How to Secure Financing to Expand and Survive in a Challenging Economy

Complied by: Todd Sherer Director of Business Development Entrepreneur Growth Capital Credit Cash

Introduction

"The most valuable commodity I know of is information." Michael Douglas as Gordon Gekko, WALL STREET As the Director of Business Development for a national commercial finance company I am a daily witness to the challenges and opportunities facing small and lower middle market businesses in todays economic climate. Business Owners, Chief Financial Officers and Senior Managers are all aware that we live in unique times that require an even greater degree of persistence and agility than in previous business cycles. While the business media portrays an environment where there is no capital available to lower middle market businesses, we at Entrepreneur Growth Capital are funding business every day. Capital is available to lend. The capital requirements of businesses are more acute than ever. So whats new? What has changed are the potential sources of financing and the new debt structures that are available to the business community. All lenders today are more prudent in their decision making. In order to highlight what is new in the world of business finance I asked my associates in the commercial financing community to assist me by contributing their thoughts and ideas about how business can get financed in todays climate. You will find articles from the viewpoint of CFOs, Asset Based Lenders, Factors, Intermediaries, Accountants and Investment Bankers. You will learn about a wide variety of financing products, what lenders are looking for from potential borrowers and how to find the appropriate financing for your companys unique needs. This compilation will hopefully serve as a starting point for a conversation. You will find the contact information for all the contributors following their submission. You may also contact me directly to learn more about specific loan products, referrals to other lenders or financial professionals or to discuss any issue related to your business. My direct number is 212-838-4840 x319. My email address is tsherer@egcap.com If you are an Entrepreneur seeking Growth and in need of Capital come see how our experience can help you succeed.

Todd Sherer October 2012

CREDIT CASH VS. MERCHANT CASH ADVANCE

The difference your customers deserve to know
Although the product may seem similar, there is a world of difference between our loans and their advances.

The merchant cash advance industry provides working capital to small and mid-sized businesses in need of financing for reasons such as the purchase of new equipment or inventory, expansion or remodeling, payoff of debt or taxes, or emergency funding. The merchant advance industry has been rapidly growing in recent years as the credit crisis has lead to businesses not being able to tap conventional sources such as banks and commercial finance firms. Merchant cash advances, which first appeared about a decade ago, provide capital in exchange for a share of future debit or credit-card sales. As such, they tend to be used by retailers, restaurants and other small businesses where a large number of customers pay with cards. Credit Cash, an affiliate of Entrepreneur Growth Capital, offers many of the benefits of a merchant cash advance with the additional advantages of a traditional business loan including more competitive rates, longer terms and fixed payments. The Opportunity Demonstrated Customer Need There is a rapidly growing delta between small-to-medium businesses need for credit and its availability from traditional sources. A record $19.6 billion were issued through the Small Business Administrations flagship program in fiscal 2011, the government agency recently reported. Those funds, however, were distributed to 53,706 businesses, roughly the same number as in 2010. Loans of less than $150,000 were issued to 29,682 businesses in 2011, down from 34,238 last year, according to agency documents.

Loans of less than $150,000 are often critical for small, growing businesses that can use such financing to hire, buy equipment and make other capital improvements necessary to expand. Such financing struggles arent unique. Among businesses with less than $1 million in revenue that tried raising capital in the past 12 months, 36% had success at the bank. Among businesses with $100 million to $500 million in revenue, the success rate was 96%, according to an upcoming study from Pepperdine University that surveyed 10,637 privately-held businesses. In May, a study by MultiFunding LLC, a Pennsylvania firm that helps small firms obtain financing, found more than half of 250 small businesses it analyzed werent qualified for traditional bank loans and would need to seek other sources, such as merchant cash advances, factoring and unsecured lines of credit. In another sign small businesses are turning to alternative sources of working capital, the largest merchant cash advance company in the ten year old industry, recently hit a $2 billion milestone in merchant cash advances to small and midsized companies, doubling its total funding in less than four years. As such, they tend to be used by retailers, restaurants and other small businesses where a large number of customers pay with cards. What is a Merchant Cash Advance? The central concept of a Merchant Cash Advance is the factoring of future credit card receivables. The business effectively agrees to sell a portion of their future credit card swipes today for a discount. The agreements are usually structured in assumptions of repayment, usually estimated in a six to nine month repayment cycle. The business owner must use the providers credit card processor because the advance is paid back automatically as a percentage of each batchs proceeds. The equivalent interest rates can range from 60% to 200% APR, according to Leonard C. Wright, a San Diego accountant and "Money Doctor" columnist for the American Institute of CPAs. Who is Credit Cash? Credit Cash is an affiliate of Entrepreneur Growth Capital, a national commercial finance company that was founded in 1937. Entrepreneur Growth Capital, a family owned business is managed by the third generation of the founding family. Entrepreneur Growth Capital provides asset based credit facilities, factoring and through its affiliate, Credit Cash, short term loans based upon a borrowers credit card sales among other factors. Entrepreneur Growth Capital has lent over $1 billion to small and lower middle market companies. The Credit Cash loan product was introduced six years ago. Credit Cash has provided over $100 million to borrowers nationwide. Credit Cash offers competitively priced loans to companies with annual sales of $3 million and greater.

What are the differences between Credit Cash and Merchant Cash Advance?

Loan Size The total annual revenues of the borrower determine the loan size of a Credit Cash facility. Credit Cash loans are available from $150,000 to $3,000,000. Merchant cash advances are typically only available for smaller amounts. They often are for customers who require as little as $5,000. Credit Cash lends to larger companies with greater annual sales. These companies are from a wide variety of industries and include many household names and national brands. Borrowers have annual sales from $3 million to over $50 million.

Term Both Credit Cash loans and merchant cash advances fully amortize over the life of the financing. An advance may be offered for as little as 3 months and typically no more than 10 months. Credit Cash loans often provide for 12 months of repayment and can be structured for as long as 18 months. Credit Cashs longer terms allow for easier repayment.

Rates Merchant cash advances are not bound by laws that regulate lenders and limit interest rates. In a merchant cash advance, there is no due date and there is no fixed payment. As Paul Martaus, president of Martaus & Associates, a research and consulting firm that focuses on the industry says "The word unscrupulous comes up a lot in the business." The effective interest rate can range between 45-200% for merchant cash advances. Credit Cash loans are regulated by federal and state lending laws. The financing fee for a Credit Cash loan is 1 to 2% per month. Credit Cash provides a rate analyzer on their website so a potential borrower can calculate the effective interest rate of their current merchant cash advance and compare it to the effective rate of a Credit Cash loan. Merchant cash advances are often 2 to 3 times Credit Cashs rates for comparable borrowers.

Structure Merchant cash advances are unregulated purchase and sale agreements of future credit card receivables. Credit Cashs financing facility is structured as a loan. In addition to lower rates and a longer term there are further benefits to obtaining a loan rather than an advance. The repayment of a merchant cash advance is a daily percentage of a borrowers credit card sales. The amount the daily repayment is variable and uncertain presenting challenges to borrowers attempting to plan their cash flow requirements. Credit Cashs loan provides for a fixed payment. Credit Cashs clients always know how much and when they are repaying their loan. While the amount of the daily repayment of a merchant cash advance is variable, a typical agreement will require a holdback of anywhere between 15-25% of a clients daily Visa and MasterCard sales. Because Credit Cashs terms are extended and rates are lower borrowers usually repay their loan utilizing less than 5% of their revenue. The capital structure of a traditional Credit Cash borrower is comprised of a senior secured lender in addition to a subordinated Credit Cash financing facility. Many of the merchant cash advance borrowers are unable to qualify and obtain other types of debt and resort to the cash advance as a last resort. Credit Cash finances borrowers who possess greater financial stability and require larger, lower priced loans.

The Next Step The experienced staff of Entrepreneur Growth Capital and Credit Cash prides themselves on their superior customer service. Contact Todd Sherer, Director of Business Development, to learn about more about Credit Cash and the other financing products offered by Entrepreneur Growth Capital. Since 1937 EGC has been funding small and lower middle market businesses nationwide. If you or your client are an ENTREPRENEUR seeking GROWTH and are in need of CAPITAL, come see how our experience can help you succeed. Thank you, Todd Sherer Business Development Entrepreneur Growth Capital Credit Cash 212-838-4840 x319 tsherer@egcap.com

Debt Gets a Bad Rap

During the unpleasantness of 2008/2009, debt got a bad name. And no wonder; too much debt and the subsequent decrease in asset values caused many people and businesses to get hurt or worse. But since that trauma, weve overreacted. Now, more than ever, (prudent) financial leverage makes sense. Rates have never been so low. For one of the few times in our lifetimes one can achieve positive leverage. Positive leverage is when the unleveraged rate of return on an investment is more than the cost of borrowing. Borrowing at, for example, six percent when the unleveraged rate of return is ten percent, creates positive leverage and increases the return on invested capital. This hasnt been possible very often in the last five decades. Of course, taking on debt or leveraging an asset is the classic double-edged sword. As we saw in 2008/2009, a significant downturn can result in underwater assets, so smart and prudent use of debt is in order. Now, what do we need to get financial institutions to loan us money? See below.

What Do Financial Institutions Want?

Making it Easy for Lenders to Give You Money Most financial institutions have plenty of money to lend. Nevertheless, they are being very careful about lending it out. How can you be one of those borrowers who get the funds youre looking for? First, you need to borrow for good reasons. Borrowing to cover losses or to pay off the hole youve dug for yourself is not going to warm the heart of your lender. Borrowing to grow or to fund payroll until receivables are collected makes sense. Borrowing to buy a piece of equipment that will result in more business or make you more efficient makes sense too. Next, remember the Three Cs of lending that gives the institution three potential forms of repayment. First, Cash Flow needs to be sufficient to service the debt and pay back the principle when due. Cash Flow and profit are different but profitability is a great source of cash flow. Second, the lender needs to remain Collateral Whole. That means that the financial institutions collateral, if foreclosed on, needs to be worth more

than the amount of debt outstanding. The third C is Credit, meaning the borrowers guarantee needs to be strong in case the first two Cs are insufficient.

Anyone who loans money wants to be kept up-to-date on the businesss progress and performance. Your lender wants to know whether the business is profitable. S/he wants to know if youre hitting your sales goals and whether youre on budget. The best way to keep a lender informed is to provide them with accurate and timely financial statements, usually prepared on the accrual basis. That same information is important for management of the business. Not having good information is like driving a car with the windshield covered. Finally, find a lender who will get to know you and your business. If youve had a year or two in the last five that were not profitable, be prepared to explain what you did to correct the situation and why you are well prepared going forward. Have the lender visit your office or plant to see your operation. Make sure your lender can explain your value proposition. Consider providing monthly financial statements, particularly if they demonstrate a trend toward improved profitability. Tell your story and make sure your lender can tell it to the credit officer within the financial institution. Your lender needs to sell your loan to the decision makers within their organization. There is no guarantee youll be able to borrow the money you want but following the above advice will certainly enhance the chances of your success.

David R. Lightfoot, CPA Partner B2B CFO 206.660.6190 cell dlightfoot@b2bcfo.com www.b2bcfo.com

Whats a Business Owner to do when financing is not an option?

Did you know that a recent survey conducted by Pepperdine University to discover the exact amount loaned by banks to small businesses found that over 60% of applications were rejected? As any business owner, CEO or CFO knows, a financially distressed company can find itself unable to qualify for a traditional commercial loan. Although there are alternative loan options available, there is another solution that is sometimes overlooked: commercial debt restructuring. Overwhelming debt can not only stifle growth, but actually force a company to lay off employees; or worse yet, shut its doors entirely. In a worst case scenario, Chapter 11 Bankruptcy can be a solution. But unfortunately, Chapter 11 was designed for large publicly traded corporations, and does not work effectually for many small to mid-sized privately held companies. Business debt restructuring involves reorganizing problem payables so creditors can be paid strategically within your cash flow constraints, without having to shut down your company or file for bankruptcy. If your business cannot qualify for financing, business debt restructuring may be a viable alternative. Here is an example: A Landscaping Company (LC) has been operated successfully for 17 years, and has receivables from a home builder totaling $200,000. Regretfully the home builder goes bankrupt and the bank takes everything. The LC owes a nursery $100,000 which is 6 months past due. The nursery wont talk to the LC anymore because they are tired of broken promises. They have hired an attorney to collect. The LC cant borrow from their bank because they lost their biggest customer and have negative equity after writing off the $200,000 receivable. The LC hires American Finasco, the nations premiere Commercial Debt Management Company, to intervene. American Finasco has attorneys under contract who answer the law suit and delay a judgment long enough to reach a settlement. AF convinces the creditor that its best option is to accept $4,000 per month for 12 months. The LC continues to buy from the Nursery on a cash basis. End result: case is closed in court with documented settlement agreement, LC has an affordable payment plan to eliminate past due debt and Nursery receives $48,000 plus profits on future cash sales. Third party intervention through a reputable debt restructuring firm facilitates a new line of communication between your business and its creditors. An experienced firm will craft a unique debt resolution plan for each client. In some cases, that plan may involve

negotiating with creditors to settle the debt for a significant reduction. In other instances, an affordable payment plan can be structured.

American Finasco has a 25 year history of success in achieving a return to profitability for our business clients. We well understand the demands of CEOs and CFOs. Financial distress can be an overwhelming burden which keeps you and your company from doing what you do best, no matter what sector of the business world you inhabit. Let our professionally trained negotiators manage your debt so you can manage your business. Our fees are based on our success so you have nothing to lose but the stress of dealing with collection agencies! For more information or to find out if you qualify for our program please call us at 800299-2909 or check us out on the web at www.americanfinasco.com.

Mitchell W. Vicknair President / CEO 12818 Hwy 105 W. Suite 1A Conroe, TX 77304 Ph 936-588-8501 Fax 936-588-8550 www.americanfinasco.com

A Disciplined Approach to Financing in the New Reality

They say the Great Recession has ended. However, many executives find themselves in the precarious position of having survived the downturn by exhausting their cash reserves, maximizing bank lines of credit, reducing inventory, stretching payables and, reluctantly, reducing workforces, all while watching many of their customers, suppliers, and competitors go out of business. Now, as the economy improves, and companies find growth opportunities again, many companies are in the weakened position of having very little cash, little or no supplier credit, very little inventory, a fraction of the workforce they had at their peak, and a much tighter bank lending environment compared to the pre-recession years. So, if youre running the company, how do you get the financing you need to rebuild your business and capture the growth opportunities available to you? Some executives will make the devastating mistake of committing to new business contracts without new financing in place, not realizing that growth actually consumes cash rather than generating cash. In fact, the financial pressures of growth may be no less stressful, no less severe, no less debilitating, than the pressures of downsizing. It goes something like this: New orders are accepted, but cant be fulfilled on time because raw materials cant be obtained, and the reduced workforce cant handle higher volume. Bank lines are frozen, and lenders are pressuring to be repaid, so expanding the workforce or inventory levels is nearly impossible. Eventually, orders get so backlogged that the plant loses its normal workflow in favor of a squeaky wheel approach. Finally, customers begin cancelling orders and the company finds itself right back in the economic spiral they fought so hard to survive. So, what can a company do to significantly increase its chances of securing the amount and type of financing it needs to support its growth? Follow the five steps below BEFORE approaching the financing community, and youll have a much greater chance of financing success.

1. Conduct a Self-Assessment Companies often approach potential lenders and investors without ever understanding how such lenders and investors would assess their company. How would they view your risks, your growth strategy, your management team, your infrastructure, your capital structure, and the many other factors that form the companys financing profile?

By taking the time to conduct a thorough, and brutally objective self- assessment of your companys business model and condition, you might be able to address most of the potential reasons for rejection, prior to ever going out to the financial community. It isnt necessary that every issue is resolved prior to seeking financing, but you must show that you are aware of your companys issues, you have a plan to resolve the issues, and can clearly and credibly articulate the plan to the financing sources. How can you conduct a self-assessment? Its best to at least seek outside guidance or, better yet, to engage an advisory firm to facilitate the self-assessment. It can be a fairly inexpensive way to make sure you are objectively assessing all the right components. Moreover, utilizing outside guidance will add credibility to your process in the eyes of lenders and investors, and will demonstrate your commitment to long term continuous improvement. There are plenty of resources available and relatively easy to find. One particular resource for the manufacturing world is the Value Opportunity Profile (VOP), a web-based assessment tool designed to prepare companies for the challenges of long-term growth. It is provided by Corporate Value Metrics (www.corporatevalue.net) in collaboration with several facilitating consulting firms, and is recognized by several federal and state agencies that offer financial support for the assessment process. The VOP is a very cost-effective way to understand where the company needs to improve, and will also help to clarify the amount and nature (equity vs. debt) of capital that is needed to support the companys growth.

2. Develop a New Written Plan Your business has changed. Once your assessment is complete, develop and document a new business plan that incorporates the assessment results. Incorporate measurable and accountable action steps within the plan, and dont chase just any growth for the sake of growth. Find your new core business. Reevaluate your products, your target customers and target markets. What parts of your business are most profitable and least labor and inventory intensive? Use this opportunity to grow your new business around core competencies without the drag of all the old business clutter.

3. Communicate the Plan The best plan will go nowhere if its kept secret. Share your new plan with employees, suppliers, customers, your banker, and even other bankers. You may be amazed by the valuable input and cooperation you receive by allowing these various stakeholders to participate in your growth plans. Suppliers may reopen credit, larger customers may be willing to make deposits with new orders, even your bank, or another bank, may show new interest in your progress and be willing to

consider a new line of credit once you begin to execute. As for employees, youll see a renewed energy and commitment that has likely been missing for some time.

4. Execute Relentlessly Now that youve communicated your plan, you must execute with unrelenting discipline. Weekly, and even daily, management team meetings may be necessary to establish a new culture of performance in your company, which can sometimes take a year or longer to become entrenched throughout the workforce. Execute what youve planned and committed to execute, and youll build great credibility with all the stakeholders with whom you collaborated. Financing, in turn, will become the easy part of your business. Fail to execute, on the other hand, and financing will be the most difficult hurdle to overcome. Its your choice.

5. Polish your Pitch You typically only get one chance to pitch your story to any given lender or equity investor. If you dont make a compelling case for your business and its financing needs, in a clear and succinct manner, youve blown the opportunity. You must understand how to make your case in the language that lenders and investors understand and expect, which may not be the language you use on a daily basis. If you are not proficient in making such presentations, seek assistance from a professional who can help you develop your pitch, or even make the pitch for you. Your chances of success increase dramatically when the story is told the right way.

Ken Sanginario is a Partner in the Westborough, MA firm of NorthStar Management Partners, which provides corporate finance, revitalization, and management advisory services to middle market companies in transition. He is also the developer of the Value Opportunity Profile owned by Corporate Value Metrics, LLC. Ken can be reached at 508-870-5501, or by email: ksanginario@northstarmp.com.

Kenneth J. Sanginario NorthStar Management Partners, LLC 4 Bellows Road, P.O. Box 167 Westboro, MA 01581 off: 508-870-5501 cell: 617-834-9997 www.northstarmp.com

Factoring: Creating Working Capital even in a Challenging Economy

In this climate where banks have all but stopped serving the business community you may not know it but there is another way to raise working capital. Once you have seen the benefits of raising working capital through factoring you will understand why so many companies are using it to gain a competitive advantage. If you are contracting to provide products to quality customers, you may need capital now to pay for the raw materials or goods you sold. Or, if you provide services such as staffing under contract, you may need working capital to cover cash requirements for clients employees and workers comp in anticipation of receiving client payments. By factoring your customer invoices you quickly access the money you've billed providing the working capital you need to meet your commitments. Begin to say YES to sales that require capital that you might not have on hand. Moving forward to use invoice factoring depends on two things. First, a factoring company will place little emphasis on your credit. Its not your credit they are interested in its your customers. Your customers pay-worthiness holds more weight than your business. Second is an emphasis on the valuation of your receivables. Your outstanding customer invoices are viewed as an asset, and the valuation of this asset will determine whether a factoring company will qualify your business for accounts receivable factoring, or at which rate the invoices will be factored. Factoring receivables is simple, and for the most part, easy. Still, its a financial move, and as any financial consultant will tell you: Ask lots of questions.
DO Consider a Factoring Company If You need operating capital that is currently tied

up in funds owed to you by your customers.

DO Consider a Factoring Company If You need funds quickly. Many invoice factoring

transactions can be approved in less than 48 hours.

DO Consider a Factoring Company If Your business is growing, but you cant keep up

with production because of limited credit, cash, or both.

If you can factor, you should be doing it now. Take the first step. Call a reputable factoring company and find out how to increase your working capital through factoring your receivables. Bridgeport Capital Services (www.bridgeportcapital.com) lets you tap over 30 years of experience in factoring. Bridgeport Capital helps companies with creative funding solutions to create cash from their receivables. Call Max Toledo at 800-320-8957 for answers to any factoring questions.

Max M. Toledo Executive Vice President National Sales Director

Office: 954-345-5797 | Fax: 954-345-5949 | Cell: 305-343-8012

FINANCIAL INNOVATION AIDS SMALL BUSINESS BORROWERS

Source: Paynet

Small business lending has grown steadily since the end of the recession. The Thomson Reuters/PayNet index focuses on loans to borrowers with total indebtedness under $1 million. In a related story (http://www.equipmentfa.com/ReadNews.aspx?id=941&goback=.gde_670247_member _140992784) it was reported that preliminary June data not reflected in the chart above shows a sharp 5% drop in small business lending. Clearly we have entered a more difficult period for small business borrowers and perhaps for the economy as a whole.

Increasingly we see smaller firms struggle to obtain funding if they do not have adequate hard collateral (equipment, inventory or receivables) or if the owners dont have personal assets to pledge to support the loans. Many banks have abandoned small business lending entirely or are struggling with their own problems. If you are a small business with a capital need to support a growing business, youre asking What options do I have? Fortunately some innovative financial services firms have stepped into the breach and are beginning to offer new forms of small business finance based

not on specific collateral, balance sheets or income statements, but on a companys proven ability to generate revenue. Lets consider a hypothetical example. Albert Chin is a successful general practice physician in the Bay Area. Over time he has seen his patient population age and, increasingly has found himself serving patients at or nearing Medicare age. His patient population suffers from many chronic conditions related to decades of sedentary lifestyles and increasing levels of obesity. Dr. Chin strongly believes that engaging his patients in a program of rehabilitation and appropriate forms of physical exercise will play a major role in both increasing their personal well-being and reduce the lifetime healthcare costs that will be incurred by Medicare on their behalf. Under an obscure provision of the federal health care law, Dr. Chin has the opportunity to participate in an experimental program to offer his patients a comprehensive wellness program. Under the program Dr. Chin will be reimbursed for providing his patients access to specialized physical training from exercise physiologists and professional trainers. Through the program he will equip equip them with the skillsets needed to restore their sedentary bodies to a healthy level of physical activity and develop a lifetime habit of personal conditioning. While the program provides for levels of reimbursement that will enable Dr. Chin to operate a highly profitable wellness practice, the program does not provide funding for either the construction buildout and exercise equipment that will be required for his new facility. Additionally he will need funds for initial staffing and working capital to carry the patient accounts until reimbursement begins to flow. Ultimately he believes that private insurers will join the program as well as they see dramatic reductions in acute care costs for physically fit insureds. Dr. Chin started his funding search with visits to his executive banker at Globespan Bank and to a friend who heads commercial lending at a nearby community bank. Despite the fact that Dr. Chin had a long established and highly successful medical practice, in each case he learned that the bankers offered no good options. They would be happy to advance as much as he needed so long as the loans could be collateralized with certificates of deposit or other liquid collateral with a value of at least 120% of the loan amount. Somewhat naturally Dr. Chins response was if I had such collateral why would I need the loan? Fortunately for Dr. Chin innovative private lenders have developed mechanisms to bridge the gap. These lenders realize that, in the current business environment, many sound small businesses do not have the physical assets or liquid personal wealth banks demand to as support for their lending activities. Prior to the financial crash, banks had been able to bridge the gap by accepting second mortgages on residential real estate to

back their small business loans. With the collapse of residential real estate prices, this option is no longer available and many bank lenders have found they are spending more time working out past problems than in making new loans to support business growth. The new breed of private business lenders realizes that a businesss proven revenue stream is their real collateral and they have developed innovative mechanisms to protect themselves through capturing a portion of that revenue stream to assure repayment. In early iterations these lenders structured advances through purchase of a percentage of a businesss future credit card receipts, which could be contractually allocated to the merchant cash advance company to provide its return on investment. More recently some of these firms, as well as innovative asset based lenders, have begun to experiment with loan-based structures in order to support borrowers who do not utilize credit cards in their business. These lenders are able to structure loans based upon the anticipation that they will received a fixed portion of their borrowers revenue until the loan is paid in full. The lenders protect themselves with the ability to withdraw the payments directly from the borrowers bank account on a predetermined regular payment schedule. Which the merchant cash advance business was traditionally focused on short term funding needs, with typical payment periods projected in months, the new revenue based loan structures enable lenders to provide funding amortized over longer borrowing periods. Also while merchant cash advances have traditionally been limited in size ranging from tens to hundreds of thousands of dollars, there is no theoretical limit to the size of the new revenue based loan structures. While funding through cash advances and revenue-based loans currently entail funding costs higher than those charged by traditional banks, the new structures offer a number of advantages over traditional bank lending: Most important these loans are often available when bank loans are not Repayment structures can be fitted to the needs of the borrower, not the lenders needs to fit regulatory mandates A customer friendly approach to underwriting and documentation of the transaction means that the process is much less time consuming and complex than for bank loans. This does not mean that the lender will not carefully underwrite the deal, just that the focus will be on the proven ability of the borrower to generate revenue from which he can pay the loan, not on extraneous factors and complex document packages. Depending on the nature of the deal, the funding may not require a personal guarantee of the business owner

Over time, as this market develops, we anticipate that borrowing costs will decline and the number of lenders will increase dramatically. Further, while this market is primarily focused on small business borrowers with total funding needs under $1 million, we anticipate the revenue based structures will increasingly be applied to larger borrowers to fit the needs of an increasingly service based economy. For Dr. Chin the news has been good. After discussions with a highly knowledgeable advisor at Future Finance Ltd., Dr. Chin was able to arrange a $400,000 revenue based loan payable over sixteen months. The lender was able to look to the strong track record of Dr. Chins existing practice, where his historical revenue steam and profitability is more than enough to support the anticipated financing requirements for the new wellness business. Hes added much needed jobs to the local economy and has already begun to explore ways to joint venture with other physicians to provide similar services in additional markets. (About the Author: John Slater is a partner with Focus LLC, a Washington, DC based investment banking firm that provides merger and acquisition and capital raising services to mid-sized private companies. He heads the Focuss Capital Financing Team and is active in arranging institutional debt and equity financing for both banks and non-bank commercial lenders and other rapidly growing middle market businesses.)

John Slater, Partner and Capital Financing Team Leader Focus LLC Memphis, TN (Domicile) 3353 Peachtree Road, NE, Suite 1160, Atlanta, GA (Office of Supervisory Jurisdiction) 901-684-1274; 901-324-4868 (Fax); 901-230-5062 (Mobile) john.slater@focusbankers.com

ARE EQUITY INVESTMENTS FROM A FAMILY OFFICE AN OPTION?

Business owners seeking a reliable and long term source of capital may wish to explore an equity investment from a Family (investment) Office. These Family Offices are established by high net worth families to make investments in various types of funds, real estate and in private companies. With respect to the latter, Family Offices often look to make direct investments in promising companies, with great management teams and excellent products and/or services. Families typically offer, stabile, long term financing, access to their rolodex of other successful business owners and relationships, and are often, true long term investors more interested in growing businesses for the next generation, than in quick, Wall Street type, flips or high leverage. It is often said that families invest for generations, not for the next quarter. As such, they are often willing to invest to upgrade a company's facilities, plant and equipment and sales and marketing efforts, which will bring results over the long term. In addition, families may own a number of these small businesses where they can cross pollinate ideas, referrals and benefits. For further information regarding the above, kindly contact Ira, his contact information is below. T5 is the direct investing arm of a family office.

Ira J. Perlmuter T5 Equity Partners, LLC The Whitehall, 11-V Riverdale, NY 10463 718-884-0083 Cell 973-698-5920

Five Questions to Fuel Expansion Thinking

1) Why should our target customer buy from us, rather than from our competition?

2) What are the three best new products or services we could create longer term, and how to we best pursue those opportunities?

3) What are our three biggest challenges we face in meeting our budget?

4) What are the top three longer-term risk area concerns we face, and how would we react if those concerns materialized?

5) What can we include in this years budget to minimizeor eliminatethose risks? Gary Patterson FiscalDoctor, Inc. 678-319-4739 www.FiscalDoctor.com

Working with leaders who want to uncover blind spots in time so that they can make better decisions Author of Stick Out Your Balance Sheet and Cough: Best Practices for Long-Term Business Health and the forthcoming 2012 book Million
Dollar Blind Spots: 20/20 Vision for Financial Growth

ARE YOU AN EFFICIENT AND PRODUCTIVE BORROWER?

As you explore financing you need to remember that you are not the only investment opportunity they may be exploring and as such, your business needs to standout as an efficient and productive opportunity for the investment of cash. In a challenging economy a business needs to focus on their entire business, how the management of the business performs, how the employees execute their jobs and, how your customers feel about your services and support. A business that can demonstrate these capabilities has an opportunity to present a compelling case for investment from outside sources. There are some key areas that you should be prepared to address as you look for financing: Are you confident you can support the growth in your business? Is your team primed, in place and ready to support the expansion the financing will provide?

As you think about how you will use the financing to grow your business, you should also remember that the growth will impact you too. What will you do with your most precious resource, your time? Investing time wisely, may be the greatest service you can provide to your business and will help you successfully develop your business. A business owner must take a look at the things they do each day from two perspectives: 1. The Present tense perspective is governed by pulling in the reins, controlling costs and eliminating headcount where overstaffed and adding where needed. 2. The Future tense perspective that is governed by current circumstances that can (or might) significantly impact the way a business functions when as the business and environment changes. How an organization uses its time to address all the pieces of the business are keys to growing your business. A business owner needs to have a plan for making sure they will spend their time effectively. They should also have business metrics to track the success of their business plans and marketing efforts. Creating a culture of success is another key to growing your firm. A culture that provides a memorable experience forges an emotional connection to your business with your employees who support and interface with your customers. This type of environment will help you retain customers, gain repeat business, and yield more referrals

Some keys to consider are: Share Your Knowledge. As a business owner, you probably have the best knowledge of your products and services. Use that knowledge to help your employees gain a better understanding of the services your offer. Planning on pitching to a client? Engage your team - Jot down some features and benefits your services or products provide to your customers and have them prepare. Work with them to anticipate questions that may arise and be prepared to answer them. A few details can help to sway a customer, but beware of boring your prospects with too much detail. Share Your Passion, Create Desire. You love your business and expect that others will too. Be enthusiastic when sharing information about your business and your products or services. Your passion for your business will not go unnoticed. Work with your team to help them share the passion for the business the success of the business is a team effort. Share Innovation. Solve problems and anticipate wants. Engage your team multiple ideas can lead to a creative breakthrough. Share ideas on What solutions are your customers looking for What wants might they desire to have met? Identify what your prospects needs and desires, tailor products and services to fit, and show them how your products and services are uniquely prepared to meet those needs and desires. Focusing on yourself, your employees, and customers together is a major key to success. Developing a culture of success and passion will prepare your business for expansion and help position you for financial investment to help you grow. Gregory Stewart is the Principle at NexGen Management (www.NexGenMgt.com). NexGen Management is a Business Advisory & Professional Services company that provides executive coaching and operational improvement consulting services.

Gregory W. Stewart NexGen Management, LLC TRANSFORMING your business operational performance (Office) +973.927.5446 (Cell) +973.723.6918 www.NexGenMgt.com

Sources of Major Project Financing Capital Three Very Different Options

Established corporations or those on a rapid growth curve, often need large sums of capital for financing new projects such as the expansion of space, financing inventory or the costs of a specific, highly profitable business opportunity. Unless you are seeking more than $100 million, or prepared for a public offering, your choices are few. Simply stated, the options are usually a bank loan, private equity or Monetization financing.

Monetization Financing of long term, minimum pay contracts provides maximum debt amortized over the life of the contract. Many Monetization private placements can be funded in less than 30 days from receipt of all the permits and paperwork.

Bank Loans have a lower initial interest rate that floats against LIBOR, or is repriced every three or five years. Bank loans usually return 15% on all funds loaned by charging many points and fees, and may require additional checking account compensating balances. After the housing crisis of 2009, banks are required to prove 20% to 40% cash equity and personal guarantees from the borrowers. The process for approval may take nine months for the completion of all appraisals and paperwork.

Private Equity investments are as they sound. You are selling a percentage of your business. The percentage is based on the PE firms valuations, which are typically low and may be surprising. Valuations could be based on revenues per share, earnings per share, net assets, assets to shares outstanding (book value) or a combination. It is highly recommended that you have your accountant or attorney provide you with their valuations prior to meeting with a PE firm. However, depending on the PE firm, real value can be gained from the partners expertise in your industry and willingness to help grow your business through introductions.

Monetization Financing

The best option, if you have investment grade corporate or governmental customers or sponsors, may be monetization of a multi-year Take or Pay or promise to pay contract.

Some examples of this would be a city economic development department that is backing the building of a new plant, or expansion of an existing operation that will provide jobs and tax revenue. A corporation needing capital to provide products to the purchaser, for distribution or fulfillment of a larger contract, and the investment grade purchaser guaranteeing the debt issue to expedite delivery or lower costs. Monetization Financing can be used for merger or acquisition, improvements or increases to infrastructure, energy, monetization of financial instruments, capital goods financing, research and development or acquisition of tangible and intangible assets. Capital is provided by insurance companies, pension funds and institutional portfolios. Amounts available range from $20 million with no ceiling, depending on credit worthiness and need. Monetization only works with irrevocable payment guarantees from investment gradepayers. Essentially factoring at a fraction of the price the long term promises of payment for future orders, basing the credit decision on the investment grade guarantors balance sheet instead of the to-be formed deNovo projects balance sheet. If you are properly structured with a committed customer or sponsor, this could be your best course of action. Approval takes as little as a week, with the actual funding of a private placement generally taking between two to four weeks. There are no due diligence or post reporting requirements, oversight of corporate operations, fees, covenants or reporting to credit agencies. Maturities are flexible and can range in duration from one to 15 years, and can be deferred until the project is completed and assimilated into the business. Thats the good news. To qualify you MUST have an investment grade rated guarantor (BAA+ Moodys or Standard & Poors), willing to contract for a multi-year Take or Minimum Pay agreement. Normally this is a municipality, state, Fortune 1000 corporation or other entity with a vested interest in the success of the project that undertake the obligation should the borrower default. Documents and documentation must be perfect! No exceptions! Monetization is a form of Structured Financing. The repayment can be structured to skip any payments for three or four years to facilitate construction, de-bugging of operations and building a cash escrow cushion for a payment reserve to protect the payment guarantor. Reserves for a years payment have been added to loan requests, and subordination of all insurance, real estate and equipment collateral. This is done to further protect guarantors from the unknown risks associated with a highly leveraged project.

Traditional Bank Financing

Bank financing is limited by credit and review committees, who judge a companys ability to adhere to a payment schedule. The committees decision is also based on your corporations credit history, outstanding obligations and net personal or business assets

that can be liquidated should you default on the loan. This application process can often take three to nine months from a completed and accurate application to funding. At closing, if all documents are not perfect, funding will be delayed. And all bank financing requires the borrower to pay closing costs and cash equity of up to 30% of the loan amount, which will impact the cash available for the project. CEOs and CFOs of successful corporations, often prefer increasing debt to giving up equity. However, depending on the size of the facility and the payment schedule, borrowers could see an immediate, negative impact on profitability and cash flow. There is a cost for exiting any fixed interest rate loan before the maturity. Further stipulations of the debt instrument may have severe penalties for late or early prepayment of the loan.

Private Equity

If taking on more debt is unattractive then Private Equity is the third option. Acquiring private equity financing typically takes six to 18 months. During this process, the firm may require payment of a retainer, due diligence expenses and a closing cost. Due diligence requires intense scrutiny by forensic accountants, operations consultants, market and human capital experts. Reports may suggest (meaning require) changes in operations, accounting procedures and personnel. By the time the process is completed the opportunity may have vanished. Further, the instrument could be convertible debt. In this situation, corporate executives now must deal with interest payments they wanted to avoid, and the knowledge that control of the corporation could immediately vanish with the conversion of the loan to equity. Private equity firms executives are highly educated, experienced and ultra conservative. Should you be successful in receiving approval of private equity financing, you may discover your ownership is less than 30%. Your new business partners will control not only your board, but also executive decisions on day-to-day operations. Private equity is currently charging 300% interest ROR on the cash they invest. A private equity relationship may become adversarial. The firm may decide that your company no longer fits their vision for their portfolio. They may see greater value in merging your and another of their portfolio companies to increase the value of both. In this scenario, you may have lost complete control or even employment. You may receive an offer to buy your stock. But that offer could be less than the value of your ownership prior to private equity financing. Your need and creditworthiness will determine which option is available and most suitable for your specific situation. But you need to be prepared when asking, prepared when receiving and prepared for the ramifications of your decision. There are sharks in the water looking for opportunity. Be prepared, be very, very prepared.

About James Forrest, Managing Principal of Affiliated Financing, LLC

James Forrest is a financial professional with a broad 34-year financial services and marketing background, and reputation for getting things done. In 1990, Mr. Forrest founded Affiliated Financing and incorporated in 1993. The firm arranged debt financing for growing small- and medium-sized businesses wanting to increase profits through new equipment, supplier discounts, buying inefficient competitors, low rate Industrial Revenue Bonds or buying or refinancing commercial real estate. These transactions included Asset Based Financing, Equipment Financing, Bank Loan Negotiation and Private Placements ranging from $45 million to $2 million. In 2006, Affiliated began structuring private placements to fund portfolios of institutional investing sources that focus on monetization of Economic Development and other project financing.

Mr. Forrest can be contacted at: Affiliated Financing LLC 2300 N. Barrington Road, Suite 400 Hoffman Estates, IL 60169-2036 (847) 884-8686 Jim@affiliatedfinancing.com

Ten tips on how to attract lenders for start-up Project Financing loans

Borrowers often fail to obtain loans because they have very unrealistic expectations of what the lender is able to deliver. Start-up project developers who are puzzled to learn that lenders do not take their project seriously should consider these ten tips.

What are the features and benefits that attract lenders?

1. The best case for a lender is to be repaid, on time, without drama. Lenders are not your partner. If you make huge profit, lenders are only repaid on time at the stated interest rate.

2. Remember, it is income from sales that repays loans. To prevent the lender from tuning out after a few minutes, the first ten minutes of your initial conversation should address customer demand for your product. Please do not tell me that if you build it, customers will come. Unique processes should provide results that customers want to buy.

o The lender would like to hear that your unique feature is just what a Moodys or S&P investment grade customer needs and that the customer is willing to buy enough product to hedge the projects fixed overhead.

o No unique patented process or even one hundred beta tests will impress a lender more than a committed customer.

3. Loans are repaid by cash flow, not hard collateral. Talking to me about collateral wont make nearly as good an impression as talking to me about how your customers need for the product can deliver minimum sales/cash flow. Real estate and equipment are essentially worthless without a successful cash-flowing business. The collateral from a failed project may return only ten percent of the loan amount after legal and collection fees.

4. Start-up project loan underwriters focus on these Black Swan risks:

o If the project works as planned, will the lender be paid on time?

o If the project does NOT work as planned, how will the lender be paid on time?

o Does hedged operational integrity match the amortization? For example, is the inventory/fuel stock delivery hedged for the duration of the loan amortization? What happens if corn prices triple and the price of your ethanol does not?

5. Lending is a process. Have your CFO answer all of the questions at least two days before the conference call, so we can read them and determine which loan fund would best fit your project. Lenders never ask questions without a purpose, so deliver complete answers to the questions the lender asks. Remember, my job is on the line so do not bluff answers. Wehave a team of experienced underwriters who verify everything the borrower says. .

6. No lender got fired for saying NO to a loan request. When projects of this size fail, the loan officers career is over. Saying YES and delivering a loan requires significant effort from a team of lenders and underwriters. Do I want to risk my job lending to your project? The best reason is because you have customers lined up.

7. Finding customers is an equity risk. Dealing with Venture Capitalists (VC) is the penalty for not having a strong relationship with a Moodys or S&P investment grade customer. Equity people understand the value of their contribution and a lot of the VCs contribution will be introductions to investment grade prospective customers. Although lenders will amortize loans ten years, and we do not tell you how to do your job, the VCs are not kidding when they say they want cashed out in 3-5 years and expect no less than a 300% return on their equity.

8. No skin in the game = low lender credibility. Most bank-type lenders require 60% equity (cash and tax-credits) for start-up ventures, and require management to put in all their own money, houses and friends & family money if the project does not meet projections. Lenders think, for this large a financial reward and such a sure thing, why not go all-in? Our underwriting of up to 100% of project costs is based on your investment grade customers willingness to pay. If your customer does not believe in

your ability to deliver, why should we? If your customer really wants your product, lets set up a time to talk.

9. Do not save money on P&C insurance. If you do not have 125% of the deductable reserved, a lender will have a problem with your skimping on the lenders best hope to recover from an unexpected Black Swan event. If the insurance company is not rated AA by Best and has not written five policies on exactly the same kind of project, this P&C coverage will not be considered for many loans. Remember, even if you havent read yourinsurance policy, we have.

10. Lenders are serious about money. Are you? It amazes me how many borrowers apply for $20 million or more without an experienced CPA or CFO in the management team. A quality CFO already knows the predictable questions a lender will ask on fixed and variable costs, what quarterly governmental filings are necessary, and can deliver other lender financial reports. Lenders think that the borrower is either not serious or ready to go.

James Forrest is the Managing Principal of (www.AffiliatedFinancing.com) near Chicago, and has 33 years in commercial financing. Affiliated is a lender for Private Placements of debt for Project Financing, Management Buy Outs and Economic Development Projects with Investment Grade Sponsors/Customers. Our funds are from major US institutions, offered at a fixed rate for 5 to 20 years at par (no lender points or annual fees). Since 1990, Affiliated has never received a single complaint and is rated by the Better Business Bureau as A+.

Factor this into consideration maybe you should look at Factoring companies in a new light.

Over the years, Ive had some clients that have turned to non-traditional lenders for assistance in funding their businesses. But I must confess that it has been over a decade since I was intimately involved in a client that was using factoring to provide working capital for their business. I was not anticipating a positive experience working with a factoring company who was providing accounts receivable funding to my newest client. But I must confess that I have been pleasantly surprised the factoring facility is providing all that my client needs and the personnel at that entity are helpful and customer service oriented. They answer their phones more often than not, they are willing to take time to explain the intricacies of the facility and they have shown a great willingness to partner for the greater good of our common client. Looking back I would suggest the following to anyone who is considering doing business with a non-traditional lender, which should provide the foundation for a positive relationship.

1. Financial statements/management reports/forecasts generate accurate, timely financial statements and forecasts for your business so that you know exactly where your business is and where your business is headed. You will need such information to initiate discussion with any lender, traditional or not. But even if you arent looking for financing the information in these statements is critical to efficiently running a business. 2. Cash flow forecasting Based on the data in #1 above, generate a cash flow forecast that shows usage of and the generation of cash. Be sure to back out noncash items and to impact the cash forecast for capital budgeting and debt service items.

3. Negotiating with the lender(s) be sure to include all the facets of your relationship in the contract with your lender. Understand all the fees that you will be charged facility fee, interest rate, lockbox fee and such. Nothing should happen subsequent to signing the agreement that should come as a surprise to you in your relationship with your nontraditional lender.

4. Monitoring of facility/working capital make sure a senior financial person has sufficient time to monitor the usage of the facility and to monitor working capital oriented items. By borrowing only what you absolutely need you will be able to minimize interest expense. By collecting receivables as quickly as possible, you will be able to borrow less. The same goes for payables try to pay as late as possible, while still within credit terms.

5. Maximize efficiency Increasing efficiency in some areas of your accounting operation can have significant, positive implications to working capital and the usage of debt facilities. Nothing should stand in the way of invoicing as quickly as possible. If compilation of employee time keeps billing from being expedited, take a critical look at the time reporting and collection function. Streamline processes and implement controls/procedures that will result in minimization of errors and high efficiency.

6. Communication Keep the channels of communications open with your stakeholders. It is amazing the flexibility that vendors, employees, bankers, non traditional lenders and clients will give you when you are honest with them. You may be able to extract faster payment from clients and extension of terms from vendors many wise stakeholders understand that relationships with their counterparts is not a temporary affair but a relationship that can last years or even decades.

I hope you have good success with your nontraditional lender, just like the experience that I have recently had Good luck.

Vince Leusner vleusner@b2bcfo.com 609-220-0988

Its Still the 5 Cs of Credit

I believe entrepreneurs and CEOs, with help from their CFOs, must navigate the 5 Cs of credit harder and better than ever. Credit is available for prudent credit risks. The challenge that can be met is how those 5 Cs are being scored. The same fundamental credit underwriting factors as during economic growth are still the factors evaluated to make credit decisions today. Business leaders must address how the current economic levels impact the magnitude of those factors. Contrary to popular sentiment, lending has not hit a brick wall. B2B CFO partners across the country have helped clients close loans totaling over $100 million since November 2008. Community and regional banks have the appetite and capital to continue lending. Major banks seem to have the appetite and capital to continue lending to existing customers. Many bankers have been contacting me expressing their interest in lending opportunities. The same five Cs of credit still apply to determine loan approvals. They are 1) character (integrity), 2) capacity (cash flow), 3) capital (net worth), 4) collateral (assets), and 5) conditions (borrower and economic). Prudent credit risks based on modest underwriting scrutiny during credit expansion will still be prudent credit risks with more diligent underwriting scrutiny. Marginal credit risks approved by deteriorating lending standards during the past credit expansion will now be denied. The first C is character. One of my favorite inspirational thoughts is the statement about leadership that The ultimate measure of leaders is not where they stand in moments of comfort and convenience, but where they stand in times of challenge and controversy. Our current conditions provide a great opportunity for entrepreneurs and CEOs to demonstrate their character. Next is capacity (cash flow). Comprehensive cash flow tracking and forecasting is more critical than ever. More companies should be using weekly cash flow tracking and forecasting rather than traditional monthly reporting. The business leaders must make the tough decisions while demonstrating to customers, employees, and the lenders that those decisions are prudent and not risking the long term value of the company. The capital (equity) invested and supporting new loan decisions is likely getting more attention. The equity portion for asset based loans is rising. Although this may be frustrating to business leaders accustomed to historical loan to value percentages; I would encourage those entrepreneurs and CEOs to put in perspective that the same equity they have and can commit to new loans will simply support somewhat lower loan balances and therefore somewhat slower growth in funded assets.

Of course, in conjunction with less leverage is more collateral. Whereas loans without collateral may be getting hammered, lenders are looking for opportunities with traditional collateral receivables, inventory, and equipment. The business leaders will likely need to pay more attention to demonstrating the quality of collateral. The most challenging factor is the current conditions of the company and the economy. The business leaders must be able to demonstrate strategy, action already executed and having an impact, and a reliable vision and path that the business will navigate during the current economic challenges. The question is which business leaders will demonstrate they will be successful for our next wave of economic growth. Business leaders should not let the more challenging loan underwriting scrutiny discourage them. We must simply work harder and smarter to execute the fundamentals of the 5 Cs of credit in order to be the winners in our economic recovery. Glen J. Katlein is a partner in B2B CFO, a chief financial officer firm that provides service to emerging and mid-market companies. Katlein is currently serving as an affordable as-needed CFO for several Dallas-Fort Worth companies. He previously spent 30 years in financial management positions with mid-market subsidiaries of companies such as Bank of America, and Citigroup (formerly Associates First Capital), and Premier Trailer Leasing. Contact Katlein at gkatlein@b2bcfo.com

Financing Growth for Small Businesses Factoring as an Effective Cost of Sales! For some small business owners factoring is misused and becomes a high cost financing source that is challenging to eliminate. However, in some cases especially in the current tight bank credit environment factoring may be a prudent cost effective solution to obtain necessary working capital for growth. If cash obtained from factoring invoices is used for long term assets such as equipment or a practically permanent level of inventory; then it becomes a loan with a cost often ranging from 18% to 36%. However, if the cash is used to pay for labor or suppliers in order to deliver a product or service, then it is properly used as a short term working capital financing source. Historically, stable businesses obtained receivable and inventory lines of credit from banks with reasonable bank interest rates. In the current environment, banks are applying notably tighter credit criteria. As a result, banks are less likely to increase the limits on existing lines of credit. They are also less likely to approve new lines of credit. Banks are imposing tighter customer concentration limits. Furthermore, banks are viewing businesses with significant growth as being a high risk of successfully executing such growth. Consequently, many small businesses with growth opportunities requiring working capital exceeding current equity in the business are not getting bank lines of credit. When is factoring a viable cost effective cost of sales? One example is a business service in which the company has an opportunity sign a new contract that requires adding employees. If factoring is the only available source of working capital, the alternative is foregoing the contract. The company can receive factored funds upon issuing the invoice and use the funds for the payroll period matching the invoice. Executing factoring results in a cost of sales likely amounting to 2% to 3% of revenue if customers pay within 45 days. If the expected gross profit margin after incurring this cost of sales is still reasonable, then the business can commit to the contract and realize the remaining profit margin. For businesses with short production cycles, or purchasing and distributing products, the same perspective applies. Cash from factoring is used to pay for labor, materials, or purchased inventory in conjunction with completing delivery and issuing an invoice to the customer. Again, used properly as a short term source of working capital the cost of factoring is essentially a cost of sales.

Some businesses need working capital funds upon signing a purchase order but prior to completing delivery and issuing an invoice. If a business must pay payroll, materials or purchased inventory prior to delivery, purchase order financing may be a viable source of funds similar to factoring. Purchase order financing is often twice as costly as factoring because there is higher risk in that the customer has not yet acknowledged accepting delivery of the product. Again, if the expected gross profit margin after incurring this cost of sales is still reasonable, then the business can commit to the contract and realize the remaining profit margin. A B2B CFO Partner can help a business increase cash and profitability by helping the business owner / CEO with effective strategic planning and analysis of alternative financing. Glen J. Katlein Partner B2B CFO 214.402.8315 office 214.402.8315 cell gkatlein@b2bcfo.com www.b2bcfo.com

SHOULD YOU CONSIDER AN INTERMEDIARY?

Since we are brokers we may be faced with both different challenges and different opportunities. Large established companies usually either have their funding resources in place or they know who the viable funding resources are. This is why when we are approached with a very large loan request we are immediately skeptical as to why they are coming to us? We will also dismiss 100% funding requests, joint venture/investing requests, serial shoppers, broker chains and those that display any indications of poor character. Any signs of falsification, outrageous claims, non responsiveness or an uncooperative attitude will lead to an immediate elimination of their file. If a borrower wants to have a successful outcome they must show a professionalism, good business sense, reasonable expectations, complete honesty (every deal with have some hairs on it but if these hairs are discovered later on they can well negate the loan), organization and a good accountant or Controller. We counsel them to tell an interesting story in their Pre-App to us. (one of our is enclosed which we require along with a 2-3 page ES) and current Balance Sheet. To obtain a commercial loan today the borrower needs one or a combination of collateral, down payment, cash flow and or a profit history. If it is a conventional or SBA loan the credit score becomes important also. Hard money lenders do not value the credit score as much since they are asset based lenders. The potential lender must carefully seek out and select either a respected broker or a known legitimate lender. It's a jungle out there and they must be careful of losing up front money to an unscrupulous actor. Just like in the real estate business we believe that a qualified commercial broker (we are not mortgage brokers so we don't need a license) has the advantage of saving the borrower's time and effort by tailoring their situation to the best lender. We also find that we have the ear of the lenders that know us, understanding that although we do not do the inspections (we do in some cases) or appraisals we do our utmost to weed out the unqualified buyer and review the initial applications saving the lender time and effort. We at Marquesa has had some very unusual situations both good, bad and bizarre with both those seeking funding and those who are or claim to be lenders. With all of that a lot can happen between the time of application and the closing date. A good borrower and a good responsive lender can make things happen.

Bill Morgenstein Marquesa Funding & Consulting Corp. PH: 800-753-7840 FX: 201-475-9102 E-mail: bill@marquesafunding.com Website: www.marquesafunding.com

Securing Financing in Challenging Times

Financiers are in business to lend and invest money. Even when the markets are bad, they strive to put their money to work, but only if they believe they can earn an adequate return given the perceived risk. They will lend and invest with parties that best match their risk/return objectives. You need to find a financier that understands your business and industry and can support you in good and bad times. Company management must know where they fall on the risk spectrum and pursue the players in that market, well before their cash requirements become an emergency. Financiers respect companies that know how to plan and dont have surprises. Optimize your internal cash flow. The cheapest financing is internally generated. Work to keep your accounts receivable current, your inventory lean, and your payables well managed to keep your external capital requirements as low as possible. Financiers want to believe the money they invest will be productive and not sitting as inventory in a dusty warehouse or tied up in non-productive, old receivables. If your financing requirements are for working capital, theyll want to know its to finance expanding sales- not to bail you out of poor working capital performance. If the funds required are for property, plant, or equipment, you should be able to demonstrate the projects will generate positive cash flow and that you understand the risks and return. You must demonstrate the investment will generate cash and profits and that you know what youre doing. Have a credible and actionable strategic plan. Dont bring financiers a business plan that shows dramatic changes from your recent past unless you can precisely articulate why the financier should believe your numbers, IE, what changes and how believable is it? Work hard to earn and maintain credibility. Build plans and demonstrate you know how to manage your business. One of the worst things you can do is to put together a plan that is not believable. You must be able to show how you will achieve the plan. If your sales have been flat and you now project extraordinary annual sales growth rates, you must be able to convince financiers the plan is believable. Demonstration of your resilience is also critical. How have you performed in different business cycles? Have you demonstrated that you can manage the company in good and bad times? How flexible and resilient is your company when unexpected things happen in either your business or the economy?

Finally, show some strong character. You should be confident of yourself and your company. Show them you take your obligation to achieve your plan and repay them seriously. The financiers must believe you will drive hard to deliver them with crisp delivery of the plan with no surprises, in an ethical, reliable and honest way.

Ron Baker, CPA, MBA Partner B2B CFO

216.287.2118 cell rbaker@b2bcfo.com Visit my personal website Visit my B2B CFO bio page www.b2bcfo.com

WORD OF WISDOM FROM A CFO First of all, as a B2B CFO, I greatly enjoy working with small businesses to achieve success. I have helped several seek funding in order to grow and, yes, survive in the current economy. Additionally, as an instructor for the Northeast Core Four Business Planning Course, I have gained a greater appreciation for business planning in the success of small businesses. When looking for finance options, I have found it to be most important in your quest for funding to have a solid business plan. The plan should include the studies required to understand your markets and competition and establish a cash flow plan based on careful research. It is also necessary to keep clean financials and stay organized. Most funding sources require a solid business plan before they will even consider financing and they also want accurate up-to-date financial information. As the business market continues to change it has become more difficult to secure funding through traditional banks. If you have a solid relationship with your bank, look there first to see what they have to offer. Dont forget to shop for pricing and terms for the financing you require and understand that there are choices in regards to financing for your business. There are several alternatives that may better suit your unique business needs and situation. If you are already an established business asset based lending and account factoring are options to consider as well. . Small business micro-loans and angel investors are other alternatives to the traditional bank loan. The most important advice I can give to business owners and potential business owners alike that are seeking funding, is to make sure the source is well-established and has a record of success. Companies competing for solid loan opportunities may offer additional services that will benefit your business. Do research and look for the best options available for your particular situation. Adequate planning and research is a key to success and competition for businesses today.

Tamara Clontz, CPA Partner B2B CFO tclontz@b2bcfo.com

WORDS OF WISDOM FROM A CPA

As a CPA with closely-held and family business clients, I am often called upon to help with financing decisions and lender negotiations. The best advice I can offer is for the company to have their financial house in order before they even contact a potential lender. Make sure you have the following: Corporate charter in good standing No judgment or tax liens on the business or major shareholders Shareholder agreements and corporate documents current (and signed) Income and payroll tax returns filed and all taxes paid Sales taxes correctly calculated and collected for all applicable states Books and records current and correct Shareholder and related party loans kept to a minimum

Of course, it also helps if you have a financial statement prepared by a 56 year old CPA firm with a great reputation and relationships with local, regional and national lenders. I think I might know one

Tod Christianson CPA Owner Hunter Group CPA LLC

Tod A Christianson CPA Director Hunter Group CPA LLC 17-17 Route 208, Fair Lawn, NJ 07410 tac@thehuntergroup.com Direct 201-693-9816 Main 201-261-4030 www.thehuntergroup.com

GOOD DEALS WIN!

While many believe that there is no money to be found that is just not the case. There is a lot of capital available for the good deals. The key is to become one of those good deals in your presentation. You must deal with past baggage. Bring leadership, which often means replacing those who allowed the company into trouble. Set solid strategy and plans in place to guide the company from trouble to growth. Build a quality management team committed to change and rebuilding replace bad managers. Acquire new business to fuel the growth. Establish a sound capital structure, which is based upon these thoughts. Implement processes to drive and control the business. Nurture resources by motivating the workforce. Provide an exit strategy for investors to realize rate of return. When these principals are implemented and the projected cash flows reflect the positive trend then investors and lenders will be eager to take a look and provide capital. I was talking with several people at an award ceremony recently, with the chairman of a major bank listening. I was asked what is turnaround all about? I responded: you need three things for a turnaround. First, you need management [see me raising my hand]. Second, you need to grow revenues, which are difficult for troubled companies, and made harder when a down economy causes people to pull-back their buying. Third, you need financing to fund the transition and the banks arent lending. The banker said, John, were lending actively. I said, perhaps, but not to my troubled clients unless they have already put plans in place and turned. Touche he said, we only lend if they are a good risk. After all, they do want their money back. Good deals win. About the Author John M. Collard is Chairman of Annapolis, Maryland-based Strategic Management Partners, Inc. (410-263-9100, www.StrategicMgtPartners.com ), a turnaround management firm specializing in interim executive CEO leadership, asset and investment recovery, corporate renewal governance, raising capital, and investing in underperforming distressed troubled companies. He is a Certified Turnaround Professional, Certified International Turnaround Manager, Past Chairman of the Turnaround Management Association, Chairman of Association of Interim Executives, serves on public and private boards of directors, is a frequent author, speaker, and advisor to companies, institutional and private equity investors, and governments. He was inducted into the Turnaround Management, Restructuring, Distressed Investing Industry Hall of Fame.

John M. Collard, Chairman Strategic Management Partners, Inc. 522 Horn Point Drive Annapolis, Maryland [MD] 21403 (410) 263-9100 John@StrategicMgtPartners.com or Strategist@aol.com www.StrategicMgtPartners.com

Raising Venture Capital (Growth Equity at Earlier Stages)

Owners/CEOs of growing entrepreneurial companies often underestimate the difficulties, nuances, and complexities involved in the process of successfully raising equity capital. The challenge is made even more difficult as the companys development stage is earlier rather than later, where investors can depend less on substantial trailing revenues, profitability, and growing cash flow, but rather must fundamentally believe the equity story. An effective process is systematic, targets the addressable capital market comprehensively, is professionally managed, and thus can also be time-intensive. Critically, management teams must balance the importance of running the business and putting points on the board, in order to maintain momentum, with the week-toweek demands of the capital raise process. If not managed properly, a capital raise can take too much time away from day-to-day operations and negatively impact the business. There is enormous risk around this common problem since stalling momentum in the business can quickly translate into investor wait and see thereby extending or defeating the capital raise process a double whammy at the worst time potentially. The critical keys to success with an equity raise process are as follows: Clarifying the optimal growth financing (amount of capital, type of capital, cost of capital, mix of capital) the company really needs in the immediate term Preparing the business (and entire senior management team) for evaluation by professional investors, e.g. setting expectations and tuning message and emphasis Developing a quality marketing package to showcase the company detailed, fact-based, structured information which comprehensively documents the business, clearly communicates the story, builds investor confidence from Day 1, and provides an enormous head-start on smooth diligence Identifying and accurately targeting potential equity investors alone or in syndicates Coordinating efficient information exchange adroitly balancing disclosure with confidentiality concerns over time Tailoring deal structure and terms to bridge gaps and find common ground for a transaction Managing due diligence activities on a critical path Assisting the legal process problem-solving/ debugging toward a successful final closing.

We know that careful scrutiny of a company in the context of a capital raise can be a stressful and emotional experience for any owner/CEO. Having a game-plan for a professionally managed process is critical to maintaining control, minimizing distractions from running the business day-today, and maximizing the probability of closing the desired financing on the best terms the market will bear. In raising private venture capital, a company must nail the addressable market from the outset, striking the balance between targeted/prioritized and comprehensive. Companies do not want to drift lazily and opportunistically from one potential investor to the next getting relevance half-right, making the process protracted and hit or miss, and ultimately reaching out to only a small fraction of the several hundred institutional venture capital firms who are actively investing in growth companies today. Nailing the addressable market means segmentation of these several hundred VC firms by: Industry sector or segment focus as precisely as the firm itself defines their niche (i.e. medical devices, healthcare services, enterprise software, semiconductors, consumer products, financial services, cleantech, etc) Target stage of investing (e.g. Seed, Early, Mid, Late/Expansion, Change of Control) Geographic requirements or preferences Size of commitment - minimum or maximums (e.g. $2M initial equity, minimum $20M initial equity) Current activity level and appetite for brand new commitments.

An effectively managed capital raise process typically involves the following scope of work in four phases with a timeline that can range from 8 to 16 weeks:

Phase I Preparation (Week 1 - 2): Establish clear transaction objectives, i.e. the optimal growth financing (amount of capital, type of capital, cost of capital, mix of capital), roles in the process, and timing Prepare and maintain/update primary marketing materials Executive Summary, Corporate Overview Presentation, Email Cover Intro, and Financial Model Create Target Investor list review with client and establish a prioritized (Tier 1, Tier 2) final list to contact based on match between investors charter and clients profile.

Phase II Marketing (Week 3 - 9): Maintain confidentiality to maximum allowable level throughout process Contact prospective investors per the targeting and prioritization Do initial calls with investors to explain Company and outline investment thesis Supply additional follow up information and manage conference calls & meetings with selected investors as necessary Receive preliminary Term Sheets review, analyze and discuss with client Negotiate select/final Term Sheet with clients input.

Phase III Due Diligence (Week 6 12): Select lead investor client signs Term Sheet or LOI Organize syndicate of other investors if applicable Outline due diligence timetable, events, deliverables & hold meetings Manage data repository provide detailed financial & operational Information Assemble deal team legal & tax accounting Receive draft legal agreements from investors counsel.

Phase IV Consummation (Week 8 16): Manage ongoing negotiations Support the legal process negotiate and finalize Stock or Unit Purchase Agreement, Investor Rights Agreement, Amended Articles of Incorporation Wire funds and close transaction.

Source: David Gilroy, Managing Director & Founder, Scale Finance LLC Scale Finance LLC is an extremely active, day-to-day participant in the growth capital marketplace at the institutional level. Over the last 6 years, we have assisted many companies in raising venture capital, growth equity, subordinate, or senior debt to support growth or recapitalizations through tightly managed processes. Our corporate finance and principal venture capital expertise also allows us to add value to clients before and throughout the capital raise process. We are frequently offering more general financial management services (e.g. fractional-use CFO or Controller support) for the Company ensuring that the deal does not appear shopped in the marketplace and that our clients financial model is superb, comprehensive, flexible, and up to date. Critically, our process feels organic to the equity or mezzanine debt community

and features our clients brand and story, not ours (common error of boutique investment banks which turns off investors).

About Scale Finance Scale Finance LLC (www.scalefinance.com) provides professional CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to growth companies. The firm specializes in cost-effective financial reporting, budgeting and forecasting, implementing controls, complex modeling, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firms clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices in Raleigh/Durham, Charlotte, and Winston-Salem, a team of more than 25 professionals, and serves more than 75 companies throughout the region.

Dave Gilroy | Managing Director Scale Finance LLC 704.258.6653 (P) 866.704.6920 (F)

WHERE AND HOW DO STARTUPS OBTAIN FINANCING? There is the old saying, It takes money to make money and nothing is truer in todays economically challenged business environment. Most non-bank funding sources and even banking sources usually require ongoing no less than two years of profit and loss statements, balance sheets and projections. Where and how do start-ups go for funding? The answer might surprise you. The best place to go for initial funding is new customers. In other words, the company needs to find a way to boot-strap itself and use the customers money to fund their operations. This does not mean that owners of new business are not required to put in some capital of their own. They should because it is one of the key questions that any traditional funding source is going to inquire about. You will get asked, What is your risk in this venture? If you dont have anything at risk, why should others risk their capital on you if you arent willing to take some of the risk yourself? It is often very tempting to borrow money to start a new business. This is a huge error. Dont do it! Why? In the event your business fails, and more than 99 out of a 100 new businesses do fail, then as the guarantor of the loan you are left holding the bag in the end. You have to pay off the loan, or file a bankruptcy to get clear of it. However, when you use new customers to fund your operation, or find other established companies that are willing to collaborate with you, you are building your company on a better foundation. Just make sure you have trademarks, patents, non-compete agreements, and non-disclosure agreements in place before approaching them because they could end up stealing your ideas and concepts. Perhaps an example is the best way to illustrate what I am proposing. When I began my PhD studies I devised a new concept in merging cyber-security training for military veterans that allowed new students to conjointly earn an accredited college credits and a formal college degree along with established IT Vendor Certifications. It was a blended program that focused on developing new students with classroom to cubicle skills. My partners in the new program were established colleges and universities and military veteran organizations who also had a vested interest in making my program successful. So I invested in a website, and developed and paid for non-disclosures and non-competes, and trademarks so that none of the collaborating colleges could abscond with my concepts. Everyone in the program wins the colleges wins, the veterans wins, and I win. My total investment is minimal and I use fees and tuition earned from new students as my funding source.

My counsel is for you to do some creative thinking on who your new customers will be, and who what established companies would benefit from a collaborative approach with you. In the end, you will not need to worry so much about making those loans payments or giving up a large share of equity in your fledgling company, even if you can find those elusive investors in todays competitive marketplace.

James O. Ellithorpe, PhD (Candidate) President and CEO James O. Ellithorpe, Ph.D. (Candidate/ABD) Managing Principal Director of Consulting

Business & Personal Appointments: Orange County Business Accelerator New York International Plaza 4 Crotty Lane, Suite 100 New Windsor, NY 12553 Mail: PO Box 2166 Glens Falls, NY 12801-2166 Toll Free: (877) 487-3411 x-88 Cell: (518) 321-3339 Web: www.its3.us.com

Four Steps To Increase Your Odds Of Securing That Needed Financing The first thing you need to know about securing financing is that the lender is making a wager by betting his companys money that you will repay the loan. If everything goes well with your business and you repay the loan then you get the biggest benefit as compared to him; whereas, if you do not repay the loan, you may suffer a financial loss but he is likely to personally lose his job. In other words, you get the upside and he gets the downside. So I always ask borrows, Would you bet your career on one of your customers? Secondly, let me say that a Challenging Economy doesnt change what the lender wants or why, it only makes them more nervous. By that I mean that lenders profits are probably less so they are more vulnerable to loans not being repaid which creates additional losses for them. As well, many of their customers profits are probably less making them all more likely to have trouble repaying their loans. Now that you understand the mine-field for a lender when it comes to loaning you money, lets talk about the few things that will greatly improve your chances of securing financing to expand and survive. 1. Know what you want and why the lender is going to ask and expects you to be able to answer that clearly and succinctly. A reasonable response could be something like I need to buy a new machine for my shop so I can increase my production. or I need a Line of Credit to help finance operations. 2. Show how you will pay it back the lender will most likely ask for a cash flow forecast to show how you will be able to pay a loan back when you need to borrow money today. You appear more prepared to have thought through this expansion if youve already done one. Yes, I know, that you really dont know what your sales and costs will be over the next few years but your guess is better than theirs and they want to see what your best guess is and if this thing actually cash flows under that scenario. 3. Know the lenders appetite Just like your company doesnt do everything, lenders dont all make the same kind of loans. Dont waste your time or theirs presenting a proposal for a loan that the lender doesnt really want to make. In other words, if youre trying to borrow money to build investment real estate center, make sure the lender makes those kinds of loans.

4. Develop a Relationship Would you loan money to a stranger; probably not; so dont expect a lender to either. Invest some time getting to know the officer personally. Take them to lunch or have coffee with them enough that you feel like this is someone youll like doing business with because if you borrow money from them, you will definitely be doing business with them. If you dont feel comfortable with the other guy, they may not either. Most Chief Financial Officers are experienced in addressing these issues but if you have any questions or concerns about any point raised in this publication, contact a B2B CFO partner at www.b2bcfo.com for assistance.

Ray Rucksdashel Partner B2B CFO 713.503.8554 cell rayrucksdashel@b2bcfo.com

Equity Sources Institutional Investors

Family and Friends Angel Investors Strategic Investors Venture Capital SBICs Private Equity Firms Alternative Assets Mezzanine Finance

Debt Sources
Asset Based Lenders Bank Financing

Seed Stage Start Up Stage Early Stage (Growth) Expansion Stage (Growth) Later Stage (Growth) Mature

Yes

Yes

No

Maybe

No

No

No

No

No

No

Yes

Yes

Maybe

Yes

No

No

No

No

No

No

No

Maybe

Maybe

Yes

No

No

Maybe

No

No

No

No

No

Yes

Yes

Maybe

No

Maybe

Maybe

Maybe

Maybe

No

No

Yes

Maybe

Yes

Maybe

Yes

Yes

Yes

Yes

No

No

Yes

Maybe

Maybe

Yes

Yes

Yes

Yes

Yes

Troubled

No

No

Yes

No

No

Yes

Yes

No

Yes

No