Credit Review: Risk Evaluation & Due Diligence
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Credit Review: Risk Evaluation & Due Diligence hennesseycap.com
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Transcript of Credit Review: Risk Evaluation & Due Diligence
Credit Review: Risk Evaluation & Due Diligence
hennesseycap.com
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 Investment
early stage equity investment
Financing Spectrum
Preparation Executive Summary- short and sweet
Loan request- source & use of fundsHistory of businessFinancial highlights- including owners investmentSWOT analysisInvestment / loan repayment
Business 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 Documentation
Historic 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.
Http://MISBTDC.ORG
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.” Don’t 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.
WWW.AUTOMATIONALLEY.COMWWW.TECHTOWNWSU.ORG
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.
WWW.MICHIGANVCA.ORG
Asset-Based Financing Factoring
Business to business sales companies.
Limited track record or rapid growth.
Leverages up to 90% of invoices for immediate cash
Bridge A/R collection and A/P payment gap.
Can be used in conjunction with current bank facility.
Asset-Based Financing Asset-Based Line of Credit
Established 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.
WWW.CFA.COM
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 Don’t’ 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?
