A Question for you Banker types

[John D Harris]

I looking for info on writing a business plan. My wife and I are trying to buy the company that we run. We're getting a great deal. I want to approach some relatives, but not use the "brother-in-law" method. You know, "hey let me barrow some money for X,Y, &Z". I want to do it right, business is businees and personal is personal. I have 16+ years in the field, screenprinting, and we have run the company for 4 years(talk about sweat equity). I know the industry inside and out but, I don't know squat about the formal business type of stuff. Any help that you can give ie; leads to books or programs I would be much abliged (southern country for thank you)

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"the memories of a man in his old age,
are deeds of a man in his prime"

[DawnChaser]

Here is what Google and I came up with for Creating a Business Plan

"Does this mean I get a 'Finder's Fee'?"

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[IdiotRogue]

DawnChaser gave you a good link, JD... As a banker, I've seen 'em and helped write 'em... If you have the patience, you can put together a very effective business plan yourself. I would pay special attention to the Small Business Administration (SBA) guidelines/advice. Start up loans, regardless of length of time in the industry, are the toughest to get through a bank (unless you can show about 50% equity and assets that are worth more than you need to borrow).

The SBA route is longer but a little more lenient, especially if your wife gets listed as the primary borrower. There are still lots of government programs out there for women starting businesses (they are classified as minorities ). Request all the information you can from the local SBA office, or through the government website. I would also call your leading local newspaper (business editor) and library to ask if there are any state/local grant programs for start up businesses.

Best of luck, JD. Let us know what progress you're making. I'll be happy to answer what questions I can and offer free advice (and we all know what that's worth ).

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{Next time I send some damned fool, I'll go myself...}

[onthepequod]

John D.,

IdiotRouge has some excellent advice regarding SBA. Their 7a and 504 (if real estate is involved) programs are excellent routes for small businesses to take. If you opt for a 504 loan a Community Development Company (CDC) must get involved and usually CDCs are very helpful in developing a business plan. They will normally walk you through it step by step, free of charge. The best way to go about finding out whether the 7a or 504 is best for you and what CDC to use, is to find a local bank that has SBA PLP (preferred lender program) status and a banker within that institution that has many years of experience dealing with SBA lending. SBA lending is convoluted and an experienced banker will make all the difference.

The reason SBA loans are so attractive is because they allow you to sink less cash/equity into the deal up front and the SBA limits what a bank can charge you. However, there are limits to the size of the transaction.

To give you an idea of what banks will be looking for, all traditional banks are “cash flow lenders.” This means that cash flow (i.e. ability to repay debt from cash generated through the normal course of business) is of paramount importance and collateral is always a secondary consideration. In this vein you will hear bankers talk about DSC (debt service coverage), EBITDA (earnings before interest, taxes, depreciation, and amortization), and if they are more sophisticated you may hear them mention FCC (fixed charge coverage), or NCAO (net cash after operations) coverage.

DSC – is traditionally defined as how many time cash flow covers principal and interest payments on debt and capital lease payments (i.e. EBITDA/MDR).

MDR – is traditionally defined as principal plus interest on debt plus capital lease payments due over a twelve month period.

EBITDA – is a rude cash flow measurement which takes net income and adds back soft expenses, the interest included in MDR, and taxes (which may or may not be a hard cost in the period it is reflected).

FCC – I won’t go into here but regulatory agencies (i.e. the OCC and FDIC) are pushing banks to this measurement. Basically it’s a more appropriate form of DSC.

NACO – I won’t go into this either but it is a relatively accurate measurement of cash flow.

You will also hear your banker talk about liquidity and leverage. Liquidity, among other this is a measure of whether or not your assets can sustain operations over the short term. Leverage is a measure of how much debt you have in relation to equity. Cash flow leverage is a measure of, given your current operation’s performance, how long it will take you to retire all interest bearing debt.

As far as a business plan goes, bankers will want to see a very quantitative analysis of how you plan to survive. They will want to see three years worth of financial information on the existing business. If your plan reflects increasing revenues you you to explain why this will happen (i.e. is there a historically trend, has the business received new contract or letters of intent, etc…). I have personally financed one screen printing operation and analyzed many others and can say from experience that backing up your revenue projections with historical revenues and new signed contracts or new signed letters of intent will give credibility to your plans.

This is a brief overview, so if you want more information or specific information, please let me know. However, this should roughly prepare you for the process.

Best wishes.


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[This message has been edited by onthepequod (edited 07-12-2001).]

[Moridin]

Looks like the majority of your issues have been covered (holy cow OTP how long have you working in lending )

All I can provide is a few more links
The Small Business Administration:
SBA

There is a Investment Dictionary site that I use often at work:
Investorwords

Another good business plan site is:
Business Plans

And while I don't have any particular experience in bank lending, I can back up a lot of what OTP said. Banks (or private lenders) are going to look for historical financial data that will support your loan application. They are also going to look for future cash flow projections to ensure you are able to pay back debt. It sucks to say, but they really don't care about the business, only that you are able to pay them back!

Good luck and keep us posted


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Never try to teach a pig to sing; it wastes your time and it annoys the pig

[John D Harris]

Thanks everyone,
The revenue history is no problem we've avg. 15%-20% growth per year each of the four years. This year I expect 25% growth due to getting a licensed with the University of Alabama (a top 10 collegette products school for many years), And we plan on attending a couple of trade shows this year to expand our market.

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"the memories of a man in his old age,
are deeds of a man in his prime"

[IdiotRogue]

onthepequod just reminded me why i stayed in consumer banking rather than moving over to business banking years ago... he laid it out pretty well for you, JD.

One other piece of advice... buy the "institutional size" containers of aspirin... you and your wife will start getting tension headaches very soon. You can do it all yourselves. If it were me, I'd take OTP's advice and use a CDC or a professional firm, so long as they have a good history and are certified by the SBA. For me, paying a fee to a reliable company, if a CDC is not available, would be well worth eliminating the grunt work and accompanying headaches (both figurative and literal).

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{Next time I send some damned fool, I'll go myself...}