How to Successfully Apply for a Business Loan
Presenter Marc Rand 20 years lending experience, including nonprofits Micro lending to large multinational corporate lending. Lender, donor, foundation, and board member perspectives 2
Overview of the Session Definitions Why should I look for a loan? Underwriting process Suggestions on how best to prepare How to evaluate your bank and how your bank will evaluate your organization Resources 3
A loan is a loan, is a loan Line of credit Acquisition loan Equipment loan Construction loan Permanent loan/mortgage 4
We have plenty of cash, why apply for a loan? Cash flow seasonality, contract reimbursable, fundraisers, late funders Equipment Building acquisition Stamp of approval 5
Know your rights, and know your terms Collateral, security Interest rate fixed, variable Prepayment Covenants Revolver Balloon Bullet Prime, Libor Liquidity Leverage 6
What does a bank underwriting process look like? Gather information Financials, history, cash flow, purpose Collateral Experience borrowing Evaluation of information Goal is to determine what the risks and mitigating factors are How does your organization compare to others in the industry? Review Credit officer and relationship manager Documentation and closing Loan agreement, promissory note, deed of trust, environmental, UCC 1 Timeline 2 3 months Monitoring 7
How will the bank review my application? Banks are evaluating two principle ideas: What are the risks and mitigating factors, and what are the primary and secondary sources of repayment? Risk and return pricing Debt service coverage ratio 1.2x or more Loan to value 80% or less 10+ weeks of cash reserves Covenants/restrictions/requirements clean up period, no additional bank debt, move bank accounts, financial reporting What is the financial sophistication of the organization? 8
How can you prepare for a successful loan application? Be prepared! Provide a loan package/application that includes the following information: 4 years of financials (audits, 990s) Any financial summary report explanation of variations Cash flow projections for the life of the loan Any funder references Sector analysis Strategic plan Bios of key management Proof of insurance property, directors and officers, etc. 9
Where do things go awry? Loan closing Pricing Restrictions moving bank accounts Some bankers may not understand nonprofits Collateral requirements Guarantees 10
Suggestions and Discussion Topics The more prepared you are, the easier, quicker and more likely your loan will be approved. The best time to apply for a loan is when you do not need it. Is it time to move your banking relationship? What are the organization s long term needs? What are the purposes and restrictions for the loan? 11
Banking Relationships What are the long term benefits of working with this institution? What is the pricing? Are there hidden fees? (closing costs, title insurance, application fee, commitment fee) Are you happy with the service? What is their value add? Does the bank understand your business? Can they offer advice versus just credit and checking? What other services do they offer? Fraud, wires, online services, direct deposit? 12
How will others look at our organization now that we have debt? Foundations Board of Directors Funders and donors Banks Government 13
Who lends to nonprofits? Nonprofit Finance Fund Northern California Grantsmakers arts organizations NIAC 12 month loans Low Income Investment Fund housing, childcare Community Foundations 14
NIAC Loan Fund Loans up to $50,000 6% interest fixed Unsecured, no board guarantee required 1 month turnaround time 12 month term Application fee of $250 (loans up to $25,000) Application fee of $500 (loans up to $50,000) 15
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18 www.insurancefornonprofits.org
If you have questions or need additional information, contact: Marc Rand Nloan@insurancefornonprofits.org 415 577 1420