1. Understanding How Banks Lenders Look at Your Small Business
The MetroIBA Education Committee welcomes you to the webinar:
Understanding How Banks Lenders Look at Your Small Business
Presented by Roger Hamilton, BankCherokee
August 18, – 10am CST

2. Presented by Roger Hamilton, Commercial Lender/Sr. Vice President
Understanding How
Bank Lenders Look at
Your Small Business
Presented by Roger Hamilton,
Commercial Lender/Sr. Vice President

4. Understanding How Bank Lenders Look at Your Small Business
Types of Business Loans
Loan Application & Financial Reporting
The Five C’s of Credit
Assessment of Capital
Assessment of Capacity
Role of Financial Covenants
Examples
Summary & Questions

5. Types of Business Loans:
Line of Credit
Importance of Principal Payments/Clean-up
Equipment Loans
Down payment is typically modest
Real Estate Loans
Down payment ranges from 5-25%
SBA Loan Programs
7a Guaranty, Capline & 504 program
Importance of Personal Recourse

6. Commercial Real Estate Loan Options
Owner-occupied
Commercial Real Estate Loan Options
20% Down
10% Down
3.3% Down
Conventional
SBA 504
SBA 504 with
Uses of cash:
Loan
Non-profit
Purchase property
480,000
Improvements to property
120,000
Closing costs
12,000
Total Uses
612,000
Sources of cash:
BankCherokee 1st mortgage
300,000
SBA 504 2nd mortgage
240,000
MCCD 3rd mortgage
40,000
Owner's equity contribution
132,000
72,000
32,000
Total Sources
The "as-completed" appraisal came back at $600,000 or $50 per SF
on a 12,000 SF building, as compared to project costs of $600,000.

7. Loan Application & Financial Reporting
FYE Statements for past 3 years (Tax Returns)
Interim Financial with prior year comparison
Account Receivable & Account Payable
. Aging Reports
Debt Schedule
Projections (fast growing or turnaround company)
Personal Financial Statement
Personal Tax Returns for past 2 years

8. The 5 C’s of Credit Capacity: Ability to Repay Loan from Cash Flow
Capital: Assessment of Tangible Net Worth
Collateral: Assets to Secure the Loan
Character: Integrity / Personal Credit Score
Conditions: Industry Specific and Economy

9. Assessment of Capital Tangible Net Worth Calculation Leverage Ratio
Total Shareholders Equity
Less:
Notes due from Officers, Shareholders or Affiliates
Goodwill or other Similar Intangible Assets
Plus:
Subordinated debt
= Tangible Net Worth
Leverage Ratio
Total Liabilities less Subordinated Debt
Tangible Net Worth

10. Assessment of Capacity
Cash Flow Calculation
Net Income
Less: Distributions
Plus: Depreciation & Amortization Expenses
Interest Expenses
= Traditional Cash Flow
Debt Service Coverage Ratio (DSCR)
Traditional Cash Flow
Interest Expenses Plus CMLTD (prior period)
or Scheduled Principal & Interest Payments

11. Role of Financial Covenants
Section 9 – Financial Covenants. The Borrower will maintain and comply with the following Financial Covenant:
Borrower shall maintain a minimum debt service coverage ratio of 1.15 to 1 as of
December 31, 2015 and annually thereafter according to the following calculation:
Gross rent less operating expenses less distributions divided by Annual Debt Service.
Annual Debt Service is all regularly scheduled principal and interest payments.
Section 10 – Event of Default. The following shall constitute an Event of Default under this Loan Agreement:
The failure by Borrower to pay any sum with respect to the Notes within five (5) days following the date upon which payment is due;
The failure by Borrower or Guarantor to keep and perform any covenants or obligations under the terms of this Loan Agreement and the failure to cure such default within thirty (30) days following written notice thereof from the Lender specifying the default;
Upon the occurrence of an Event of Default, Lender shall have the right to decline to make any further advances or disbursements of the Loan and may accelerate all of any portion of the balance due under the Notes and assert any and all rights and remedies available to the Lender under the Mortgage and Security Agreement.

12. Other Financial Covenants:
Maximum Capital Expenditures
Minimum Clean-up Days on Credit Line
Minimum Capital Levels

13. Limitations of Traditional Cash flow
May not provide match of FY taxable income
to the FY tax distribution
Ignores source & uses of cash flow from the balance sheet (operating company)
Ignores reclassified distributions
Bank’s loans will get repaid from future cash flow NOT past cash flow

14. Manufacturing Company DSCR based on definition
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Net Income
259
205
125
143
442
400
Distributions
-202
-141
-91
-131
-354
Depreciation 45 62 47
222 28
Interest 91 88 89 84 81 80
Cash Flow
395
153
120
358
420
154
Debt Service 1st mortgage 59
Debt Service 2nd mortgage
Interest-Bank credit line 21 23 24 18
Debt Service equipment loan 30 33
Total Debt Service
127
129
134
130
157
DSCR
3.11
1.19
0.90
2.75
2.73
0.98
Manufacturing Company DSCR based on
matching taxable income to the related tax distribution
-320
193
214
170
318
197
188
1.52
1.66
1.27
2.45
1.28
1.20

15. Retail Company Capital Analysis
2010
2011
2012
2013
2014
Total Stockholder's Equity
324
339
445
412
521
Less:
Due from Shareholder
-105
-78
-74
-132
-215
Due from Affiliate 59
Plus:
Subordinated Debt
Tangible Net Worth
219
261
371
280
247
Total Liabilities
758
907
1,265
1,968
2,024
Leverage Ratio
3.5x
3.4x
7.0x
8.2x

16. Retail Company Capacity Analysis (using traditional cash flow)
2011
2012
2013
2014
Net Income
120
185 17
114
Less:
Distributions
(33)
(100)
(73)
(4)
Plus:
Depreciation Expense
151 57 78
118
Interest Expense 19 24 90
Traditional Cash Flow
257
166
112
306
Credit Line Interest 6 8 16
Installment Loans 13 36
117
Total Debt Service 44 94
133
Debt Service Coverage Ratio (DSCR)
13.5x
3.8x
1.2x
2.3x
Retail Company Capacity Analysis (using modified traditional cash flow)
Reclassified Distributions
(58)
(83)
Due from Affiliate
(59)
Modified Traditional Cash Flow
DSCR
0.6x
1.23x

17. BankLocal. BankCherokee. How's Your Flow? Cash Flow Not Profit
Summary & Questions
Contact Information:
Roger Hamilton
Commercial Lender/Sr. Vice President
Phone:
BankLocal. BankCherokee.
Recommended reading: Forbes Article
How's Your Flow? Cash Flow Not Profit
As Predictor Of Entrepreneurial Success

18. Thank you for attending today’s webinar!
We hope to see you at these upcoming events:
Member’s-Only - Business Owner’s Roundtable Thurs Aug 27, 7:30-9:00am
1st Tuesday Networking Events 4:30 – 6:30pm, Sept The Wedge Table
Public Policy Caucus – Member Only – Sept 29th, 6 – 8:15pm
Free Webinar Oct 20th, Start Thinking About What’s Next For You – NOW!
Visit for more information
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