Treasury Management for Business Banking

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Wells Fargo Business CreditGovernment Services
Group
Richard Lewis
703.462.2310 June 18, 2008
Richard.Lewis_at_WellsFargo.com
Presentation For FAA Procurement Opportunities
Training Access to Capital Financing
Alternatives
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Wells Fargo Business Credit Government Services
Group

• While poor management is cited most frequently
  as the reason businesses fail, inadequate or
  ill-timed financing is a close second .
• www.sba.gov/financing/basics/basics.html

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Wells Fargo Business Credit Government Services
Group

• The Good News
• Your company has landed a new Government
  contract, one that will result in a significant
  increase in revenues
• In order to fulfill the contract you must commit
  to additional
• People (payroll)
• Training
• Materials
• Related Costs

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Wells Fargo Business Credit Government Services
Group

• The Challenge
• Timing Before payment is received from the
  government you will want WORKING CAPITAL to cover
  commitments.
• How can you gain/obtain the cash you need beyond
  utilizing
• Loans from family and/or friends
• Equity Injection But raising capital generally
  is
• Expensive
• Takes too long to meet short-term contract
  requirements
• Requires an ownership participation
• Credit cards
• Delayed payment to vendors

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Wells Fargo Business Credit Government Services
Group

• Solution
• Planning!

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Wells Fargo Business Credit Government Services
Group

• Planning
• Minimize risk of having to scramble to raise
  enough capital to ramp up for future major
  contracts
• Internal business development forecasting
• should identify and signal situations to senior
  management
• allow for proactive review of significant
  operational, personnel and financial impacts

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Wells Fargo Business Credit Government Services
Group

• Planning - Something Often Overlooked
• Allow for contract negotiations
• Invoice payment terms
• Extended delivery dates
• Partial payment upon order placement
• Progress payments based on specific
  performance criteria

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Wells Fargo Business Credit Government Services
Group

• Second, prepare business summary
• financing request - loan application
• Nature of business/company profile
• Market niche and reason
• Management brief summary
• Financing request ( and terms)
• Use of proceeds

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Existing Bank or Lender
Wells Fargo Business Credit Government Services
Group

• Third, if your company has an arrangement with
  a bank or lender, approach bank or lender as far
  in advance as possible and try to negotiate an
  increase. Remember, financiers HATE SURPRISES!
• If you are in good standing, a responsive lender
  may provide short term capital until the
  government pays
• Trade-offs for an increased facility may include
• Your commitment to a longer term deal
• More restrictive loan covenants
• Higher interest rate
• Constraint as to other debt or leasing
  arrangements
• Additional guaranties or collateral required

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Wells Fargo Business Credit Government Services
Group
Factoring

• The sale of your invoices, accounts receivable,
  to a bank or finance company (the Factor).
• Factors will
• Advance up to 90 of invoice amount
• The balance is refundable upon receipt of
  payment, less interest and transaction costs
• Provide weekly or mid-month funding of unbilled
  accounts receivable
• Notify the Federal Government through the Federal
  Assignment of Claims provisions

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Wells Fargo Business Credit Government Services
Group
Factoring cont

• Advantages
• Grow with you
• Provide most A/R bookkeeping services
• Customer credit worthiness, collections, and
  credit risk become a shared responsibility
• Initial approval process can usually be a matter
  of days
• Credit criteria is based on your customer
• Provide financing for start-ups, 8a, minority,
  Native American, service disabled veteran,
  woman-owned contractors, or companies that may
  have a short term credit history.

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Wells Fargo Business Credit Government Services
Group
Contract Financing - Purchase Order Financing

• Negotiate financing based upon your Federal
  Government contract purchase/work order(s)
• Based upon the credit worthiness of your
  customer
• Easiest when your products or services are well
  established
• Products or services are new, non-standard,
  and/or unproven, PO more difficult to obtain
• Effectiveness of Contract/PO financing in a
  pre-revenue ramp up situation will be determined
  by how soon you can invoice

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Wells Fargo Business Credit Government Services
Group

• Commercial Financing Asset Based Lending

• Provided by most banks and commercial financial
  companies
• Alternatively called Revolving Credit or
  Borrowing Based Lending
• Primary asset is companys accounts receivable
• 75 - 90 advance rate
• Secondary asset may be inventory, fixed assets
  and in some instances intellectual property and
  may be used longer or term debt
• Advance rate less and usually based on
  liquidation value of asset
• Companys credit worthiness, as well as
  customers determine advance rates and pricing

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Wells Fargo Business Credit Government Services
Group
Leasing and/or Sale and Leaseback

• Used to generate capital from fixed assets that
  are to be obtained or currently owned by company,
  such as computers, equipment, furniture and
  fixtures, vehicles, and real estate.
• Banks, financing companies, dealers, and
  manufacturers provide these more specialized
  services.
• Companys credit standing and the quality of the
  assets involved will determine the amount of cash
  that can be raised and the terms under which it
  is provided.
• Specifics of the agreement will determine if
  these leases have to be reported on your
  companys balance sheet or if they can be treated
  as off balance sheet items.

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Wells Fargo Business Credit Government Services
Group
SBA Small Business Loan

• Numerous loan programs for small businesses. The
  SBA is primarily a guarantor of loans made by
  private and other institutions.
• The Basic 7(a) Loan Guaranty serves as the SBAs
  primary business loan program to
• Help qualified small businesses obtain financing
  when not be eligible for business loans through
  normal lending channels.
• The agencys most flexible business loan program
• financing under this program can be guaranteed
  for a variety of general business purposes.  
• Loan proceeds can be used for most sound business
  purpose
• working capital, machinery and equipment,
  furniture and fixtures, land and building
  (including purchase, renovation and new
  construction), leasehold improvements, and debt
  refinancing (under special conditions).
• Loan maturity is up to 10 years for working
  capital and generally up to 25 years for fixed
  assets.
• http//www.sba.gov/financing/sbaloan/snapshot.htm
  l

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Wells Fargo Business Credit Government Services
Group
SBIR and Grants

• SBIR (Small Business Innovation Research)
• A Federal Government program
• Administered by 10 federal agencies
• Provide early-stage Research and Development
  funding
• Solicitations are released periodically from
  each of the agencies
• Competition for funding is by submitting
  proposals to agency's solicitation
• Each agency has various needs
• Learn more about them by visiting their sites.
  Here are the addresses for the SBA, DOD, and NIH
  www.sba.gov/sbir,
• www.grants.nih.gov/grants/funding/sbir.htm,
• www.acq.osd.mil/sadbu/sbir
• www.grants.gov 1,000 grant programs, 400
  billion

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Wells Fargo Business Credit Government Services
Group
Conclusion

• None of the alternatives mutually exclusive
• Be Aware significant legal and operational
  differences
• Combinations can be very effective
• The terms of some borrowing agreements may limit
  your ability to take on additional debt and they
  should be entered into only as part of a coherent
  financing strategy
• Do not be alarmed when the lender asks for your
  personal guaranty.

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Wells Fargo Business Credit Government Services
Group

• THANK YOU!
• Richard Lewis, Vice President
• Wells Fargo Business Credit
• Government Services Group
• 2010 Corporate Ridge, Suite 900
• McLean, VA 22102
• 703.462.2310
• richard.lewis_at_wellsfargo.com