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Financing for a Small Business

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Title: Financing for a Small Business


1
Financing for a Small Business
  • Hudson Library Historical Society
  • February 11th, 2013
  • Presented By
  • Jon Novak, PNC Business Banking Officer
  • Lisa O. Rucker, PNC VP SBA Business Development
    Officer

2
Overview of Todays Presentation
  • Introduction to PNC
  • Cash Flow Quick Points
  • Lending to Small Businesses - What Banks Look At
  • Lending to Small Businesses - Underwriting
  • PNC Conventional Loan Products
  • SBA
  • SBA Documentation and Key Factors
  • Resources
  • Q A

3
Introduction to PNC
  • PNC Financial Services Group, Inc. is a highly
    diversified and growing financial services
    organization.
  • Ranked among top small business lenders
  • One of the top 10 bank wealth managers according
    to Barrons
  • Grow Up Great A 350 Million multi-year
    initiative started in 2004
  • One of the largest banks in the United States
    based on deposits and branches
  • Approximately 57,000 Employees in the U.S. and
    abroad
  • Approximately 6.5 million checking account
    customers
  • Approximately 2,900 branches in 19 states the
    District of Columbia with close to 7,300 ATMs

4
Introduction to PNC
  • Awards and Recognition
  • Most admired Companies. Fortune magazine (2012)
  • Fortune 200 company No. 165 on Fortune 500
    listing (2012)
  • One of the Worlds Strongest Banks, Bloomberg
    Markets magazine (2012)
  • Great Workplace Award for Employment Engagement,
    Gallup (2012)

5
ICE BREAKER.
  • What business do you own or plan on starting?
  • What do you hope to learn or take away from
    this presentation?

6
Why are we here?
Most business owners, or those that would like to
start a business, do not focus on the current
banking environment. You are not supposed to be
an expert in banking but rather an expert in your
respective field. That is the roll that we take
as business bankers. We help in all aspects of
cash flow including credit. Think of us as a
business partner.
7
Cash Flow Quick Points
Speed up receivables, slow down payables take
control of your cash flow and prevent fraud!
  • ACH Debit
  • Deposit Now
  • Merchant Services
  • Wires-in
  • Lockbox
  • ACH Credit
  • Business Credit Card
  • Wires-out (web/verbal)
  • ECR Earning Credits
  • Sweeps
  • PNCi
  • Online Banking
  • Pinacle Express Select - modules

8
Credit What Banks Look At
  • Start-Up Businesses
  • Whats the plan? A thorough and thought-out
    business plan.
  • What wed like to see in a start-up business
    plan
  • Time in industry/related business (non-compete?)
  • Competitive advantage and how success will be
    obtained
  • Realistic costs and first 2-3 years expected
    return
  • Fancy binders dont help
  • Liquidity. After youve paid to finance the
    start-up, what type of reserve will you have? Is
    this enough to sustain anticipated growing pains?
  • Collateral?

9
Credit What Banks Look At
  • In Business 2Yrs.
  • Three Years Business Tax Returns
  • Is there a trend? If it is positive or negative,
    what has created it and what is being done to
    correct or sustain?
  • Expected sales and margins for following fiscal
    year?
  • Anticipated future borrowing needs?
  • What will the money be used for?
  • Two Years Personal Tax Returns of Principal
    Owners
  • Personal Financial Statement of each Guarantor
  • Collateral?

10
Underwriting
  • Industry Risk
  • Global Debt Service Coverage
  • Business Personal Debt Service. Personal
    income is discounted to compensate for normal
    living expenses
  • Business must support current and proposed debt
  • Difficult to measure with start-up need
    supporting factors to decision
  • Loan to Value (LTV). Is the request within
    bank/regulative guidelines?
  • Does the request make sense? Is it the correct
    facility to accommodate both the client and the
    bank?
  • Relationship with Bank
  • 4 Cs of Underwriting Collateral, Character,
    Credit, Cash Flow

11
Conventional Loans
Turn for Current PNC Loan Options Term Credit
Products 3 Million
12
Product Type Purpose Loan Size Pricing Collateral/ Guarantees Terms
Unsecured Term Loan Short-Medium Term Financing for General Business Purposes 5,000 100,000 Fixed or Variable Rate, Prime Based Origination Fee Unsecured Required for All Principals 12 to 48 Months
Secured Business Term Loan Medium Term Financing for Fixed Asset Purchases (i.e. equipment, improvements) 10,000 3,000,000 Fixed or Variable Rate, Prime Based Origination Fee Business or Personal Assets (AR, Inventory, Equipment, Liquid Assets) Required for all Principals 24 to 84 Months
Business Equity Installment Loan Long-Term Financing Needs 10,000 3,000,000 Fixed rate, rates typically lover than other term loans Origination Fee. Third party costs Secured by 1st or 2nd (PNC in first position) mortgage on Residential Real Estate (Primary Residence) or Owner-User Commercial Property requires 1st Lien. Required for all Principles Up to 240 months for residential real estate up to 120 months for owner/user CRE
Commercial Mortgage Purchase/Refinance Owner Occupied Commercial Property 50,000 3,000,000 Fixed Rate Origination Fee. Third party costs 1st Mortgage on owner-occupied commercial property Investment Property requires 1st lien. Required for All Principles 100,000 - 10 year term fully amortized gt 100,000 5 and 10 year options with maximum 25 year amortization
Business Vehicle Loan Purchase Business Use Vehicle 10,000 250,000 Fixed Rate Pricing Secured by Titled Vehicle Financing of New Used Autos/Trucks Required for all Principles 12 to 60 Months
What loans are available?
13
Conventional Lines of Credit
Please Turn for Current PNC LOC Options
Revolving Credit Products 3 Million
14
Product Type Purpose Loan Size Pricing Collateral / Guarantees Terms
PNC Visa Products Visa Business Points Visa Business Travel Rewards Visa Business Business Options TE Vendor/Supplier Purchases Small Working Capital Needs Optional Overdraft Protection 1,000 - 50,000 Current Options Cap 250,000 Variable Rate No Annual Fee Best in Class Rewards Program Options Card Annual fee waived based on activity Unsecured Personal Guarantee for the owner/signer Employees are not liable Demand Revolving
Unsecured Line of Credit Short term financing for growth in Current (Short Term) Assets Seasonal Needs General Business Purposes Optional Overdraft Protection 5,000 - 100,000 Variable rate, Prime based, risk-based Annual fee due first billing cycle. May be waived/discounted based on checking type Auto Payment from PNC Bank deposit account required Unsecured Required for all Principals Stated Maturity Payment amount is 1.5 of the balance Reviewed every 12 months
Secured Business Line of Credit Short term financing for growth in Current (Short Term) Assets Seasonal Needs General Business Purposes Optional Overdraft Protection 100,001 - 3,000,000 Variable rate, Prime based, risk-based Annual fee due first billing cycle. May be waived/discounted based on checking type Auto Payment from PNC Bank deposit account required Business or Personal Assets (AR, Inventory, Equipment, Liquid Assets) Required for all Principals Interest only payments monthly Reviewed every 12 months
Business Equity Line of Credit Financing for General Business Purposes Optional Overdraft Protection 10,000 - 3,000,000 Variable rate, Prime based, risk-based Annual fee due first billing cycle. May be waived/discounted based on checking type Auto Payment from PNC Bank deposit account required Secured by 1st or 2nd mortgage on Residential Real Estate or Owner-User Commercial Property Investment Property requires 1st lien. Required for all Principals 7 year revolving term (interest only), followed by 10 year term of equal principle and interest payments
15
  • PNCs SBA Finance Group

16
Leading the Way Along Your Journey
  • PNC Banks SBA Finance Group has a history of
    solving tough financial challenges for thousands
    of businesses. We understand that our ability to
    deliver helps you manage your business
    effectively. Over time, you will see what sets
    PNCs SBA Finance Group apart
  • Reliable SBA Lender that has the ability to work
    through and structure difficult loan requests
  • Rapid loan decisions by an underwriting team that
    specializes in only SBA transactions
  • Responsive closing team that takes pride in
    assisting customers right up to the day of
    closing
  • Innovative financing strategies and overall Full
    Service Business Banking solutions backed by the
    5th largest depository institution in the country
  • 14th largest SBA 504 lender in the nation closing
    51 loans for 40.3 million

17
Dedicated, Local Team
  • As a Business Development Officer, I ensure a
    positive borrowing experience for you and your
    clients. My commitment to you will be to
  • Provide a single point of contact.
  • Coordinate a team of experienced specialists.
  • Identify appropriate solutions for your clients.
  • Keep you abreast of the programs that are
    relevant to your business
  • Bring in-depth knowledge of your industry.
  • Work to ensure high client satisfaction at all
    times.
  • Be there as your personal SBA advisor

PNC Business Development Officer
Your Business
18
The PNC Advantage
  • Why PNC?
  • The teamwork in PNCs SBA Finance group results
    in precise solutions that the customer expects to
    meet their financing needs.
  • With experts in the SBA Finance Group, PNC
    understands the nuances of the program, while
    providing a high level of personalized service.
  • PNC delivers a consistent level of customer
    service - no empty promises.
  • Committed to developing new resources to make it
    easy to work with us and help accelerate your
    business objectives
  • One of the top SBA lenders in the nation, closing
    over 100 million in SBA 7(a) 504 loans in FY
    2012
  • The PNC Advantage.

19
SBA Financing vs. Conventional Financing
  • Why go SBA?
  • The SBA program requires less equity injection
    than in a conventional loan
  • SBA terms are longer reducing monthly payments
  • SBA loans are available for industries that are
    considered a little more riskier for a
    conventional loan
  • SBA is an alternative to conventional financing
    when the borrower doesnt have as much collateral
    to support the loan, but they have sufficient
    cash flow
  • SBA financing is available for approved franchise
    start-ups

20
SBA Products at a Glance
  • SBA 7(a)
  • Used for business acquisitions, expansions or
    franchise loan requests
  • 51 owner/user occupied commercial real estate or
    improvements
  • Equipment, inventory or working capital
  • Injection typically between 15 20
  • 25 injection minimum for start-ups
  • Commercial Real Estate between 10 20
  • Loan amounts up to 5 million
  • Maturity depends on use of proceeds
  • No balloon payments
  • No prepayment penalty on maturities less than 15
    years

21
SBA Products at a Glance
  • SBA 504
  • Used for major fixed asset financing such as
    commercial real estate, improvements,
    renovations, or equipment
  • Three party loan structure
  • 50 Lender
  • 40 Certified Development Company (CDC)
  • 10 borrower
  • Rates vary based on use of proceeds
  • Maturities vary based on use of proceeds
  • Long term fixed rate and no balloon on CDC
    portion
  • Equity injection may be greater than 10 in some
    cases

22
SBA Products at a Glance
  • SBA Express
  • Largely used for Working Capital lines of credit
  • May be used for smaller term facility
  • Any loan amount not to exceed 350,000.00
  • Express loans can be done in conjunction with SBA
    7(a)
  • Minimal SBA paperwork

23
SBA
  • Documentation Key Factors

24
Profiles of Companies Suited for SBA Financing at
PNC
  • Profiles of companies that are typically best
    suited for SBA financing include
  • Insufficient collateral to secure the loan on a
    discounted basis
  • Erratic earnings but are well-managed and have a
    track record of financial success
  • Growing but have a debt/worth that slightly
    exceeds conventional guidance but falls within
    SBA limits
  • Wish to preserve capital through lower down
    payments
  • Well capitalized but are looking to restructure
    their balance sheet to increase cash flow
  • Want or need a longer amortization beyond what
    conventional guidelines will allow to meet
    satisfactory debt service requirements
  • Industry and Business segments include (but are
    not limited to)
  • Franchises with a well-established track record
    and/or appearing on the Franchise approved list
  • Manufacturers with knowledgeable and successful
    management that are reasonably well-capitalized
  • Professionals who are established with several
    years of operations and solid management

25
Eligibility Considerations for SBA at PNC
  • Eligibility Guidelines at PNC for SBA loans
  • No bankruptcy in the last 10 years
  • Commercial real estate requires 51 of the
    building to be occupied by owner (60 if new
    construction)
  • The business operates for profit
  • The business is located in the PNC footprint
  • Customer has direct industry experience
  • Business has been in operation for at least two
    years (less than two qualifies as a start-up)
  • Company is not in a high risk industry
  • Customer can show they have 15-20 in liquid
    assets
  • Personal Credit Score
  • Maximum loan amount
  • SBA Express 350,000.00
  • SBA 7(a) 5 million
  • SBA 504 No max for total project (5.5MM max
    for 40 CDC portion)

26
SBA Ineligible Use of Proceeds
  • There are certain restrictions on SBA loans,
    which cannot be used for these purposes
  • To refinance existing debt where the lender is in
    a position to sustain a loss and SBA would take
    over that loss through refinancing
  • To effect a partial change of business ownership
    or a change that will not benefit the business
  • To permit the reimbursement of funds owed to any
    owner, including any equity injection or
    injection of capital for the businesss
    continuance until the loan supported by SBA is
    disbursed
  • To repay delinquent state or federal withholding
    taxes or other funds that should be held in trust
    or escrow
  • For a non-sound business purpose

27
Credit Considerations for SBA at PNC
  • General credit considerations at PNC includes
  • Customer must show sufficient cash flow to repay
    the proposed debt
  • Target is 1.25x but SBA programs can mitigate
    down to 1.0x
  • Startups are considered on a select basis
  • Business acquisitions are entertained and are
    subject to a sensitivity analysis that reduces
    current income by 15, resulting in a higher DSC
    requirement
  • Financing for expansions should support a
    reasonable and well-defined purpose (e.g.
    purchase equipment, increase in permanent working
    capital, etc.)
  • Construction is acceptable with proper controls
    in place

28
SBA Loan Package
To speed up the loan approval process, the
following are typical items that need to be
collected from the borrower for loan submission
  • 2 years of Federal Personal Tax Returns,
    including all schedules on all owners greater
    than 20
  • Jointly prepared and signed PNC Personal
    Financial Statement by all owners greater than
    20
  • 3 years of Federal Business Tax Returns,
    including all schedules (if business acquisition,
    seller must provide)
  • Balance Sheet and Income Statement not older than
    90 days (if business acquisition, seller must
    provide)
  • Accounts Receivable and Accounts Payable aging as
    of same date as Balance Sheet and Income
    Statement (if business acquisition, seller must
    provide)

Note Other documentation may be requested by the
business development officer or underwriter.
29
Resources SCORE www.akron.score.org
  • Cash Flow!?

30
Resources SCORE www.akron.score.org
31
Resources SCORE www.akron.score.org
  • Akron SCORE Chapter 81 Facts
  • HQ 175 S. Main St. Akron, OH 44308
  • Founded 1965
  • Org. Type Nonprofit association that is a
    resource partner with the U.S. Small Business
    Administration. Nationally, SCORE has more than
    370 chapters with approx. 13,200 members.
  • Purpose Dedicated to entrepreneur education and
    the formation, growth and success of small
    business through counseling and mentoring.
  • Services Conducts workshops, face-to-face
    counseling and special outreach programs
    throughout its four-county service are (All
    services are free).
  • No. of Counselors 70 veteran area executives and
    small business owners who donate their time and
    expertise to assist new and existing businesses.
  • Types of Workshops Business Basics, Business
    Plan, Marketing, Customer Service, Financial
    Management, QuickBooks, Not for Profit and Resume
    Preparation, Simple Steps for Starting Your
    Business (five sessions).

32
Questions?
33
Thank You!
Thank you for your time! If you have any
questions after leaving tonight please do not
hesitate to contact Jon or Lisa.
  • Jon Novak PNC Business Banking Officer
  • 330-375-8026
  • Jon.Novak_at_PNC.com
  • Lisa Rucker PNC VP SBA Business Development
    Officer
  • 216-222-3435
  • Lisa.Rucker_at_PNC.com
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