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Archive for March 2012

SBA Statistics for 7A and 504 Loans, through 3/23/2012

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-James Timberview/www.plurafinancial.com

The SBA recently posted its latest results for small business loans. With the SBA’s FYE being September 30, we are nearly halfway through its fiscal year.  Here are some interesting takeaways from the SBA’s loan approval results through YTD 3/23/2012:

  • As of 3/23/2012, total SBA approved loan volume was down 35%, or $4.8 billion, YOY
    • The drop in approved Preferred Lender Program (PLP) loans was responsible for 39% of the total YOY decline.
    • The drop in loans to rural-based businesses was responsible for 20% of the total YOY decline in SBA loans.
    • The decrease of approved loans to Asian Americans was responsible for 13% of the total volume decline YOY.
  • SBA 7A loans are down 45% YOY
    • 7A loans to existing businesses had the largest decline, shrinking 47% YOY.  This is likely attributed to 7A loan fees being reinstated in FY 2011; hence, borrowers (and lenders) were rushing to get 7A loans done prior to the fees going up.
  • SBA 504 loans were up 15% YOY, slightly offsetting the 7A volume decline
    • The uptick in 504 volume was likely due to folks rushing to take advantage of the ability to use SBA 504 loans to refinance debt, a favorable attribute that is set to expire in September 2012.
  • The mix of SBA loans approved for startups versus existing businesses has remained relatively flat at 23% and 77% of total volume, respectively.
  • Wells Fargo approved the largest volume of SBA loans thus far in 2012, and an average loan size of ~$350k.
  • Chase approved the largest # of SBA loans, with an average loan size of ~$125k.
To apply for an SBA loan online, or to learn more about the SBA, visit pluraFinancial or the SBA.
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Written by entrabanker

March 28, 2012 at 4:47 am

Corporate Jargon Translator – Part 1 (Stuff Managers Say)

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                Corporate Jargon Translator

                                 

If you’re thinking about going into corporate America, you’d better understand the lingo first.  Here’s a quick guide for translating corporate speak.

Stuff Managers Say (and what it really means) in Corporate America:

I’m cautiously optimistic… (We’re going to lose money…)

We’re exploring strategic partnerships (We’re trying to sell this thing before the wheels fall off)

We’re going to make a right shift (We’re about to fire a bunch of people)

We need to right size the business (We’re about to fire a bunch of people)

Reworking the blueprints of the business (We’re about to fire a bunch of people)

At the end of the day (We’ll be fine eventually, but in the meantime it’s gonna get messy)

It is what it is. (The answer is no, but I have no good rationale for it.)

We don’t know what we don’t know. (The answer is no, but I have no good rationale for it.)

From 30,000 feet… (I have no idea what’s going on, but here’s what I was told by my Analyst 5 minutes before this meeting…)

We need to put pen to paper (You’re going to have to pull an all nighter on this)

We need to sharpen our pencils on this transaction (I’ve never even heard of this deal before)

I want to take your temperature (Here’s an idea that will be really good for our side)

Bifurcate (split)

We’re not going to cut our nose off to spite our face (…although once again out of context, I finally said this right!)

We need to kick this sleeping dog (Get this deal done or you’re a goner)

Let’s keep it simple (This doesn’t make any sense and you just wasted 5 hours working on a chart that nobody will ever read or understand)

We need an incentive based on aligning objectives (We need to be paid more money before I can approve this)

Balancing your point with the practical implication that… (You’re an idiot)

Split the baby  (We better be getting paid for this)

We need to craft a backdoor mechanism (We need to get paid without anyone else knowing about it)

Let’s create a side letter (We need to get paid without anyone else knowing about it)

You need to think outside the box (Find a way to get it done and leave me alone)

First gauge their appetite for … (Let’s see if they’ll fall for it before we put any real work into this)

I find that to be reasonable but there are all sorts of shades of grey (They’ll never go for that)

This is a win/win (Everyone has successfully been tricked into believing this is a good deal)

It’s a no brainer (Everyone has successfully been tricked into believing this is a good deal)

_______________________________________________________________________________________

This article was written by James Timberview, featured in www.plurafinancial.wordpress.com, the blog for plurafinancial.com – the online matchmaker between banks and small businesses seeking debt.  Special thanks to Brandon Hinkle and Joe Polaneczky, who contributed several corporate catchphrases to this think piece.  All rights reserved.

Written by entrabanker

March 25, 2012 at 4:01 pm

Small Business Development Centers (SBDCs): Free Business Management Support!

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By: James Timberview/www.plurafinancial.com

A Small Business Development Center (SBDC) is one of the most underutilized resources available to small business owners.  Private business consultants can be expensive; SBDCs, however, are paid for by the government, so don’t pass up the opportunity to utilize their free, valuable assistance and vast networks.

According to the SBA (sba.gov), Small Business Development Centers are partnerships primarily between the government and educational facilities, administered by the Small Business Administration and aims to give educational services to small business owners and aspiring entrepreneurs.

An SBDC generally provides the following services for small business owners & startups:

  • One-on-one consultation in business finance, marketing, management, research and more
  • Assistance with business plan development and business expansion
  • Help develop marketing plans and access market information
  • Advice on securing a grant, bank loan, and equity investment
  • Expertise in financial planning & analysis
  • Training opportunities and business education

Quick facts about SBDCs:

  • SBDC Locations: There are a total of 63 SBDCs nationwide, with at least one in all 50 states.  Click here to find the location nearest you.
  • SBDC Cost: All services given at SBDCs are free.  Optional, low-cost training is also available.
  • SBDC Eligibility: Anyone can join an SBDC, but strongest consideration is given to those who are creating their first small business and cannot afford private consultation.

Written by entrabanker

March 21, 2012 at 2:02 am

SBA Requirements for 504 Loans, 7A Loans and Micro Loans

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To apply for an SBA loan, check out www.plurafinancial.com.  To learn more about the SBA, go to http://www.sba.gov.

 

Written by entrabanker

March 20, 2012 at 11:18 pm

What Banks Look For in a Business Loan

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Brandon Hinkle/www.plurafinancial.com

Banks primarily care about three things when making business loan decisions: cash flow, collateral, and personal guarantor strength.  Generally in that order of importance.  Let’s look at each item in more detail:

What is cash flow?   For banking purposes, cash flow is the pool of company-generated cash that’s available to make debt payments each year; generally this is EBITDA less taxes, dividends, and capital expenditures.  Banks don’t care much about projections; they want historical financial info to ensure there’s a track record of consistent, predictable cash flow.  When a bank is evaluating your loan request, they generally want a 25% cushion (for each $1 of required debt payments you should have at least $1.25 of cash available to make debt payments).  In other words, you need to have more cash flowing in than cash flowing out; ideally, 25% more!

What is collateral?  Collateral is the base of assets available for the bank in case the company is unable to make its debt payments with company-generated cash flow.  Banks typically want the “liquidation value” of the assets/collateral to equal the requested loan amount.  Liquidation value is basically the cash that could be generated by selling the collateral in the next 90 days.  The most common assets that secure a loan are accounts receivable, inventory, commercial real estate, and equipment.  Banks typically give a 20% discount to current accounts receivable & real estate, and a 30-50% discount to inventory and equipment.  For example, if your A/R aging shows $100k of current receivables, balance sheet shows $200k of sellable inventory, no equipment, and real estate that appraises for $500k, you’ll likely be eligible for $580k of debt: ($100k of A/R @ 80%) + ($200k inventory @ 50%) + ($500k real estate @ 80%) = $580k of net eligible collateral.

What is personal guarantor strength?  A personal guarantee (“PG”) basically gives the bank the right to go after your personal assets if the business goes defunct and is unable to service the debt.  A strong personal guarantee, for banking purposes, is one that has liquid assets in excess of the requested loan amount.  Liquid assets generally exclude retirement plans and funds held in trust because they’re not easy for banks to liquidate in a bankruptcy scenario.  The primary goal of a personal guarantee is to align your interest with the bank’s interest of getting the loan repaid.  Afterall, if you don’t stand behind your company, why should the bank?

Other things banks care about: 

  • The company’s net worth because it’s an indication of the cash that would be leftover if the company was liquidated today.
  • Your business & personal credit history, to gain comfort that you’re a responsible person of good character that finds a way to pay your bills on time.  Bankruptcy, for example, is usually a deal killer.
  • Customer concentrations.  If most of your revenue is generated from few customers, you’re more vulnerable than most banks are comfortable with.

In conclusion, banks just need comfort that you can pay the loan back, plus interest, on time.  The more evidence you have of that, the higher your chances of getting a good loan proposal!

For more info about how to find the right loan for your business, check out www.plurafinancial.com

Written by entrabanker

March 20, 2012 at 3:17 am

How to Create a 13 Week Cash Flow Forecast Model

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-Brandon Hinkle/www.plurafinancial.com

If your company is growing quickly, or just tight on cash, you should prepare a “13 Week Cash Flow Forecast” to avoid running out of cash at any given point.  Why 13 weeks?  Because this ensures monthly AND quarterly debt payments are included.  Beyond 13 weeks is less relevant; the short term is much more predicable than the outer months.  The goal is to protect & predict cash flow.

Step 1:  Gather the required info

  • Pull the company’s checking account statements for the last 3-4 months.  Highlight all recurring expenses/payments for salaries, debt, leases & rent, utilities, insurance, bank fees, distributions, capex, etc.
  • Print out your detailed Accounts Payable (“A/P”) aging report.
  • Print out your detailed Accounts Receivable (“A/R”) aging report.

Step 2: Create an excel spreadsheet that shows the weeks across the top, tracking the inflows & outflows of cash.  You should also create a column for Actual next to Budget each week so that you can compare actual activity to forecasted activity.  For example:

  • Create rows for large sources & uses of cash.  For example, payments from large customers, payments to large vendors, salary expense, debt payments, etc.
  • Enter your regularly scheduled payments (the ones you highlighted in the bank statements) in the weekly outflows column.
  • Enter your Vendor payments when they are scheduled to be paid, per your A/P aging.  When you issue a purchase order (“PO”), enter the to-be-purchased amount into the Budget period you expect to make the payment.
  • Enter your Customer cash receipts when they are to be received, per the A/R aging.
  • Your total inflows less your total outflows equals your net cash flow for the week.
  • You weekly net cash flow less your beginning cash balance = ending cash balance.
  • Your ending cash balance plus your line of credit availability = total liquidity.

Step 3: Beware of common mistakes

  • Keep a running tally of cash & liquidity.  For example, next week’s beginning cash balance should be equal to the cash balance at the end of this week.  If you have a line of credit, be sure to include line draws as a source (inflow) of cash and line paydowns as a “use” (outflow) of cash.  If you have a $1 million line of credit with an $800k balance, you have $200k of availability.  If you borrower another $50k this week, then you’ll only have $150k available next week.  The whole point of maintaining a 13 Week Cashflow Forecast is to protect & predict cash and liquidity so this part is important.
  • Keep your line of credit availability updated, particularly if you’re on a borrowing base.
  • Don’t confuse cash bank balance with book balance.  You can’t pay the payroll with funds in float…
  • Be mindful of slow paying customers that don’t pay on time, don’t assume they will start now.
  • Don’t forgot about open POs.  Just because it’s not on the A/P doesn’t mean it won’t need to be paid; some vendors send invoices late, don’t forget about the open POs.
  • Ensure you can easily track results. Make sure the forecast is constructed with the line items that you can easily track.  Elegant projection models are useless unless the line items correspond to easily accessible data.  This helps easily explain/calculate any variance to the budget.
  • Capex happens.  Build in some cushion incase vehicles break down or roofs leak.
  • Be conservative, there’s no upside to making an aggressive cash flow projection.
  • Be proactive.  It’s always best to seek financing when you don’t need it; utilize free resources such as pluraFinancial or local Small Business Development Centers to help match you with the best banks for your business.

 

Written by entrabanker

March 14, 2012 at 3:50 am

The Benefits of Adding an Executive Coach to Your Team

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-Karen Orlich/www.plurafinancial.com

Do you feel distracted from reaching your goals?  Not sure how to develop an actionable plan and/or do not have time to assess the results of current performance to make improvements?  If so, executive coaching may be a good option to help you become better focused and excel in the future.

According to The Center for Creative Leadership (CCL®), a global provider of executive education, ‘executive coaching’ is defined as “a formal engagement in which a qualified coach works with an organizational leader in a series of dynamic, confidential sessions designed to establish and achieve clear goals that will result in improved managerial performance.”

The relationship between an executive and a coach is a collaborative one with the coach not only focusing on improving performance through overall skill assessment but also evaluating organizational position (i.e. examining the client’s role within the organization), assisting on execution of tasks/responsibilities, and assessing the results.

A primary initial task with a coach is to create a developmental action plan to achieve your goals.  After you execute the plan, you and your coach will review the results regularly and define new action plans to further your development.  Like a coach in sports, an executive coach ‘plays back the tape’ and provides guidance on how to improve your existing skills.

M. Nora Klaver, author of Mayday! Asking for Help in Times of Need and CEO of MNK coaching, takes an introspective approach when defining executive coaching, “People always talk about getting “out of the box.” Our boxes are built of all our preconceptions and existing perceptions.  The way we view life, our lives and our jobs can be incredibly limiting to us — no matter how successful we are.  An executive coach shows you how to blow up the box through insightful questions — ones you’d never ask yourself on your own — and offering new perspectives.”

Coaching is no longer negatively viewed as a way to help correct underperforming managers.  Instead, it is much more widely used as a benefit to support top producers.  Organizations worldwide spent over $2.0 billion on coaching in 2011, reported International Coach Federation and Pricewaterhouse Coopers in the 2012 ICF Global Coaching Study.  The study found that 41,300 coaches are active globally with the majority of coaches in North America and Western Europe.

Why is coaching so widely utilized?  “Because there is a great demand in the workplace for immediate results, and coaching can help provide that by providing feedback and guidance in real time,” says Brian Underhill, a senior consultant at the Alliance for Strategic Leadership.  “Coaching develops leaders in the context of their current jobs, without removing them from their day-to-day responsibilities.”

Fortune 500 companies such as IBM, GE, and Bank of America have embraced the concept and some have added coaches as integral employees of their Human Resources department.  The belief is that, under the right circumstances, one-on-one interaction with an objective third party can provide a focus that other forms of organizational support simply cannot, according to Harvard University in the Harvard Management Update.

The experiences of MNK coaching have shown that when people work with a coach they find themselves more excited about who they are and what they are doing which leads to stronger engagement, more energy, and improved performance.  The focus of coaching is to help clients “be more fully themselves by giving them new skills, tools and ways of perceiving situations.”

In order to be most successful, the client and organization must be committed to coaching and receptive to the unbiased feedback provided by the coach.  Unlike consultants, a coach is not brought in to independently assess and ‘change’ the organization or employee.  Their role is to improve the skills that already exist in high-potential individuals and leaders of the company.

Coaching is effective for executives who can say, “I want to get over there, but I’m not sure how to do it,” says James Hunt, an associate professor of management at Babson College and coauthor of The Coaching Manager.  “Coaching works best when you know what you want to get done.”  Perhaps, in spite of your outstanding track record, you haven’t yet gained the full interpersonal dexterity required of senior managers—for example, you’re not yet a black belt in the art of influence, which is so important in the modern networked organization.  Honing such a skill might be an appropriate goal for a coaching assignment.

As reported by Harvard University, coaching can be particularly effective in times of change for an executive.  That includes promotions, stretch assignments, and other new challenges. While you may be confident in your abilities to take on new tasks, you may feel that an independent sounding board would be beneficial in helping you achieve a new level of performance, especially if close confidants are now reporting to you.  More so, you may recognize that succeeding in a new role requires skills that you have not needed to rely on in the past; a coach may help sharpen those skills, particularly when you need to do so on the fly.

“One of the big benefits of a coach is that they aren’t tied to the organization, your friends, or anyone else,” says Washington, D.C.-based executive coach Linda Finkle and CEO of incedo Group.  The coach’s focus is with you only, so they support what you want and where you want to go.

“Even our families, who want the best for us, can’t be unbiased or totally objective. What you do or do not do impacts them, whether it’s positive or negative. A coach is not impacted by your decisions, your wins or losses, or anything else,” Finkle notes.  However, this does not mean that company goals are not supported by coaching.  In actuality, a coach is usually hired by the company to support the executive’s efforts to achieve those goals.  Even so, the role of the coach is not to represent specific company needs or interests.

The benefits of working with executive coaches are best summarized by their clients.  David Zimmerman, Manager of Infrastructure Engineering-Chicago Mercantile Exchange Group, states “A good executive coach provides straight forward, insightful, and honest feedback at all times.  My coach has helped me immensely and has been able to help me see myself and others in a different light, which has completely changed how I deal with each in many situations for a positive outcome.”

Written by entrabanker

March 12, 2012 at 3:50 am

Posted in Uncategorized