Small business financing options workshop

© ASBTDC 2012 All Rights Reserved
Business Financing
Options
ASU 052112

*
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/

*
*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

*
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)

*
*Private investment
*Grants
*Conventional financing
*Government-backed programs
*Alternative lending programs

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/

*
*Savings Accounts
*Relatives or Friends
*Credit Cards
*Second Mortgage
*Retirement Plans

Grant Resources
*

*
* 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

*
*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

*
*Available in print or on the Internet
*Updated twice a year
*Deals with all types of federal government assistance
*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)
*

*
*Grants for science and energy related
research projects
*Agency solicitation notices
*Competitive proposals required
http://science.doe.gov/grants/index.asp

*
* 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

*
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

*
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

Conventional Financing
*

*
*Sack of money
*Low mark-up
*Deduct interest
*Payback over time in deflated dollars
What a Deal!

*
*Executive Summary
*Financing Proposal
*Company Description
*Industry Analysis
*Products and Services
*Market Analysis
*Organization and Management
*Operational Plan
*Financials

*
*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

*
*The 5 Cs of Credit
*Conditions
*Character
*Capacity
*Capital
*Collateral
 The 12 Magic Numbers
◦ Liquidity
◦ Profitability
◦ Efficiency
◦ Leverage

Government Backed Programs
*

*
*What is an SBA Loan?
*Credit Requirements
*Terms
*Interest Rate
www.sba.gov

*
*Takes forever to get money
*Requires a “ton” of paperwork
*Offers low interest rates
*Provides grants

*
*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

*
*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

*
*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

*
*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

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

*
*7(a) Loan Guaranty Program
*SBA Express
*Patriot Express
*504 Loan Program
*MicroLoans

*
*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.

*
*25 years Real Estate
*10 years Equipment
* 7 years Inventory, Accounts Receivable,
Working Capital

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

*
*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

*
*Lender must be PLP
*Maximum loan $350,000
*Lender applies for 50% loan guaranty
*Lender handles approval and issuance

*
*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

*
*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

*
*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

*
*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

*
*Repayment Ability
*Management Ability
*Equity Position
*Collateral

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

*
*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.

*
*Start-up Expenses
*Accounts Receivable
*Contingencies & Emergencies
*Rule of Thumb: 3 months fixed expenses

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

*
*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.

*
*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.

*
*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
*Business & Industry Guaranteed Loans
*Rural Economic Development Loans
*Farm Loans
*Export Financing
http://www.rurdev.usda.gov/
http://www.usda.gov

*
*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

*
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/

Alternative Lending
*

*
• 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/

*
• 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

*
Funding areas
*Medical
*Dental
*Veterinary
*Optometry
Lenders
*Newtek Financial Services (SBA Preferred Lender)
*Bank of America Small Practice Solutions
*Wells Fargo Practice Finance

*
*Alt Consulting http://altconsulting.org/
*Kiva http://www.kiva.org/
*Accion http://www.accion.org/
*Opportunity Fund http://www.opportunityfund.org/
*Sam’s Club

*
*SBA SDB Certification
*Disaster Loans

*
*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

*
*Physical disaster loans
*Economic injury disaster loans
*SBA Contact: Fort Worth Disaster Office
800.366.6303

*
*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 Development
319 University Loop West
Jonesboro, AR 72401
Or 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.sbtdc
http://www.twitter.com/asbtdc_asu
Email us: asusbtdc@astate.edu

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