Credit Review: Risk Evaluation & Due Diligence

  • View

  • Download

Embed Size (px)

Text of Credit Review: Risk Evaluation & Due Diligence

  • Credit Review: Risk Evaluation & Due


  • Toby DahmSenior Vice President Hennessey Capital Over 20 years of experience in commercial lending Traditional, workout, factoring and asset-based lending experience Expertise in underwriting, portfolio management, marketing and product development Former entrepreneur Recognized and trusted expert Automation Alley, Tech Town, etc.

  • Seed CapitalAngel Investmentearly stage equity investmentFinancing Spectrum

  • Preparation Executive Summary- short and sweetLoan request- source & use of fundsHistory of businessFinancial highlights- including owners investmentSWOT analysisInvestment / loan repaymentBusiness PlanDetail to support executive summaryBusiness structure and key partnersDescribe pain point and solution- industry analysisCustomers and suppliers Competition Marketing and sales strategy, brochures and website

  • Preparation Financial DocumentationHistoric balance sheet and income statement (3 yrs).Current period balance sheet and income statement.Projections including cash flow and income statements. Proforma balance sheet, if applicable.Accounts receivable and accounts payable agings.Contracts or purchase orders.Customer list.Personal financial statements and resume (s).Inventory reports, building or equipment appraisals.2 years personal and business tax returns.


  • Communication Treat as personal and business interview.

    Confident but not combative.

    Describe opportunities and recognize challenges.

    What else should the lender / investor know now that they will probably find out on their own?

    If no, ask for advice and use as opportunity for next presentation.

  • Tips for Finding Funding #1 Understand the financing landscape and where your ask fits in the spectrum of players.

    #2 Leverage professional advisors for mentoring and coaching.

    #3 Be prepared and explain your needs and business in a concise but complete manner.

    #4 If turned away, ask for direction and steps required for a yes. Dont be defensive.

    #5 Network, network and network.

  • Seed Capital/Angel Investment Used for New Businesses: Fund initial idea or prototype

    Sources Include:Friends and familyHigh net worth individualsCompany or organizationMore patient investor, provides mentorship, co-invest opportunities, industry expertise, smaller investment.


  • Venture Capital Used for high growth driven companies and sectors: Medical devices, IT- software, advanced mfg., alternative energy, green and defense. Fund growth, product development, research, sales and marketing, additional talent attraction. Pre-revenue limited opportunities Early/growth stage and late-stage stronger candidates.

    Sources include: Institutional investors vs. individual investors. (mutual fund concept)

    Expensive, controlling interest, will be a partner- make them strategic.


  • Asset-Based Financing FactoringBusiness to business sales companies.

    Limited track record or rapid growth.Leverages up to 90% of invoices for immediate cashBridge A/R collection and A/P payment gap.

    Can be used in conjunction with current bank facility.

  • Asset-Based Financing Asset-Based Line of CreditEstablished business to business sales companies.Restructure current bank debt, successor financing to factoring or flexible tool for long term needs. Leverage asset classes to maximize cash- accounts receivable, inventory, machinery and equipment or real estate.


  • SBA Lending Available to all business stages: Start-upLimited Track Record Existing (2+ years) Loan programs include: 7(a), 504 and Cap Line 7(a) can be used for commercial real estate purchase/expansion/ground-up, equipment purchase, business acquisitions, debt refinance, working capital (excluding lines of credit). 504 can be used only for commercial real estate purchase/expansion/ground-up and equipment.Cap Line provides a revolving line of credit for working capital liquidity.

  • Conventional Bank Lending

    Companies with established track record (2 years ideal). Sales, profits, manageable debt leverage.

    Full relationship with multiple bank products.

    Lower rates, lower administration, cash flow focused.

    Long-term relationship with both business and owners.

  • Negotiating with Lenders/Investors

    What is most important to you? Availability of funds?Cost? Freedom from restrictions? A trusting relationship?

    Maintain Options

    Negotiate with multiple parties Keep Plan B alive

  • Negotiating with Lenders/Investors

    Choose your battles wisely Fight for what is most important Dont create hypothetical horribles Empathize with the other party Make a business case to support your stance

    Settle when possible

    Recognize the value of a bird in hand Can you adjust to make the agreement work? Will your partner re-visit the issue and what will change their position?

  • Thank You

    Toby Dahm Senior Vice PresidentHennessey Capital