FINANCING STRATEGIES FOR GROWTH AND EXPANSION Ralph Barnett, Executive Vice President & Manager Small Business Lending Division February 13, 2006

What does a lender looks for? The 5 C’s of Credit –Capacity or Cash Flow –Collateral –Character –Capital –Conditions

Where did my money go? Won the $10,000 Order

Where did my money go? Won the $10,000 Order Purchase $5,000 Inventory

Where did my money go? Won the $10,000 Order Purchase $5,000 Inventory Labor & OH $3,500

Where did my money go? Won the $10,000 Order Purchase $5,000 Inventory Labor & OH $3,500 Product shipped Billing Sent Out A/P & Payroll Due

Where did my money go? Won the $10,000 Order Purchase $5,000 Inventory Labor & OH $3,500 Cash Received Product shipped Billing Sent Out A/P & Payroll Due

Asset Conversion Cycle Start to Finish – can take from 45 to105 days Your vendors can help – 30 to 45 days You have an $8,500 shortfall This is financed on one of three ways: – Capital – Retained Profits – Debt

You can grow yourself out of business You grow from $1,000,000 to $1,500,000 in revenues If you have a conversion cycle of 60 days: You will need $80,000 to $100,000 in extra cash to support the growth

Purchase Order Financing Bank confirms you have a solid P.O. Material and labor costs are advanced Once order is shipped – your A/R is Factored Your company has to prove they can fulfill the order

Factoring A/R is Sold to the Lender A/R is discounted Lender notifies your customer Lender receives money and sends you the difference Only the quality of A/R concerns Lender

Asset Based Lending Steady Stream of A/R in place Daily update to the Lender Money sent to a bank Lockbox Expect to pay a rate of 15 to 30%

Traditional Financing Five C’s of Credit are in place Line of Credit Formula Line of Credit Term Loan Equipment Loan Bullet Loan Seasonal Line

SBA Lending SBA Lenders - 2 or 3 C’s are OK Require less collateral Shorter history Longer term –7 to 10 year term loans (versus 3 to 5 years)

Thank you for your time Ralph Barnett, Executive Vice President & Manager Small Business Lending Division