Texas Mezzanine Fund

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Texas Mezzanine FundA New Tradition for Growing
Texas Business

• The Texas Mezzanine Fund (TMF) is for
  growth-oriented small business owners who may
  not entirely qualify for loans or investments
  through traditional lending institutions.
• TMF also funds the development of affordable
  housing and community facilities

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Why would businesses need a loan?

• Working capital constraints caused by fast
  growth.
• Higher-than-acceptable leverage under traditional
  underwriting criteria.
• To preserve capital and for a longer repayment
  term.
• Credit issues that do not meet bank thresholds.

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TMF can provide funds for

• Expansion.
• Term equipment loans.
• Real estate loans.
• Any combination of the above.

Funds can be used supplementally, along with
funds provided by traditional lending
institutions or community development
corporations.
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What are the rules for qualifying?Generally,
business owners who qualify have...

• Strong management.
• An expanding market.
• A positive operating history.
• A strong business plan.

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What are the rules for qualifying?

• Businesses are located in distressed and
  under-served communities.
• Businesses will provide more than 50 percent of
  their jobs to low- to moderate-income workers.
• Minority or woman-owned business

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Case Study A

• Company Profile
• Start-up manufacturer of engineered stone
• To locate in rural community that is also a low-
  to moderate-income census tract
• Total capitalization for plant, equipment and
  working capital 8.5 million
• Capital injection 2.5 million
• Loan need 6 million

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Case Study A

• The Challenges
• Start-up
• Barriers to entry including new product to U.S.
  market
• Need for start-up working capital until A/Rs and
  inventory meet threshold for bank asset-based
  line of credit

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Case Study A

• Qualifying Factors
• 29 equity injection
• Strong business plan resulting from extensive
  research and endorsed by 3rd party feasibility
  study engaged by bank
• Strong and seasoned management with direct
  industry experience
• Tremendous economic development potential for
  rural community

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Case Study A - The Deal

• Bank - One Yr. Term
• Bank/USDA 80 Gty - 20 yr. term.
• TMF - 4 yr. Term with
• revenue participation
• Equity Injection
• of revenue kicker

• 500,000 Asset-Based Line
• 5,000,000 Plant and Equipment.
• 500,000 start-up working capital
• 2,500,000 down pmt. on fixed assets and start-up
  working capital

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Case Study A

• Economic Development Impact
• Minimum of 35 jobs to be created over first year
  and up to 60 within 3 years
• 17 million estimated annual impact to rural
  community including 360 area jobs
• Hispanic-owned business

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Case Study B

• Company Profile
• Fifty-year-old screen printing company.
• Expansion to state-of-the-art equipment critical
  to retain competitive edge.
• Total expansion cost 1.6 million.
• Able to access 1 million via SBA loan against
  equipment.

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Case Study B

• The Challenges
• Total 1.6 million investment would double asset
  size and require aggressive business expansion to
  meet loan payments.
• 500,000 gap to fund expansion.
• Working capital critical to fund anticipated
  business expansion resulting from capital
  expansion.

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Case Study B

• Qualifying Factors
• Overall excellent financial condition.
• Business plan depended on expanding business with
  existing clients.
• Business R/E owned free and clear.
• Most desirable loan structure would afford
  long-term repayment program to enable company to
  continue to fund its own growth.

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Case Study B
The Deal
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Case Study B

• Economic Development Impact
• Fifty-two jobs retained 25 new jobs created.
• More than 75 percent employees Hispanic.
• Seventy percent of employees are residents of
  southern Dallas.
• Future expansion likely.

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Case Study C

• Company Profile
• Cookie dough manufacturer in East Austin
  wholesaling to food brokers, distributors
• Rapid growth from diversifying to fundraising
  brokers 7mm in FY99 to 14mm in FY00
• Undertook 1.2mm capital expansion--leasehold
  improvements to double capacity achieve ABA
  certification
• Existing bank loans borrowing based line and
  SBA eqpt. loan.

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Case Study C

• The Challenges
• 5 principals with high compensation in the
  aggregate no supporting net worth.
• Prior inadequate financial reporting.
• Replenish working capital injected into 1.5mm
  move improvements.
• No collateral available other than subordinate
  positions on A/R, inventory, FFE.

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Case Study C

• Qualifying Factors
• Sufficient debt service coverage through 18
  months.
• Strong management and sales team and new hire of
  CFO/CPA with food service experience.
• Excellent working capital cycle.
• Achieved FY2000 mid-2001 projections despite
  strained working capital.
• 18mm revenues projected for FY2001

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Case C The Deal - Quasi-Equity Transaction

• Bank 1,000,000 Borrowing Based Line, 1 yr.
• Bank 900,000 SBA Eqpt. Loan, 8 yrs.
• TMF 500,000 2nd Lien A/R, inv., FFE
  priced at 13 given credit risk
  permanent working capital loan proceeds
  applied to reduce bank line and restore
  availability subordinated to bank
• in select circumstances, only

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TMF Case Study C

• Economic Development Impact
• Created 25 new jobs plus potential of 35 new jobs
  over next three years.
• 75 of all jobs are held by individuals of low to
  moderate income
• Business located in low/moderate income census
  tract
• Parlayed banks investment in TMF into achieving
  significant job creation

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DEAL FLOW

• A loan/investment prospect initiated by
• Participating investors,
• Value-Added Lenders
• Local Certified Development Financial
  Institutions,
• Small Business Development Centers
• Minority Business Development Centers
• Chambers

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LOAN OR INVESTMENTPROPOSAL

• Loan Application completed by borrower business
  plan, financial statements, tax returns, personal
  financials, legal documents of entity, project
  info., etc.
• TMF staff reviews proposal and makes
  recommendation to TMF Loan Committee.
• Loan Committee makes decision.

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A collaborative effort

• Current investors in the Texas Mezzanine Fund
  include
• Guaranty Bank 8.8 million
• Washington Mutual 1 million
• MBNA Community Development Corp. 1 million
• Wells Fargo Bank 1 million
• Regions Bank 200,000
• First National Bank of Granbury 250,000
• Comerica Bank 50,000
• First State Bank Trust 50,000
• U.S. Trust Company of Texas, N.A. 50,000
• Wachovia Bank 25,000
• SDDC 1,000
• ACCION Texas 1,000

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A collaborative effort

• The Texas Mezzanine Fund is forming partnerships
  with regional community development financial
  institutions, including
• ACCION Texas
• Austin Community Development Corporation
• Houston Small Business Development Corporation
• Community Development Loan Fund, San Antonio
• Southern Dallas Development Fund
• William Mann, Jr. Community Development
  Corporation, Fort Worth
• 504-Certified Development Corporations
• Economic Development Corporations (EDCs)

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Board Five-Year Goals Established In April 2003

• Increase lending from 2 million PA to 20
  million PA
• Increase loan resources from 10 million to 100
  million
• Make TMF a bona fide statewide lender
• Expand lending programs to include housing and
  community facilities

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Results to Date

• 2003
• 14 loans totaling 3.5 million
• Leveraging 10.3 million
• Creating 175 Jobs
• 2004
• 31 loans totaling 6.25 million
• Leveraging 27 million
• Creating 315 jobs

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Projected Growth of Loan Activities

• 2005 - 9 million
• 2006 - 13.5 million
• 2007 - 20.25 million

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Community Development Impact 2005-2007

• 43 million in loans to 200 clients
• 1,500 jobs created
• 1,200 affordable housing units financed
• 5 million in community facilities financed

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Spread the word!
We need your help in getting the word out to
businesses that are poised to grow! The Texas
Mezzanine Fund can help build business and
strengthen communities.

• TMF can help
• Create jobs.
• Promote business growth.
• Promote future economic growth in distressed
  areas.

For more information or to refer an applicant to
the Texas Mezzanine Fund, call [phone] or,
Theresa Lee, 214-943-5900, ext. 102 Or, see
www.tmfund.com