Financing Profitability Model

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					Financing A New Firm



             Martha Sloan Felch
             March 30th, 2009
                                  SM
           Financing A New Firm
 My Background
--Commercial banker since 1985 (Shawmut, Fleet,
Sovereign)
--Middle Market and Business Banking
--Architects have been a constant in my customer
mix
--Frequent speaker on financial literacy and
banking requirements




                                                   SM
            Financing A New Firm
 What Banks Want
--The five C’s of Credit (Character, Capacity,
Collateral, Capital, Credit history)

--Profitability (function of credit risk, income from
outstanding balances, cost of interest bearing
accounts, income from cash management and other
fee services); rates and fees are driven by the
Bank’s internal model




                                                        SM
             Financing A New Firm
  Timing-When is it time for the bank to
  hear your request?
--Revenue generation

--Profitability sufficient to service debt
within first 30 days

--Credible forecast




                                             SM
             Financing A New Firm
  What to expect to give in order to
  receive a credit offering
--Personal guarantees
--Secured by personal assets
--Satisfactory financial presentation (get a
good CPA)

--Primary deposit relationship (with
advantages to also maintaining personal
accounts there)



                                               SM
                   Financing A New Firm

  What to expect from the bank in terms
  of rate/structure
Type of Facility

--Match to repayment source

--Credit line for temporary working capital
(repaid from asset conversion)
--Term debt for fixed asset purchase and
permanent working capital (repaid from
cash generated by operations)

                                              SM
             Financing A New Firm

  Rates

--Floating rates for lines; fixed rate for term

--Loans less than $1million generally based
on Prime

--Actual rates subject to floors and based
on risk rating (8 point scale)




                                                  SM
             Financing A New Firm

  Structure
--Credit lines to cycle out of debt for 30
consecutive days each year (temporary
working capital)

--Standard covenants (if committed facility)
for debt service coverage and leverage
--Debt service coverage = EBITDA/P&I
(>=1.25x)

--Leverage = Total Liabilities/tangible net
worth (<=3x)


                                               SM
            Financing A New Firm

 Who to Contact
Varies by bank, but generally:
--Branch Business Banking Representative
for start-ups and businesses with revenues
less than $1 million

--Relationship Manager for larger and
seasoned companies (Business Banking up
to $25 million in sales/$3 million credit;
Middle Market otherwise)



                                             SM

				
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posted:2/8/2011
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