Derek Kissinger, MBA

 Start-up Loan vs Other Small Business Loans  Banks & SBA  Secondary Lenders  Crowdfunding/Kiva  Recap

*Start-Up loan is any loan where the business has yet to file a tax return  Until your business can produce a tax return you will be classified by lenders as a start-up

SBA = Small Business Administration  Designed to help small businesses grow and expand by making loans easier to attain  Provides a government guarantee to banks on loans that have higher inherent risk (85% of all small businesses fail in the first 2 years)

1. Experience 2. Character 3. Secondary Source of Repayment 4. Owner’s Injection 5. Collateral

 Borrower(s) need to have either direct experience with the type of business that he/she intends to start or related training. With more specialized businesses experience and training is much more important.  Ex: Opening a Coffee Shop vs Sound Engineering Studio  Borrower(s) resume(s) will be required.  An Executive Summary will also be required.

 Credit history of borrower(s) needs to be “responsible”  Does the borrower Want to pay back the loan?  All credit issues need to be explained or justified. If explanation can be documented it will have better results.  Anyone who has a 20% or higher stake in the business is required to be part of the loan and have their credit run >700 = Good Chance at least a line of credit = Maybe < 600 = Very Unlikely

If the business owner(s) have a source of income different than the one generated by the proposed business, it is considered to be a secondary source of repayment.  Does the borrower have the Ability to pay back the loan?  Last filed personal tax return of the borrower(s) will be required in order to determine *Most banks require at least $1.20 in Cash Flow for every $1 in liabilities

Lenders require an owner’s injection of 15-30% of the total project cost. A ‘Use of Funds’ and ‘Source of Funds’ will be required to calculate the total project cost. Project Cost (example) Use of Funds Rent Deposit:$10,000 Leasehold Improvements:$20,000 Equipment:$40,000 Furniture:$20,000 Inventory:$20,000 Working Capital:$10,000 Total Use of Funds: $120,000 Source of Funds Owner’s Injection:$24,000 (20%) Up to 30% SBA Loan:$96,000 Total Source of Funds:$120,000

Lenders require assurance of repayment if borrower is unable to make payments  Real Estate 80% LTV  Equipment 50% Liquidation If reliable secondary source of repayment is available then lenders can be satisfied with 60% collateral coverage Weak Collateral = Higher Credit Character & CF

Skeleton Packages are the very basic financial information needed in order to have a qualified banker assess a loan package.  NOT a completed loan application  Based on these documents financial consultants can perform calculations to determine whether or not the loan has a good chance of being approved

1. Copy of last year personal tax return (Secondary Source) 2. Personal Financial Statement PFS (Collateral) 3. Resume & Executive Summary including Project Cost (Experience & Owners Injection) 4. Ability to Inject 25%-30% of project cost (Owner’s Injection) 5. Copy of Personal Credit Report (Character)

Is usually only 1-2 pages long and consists of the following basic questions: 1. Who are you? Experience 2. Why are you capable of doing this business? Do you have clientele ready when you start? Have you worked in the field before? 3. Where is the business? Address of the proposed business location 4. Who are your customers? 5. Project Cost

 SBA Express  Up to $350,000  Term and Line of Credit  SBA 7(A)  Up to $5 Million  Term only  85% SBA guarantee for loans up to $150,000  75% SBA guarantee for loans greater than $150,000  SBA CAPLine  Up to $5 million  Line of Credit only  75% SBA guarantee

 SBA 504  Owner Occupied Real Estate  Heavy Equipment  Eligible Uses of 504 Project Funds: Fixed Asset Financing  Purchase land and existing buildings  Renovate or expand existing facility  Construct a new building  Acquire or install machinery  Soft costs involved with the projects

 Terms depend on useful life of the asset(s). How long will the asset(s) hold value?  Truck = 5 year term  Real Estate = 25 year term  MRI machine = 10 year term  Rarely go past 10 year terms unless real estate  Rates depend on a number of external factors such as current Prime Rate & Treasury Spread, as well as controllable factors such as nature of the loan, strength of application, risk etc.  This week a typical504 Real Estate loan would be 4.53%

“Banks don’t finance 100% of people’s dreams”  Banks require a lot from borrowers, especially start-ups. Most of all they require borrowers to have some ‘skin in the game’. Owners Injection  Banks offer great products for small business, but refuse to sell them: they will not educate the public on what qualifies you for a loan.  In order to qualify for a start-up SBA loan through a bank, you must learn how to play the game. If you currently do not qualify for loan, steps can be taken to get you on the path towards qualifying  Most important thing you can show a bank is the Want & Ability pay back your loan. Credit History & Secondary Source of Income

If you do not qualify for an SBA start-up loan through a bank there are other options. Typical Loan  5 year term  Less than $150,000  Often require more collateral if there are Credit issues or Cash Flow issues  Better if can claim past sales, have an existing client base i.e. not a completely new start-up

 Crowd-funding platform that enables financially excluded and socially impactful entrepreneurs access to 0% interest small business loans  Create profile and individual lenders from around the world read your story and lend as little as $5 each  Also has the benefit of free advertising and aligning your brand with a progressive, cutting edge and socially conscious business

 Kiva does not have any FICO credit score requirements, instead they have set up a system of Trustees to screen potential borrowers for Character  Cannot be currently in bankruptcy or foreclosure  Have a PayPal account

 Maximum loan amount for first time borrowers is $5,000  Loan terms = 2 years  6 month grace period for start-ups  2 years = 24 payments/$5,000 = $208 per month  Most important qualification :Can you afford a $208 monthly payment?

*Start-up loans are very difficult to get in the current lending climate  Start Small  Stay afloat for 1 year  Turn a Profit  File your taxes Once 1 year’s taxes have been filed, it is no longer classified as a “Start-up loan” and this will open up options.  Banks are much more willing to consider lending to established businesses  Other secondary lender options open up after 1 year

 If you have a specialized skill set but no realistic chance of getting a loan, find an established business that needs to be taken over  Bank will cover 75% and often the current owner will finance the other 25%  Owner sticks around and prepares you to take over  Everyone has “skin in the game”

 Get your Prototype out to the world & see what happens.  Gather real world data and make your decisions based on this rather than basing your strategy on perceived risks that may be valid or may not be.  Adapt strategy based on this information  Any hard data, sales and real world market success is going to be more valuable than any theoretical business plan  “Lean Start-Up” by Eric Reis

 Lenders care far less about your business plan than Finances & Credit History  Instead of focusing too much on a detailed business plan, focus on taking steps to show a lender that you have the want & ability to payback your loan  Want = Credit  Ability = Cash Flow/Secondary Source of Repayment  If you do not see yourself qualifying for a loan you will need to get creative.

 One-on-One Consulting  Analyze your specific situation and based on your strengths, weakness, short-term financial needs and long term strategy, know which lender to approach  Refer you to a credit repair specialist  Relationships with lenders all over SoCal  Help you put a loan package together  Kiva Trustee  If you currently do not qualify, we can help you make steps in the right directions

 Marketing Plan Development  Licensing and Permits  Set Up & Structure Your Business  Training and Workshops  Business Plan Development  Hire Employees