FEI Professional Development Session September 21, 2017

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Presentation transcript:

FEI Professional Development Session September 21, 2017 Chat with Our Senior Credit Officers Steps for Success When Positioning Your Company for Credit © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

© 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. Today’s Agenda Introductions Setting the Stage – Borrower’s Motivations & Views on Securing Financing Discussion / Commentary from Kelly & Mark Q&A © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

© 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. Setting the Stage © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Top Issues Facing U.S. Businesses © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Risk & Return Profiles are Very Different for Debt vs Equity Financing © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Borrower’s Motivation To Secure Financing (Last 12 Months) © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Is it Easy or Difficult to Raise New Debt Financing? © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

~60% of Cash Flow Applications are Declined © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

The Credit Process is Really not a Black Box!! Credit Request © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Conventional vs Other Vehicles SBA Asset-Based Factoring No $ Limit - Operating companies need strong cash flows - Priced off of different interest indexes; LIBOR, prime, etc. - Can be used for passive (investment) & non-passive needs - Higher down payments - Covenants Up to $5M - Made by bank & non-bank lenders - Guaranteed by the Federal government - Priced off of prime + spread - Limited to business purposes; i.e. real estate, working capital, equipment, acquisitions - Lower down payments - No covenants For working capital - Revolving credit line based on a % of eligible accounts receivables and/or inventory Accounts receivables are sold to a 3rd party & the 3rd party collects payment - It’s not a loan - Is primarily based on the quality of your customers credit, not your business © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

© 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. The Five C’s of Credit Conditions The loan’s purpose Capacity Cash flow - 1st source of repayment Collateral Other assets – 2nd of source of repayment Capital The amount owners have invested in equity Character Owner(s) history in managing personal & business credit © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Covenants – Why Do Banks Add These? Maintain Loan Quality Ensure Adequate Cash Flows Keep an Updated Picture of the Borrower’s Financial Performance & Condition © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

© 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. Covenant Types Financial Debt Service Coverage Debt to Equity Tangible Net Worth Affirmative Maintain Good Standing of Entity Maintain Adequate Insurance Policies Negative Restrict Incurrence of Additional Debt or Acquisitions / Divestitures Without Lender Approval © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

© 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. Q & A September 21, 2017 © 2017 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.