Expanding Your Business - What You Need To Know Webinar …€¦ · Expanding Your Business: What You Need To Know This complimentary interactive webinar is sponsored by Zions Bank

Expanding Your Business:What You Need To Know

This complimentary interactive webinar is sponsored by Zions Bank and is offered for informational purposes only, and should not be construed as legal or other professional advice. All information provided should be considered as educational in nature and not as professional services. Consult with an attorney or other professional concerning your own needs and circumstances. By utilizing the

information provided by Zions Bank, you acknowledge and agree this does not constitute any legal commitment to become a customer of any bank including Zions Bank and its affiliates nor does it constitute an offer of any extension or modification of any credit to you by Zions

Bank or its affiliates. This presentation may contain trademarks or tradenames owned by parties who are not affiliated with Zions Bank. Use of such marks does not imply any sponsorship by or affiliation with third parties, and Zions Bank does not claim any ownership of or make

representations about products and services offered under or associated with such marks.

Sheila SpanglerVice President and DirectorBusiness Resource Center

Boise, ID

August 26, 2014

Spend Money to Make Money

Growing your business takes capital….either yours or outside sources of funds.

• How much do you need?• Where do you get it?• When is the optimal time to obtain it?

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© 2014 Zions Bank, Member FDIC

Is Your Company Positioned for Growth?

• Cash flow and profit are not the same thing.– actual cash received and paid out

• Profit/Income: – difference between sales and total expenses

Is it possible for a company to show zero profit but be able to pay all vendors on time? Why or why not?Is it possible to show a profit but have little or no cash in the checking account? Why or why not?

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Finding Capital

• Self-funding (“bootstrapping”) – savings, personal loans

• Family & Friends – gifts or loans • Crowd funding – Kickstarter, Indiegogo, etc.• Investors – equity partners, angels, venture capital • Microloans – usually for amounts less than $50,000• Term loans – banks, credit unions, may have SBA

loan guarantee • Other financing – lines of credit, factoring, leases,

credit unions, private lenders, finance companies, etc.

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First Things First1. Utilize the “Lean Business Model Canvas” to

“test” your expansion plan.2. Write down your business plan and prepare

financial projections.3. Prepare “letter to the banker” 4. If requesting equity capital, prepare slide deck5. “Pitch” your request to the funding source.

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Your Plan to Expand

Your plan must contain BOTH “the narrative” and “the numbers”

Your plan must be based on results and your most reasonable estimate of the future. Your assumptions are based on current and expected market conditions, competition, challenges, market and financial research.

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“Just the Facts, Ma’am…..” Sergeant Joe Friday, Dragnet

• Eliminate fancy graphs or charts. This is fluff and wastes time and paper. You don’t get extra points for length….this is not War and Peace.

• “Where’s the beef?” Cover the important points especially the financials, marketing plan and competitive advantage.

• Explain your assumptions. How did you determine your projections? Where did you get the information? Did you do research? Survey your customers? How do you know? Cite your sources.

• Who are your competitors? What are their strengths and weaknesses? How do you know? Did you mystery shop them?

• Why should someone buy from you as opposed to one of your competitors? What is your competitive advantage?Note: location and traffic count is NOT an advantage.

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Try a TemplateFree business plan templates online:

– https://www.zionsbank.com/pdfs/biz_resources_book-1.pdf

– http://www.score.org/resources/business-planning-financial-statements-template-gallery

– http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/how-write-business-plan

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How Much Do I Need?

Determine expansion costs Item Cost

Website with shopping cart & SEO $5,000

Legal fees to set up LLC, create contracts with suppliers, analyze lease agreement, etc.

$3,000

Production equipment and vehicles $26,000

Office equipment & furniture $5,000

Inventory purchases $6,000

Business license, permits and other fees $2,000

Grand opening marketing/advertising $3,000

Total Expansion Expenses $50,000

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Calculating Monthly Expenses

What ongoing expenses will I pay every month?Name of Expense Amount

Rent $3,000

Utilities $200

Marketing Campaign $300

Bank account charges, credit card processing $400

Office supplies & postage $200

Business insurance $100

Owner salary and staff wages $5,000

Loan payment $2,500

Total $11,700#ZBWebinar


Sources & Uses

Uses Dollars Sources Dollars

Expansion Costs $50,000 Owner Cash $15,000

Working capital $70,200 Borrowed Funds $100,000

Closing costs $4,800 Investor Funds $10,000

Total $125,000 Total $125,000

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Equity or Debt?• Not all companies qualify for investor capital

– Must be scalable – Should have “secret sauce” (i.e. patent, or other unique

positioning)– Exit strategy in 3 to 5 years for large “liquidity event”

• Debt is less expensive than equity – Cost of equity capital involves giving up

ownership/control– Weighted average cost of capital for equity is typically

higher– “Main street” businesses use debt financing for growth

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Financing Uses• To fund costs and working capital for a new business• To purchase an existing business• To buy fixed assets (buildings, equipment, vehicles)• To manage cash flow gaps such as:

– “seasonality” of revenues– Timing difference between collection of accounts receivable and

payments to vendors

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Factors Influencing Loan Options

Rule of Thumb:“Match the purpose with the loan type”

• Are you starting or purchasing a business? • Are you buying equipment or a building?• Are you constructing a building?• Do you plan to export your product?• What is the loan repayment source?

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How Lenders Make Loan Decisions “The Five “C’s” of Credit”

• Character: past successful industry-specific experience including the owner’s personal credit history demonstrating willingness and ability to repay debts.

• Capacity: the business’s ability to generate positive cash flow and profit to cover business operations including any debt service requirement.

• Capital: the owner’s cash or equity contribution into the business (known as “skin in the game”).

• Collateral: tangible (physical) assets pledged to secure the loan amount (example: equipment, vehicles, stocks, etc.)

• Conditions: the current and projected economic conditions for the industry and overall economy in which the business operates

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Choosing a Lender• Is the lender experienced with your loan request?• Is the lender able to approve your loan type?• Is the lender experienced with your industry?• What is the reputation and financial strength of the

lender?• Is the lender “SBA Preferred” or “SBA Approved”?

– SBA Preferred status makes a difference – These banks make SBA loan decisions “in house” without

having to get SBA approval thus saving time.– Zions Bank has been ranked as the #1 lender of SBA 7(a) loans

for 12 consecutive years in Idaho (Boise district), and 20 consecutive years in Utah.

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About the SBA What is the SBA?• SBA - Small Business Administration, a government agency• Offers financial programs to help small businesses

How do SBA loan programs work?• SBA does not make direct loans to businesses. • SBA provides a financial guarantee to approved lenders.• Approved lenders include: banks, CDFI’s, credit unions• Loans are made based on

SBA guidelines and approved by the lender.

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Common SBA Loan Programs

• SBA 7(a)– To buy or start a new business– To purchase fixed assets (equipment, land/building)– To fund tenant improvements– To fund working capital

• SBA 504– To purchase fixed assets (equipment, land/building)– To construct or upgrade buildings

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The Letter to the Banker

The cover letter accompanies a completed loan package and gives a broad overview of the proposal.

– List the strengths of your loan request– List the weaknesses and how you will mitigate them – List up to five relevant reasons your business will succeed

based on your analysis– Provide your contact information and ask for a meeting– Thank the banker for his/her time and consideration

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BANKER LETTER TEMPLATE

You may use this template to assist you in preparing your letter to the banker.

This will typically be the last step in completion of your loan application package.

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Date Banker name Address City, State Zip

RE: Loan Request Package for ________________ Dear Mr/Ms Banker: Attached to this letter you will find the loan request package for NAME OF BUSINESS and NAMES of INDIVIDUALS (who are the owners of the business) in the amount of __________. Included in the package are detailed financial projections, a business plan, tax returns, personal financial statement and copy of our personal credit report. This package should provide you with the basic information you need to determine if your bank is willing to provide a loan for our start‐up business. Therefore, I respectfully request your review and approval of our loan for the following reasons: (Here is where you list the strengths of your business loan request. This would include things such as):

o I/We have (refer to yourself here) _____ years’ experience in the _____industry where I/we have owned/operated/managed a __________ for ______ years.

o I/We have developed management/leadership/supervisory skills as a result of doing __________________ for __________ years.

o I/We have a credit score of _____ as evidenced by the attached copy of our credit report. In order to preserve my/our credit report score, we respectfully request that you only pull a copy of our report when you believe that our loan request will be approved. Thank you in advance.

o I/We will be putting in _______ cash equity to the project. We estimate the cost of the project to be ______. So our cash equity is equal to ____% of the total.

o I/We are offering ____________ value in collateral. This collateral consists of all of the assets of the business we are launching. We estimate the business assets to be worth _______ and include equipment worth ____, inventory at _________, other (list it)________. Additionally, we are willing to pledge the following personal collateral to secure the loan request____________ (here is where you list out the net equity value of any real estate that you are willing to pledge or any other collateral you might offer to secure the loan. This collateral includes the assets of the business you are starting.)

o I/We realize that the value of the collateral is slightly less than the requested loan amount. However, that is why I/we are requesting that your bank provide us with an SBA 7(a) guaranteed loan. While we understand this doesn’t necessarily replace the need for collateral, we understand that it assists the bank in making a positive loan decision for a startup business like ours.

I/We realize that you see many loan requests every week and must make a determination of which ones to approve and which ones to decline. I/We would like to let you know that from our perspective, I/we

believe that my/our business will grow and become profitable and pay the loan back for the following reasons:

I/we have done a market analysis of this industry and have found that our competitors don’t offer _________ or that I/we will offer _______________ based on demand. (You will have to “wordsmith” this part to fit your business. This is just an example of how you might write this.)

There is no competitor in this area and it is underserved because_______________________. (Again, you will need to write this in your words that make sense for your business).

My/our business will serve __________ (your target market….describe who it is in demographics and psychographics to make the banker understand your business).

I/we expect to obtain _____% of the target market in the are because______________ (explain what your marketing/sales plan is to find, convert and keep customers. You can pull and summarize some of the information from your business plan here. )

List as many relevant reasons that make sense. However, I suggest you don’t list more than five. Thank you Mr./Ms. Banker for your consideration of my/our loan request. I/we appreciate your time and effort on my/our behalf. I/we would welcome a personal conversation about this loan request. You may reach me at TELEPHONE NUMBER. My email address is:________________________ Sincerely, Borrower name Address

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Making Your Pitch• Dress professionally for a

good impression.

• Bring copies of your completed loan package.

• Request that the lender not pull your credit report until the bank indicates a strong probability of approval.

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More Pitch Tips• Be responsive to requests for additional documentation,

clarification, or information.

• Be honest. The truth always comes out!

• Ask for a timeline for the decision.

• Do not share your proposal with different banks simultaneously.

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Things to Avoid Saying

• “How much can I get”?

• “I have to close by the end of next week.”

• “I need a credit line to purchase some new equipment.”

• “I will not personally guarantee this loan.”

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Now What?

Your loan is turned down• Don’t give up.• Ask lender for reasons for decline.• Ask lender for ways to mitigate the reasons, if

possible.• Sometimes a bank may reach its maximum

desirable limit on loans to certain industries. This does not mean your loan request is not a good one; it just means you must try a different lender.

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Now What?

Your financing is approved!• Congratulate yourself on a job well done!• Make sure your lender has all information they need to

process the loan documentation. • Read the fine print on all the loan documents before you

sign.• Ask questions and make sure you understand the

requirements.• Put the proceeds to work in your business!

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Your Next Steps Want to expand or start a business and have a plan?Make an appointment with a BRC representative

• Receive an unbiased critique of your business plan with suggestions

• Receive customized coaching session to prep for the lender pitch• Receive referrals to the right lender for your business needs

No business plan or plan is incomplete– Meet with a BRC counselor to get

individualized help

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Business Resource Center – IdahoSheila Spangler208‐501‐7450

idahosmallbusiness.com

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Business Resource Center – UtahAlyson Williams801‐844‐8245

utahsmallbusiness.com

Questions? Ask now, and follow us:

Twitter: @ZionsBank

Facebook: facebook.com/ZionsBank

Pinterest: pinterest.com/zionsbank

LinkedIn: linkedin.com/company/zions-bank

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Expanding Your Business - What You Need To Know Webinar …€¦ · Expanding Your Business: What You Need To Know This complimentary interactive webinar is sponsored by Zions Bank