SELLING TO THE SMALL AND MEDIUM SIZED BUSINESS: CREDIT, FINANCIAL AND LEGAL ISSUES FOR THE CREDIT TEAM Scott Blakeley, Esq. SEB@BlakeleyLLP.com Susan Archibeque, CCE Director of Credit, Nicholas & Company, Inc Susan.Archibeque@nicholasandco.com Ron Sereika, CCE rsereika@coopervision.com

Summary of Small, Medium and Large Business Classifications According to the SBA - Business Classifications   Small 0 - 100 Employees $5 - $10 Million Annual Revenue Limited Cap X There at 28 million  n US - appx $54% Medium 101-500 Employees $20 Million - $1 Billion -annual  Revenue Some Cap X Likely more than one office Large 1000 >  employees Over $1 Billion annual Revenue Large Cap X Several Offices

What is a Small to Medium Sized Business? (SMB) Revenue Capital structure Corporate form Management and ownership The life cycle of an SMB

New Account Set Up: Creating Transparency with the SMB Startup or established? It is essential that you use a credit application for each new account. Serves as a legal document (must be signed by an officer) Tells the customer what they can expect in; payment terms, Sales Tax, Interest charges Contact information- who to contact to get paid, who is owner, EIN number or SS Documenting the sale with T&C’s

New Account Set Up: Creating Transparency with the SMB Gathering credit and financial information Trade credit bureau reports Supplier and bank references Trade credit industry groups Do you need to get a credit report on every new customer? Look for company website, Google, LinkedIn. Credit scoring Do you have a Credit scoring model set up? What factors are important in your credit scoring model?

Understand the SMB’s Business Know the SMB’s customers Industry trends? Where do they stand in the industry?  Current loan structure? A balance between short and long term debt to cover the rough spots?   What does their bank say about the rate and formulas?  The rate indicates the risk concerns of the bank  They will know more than you may have access to What is the potential for growth and profit? Understand their cash to cash cycle as it relates to your terms Be a consultant to the SMB

Preserving the SMB Through Contract and Credit Enhancements

Financing Alternatives for the SMB Traditional bank lending Small Business Administration (SBA) guaranteed loans Fintech Credit Cards Supply Chain financing Factoring Asset based lending

Selling the SMB on Terms Maintaining the relationship- balancing risk and collection practices Payment channel- paper vs. E-forms Alternative payment mechanisms: Credit Card Electronic check ACH Terms pushback Robinson Patman considerations

Industry Information Regarding SMB's Warning signs of delinquencies A/R aging High credit risk score Timing for what is considered delinquent Collections Judgments Liens Bankruptcy Likelihood of small business to become severely delinquent Monitoring accounts Tighter lending practices Vendors as lenders Social media and non-traditional sources to measure credit risk Monitoring of bank lending, term dates and covenants

If the SMB Has Not Paid Managing A/R risk Managing preference risk Alternative payment channel Repayment Agreement

SMB Into Insolvency Survivability of out of court Small business chapter 11 Chapter 13