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A Lenders Insight Into
Accessing Capital
Carl L. Hairston
Administrative Vice President | Regional Manager
National Capital Business & Professional Banking
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Course Goals
Understand the 6 Cs of credit
Sources of Capital
Calculating Cash Flow
Understand personal financial information and basicfinancial
statements you will need to produce
Become familiar with common bank loans
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6 Cs of Credit Evaluation
Character
Capacity (cash flow)
Capital Collateral
Conditions
Common Sense
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Character (Personal Credit)
Integrity of theborrower
Personal paymenthistory
Willingness to repay.
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Character (Personal Credit) Continued
FICO(Fair Isaac Corp.,) is the company thatoriginally developed
the credit scoring methodologywe use today.
On the next slide below are the financial behaviorsand related
factors along with the percentageweighting that each contributes to
an overall credit
score
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FICO
35percent - An individual's history of making creditpayments on
time
30percent - The total amount of debt being carriedalong with
available credit
15percent - The age of an individual's open creditlines (more
history is better)
10percent - The frequency with which someoneapplies for new
credit
10percent - Wild card factors such as the types ofcredit
lines
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FICO/Personal Financial Information
Credit History / Credit Score: Equifax, Experian,and TransUnion.
www.annualcreditreport.com
Personal Financial StatementsForm 413
www.sba.gov/content/personal-financial-statement
2- 3 years of tax returns, personal and business(sometimes
together, i.e. sole proprietors andsingle member LLCs file a
Schedule C on the1040)
http://www.annualcreditreport.com/http://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.sba.gov/content/personal-financial-statementhttp://www.annualcreditreport.com/
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Capacity (Cash Flow)
Borrowers ability to
repay loan
Debt toequity(leverage) ratio
Net excess (cashreserve)
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Debt Service Coverage Ratio (DSCR) 1.25x
DSCR = Net income / annual debt serviceExample:
- Net income for year = $90,000
- Debt payments $5,000 per month($5,000 x 12 = $60,000 per
year)
$90,000/$60,000 = 1.5x1.5x > 1.25x
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Generic Corporate Cash Flow Template
NET CASH FLOW
Start With: Net Profitability Plus: Non-Cash Expenses
(Depr. & Amort) Plus: Int. Expense Minus: Distributions
Plus: Add-backs
(one-time exp. etc.)
DIVIDED BY THE SUM OF:
Debt Service (P&I) for current debt Debt Service (P&I)
for proposed debt
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Conditions
Macro & microeconomicenvironment
Industry conditions &trends
Owners experience
and length of time inindustry
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Porters 5 Forces
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Collateral
Secondary source ofrepayment
Cash, marketablesecurities and cashvalue life insurance
Commercial orresidential properties
Business assets (i.e.:account receivables,inventory,
furniture,fixtures andequipment)
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Collateral (Cont.)
Example, Commercial or Residential Property:
Market value of property = $1,000,00080% of market value =
$800,000
Current Mtg. balance = $500,000
Available for collateral = $300,000
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Collateral (Cont.)
Account receivables aging less than 90 days50 to 75% advance
rate
Business assets (ie: office equipment,
vehicles, and inventory)20 to 60% advancerate
Cash100% advance rate
Marketable securitiesTypically 70% to 75%
Cash value life insuranceUp to 75% of thenet cash value of the
policy with an acceptablerating
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Providers of Capital
Commercial banks are only one source ofcapital for businesses.
Borrowers should
have a balanced mix.
Owners equity
Vendor credit
Equipment leases
Landlord concessions
CDC financingSBA 504 Program
Seller financing
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M&T Loan Products Greater Than $100,000
Need Product
Short-term working capital BALOC, Flexline of Credit
Long-term working capital,equipment or other fixed
assetacquisition, debt refinance orconsolidation, business
acquisition
Term Loan, Multiple DisbursementTerm Loan
Equipment purchase Term Loan, Multiple DisbursementTerm Loan,
Loan Limit
Construct, renovate, purchase orrefinance commercial real
estate
Owner-Occupied CommercialMortgage, Investor Real
EstateCommercial Mortgage
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Questions and Additional Information
Carl L. Hairston
Regional Manager
M&T Bank
202.434.7026
[email protected]
mailto:[email protected]:[email protected]
