 3) Break Even Sales is Fixed Expenses divided by Gross Profit Percentage

53 Break Even Analysis Unit sales price: $10 less Cost of Goods Sold: Material & Labor: $4 Gross Profit: $6 Gross Profit %: 60% Monthly Fixed Expenses: Rent $2,000 Utilities $1,000 Salaries $3,000 Other $4,000 Total Fixed Expenses: $10,000 Break-even = Fixed Expenses / Gross Profit % $10,000/60% Monthly BE Sales = $16,667

54 Loan Package Contents New Businesses Lender s loan application Business plan Financial Projections (3 Years) Start-up costs Individual tax returns Personal financial statements Support exhibits ex Existing Businesses Lender s loan application Business plan (updated) Financial projections (1 Year) Business Financial Statements Individual & Business tax returns Personal financial statements Support exhibits

55 Support exhibits Management resumes and professional certifications. Important legal documents: copies of leases, business licenses, contracts and others. Letters of intent from potential clients. Company specific profiles: financial, trends, competitive intelligence, management team.

56 Support exhibits Industry overview: financials, market size, companies, trends, trade associations. Market research: competitive landscape, market share, statistics, consumer data. Demographics: populations, spending, lifestyles, income, business data relevant to target market. Literature: articles on relevant business topics.

57 Thank You Sharon Macaluso Area Director, DeKalb Office The University of Georgia Small Business Development Center