W.P.A.S.G.L.
Western Pennsylvania Association
of SBA-Guaranteed Lenders
The Competition for Your
Borrower’s Cash - Global Cash Flow
Analysis
Objectives
• SBA Requirement
• Terminology/Process
• Sample analysis-Field Underwriting
Disclaimer
(a statement that is meant to prevent an incorrect understanding)
• Your Institution’s Credit Officer is 100 %
Correct !
Avowal
(an open declaration or acknowledgment)
• 50% of the Time!
SBA SOP 50 10 5(F) Requirements
•
•
(c) The Small Business Applicant’s debt service coverage ratio exceeds 1:1 on a historical or projected cash flow basis; and
(d) With the exception of loans under $50,000, the Small Business Applicant’s global cash flow coverage ratio exceeds 1:1 on a historical basis or,
projected cash flow basis. Lender must document in the loan file the definition or formula used to calculate global cash flow; and
•
(e) Owner/Guarantor analysis, including personal financial statements, consistent with lender’s similarly-sized non-SBA guaranteed commercial loans.
2. For Standard 7(a) loans greater than $350,000 and up to and including $5,000,000:
•
Lenders analysis must demonstrate the Small Business Applicant’s ability to repay the loan from the cash flow of the business by documenting the
following:
Loans from $350,001 to $5 million
•
c) A financial analysis of repayment ability based on historical financial statements (including balance sheet with debt schedule and income
statement) and/or tax returns (if an existing business) and detailed projections, including the supporting assumptions:
•
1. Analysis of historical cash flow should demonstrate total debt service coverage after the SBA loan;
•
2. Define operating cash flow (OCF) as earnings before interest, taxes, depreciation and amortization (EBITDA);
•
3. Analysis must document additions and subtractions to cash flow such as the following:
•
(a) Unfunded capital expenditures;
•
(b) Non-recurring income;
•
(c) Expenses and distributions;
•
(d) Distributions for S-Corp taxes;
•
(e) Rent payments;
•
(f) Owner’s Draw; and/or
•
(g) Assessment of impact on cash flow to/from any affiliate business.
•
4. Debt service (DS) is defined as required principal and interest payments on all business debt inclusive of new SBA loan proceeds. The small
business applicant’s debt service coverage ratio (OCF/DS) must be 1.15 to 1 or greater on a historical and/or projected basis:
What does that mean?
• (a) Unfunded capital expenditures % of depreciation is commonly
used
• (b) Non-recurring income; Gain on sale of assets, Capital gains for
guarantor, Lottery winnings, insurance proceeds et al
• (c) Expenses and distributions; Moving, and any other extra-ordinary
Expenses. Document in credit write up
• (d) Distributions for S-Corp taxes; Prior Period net income is basis
for analysis
• (e) Rent payments; EPC
• (f) Owner’s Draw; and/or
• (g) Assessment of impact on cash flow to/from any
affiliate business Is my business owner Warren Buffet or Bernie Madoff?
IS IT DIFFICULT?
Constructing Global Cash Flow
• Borrower Cash Flow + related entities+
personal guarantors=Global Cash Flow
• Business EBITDA
• Related Entities EBITDA (for ownership greater than 50%)
• Guarantors Excess cash flow surplus
Must be formulaic
• EPC Rent add back-Triple net lease? Excess
rents? Can be incorporated into Guarantor
analysis
Deducting Living Expenses
• Should be supported and utilized by the
institution
• RMA has articles and information to refer to if
in doubt
Operating Company-income statement
INCOME STATEMENT
(000's omitted)
DATES:
STATEMENT TYPE:
Sales
Other Income
1
%
12/31/10
4
$13,568
1
%
12/31/11
4
100.0
$16,114
2
%
12/31/12
%
11/30/13
5
100.0
0
4
$13,248
100.0
$13,856
100.0
$0
0.0
$0
0.0
0.0
$0
0.0
$13,568
100.0
$16,114
100.0
$13,248
100.0
$13,856
100.0
$10,424
76.8
$13,116
81.4
$10,950
82.7
$10,704
77.3
$697
5.1
$764
4.7
$778
5.9
$771
5.6
$3,144
23.2
$2,998
18.6
$2,298
17.3
$3,152
22.7
$0
0.0
$0
0.0
$0
0.0
$0
0.0
Depreciation and Amortization Expense**
$116
0.9
$23
0.1
$24
0.2
$101
0.7
Interest Expense**
$323
2.4
$180
1.1
$157
1.2
$134
1.0
Rent Expense**
$25
0.2
$25
0.2
$19
0.1
$108
0.8
$2,043
15.1
$2,345
14.6
$2,250
17.0
$2,836
20.5
$320
2.4
($15)
-0.1
($65)
-0.5
($28)
-0.2
$0
0.0
$0
0.0
$0
0.0
$0
0.0
$317
2.3
$440
2.7
($87)
-0.7
$1
0.0
Distributions/Withdrawals
$0
0.0
$504
3.1
$219
1.7
$228
1.6
Taxes taken at 30% or actual paid
$0
0.0
$0
0.0
$0
0.0
$0
0.0
$317
2.3
($64)
-0.4
($306)
-2.3
($227)
-1.6
Total Income
Cost of Goods Sold
Depreciation Expense included in COGS**
Gross Profit
Officer Compensation and Employee bonus
S G & A Expenses
Other (Income) Expense net
Other Operating Expenses
Net Income Before Dist/Withdrawals
Net Income After Dist./Tax
100.0%
100.0%
0.0%
Operating Company-Balance Sheet
BALANCE SHEET
(000's omitted)
DATES:
Cash
Year-End
%
12/31/10
Year-End
%
12/31/11
Interim
%
12/31/12
%
11/30/13
$151
1.6
$216
2.3
$90
1.0
$18
0.2
A/R
$2,102
21.7
$1,870
20.2
$2,043
22.0
$2,631
27.0
Inventory
$1,180
12.2
$1,421
15.4
$1,918
20.6
$2,267
23.3
Work In Process
$0
0.0
$0
0.0
$0
0.0
$0
0.0
Investments-Long term
$0
0.0
$0
0.0
$0
0.0
$0
0.0
$302
3.1
$271
2.9
$103
1.1
$25
0.3
$3,735
38.5
$3,778
40.9
$4,154
44.7
$4,941
50.7
$5,546
57.1
$5,001
54.1
$4,712
50.7
$4,216
43.2
Prepaids
$72
0.7
$51
0.6
$58
0.6
$115
1.2
Security Deposits
$35
0.4
$35
0.4
$35
Software
$17
0.2
$24
Other
$300
3.1
$300
3.2
$300
3.2
$340
3.5
$0
0.0
$55
0.6
$21
0.2
$136
1.4
$9,705
100.0
$9,244
99.7
$9,303
99.4
$9,748
100.0
Accounts Payable
$929
13.1
$963
19.8
$1,399
26.9
$2,223
37.8
Accured Liabilities
$269
3.8
$223
4.6
$162
3.1
$231
3.9
Current portion of long term debt
$4,606
64.9
$455
9.4
$543
10.4
$450
7.7
Line of credit
$1,250
17.6
$1,700
35.0
$1,949
37.5
$1,994
33.9
Other Short Term Assets
Current Assets
Net Fixed Assets (P,P&E and Rental Inv.)
INTANGIBLES
Total Assets
Note Payable -
$23
$21
0.3
$34
0.7
$88
Short Term Loan - Bank
$0
0.0
$0
0.0
$0
0.0
$144
Interest payable
$0
0.0
$0
0.0
$0
0.0
$0
0.0
$7,075
99.7
$3,375
69.5
$4,141
77.9
$5,127
85.8
$0
0.0
$1,463
30.1
$1,049
20.2
$643
10.9
Current Liabilities
Long Term Debt***
Capital Lease Obiligations
$85
2.4
$19
0.4
$14
Other Long Term Liabilities (Deferred Comp) ***
$0
0.0
$0
0.0
$0
0.0
$0
0.0
Other Long Term Liabilities***
$0
0.0
$0
0.0
$0
0.0
$0
0.0
Other
$0
0.0
$0
0.0
$0
0.0
$0
Total Liabilities
Net Worth
Total Liabilities and Net Worth
$24
$7,099
$2,606
$9,705
72.8
26.9
99.7
$4,857
$4,387
$9,244
0.0%
52.5
47.5
100.0
$5,204
$4,099
$9,303
0.0%
$108
54.0
44.1
98.0
$5,878
$3,870
$9,748
0.0
57.0
39.7
96.7
0.0%
Debt Schedule
DEBT SCHEDULE
(000's omitted)
Amount
Term (Months)
Rate (%)
Annual pymt
Proposed New Debt
$3,350
144
5.00%
$372
Proposed New Debt
$250
60
5.00%
$57
Line of Credit
$1,250
999
4.50%
$58
Note payable
$0
0
0.00%
$0
Note payable
$0
0
0.00%
$0
Other
$0
0
0.00%
$0
$0
0
0.00%
$0
$0
0
0.00%
Total
$4,850
Less existing and/or refinanced debt on B/S
Debt used in Leverage Calculation
$4,850
COMMENTS
Review Based Statements
$0
$486
Guarantor Balance Sheet
PFS-OUTSIDE GUARANTOR NET WORTH
PFS DATE(S):
20-Dec-13
Assets
Cash
Marketable Securities
Retirement
Home
Other Real Estate
Autos/Other Personal Property
$31
$110
$0
$950
$522
$249
Real Estate
Secured Indebtedness
Revolving
Installment
Other
Total Liabilities
Business Ventures
$1,317
Net Worth
Total
$3,179
Total Liab/NW
OUTSIDE NET WORTH
$1,120
Liabilities
Monthly Paym ent
$513
$179
$0
$50
$0
$742
$4
$2,437
$3,179
$6
$0
$0
Guarantor Cash Flow
GUARANTOR ANALYSIS
Guarantor
PFS DATE(S):
YR OF 1040 TR
(000's omitted)
Salary
Investment
Net Rental Income
Net Business Income
Other-Spouse Salary
Other
Gross Adj. Personal Income
less 50%
Personal Income
Less contractual obligations
Home Mortgage/Rent
Home Equity Line
Installment Loans
Revolving/Open Credits
Real Estate Taxes
Insurance
Other Scheduled Debt
TOTAL CONTRACTUAL DEBT
Net Adj. Personal Income
12/20/2013
12/31/2012
$112
$2
$0
$228
$58
$0
$400
$200
$200
$51
$0
$0
$0
$8
$2
$0
$61
$139
Donald Trump Analysis
RENTAL REAL ESTATE FROM SCHEDULE E
Property Address 1
Property Address 2
Property Address 3
Property Address 4
Property Address 5
Property Address 6
TOTAL
INCOME FROM RENTAL PROPERTY
Net Income
$0
$0
$0
$0
$0
$0
$0
$0
Depreciation
$0
$0
$0
$0
$0
$0
$0
Interest
$0
$0
$0
$0
$0
$0
$0
Debt Service
$0
$0
$0
$0
$0
$0
$0
Global Cash Flow Results
CASH FLOW AND DEBT SERVICE COVERAGE ANALYSIS
DATES:
December-10
December-11
December-12
November-13
Net Income After Dist./Tax
$317
($64)
($306)
($227)
Depreciation and Amortization Expense**
$813
$787
$802
$872
Interest Expense**
$323
$180
$157
$134
$25
$25
$19
$108
Cap Ex at 20% Depreciation
($163)
($157)
($160)
($174)
Cash Available to Cover Debt Service
CASH FLOW FROM OPERATIONS
Rent Expense**
$1,315
$771
$512
$713
Excess Personal Cash Flow
$139
$139
$139
$139
Total available to cover D/S
$1,454
$910
$651
$852
Debt Service
$486
$486
$486
$486
Debt Service Coverage - Traditional
2.71
1.59
1.05
1.47
Debt Service Coverage - Global
2.99
1.87
1.34
1.75
Three Year Global Average
2.07
Analysis
LIQUIDITY AND LEVERAGE CALCULATION
12/31/10
0.53
-$3,340
0.00
$0
12/31/11
1.12
$403
0.00
$0
12/31/12
1.00
$13
#DIV/0!
$52
11/30/13
0.96
-$186
0.00
$0
Traditional Debt/Tangible Net Worth - Bus 1
Proposed Debt/Tangible Net Worth - Bus 1
Traditional Debt/Tangible Net Worth - Bus 2
Proposed Debt/Tangible Net Worth - Bus 2
2.72
4.59
0.00
0.00
1.12
2.24
0.00
0.00
1.28
2.47
0.00
0.00
1.57
2.87
0.00
0.00
Global Leverage
Proposed Global Leverage
2.10
3.41
1.03
1.92
1.13
2.06
1.36
2.36
Personal Debt to Income Ratio - Guarantor 1
Personal Debt to Income Ratio - Guarantor 2
Personal Debt to Income Ratio - Guarantor 3
Personal Debt to Income Ratio - Guarantor 4
0.15
0.00
0.00
0.00
G1
G2
G3
G4
0
$1,120
$2,437
0
$0
$0
0
$0
$0
0
$0
$0
B1
B2
0
0
Current Ratio - Bus 1
Working Capital - Bus 1
Current Ratio - Bus 2
Working Capital - Bus 2
Aggregate Business Liquidity
Aggregate Personal Liquidity
TOTAL LIQUIDITY
CREDIT SCORES
NET WORTH OUTSIDE OF BUS.
NET WORTH
BUSINESS SCORE
$90
$141
$231
Questions?
Good Luck with your brackets!