Course Title

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"Selling Yourself to the Bank"
Course Title
(Sure Ways To Get Financing)
Presented by
Alan Friedman Daniel JobeFriedman, Kannenberg
Company, P.C.
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Objectives

• Commentary on the current financial crisis
  and its effect on banking and borrowing
• 10 Time-Tested Tips to consider when applying
  for a bank loan
• A sure-fire bank presentation template to
  bolster your chances of getting that loan
• Q A

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Current Banking Financial Crisis
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How Did This All Start?
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2007 2008

• HSBC (worlds largest bank) declares billions in
  sub-prime mtg losses
• Bear Stearns fails Lehman Brothers files for
  bankruptcy
• Fannie Mae Freddie Mac put into conservatorship
  by U.S. Treasury
• Fed Reserve bails out AIG, world's largest
  insurer
• Washington Mutual, the largest U.S. thrift, fails
• Bank of Americas profits drop 68 sell stock to
  raise 10 billion
• Swiss government coughs up 59 billion to bail
  out UBS
• Congress passes 700 billion bail-out for
  Citigroup Automakers
• Stock market plummets, former NASDAQ exec
  Bernie Madoff steals 50
  billion

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2009

• AIG announces a 61.7 billion loss for the 4th
  quarter of 2008 the largest business loss ever
  posted in U.S. corporate
• Microsoft sales drop for the 1st time in 23 years
• U.S. travel down by 30 KPMG sued for 1 billion
  dollars
• California leads 48 states in fiscal budget
  crisis
• U.S. Unemployment hits 10 (up from 4.9 in 2007)
• Bernie Madoff goes to prison for 150 years, his
  CPA is arrested for securities fraud, and
  JPMorgan is sued for handling funds
• Chrysler General Motors file for bankruptcy
• Personal Savings Rate hits all-time high of 6.9
  in May

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2010

• June 22, 2010 Moodys reports Bank profits
  have shrunk to unprecedented levels due to
  write-offs of 436 Billion in bad loans.
• July 16, 2010 Businessweek reports Bank of
  America, the largest U.S. lender, fell as much as
  7 percent in New York trading after the company
  posted lower profits and revenue amid an economy
  thats muddling along.
• October 21, 2010 Federal Housing Finance Agency
  says Government-backed funds may need further
  aid over bad mortgage losses and warns U.S.
  taxpayers that Fannie Mae and Freddie Mac may
  need 363 Billion more in bailouts.
• December 31, 2010 Alan Friedman buys a brand
  new, 100-watt, all-tube,
  3-channel guitar amp to stimulate
  the economy.

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Whats next???
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Why banks are nervous

• Consider what banks put at risk to make a return
  of profit (a.k.a. the spread)
• Receivables go bad, inventory has feet
• Even real estate (often considered the best
  collateral) has evaporated in value, often below
  corresponding mortgages

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What the bank wants from you

• The 3 Cs credit, character collateral
• Credit the proven financial ability to cash
  flow (pay off) the loan
• Character the financial knowledge to run your
  business profitably, and the trustworthiness to
  retire the debt
• Collateral an alternate way to pay the debt in
  the event of a default

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10 Tips to Getting that Loan

1. Banks need to make loans so dont be afraid to
   ask for one
2. Do your homework research banks
3. Be prepared with Financial Statements, Tax
   Returns,Business Plans,Forecasts,etc.
4. Walk in with basics anticipate questions
5. Dress to impress and for success

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10 Tips to Getting that Loan

1. Dont be negative or apologetic be confident
2. Keep it real dont stretch the truth
3. Discuss risks (it earns credibility)
4. Dont push it
5. If at first you dont succeed,

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DJ's House of Rock, Inc.
Loan Request Presentation to
Haywood Jalendmie, V.P.
Last National Bank of Hartford
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Discussion Points

1. Loan request proposed loan terms
2. Background on DJs House of Rock
3. Background on music retailing industry
4. Background on rental programs
5. Why we are seeking a bank loan
6. Financial documents we are providing
7. Available collateral and security

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1. Loan Request Proposed Terms

• 200,000, 5-year (60 month) fully amortizing note
  at 8 interest per annum
• Loan needed for acquisition of band orchestral
  rental instruments
• Funding Needed by April 1, 2011

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2. Background information on DJs House of Rock
(DJs)

• DJs is a single store, full line music
  retailer located in Hartford, CT
• DJs is an S Corporation, owned and operated by
  Alan Friedman Daniel Jobe
• DJs occupies 6,000 sq/ft of retail space on Main
  Street in downtown Hartford, CT

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3. Background information on the Music Retailing
Industry

• There are approximately 7,500 musical instrument
  and product retailers in the U.S. Most of these
  stores are family-owned businesses only one
  (Guitar Center with Music Arts and Musicians
  Friend divisions) has a true national presence
• There are 5 types of music retailing designations
  (full line, keyboard, school music, MI/combo
  print), each one having unique financing issues
• Key profit centers for most music stores include
  sales, rental, music lesson and repair
  activities

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4. Background information on Instrument Rental
Programs

• Many full-line and school music retailers rent
  musical equipment, primarily band and orchestral
  instruments, under a rent-to-own type of
  agreement. This agreement allows a customer to
  rent a band or orchestral instrument on trial
  basis, instead of being forced into buying their
  child (a school music student) an instrument they
  may not enjoy playing or continue with shortly
  after the instrument is bought.
• DJs is a retailer that provides these types of
  rental agreements, and has been doing so since
  1995.

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4. Background information on Instrument Rental
Programs

• Under the Companys rent-to-own agreement, a
  customer signs a contract to rent a musical
  instrument for a period of time up to 36 months.
  Title to a rented instrument passes to the
  customer if when the final contracted payment
  is made.
• Until the final payment is made, (1) title
  remains with the Company, (2) all payments
  received by the Company under the rent-to-own
  agreement are recorded as rental income, and (3)
  the rental assets are depreciated over their
  useful life (usually 3 years, in accordance with
  tax reporting rules).
• Upon receipt of the final payment, the Company
  removes the related rental asset cost and
  accumulated depreciation from their accounts and
  any resulting difference is reflected in cost of
  goods sold.

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4. Background information on Instrument Rental
Programs

• The Companys rental agreements comply with
  Internal Revenue Code Rev.Proc. 95-38.
  Accordingly, these contracts provide for level
  rental payments which, in the aggregate, do not
  exceed 10,000, but do exceed the normal retail
  price of the rental asset, plus interest.
  Additionally, these contracts do not extend
  beyond 36 months and there is no legal obligation
  for the customer to make all of the payments set
  forth in the contract.
• At the end of each monthly rental period, the
  customer may either continue to use the property
  by making the next rental payment via
  auto-deduction or check, or return the rental
  asset to the Company. If the rental asset is
  returned, the customer has no further obligation
  under the contract and is not entitled to the
  return of any rental payments previously made.

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4. Background information on Instrument Rental
Programs

• On December 31, 2010, DJs had 3,000 instruments
  in their rental pool at a total cost of
  1,000,000, along with 800,000 of accumulated
  depreciation, resulting in a net book value of
  200,000. These instruments have been
  depreciated over an accelerated 3-year MACRS
  depreciation method for both book and income tax
  reporting purposes.
• On December 31, 2010, DJs has over 2,000,000 in
  future contracted rental income on its
  outstanding rental pool, and has historically
  experienced a 25 return rate each year. Because
  of the quick depreciation taken on its
  rent-to-own instruments, the Company believes the
  fair market value on the rental pool is
  substantially higher than the net book value
  reported on the 12/31/2010 balance sheet.

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5. Why We Are Seeking a Bank Loan

• DJs has contracted two new school districts
  which represent approximately 500 new students
  who wish to join school sponsored band and music
  programs and will need to rent band orchestral
  instruments
• Based on the lucrative nature of rental
  instrument programs (that also spur related
  accessory sales and instrument repairs), we would
  like to expand our instrument rental pools to
  meet expected customer demand for the 2011-2012
  school year
• Given the time lag between payments to vendors
  for these instruments and receipt of the monthly
  rental income once they are rented, there is an
  imperative need for bank financing of our rental
  pools.

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6. Supporting Documents Provided

• Product Invoices from our Band Orchestral
  vendors
• Compiled Financial Statements of DJs for the
  years ended December 31, 2008, 2009 2010
• December 31, 2010 Personal Financial Statements
  for the store owners Alan Friedman Daniel Jobe
• Updated 2011 Business Plan
• 5-Year Forecast of Income, Expense and Cash Flows
  for the years ending December 31, 2011 - 2015
• NAMM 2009 Cost of Doing Business Survey
• Music Trades Annual Report of Top 200 Dealers,
  and
• MMRs Profile of the American Music Dealer

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7. Collateral Available

• All corporate assets, including fixed assets,
  accounts receivable and inventory (other than the
  inventory specifically pledged to specific
  suppliers and/or floor plan finance companies)
• Personal guaranty of Friedman Jobe
• Alans primary residence (200,000 of equity)
• Daniels vacation home (150,000 of equity)

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8. For additional information contact
Alan Friedman Daniel Jobe, Officers DJs House
of Rock, Inc. 4-12 Marshall Stack
Street Hartford, CT 06105 Tel (800)
867-5309 Fax [phone] Web
www.djhr.com Email info_at_djhr.com
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Top Three Takeaways
Here are three takeaways from Selling Yourself
to the Bank presented by Alan Friedman Daniel
Jobe. Bring these ideas to back to your business
and see what results you generate! Takeaway 1
Master the Three Cs of borrowing Takeaway 2
Generate current financial statements Takeaway
3 Download this PowerPoint at www.fkco.com
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Any Questions?
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Free Consulting Meetings
Contact Jen outside the Idea Center
entrance after this session to set up a meeting
time
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Enjoy the Show!!
Catch Printz Saturday Night at the Hilton Lobby!!