The MetroIBA Education Committee welcomes you to the
webinar:
Understanding How Banks Lenders
Look at Your Small Business
Presented by Roger Hamilton, BankCherokee
August 18, 2015 9 – 10am CST
Understanding How
Bank Lenders Look at
Your Small Business
Presented by Roger Hamilton,
Commercial Lender/Sr. Vice President
Understanding How
Bank Lenders Look at
Your Small Business
Types of Business Loans
Loan Application & Financial Reporting
The Five C’s of Credit
Assessment of Capital
Assessment of Capacity
Role of Financial Covenants
Examples
Summary & Questions
Types of Business Loans:
Line of Credit
 Importance of Principal Payments/Clean-up
Equipment Loans
 Down payment is typically modest
Real Estate Loans
 Down payment ranges from 5-25%
SBA Loan Programs
 7a Guaranty, Capline & 504 program
Importance of Personal Recourse
Owner-occupied
Commercial Real Estate Loan Options
Uses of cash:
Purchase property
Improvements to property
Closing costs
Total Uses
Sources of cash:
BankCherokee 1st mortgage
SBA 504 2nd mortgage
MCCD 3rd mortgage
Owner's equity contribution
Total Sources
20% Down
Conventional
Loan
10% Down
SBA 504
Loan
3.3% Down
SBA 504 with
Non-profit
480,000
120,000
12,000
612,000
480,000
120,000
12,000
612,000
480,000
120,000
12,000
612,000
480,000
300,000
240,000
132,000
612,000
72,000
612,000
300,000
240,000
40,000
32,000
612,000
The "as-completed" appraisal came back at $600,000 or $50 per SF
on a 12,000 SF building, as compared to project costs of $600,000.
Loan Application &
Financial Reporting
FYE Statements for past 3 years (Tax Returns)
Interim Financial with prior year comparison
Account Receivable & Account Payable
. Aging Reports
Debt Schedule
Projections (fast growing or turnaround company)
Personal Financial Statement
Personal Tax Returns for past 2 years
The 5 C’s of Credit
Capacity: Ability to Repay Loan from Cash Flow
Capital: Assessment of Tangible Net Worth
Collateral: Assets to Secure the Loan
Character: Integrity / Personal Credit Score
Conditions: Industry Specific and Economy
Assessment of Capital
Tangible Net Worth Calculation
Total Shareholders Equity
Less:
Notes due from Officers, Shareholders or Affiliates
Goodwill or other Similar Intangible Assets
Plus:
Subordinated debt
= Tangible Net Worth
Leverage Ratio
Total Liabilities less Subordinated Debt
Tangible Net Worth
Assessment of Capacity
Cash Flow Calculation
Net Income
Less: Distributions
Plus: Depreciation & Amortization Expenses
Interest Expenses
= Traditional Cash Flow
Debt Service Coverage Ratio (DSCR)
Traditional Cash Flow
Interest Expenses Plus CMLTD (prior period)
or Scheduled Principal & Interest Payments
Role of Financial Covenants
Section 9 – Financial Covenants. The Borrower will maintain and comply with the following
Financial Covenant:
a. Borrower shall maintain a minimum debt service coverage ratio of 1.15 to 1 as of
December 31, 2015 and annually thereafter according to the following calculation:
Gross rent less operating expenses less distributions divided by Annual Debt Service.
Annual Debt Service is all regularly scheduled principal and interest payments.
Section 10 – Event of Default. The following shall constitute an Event of Default under this Loan
Agreement:
a. The failure by Borrower to pay any sum with respect to the Notes within five (5) days
following the date upon which payment is due;
b.
The failure by Borrower or Guarantor to keep and perform any covenants or
obligations under the terms of this Loan Agreement and the failure to cure such
default within thirty (30) days following written notice thereof from the Lender
specifying the default;
Upon the occurrence of an Event of Default, Lender shall have the right to decline to make any
further advances or disbursements of the Loan and may accelerate all of any portion of the
balance due under the Notes and assert any and all rights and remedies available to the Lender
under the Mortgage and Security Agreement.
Other Financial Covenants:
Maximum Capital Expenditures
Minimum Clean-up Days on Credit Line
Minimum Capital Levels
Limitations of
Traditional Cash flow
May not provide match of FY taxable income
to the FY tax distribution
Ignores source & uses of cash flow from the
balance sheet (operating company)
Ignores reclassified distributions
Bank’s loans will get repaid from future cash
flow NOT past cash flow
Manufacturing Company DSCR based on definition
Net Income
Distributions
Depreciation
Interest
Cash Flow
Debt Service 1st mortgage
Debt Service 2nd mortgage
Interest-Bank credit line
Debt Service equipment loan
Total Debt Service
DSCR
12/31/10
259
0
45
91
395
59
47
21
12/31/11
205
-202
62
88
153
59
47
23
12/31/12
125
-141
47
89
120
59
47
28
12/31/13
143
-91
222
84
358
59
47
24
127
3.11
129
1.19
134
0.90
130
2.75
12/31/14
442
-131
28
81
420
59
47
18
30
154
2.73
12/31/15
400
-354
28
80
154
59
47
18
33
157
0.98
12/31/14
442
-354
28
81
197
59
47
18
30
154
1.28
12/31/15
400
-320
28
80
188
59
47
18
33
157
1.20
Manufacturing Company DSCR based on
matching taxable income to the related tax distribution
Net Income
Distributions
Depreciation
Interest
Cash Flow
Debt Service 1st mortgage
Debt Service 2nd mortgage
Interest-Bank credit line
Debt Service equipment loan
Total Debt Service
DSCR
12/31/10
259
-202
45
91
193
59
47
21
12/31/11
205
-141
62
88
214
59
47
23
12/31/12
125
-91
47
89
170
59
47
28
12/31/13
143
-131
222
84
318
59
47
24
127
1.52
129
1.66
134
1.27
130
2.45
Retail Company Capital Analysis
2010
2011
2012
2013
2014
324
339
445
412
521
-105
-78
-74
-132
-215
0
0
0
0
59
Subordinated Debt
0
0
0
0
0
Tangible Net Worth
219
261
371
280
247
Total Liabilities
758
907
1,265
1,968
2,024
Leverage Ratio
3.5x
3.5x
3.4x
7.0x
8.2x
Total Stockholder's Equity
Less:
Due from Shareholder
Due from Affiliate
Plus:
Retail Company Capacity Analysis (using traditional cash flow)
Net Income
Less:
Distributions
Plus:
Depreciation Expense
Interest Expense
Traditional Cash Flow
Credit Line Interest
Installment Loans
Total Debt Service
Debt Service Coverage Ratio (DSCR)
2011
120
2012
185
2013
17
2014
114
(33)
(100)
(73)
(4)
151
19
257
6
13
19
57
24
166
8
36
44
78
90
112
16
78
94
118
78
306
16
117
133
13.5x
3.8x
1.2x
2.3x
Retail Company Capacity Analysis (using modified traditional cash flow)
Net Income
Less:
Distributions
Reclassified Distributions
Due from Affiliate
Plus:
Depreciation Expense
Interest Expense
Modified Traditional Cash Flow
Credit Line Interest
Installment Loans
Total Debt Service
DSCR
2011
120
2012
185
2013
17
2014
114
(33)
0
0
(100)
0
0
(73)
(58)
0
(4)
(83)
(59)
151
19
57
24
78
90
118
78
6
13
19
13.5x
8
36
44
3.8x
16
78
94
0.6x
16
117
133
1.23x
Summary & Questions
Contact Information:
Roger Hamilton
Commercial Lender/Sr. Vice President
email: rhamilton@bankcherokee.com
Phone: 651.291.6263
Recommended reading: Forbes Article
How's Your Flow? Cash Flow Not Profit
As Predictor Of Entrepreneurial Success
http://onforb.es/1LeJvt2
BankLocal. BankCherokee.
Thank you for attending today’s webinar!
We hope to see you at these upcoming events:
•
•
•
•
•
Member’s-Only - Business Owner’s Roundtable Thurs Aug 27, 7:30-9:00am
1st Tuesday Networking Events 4:30 – 6:30pm, Sept 1st @ The Wedge Table
Public Policy Caucus – Member Only – Sept 29th, 6 – 8:15pm
Free Webinar Oct 20th, Start Thinking About What’s Next For You – NOW!
Visit www.buylocaltwincities.com/events for more information
Not a MetroIBA member? Visit www.buylocaltwincities.com/join
to learn more about the benefits of being a member and to join online
today!