Cash Flow Basics

Finding Financing in Today’s Economy Courtney Lipscomb, Business Banking Officer SunTrust Bank Live Solid. Bank Solid. Loan Types & Revenue Streams   Commercial Mortgages Lines of Credit   Equity Lines of Credit      Unsecured Lending? Equipment & Term Loans Church Lending SBA Mortgages & Lines    Refi/Cash Out, New Purchase, Construction, Land Are you paying more for leasing? Establish ownership Tax Benefits Investment Property The Soft Skills     Why are you going into business? What does your product or service seek to accomplish? Where is your data? First Impressions Loan Package Components           Application & Personal Guaranty Personal Financial Statement Schedule of Business Debt Min. Past 2 years Personal & Business Tax Returns 2 months Bank Statements 4506-T Form for SSN# & TIN# Past 2 years Income Statement & Balance Sheet Business Plan & Pro Forma Statements (start-ups) Organizing Paperwork & Agreements Operating Bank Account Historically Speaking, Not Just Your Score  SBFE-Small Business Financial Exchange, managed by Equifax   Predicts the likelihood of a small business account incurring 90+ days severe delinquency, charge off, or bankruptcy in the next 12 months Mid-High 500’s High 600’s  FICO Beacon Score-Consumer Accounts   Payment History, regardless of Score Understanding Underwriting Character     Banks only have credit reports to rely on to determine character. How you’ve paid others is the only true gauge a bank has on how you’ll repay them. Take appropriate steps to keep your credit in good standing. The Truth- Banks can see your entire history. Paying on time is as important as your score. Understanding Cash Flow    Banks are Cash Flow Lenders Profit – To report or not to report? How informed is your CPA? GDSC – Global Debt Service Coverage is one ratio banks use to determine cash flow  Global = Personal income & expense + Business income & expense See example on next slide Understanding Cash Flow    GDSC = Annual Income / Annualized Debt $60,000 / $29,500 = 2.03 This means for every $1.00 of debt, there is $2.03 to cover it. Banks generally require a ratio of:     1.25 (Start ups) 1.35 -1.40 (Conventional) 1.00 (SBA, Non Start Ups) 1.00-1.10 (Churches) Understanding Underwriting Capacity   Does the business have the revenue and cash flow to support both new and old debt? Is there a secondary source of repayment? What is it & where is it? Revenue Streams Cont.          ______ %_____ ______ %_____ ______ %_____ =100% Avg unit price x # sold= revenue per stream Avg unit price x # sold= revenue per stream Avg unit price x # sold= revenue per stream _______________ $ Total Revenue next year Positive Cash Flow?     Do you have a partner, family member, angel investor to become a co-guarantor on the loan? Have you used the savings calculators on www.bankrate.com? Are you eligible for grants, etc? How much stimulus money was awarded to your county? Have you tapped into those resources? Understanding Underwriting The 4 C’s of Credit  Cash  Collateral  Character  Capacity  The Bank’s Litmus Test to understand your ability to repay the loan if the business can not Understanding Underwriting cont. Cash  Do not expect the bank to finance 100% of your business.   Where is your 10-15% down payment? Bank 50%,SBA 40%, You 10% Not Bank Accounts  Only cash FLOW repays loans  Understanding Underwriting cont. Collateral   1. 2. 3. Banks rarely lend on an unsecured basis Acceptable forms of collateral are: Real Estate- Proof of Hazard Insurance Accounts Receivable / Inventory Machinery/Equipment-Vin #, Bill of Sale CDs 4.  Restrictions vary per bank & loan type regarding percentages they will finance (LTV) Show Initiative & Get Your Loan          Educate yourself & get relevant experience Get professional help in organizing, managing & running your business to minimize costs Research lowest merchant service rates Research low cost payroll services Collect payment faster with ACH Fraud Protection Pay attention to your personal and business cash flow Address any issues on credit report Upfront Have up to date, accurate, and realistic documents Show Initiative- Reduce Expenses; Increase Profit       Ability to collect Payment wherever, whenever? SunTrust Lowest Rate Guaranteed & Free Equipment! SunTrust Full Service Payroll @ $35/month-Period! Free accounts, wires (depending on industry), ability to transfer money from business to personal online Free Fraud Inspector (some accounts) Ability to Deposit Money from your Desk until 8:30 PM Dedicated Business Banking Team Things To Consider  High Risk, Ineligible Industry?  Real Estate Developer, Financier, Agriculture SBA Loan Fees Waived! Low Prime Rate New SunTrust SBA Export Lending Available 3rd Quarter!  Stimulus Package     Is your Business sustainable in the new green economy?  What/ how will environmental regulations impact you? Show Initiative!  Let’s Work Together & Show Yourself the Money! Question & Answer Courtney Lipscomb SunTrust Business Banking 404-624-4254