Banking - Friedman Kannenberg

Course Title
Presented by
Alan Friedman
& Daniel Jobe
Friedman, Kannenberg & Company, P.C.
$ 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
“Current Banking & Financial Crisis”
How Did This All Start?
2007 – 2008
HSBC (world’s 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 America’s 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
• 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
• June 22, 2010 – Moody’s 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 that’s
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.
What’s next…???
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
What the bank wants from you…
The “3 C’s” – 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
10 Tips to Getting that Loan…
1.Banks need to make loans; so don’t 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
10 Tips to Getting that Loan…
6.Don’t be negative or apologetic – be
7.Keep it real; don’t stretch the truth
8.Discuss risks (it earns credibility)
9.Don’t push it
10. If at first you don’t succeed,…
Loan Request Presentation
Discussion Points
1. Loan request & proposed loan terms
2. Background on DJ’s 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
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
2. Background information on
DJ’s House of Rock (“DJ’s”)
•DJ’s is a single store, “full line” music retailer
located in Hartford, CT
•DJ’s is an “S” Corporation, owned and
operated by Alan Friedman & Daniel Jobe
•DJ’s occupies 6,000 sq/ft of retail space on
Main Street in downtown Hartford, CT
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 Musician’s 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
4. Background information on
Instrument Rental Programs
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.
•DJ’s is a retailer that provides these types of rental agreements,
and has been doing so since 1995.
4. Background information on
Instrument Rental Programs
•Under the Company’s 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.
4. Background information on
Instrument Rental Programs
•The Company’s 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.
4. Background information on
Instrument Rental Programs
•On December 31, 2010, DJ’s 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, DJ’s 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.
5. Why We Are Seeking a Bank Loan
•DJ’s 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.
6. Supporting Documents Provided
•Product Invoices from our Band & Orchestral vendors
•Compiled Financial Statements of DJ’s 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 Trade’s Annual Report of Top 200 Dealers, and
•MMR’s “Profile of the American Music Dealer”
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
•Alan’s primary residence ($200,000 of equity)
•Daniel’s vacation home ($150,000 of equity)
8. For additional information contact:
Alan Friedman & Daniel Jobe, Officers
DJ’s House of Rock, Inc.
4-12 Marshall Stack Street
Hartford, CT 06105
Tel – (800) 867-5309
Fax – (800) 123-4567
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 C’s” of borrowing
Takeaway 2: Generate “current” financial statements
Takeaway 3: Download this PowerPoint at
“Free” Consulting Meetings
Contact Jen outside the Idea Center entrance
after this session to set up a meeting time
Enjoy the
Catch Printz Saturday Night at the Hilton Lobby!!