So You Want to Borrow Money

1

• So You Want to Borrow Money
• Ruth Ann Halford, Manager
• Olympic Microloan Fund
• Cascadia Revolving Fund

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Five Cs of Credit

• Capacity
• Cash Flow
• Capital
• Collateral
• Character

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Capacity

• Can you run the business? (resume)
• Do you have experience in the industry?
• Who is the management team?(resumes)
• Is there a market? (evidence!)
• Does the business have a track record?
• If you are already in business, your financial
  statements tell the story.

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Cash Flow

• You have to be able to pay back the loan!
• If historical statements dont show it, what will
  change? Can you prove it?
• List your assumptions! Prepare to have them
  questioned.
• Other sources of cash flow?

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Cash Flow

• Traditional bankers cash flow (looks at the year
  as a whole)
• After Tax Profits Depreciation Interest
• Cash Flow for Debt Service
• Monthly Cash Flow projection (looks at the year
  month by month)
• Beginning cash cash in (may or may not sales)
  from operations cash injections or loans
• Less
• Cash out as bills are paid, not accrued. Includes
  total debt payment, periodic payments (ie.
  insurance)

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Capital

• What are You bringing to the table? Cash?
  Equipment? Inventory?
• How much do you have in vs. what you want us to
  put in?
• If no new money, what have you invested
  previously?
• Are there other investors or friendly debt?
• Not always the same as collateral

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• Friendly Debt due to owners or family members
  can be subordinated to the lender and act as
  equity.

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Debt/Worth 2/1

• BALANCE SHEET Debt/worth 2/1
• 12/31/01
• Cash Equiv. 1,700.0
• Accounts Rec. 0.0
• Notes Rec.-Stockholders 0.0
• Inventory 550.0
• Prepaid Expenses 0.0
• Current Assets 2,250.0
• P,PE 41,000.0
• Accumulated Depreciation 27,655.0
• Net P,PE 13,345.0
• Other Assets 0.0
• Total Assets 15,595.0
• Current Maturities of LTD 7,202.0
• Credit Cards 0.0
• Accounts Pay. 0.0

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Debt/Worth 3.74/1
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Collateral

• The Lenders fallback position
• Doesnt replace cash flow
• All lenders want it
• We generally want more than you expect
• May be personal (Yes, your house)

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Collateral Types Typical Advance Rates

• Business Assets
• A/Rs 75
  Inventory 0-50
• Machin/Equip. 50-75
• Lhold Improve. 10
• Furn Fixt. 0-10
• Comml RE up to 75
• Raw land 0-50

• Personal Assets
• Cash 100
• Stocks/bonds 50-65
• Vehicles 75
• (blue book)
• Real estate 75-90
• appraised or tax value 100,000
• 75 75,000
• less mtg. 67,000
• 8,000

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Personal financial statement

• 
  As of
  11-30-04 Monthly
• ASSETS LIABILITIES NET WORTH payments
• Cash 9,800 Credit cards
  12,251 392.00
• CVLI 5,100 Insurance Loans
  - -
• Residence 235,000 Equity Line
  - -
• IRA/401K 15,473 Residence DOT
  174,500 1,138.00
• Auto 5,752 Loans (401K)
  10,000 -
• Other 60,100 Other
  - -
• TOTAL LIABILITIES 196,751
  1,530.00
• NET WORTH 134,474
• TOTAL ASSETS 331,225 TOTAL LIAB.
  NET WORTH 331,225
• Source of additional collateral, additional cash
  flow, additional drain on cash flow

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Character

• Your credit report
• Bankruptcy
• Liens or collections
• Many credit cards (w or w/o balances)
• Unreported debts
• Slow pays