1. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Project Financing

2. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Agenda Introduction Factors That Affect Financing How Do Lenders Evaluate a Request?

3. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance The Farm Credit System Nationwide group of financial cooperatives. Created by Congress in 1916. $160 billion in loans to over 500,000 borrowers. Owned by customers.

4. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Colonial Farm Credit $700 million in loans to 6,000 customers. 45 counties in eastern Virginia and 5 counties in southern Maryland. 81 Employees.

5. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Our Purpose The core purpose of Colonial Farm Credit is to make farmers, agribusinesses and rural residents successful.

6. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Colonial Farm Credit Locations

7. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing Size of the project Purpose and complexity of the project Economic conditions

8. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing Size of the project –Lenders must meet minimum capitalization requirements –As loan volume increases, the lenders capital (equity) must increase –Large loans require increased capital not just because of loan volume increase, but because of risk concentration: 1 - $ 10 million loan vs. 100 - $100k loans

9. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing Size of the project –If the project increases the debt level in a lending relationship above the institutions hold limits, the lender may bring in other lenders to participate in the deal

10. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Size $2.0 million project pushes the total debt with the lender to $12.0 million Lenders hold limit is $10.0 million Lender sells a $2.0 million participation to another institution This type of arrangement is typical for business lenders. Often transparent to the borrower.

11. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Project Purpose Does the project enhance the efficiency of existing operations? –Example: Take advantage of a byproduct –Lender focus: What is the project cost and what is the efficiency gained? –Risk assessment fairly straightforward

12. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Project Purpose Is it an entirely new strategy for the business? –Example: New product, e.g. value added products –Lender focus: Does it impact efficiency (internal factors)? Does it entail marketplace development (external factors)? –More complex

13. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Complexity As the size and complexity of a project increase, the lenders due diligence increases

14. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Complexity and Due Diligence Financial Statements: –Type: Historical, pro forma, budgets, projections –Quality: Internally Prepared CPA Prepared: Compiled, Review, Audit

15. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Complexity and Due Diligence Verifications –Contracts: Project construction, key suppliers, key customers, etc. –Supplier relationships: A/P aging –Customer relationships: A/R aging –Banking Relationships: credit history, asset balances

16. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Complexity and Due Diligence Industry Expertise of the Lender –Specialization: Lenders may develop a niche financing to a particular industry –Peer comparisons: What are the financial standards for this industry? What makes this project a better risk / return proposition?

17. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Factors That Affect Financing: Economic Conditions From the lenders perspective: the type of market in which the borrower conducts business. Ex. expanding, steady, contracting, volatile, stable, etc. From the borrowers perspective, consideration must be given to the lenders commitment to a particular industry and the health of credit markets.

18. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance How Do Lenders Evaluate a Request?

19. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Evaluating a Request Loan Structure Balance Sheet (Capital Position) Income Statement and Cash Flow (Capacity) Collateral Management

20. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Loan Structure Duration and repayment plan Funds may be used for: –Equipment purchases –Land and land improvements –Buildings –Inventory –Operating Expenses, etc.

21. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Loan Structure: Four Types of Loans Term Seasonal Evergreen Bridge

22. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Balance Sheet Sufficient liquidity to pay obligations as they come due? Sufficient equity to handle adversity? Leverage: How sensitive is the operation to fluctuations in profit margin and sales volume? High leverage: When things are good, theyre really good. When things are bad……

23. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Income Statement Sufficient profits replace assets as they wear out? Sufficient profits to maintain equity and liquidity? Can the business grow on its own? Sufficient return to owners?

24. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Cash Flow Sufficient to pay all obligations within terms? Can the owners take the desired draw? Can quick assets be grown to cover short term volatility? Can growth be funded internally?

25. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Cash Flow Behavior Seasonality of sales Sales growth Customer payment performance

26. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Customer Payment Performance: Base Situation Annual Sales $2,000,000 Sales per day $ 5,479 Receivable Days 60 Accounts Rec. Balance $ 328,767

27. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Base Situation Accounts Receivable –Customers owe the company $328,767. –Customers are paying cash 60 days after sale on average. –Owner invests or company borrows $328,787 to cover expenses while waiting for customers to pay.

28. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Situation 2: Faster A/R Turnover Annual Sales $2,000,000 Sales per day $ 5,479 Receivable Days 30 Accounts Rec. Balance $ 164,384

29. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Situation 2: Faster A/R Turnover Accounts Rec. Balance $ 164,384 –Customers are paying 30 days faster on average –$164,384 less tied up in A/R. These funds could be used to pay down debt, purchase production assets, pay a dividend, etc.

30. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Collateral How specialized are the facilities / products? Location: typical for the area? Durability, maintenance requirements How marketable is the collateral?

31. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Management Short and long term planning Adaptability: whats the right strategy? Customer relations Lender communication

32. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Typical Loan Officer Questions How long have you operated? How much production capacity do you have? What are your most profitable items? How has the business changed over the past five years?

33. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance More Loan Officer Questions What are your sales growth plans? Do you have a business continuity plan? Who is your competition? Where do you see your operation in five years?

34. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Items for the borrower to consider How important is the lender relationship to the success of the project? –Size –Complexity –Economic conditions

35. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance How does a borrower ensure a strong relationship with a lender? Research Communication Responsiveness Ongoing planning

36. 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance 800-777-8908 www.colonialfarmcredit.com Experts in Rural Finance Questions?