Transcript Treasury Management for Business Banking

Financing Alternatives
For Government Contractors
Richard Lewis
Financial Engineering Counselors, Ltd.
(A Veteran Owned Small Business)
Falls Church, Virginia
703.992.8988
[email protected]
http://www.fecltd.net
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“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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Your company has landed a new Government
contract, one that will result in a significant increase
in revenues.
However,
In order to fulfill the contract you must commit to
additional:
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People (payroll)
Training
Materials
Related Costs
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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:
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The Challenge:
• 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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Solution:
Planning!
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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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Planning -
Things Often Overlooked
Allow for contract negotiations:
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Invoice payment terms
Extended delivery dates
Partial payment upon order placement
Progress payments based on specific performance criteria*
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Planning:
Prepare business summary
(financing request - loan application)
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Nature of business/company profile
Market niche and reason
Management brief summary
Income Projections
Financing request ($ and terms)
Use of proceeds
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Existing Bank or Lender - 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
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Trade-offs for an increased facility may include:
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Your commitment to a longer term deal
More restrictive loan covenants
Higher interest rate
Constraint as to other debt or leasing arrangements
Additional collateral require
Personal guaranty or co-signor
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Payroll Finance (with Sterling National Bank):
 Combines funding with back office support
 Scalable – as your receivables grow, so does your funding
 Provide financing to start-ups to established businesses with
over $100 Million in annual sales
 Three Step Process
Payroll Processing
Financing
Invoicing
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Payroll Finance (with Sterling National Bank):
Processing
 Web time entry through our proprietary “Web Oasis”
system
 Weekly payroll checks in your firm’s name or via direct
deposit or pay card
 Withhold, remit and file all payroll taxes and reports
 W-2’s & 1099 processing
 Preparation & e-filing of quarterly tax returns
 Employee “self-service portal”
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Payroll Finance (with Sterling National Bank):
Financing
◦ Funding up to 100% of payroll each week
◦ High advance rates
◦ Profits paid weekly
◦ Start-ups to established businesses with over $100 Million in annual
sales
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Payroll Finance (with Sterling National Bank):
Invoicing
◦ Customizable invoicing and delivery via US mail, email,
electronically via Government portals (WAWF, GSA)
◦ Electronic payment and level 3 credit card processing
◦ Accounts receivable management, real time reports & cash
applications
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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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Factoring – con’t
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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Contract Financing - PO 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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Commercial Financing – Asset Based Lending
• Provided by most banks and commercial financial companies
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Alternatively called Revolving Credit or Borrowing Based Lending
• Primary asset is company’s accounts receivable
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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
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Advance rate less and usually based on liquidation value of asset
• Company’s credit worthiness, as well as customers’ determine
advance rates and pricing
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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.
• Company’s 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 company’s balance sheet or if they can be treated
as “off balance sheet” items.
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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 SBA’s primary business loan
program to:
• Help qualified small businesses obtain financing when not be eligible for
business loans through normal lending channels.
• The agency’s most flexible business loan program
• financing under this program can be guaranteed for a variety of general
business purposes.
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SBA Small Business Loan
• 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.html
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SBIR and Grants
SBIR (Small Business Innovation Research)
A Federal Government program
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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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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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THANK YOU!
Richard Lewis
Financial Engineering Counselors, Ltd.
A Veteran Owned Small Business
703.992.8988
[email protected]
www.FECLtd.net
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