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Tips you can bank on.

Tips You Can Bank On

When you present the ownership/management team, you should try and paint them in the best possible light. It is important to cover their experience in the brewing, restaurant or related fields. The lender will be looking for a proven track record of association with profitable entities.

When you list the principals of the company, list everyone with 25 percent or more ownership and list their percentage of ownership. The lender will run credit ratings on these individuals, so it is advisable to have a look at their credit bureau reports in advance. That way you won't be caught flat-footed, and you have a chance of pre-empting any credit questions the lender might raise.

If there are late payments, collection accounts, liens, or judgements on the report, these need to be explained with a couple of sentences for each item. If you have a document to support your explanation, include it. A credit report riddled with negatives and inadequate explanations will get turned down by the top 75 percent of lending institutions, leaving you in the hands of less discerning lenders-- who charge predictably higher finance charges.

One of the main things lending institutions are looking for is a past loan or lease of comparable value that has been paid as agreed. If you have any comparable credit history that is not on your credit bureau report, be sure to have it listed on a separate piece of paper. Unfortunately, real estate loans are given virtually no weight in this regard.

When it comes to bank account ratings, find out what they are looking for. For most industries the magic number for your business checking account is a low four rating, which means that you have at least $1,000 in the account. Some lenders will want $10,000 in your account when they rate. Find out in advance what they want, and have that amount in your account during their investigation.

It is also important to have at least three good trade accounts. In addition to providing testimonials about the success of your business, these sources verify how long you have been operating. If for some reason none of your bank or trade references go back to the start of your business, be sure to add a couple of older accounts.

Now to your financial statements. The main thing is to have them, and to have a current interim statement if your year-end statements are over six months old. Obviously the numbers on the statements are the most important factors, but the presentation is also significant. If you have statements prepared by a CPA or bookkeeping firm you should put them forward. If you prepare your own statements, however, be sure to have them printed on a computer or word processor. You'll have to trust me on this one--a clean-looking readout makes a world of difference in the analyst's eyes.

On your balance sheet you need to explain any potential questions; the market value of securities, the age of your accounts receivable, etc. Microbreweries and many brewpubs will have accounts receivable on the books. Although it seems elementary, some companies don't list bad debts. This should be done. On the liability side, be sure to have the current portion of your long-term debt under current liabilities. If you don't do this they will do it for you. And when in doubt, they will overestimate your current liabilities.

The first item that will be perused on your income statement will be sales, no mystery there. A history of steady growth will impress the lender, but explanations are the key. If sales have remained flat, emphasize the positive. Perhaps you have instituted a cost-reduction measure and the bottom-line has shown solid improvement. It won't hurt to mention the canny management decision that kept things going. A down year won't kill a deal, but you should let the lender know what happened and what you will do to prevent a reoccurence.

If the lenders do not feel that the company can stand on its own, or if the company is very closely held, you will probably have to personally guarantee the transaction. This means that you will need to fill out a personal financial statement.

Your personal statement will be closely compared to the other financial data gathered to this point. They will check that all of the debts on your credit card report are listed on your personal financial statements, for example, and that your real estate holdings and payments match your tax returns.

Speaking of real estate, you may need to secure your financing with your holdings. This is a personal decision, but if you don't want to risk your property, the funding source may not want to risk their money.

An alternative method of debt financing might be available from your equipment supplier. This is called vendor-recourse and requires the vendor to guarantee to purchase the equipment if you cannot make your payments. The financial strength of the vendor is a key factor, as is the buy-back percentage that they are willing to guarantee over the term of the financing.

If you have gotten to this point and you are saying, "The rates are too high," or "I don't have the time," you have a couple of choices. You can pursue more equity investors, or you can just remain stagnant.

On the other hand, just remember debt-financing provides increased returns for the company, and you will own the equipment outright once the financing term is completed. In addition, once you have established a history of consistent debt repayment, you will be on the inside track. Lenders will be calling you and the rates you receive will get better and better.

Jon Ball is an account manager for Heritage Leasing Capital in San Diego, California. Jon is a member of the Institute for Brewing Studies and specializes in setting up financing programs for equipment manufacturers, wholesalers and breweries from coast to coast.
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Title Annotation:financing small breweries
Author:Ball, Jon
Publication:Modern Brewery Age
Article Type:column
Date:Nov 20, 1989
Previous Article:Keeping tabs.
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