Assessing Financial Resources

1. Assessing Financial Resources • Every start-up business needs some level of financial investment • Land is a big one, but so is infrastructure! • Once you know what you need, you can develop a strategy for financing those investments • Under investment AND over investment can both be problematic

2. How can you raise the money you need? • Savings • Assets you can sell? • Save money • many defer start-up to save • cutting expenses • Borrowing from traditional lenders • Borrowing from family and friends • “Alternative” loan funds (non-profits, community based)

3. Some Definitions • Assets = what you own or what is owed to you • savings • real estate • stocks • equipment and vehicles • Liabilities = what you owe to others • loans • mortgages • credit card balances • income tax • Net worth = Assets – Liability • Collateral = assets you pledge as security for a loan that is given up if you default on the loan.

4. Personal Resources to Invest in Business • What personal assets do you to have to invest in your business?

5. Personal Resources to Invest in Business • How can you use these assets? • cash • collateral • use • assets to sell for cash • Worksheet # 15 page 57 • Examples?

6. Traditional Funding Sources • Chartered Banks and Credit Unions • Farm Credit Canada • Community Futures Development Corporation • Business Development Bank of Canada • Input Suppliers/Equipment Dealers

7. Chartered Banks and Credit Unions • Short and long term loans • Business accounts • Personal accounts • Loans based on personal finances not on business • Eg. Line of credits • Likely will get better loan terms than for agricultural loan which is viewed as risky

8. Farm Credit Canada • FCC is Canada’s largest provider of business and financial services to farms • Short term and long term loans (equipment, real estate) • Alliances with input suppliers • Geared towards commodity agriculture • Not great terms • high interest rate • shorter length of time to repay loan • Need to provide • net worth statement • financial statements for the past three years • recent pay stub if the majority of your income is generated off-farm 1-888-332-3301 www.fcc-fac.ca

9. Community Futures Development Corporations In Ontario • Business Counseling and Training • Loans to help new or existing small businesses • Up to $150,000 • Secured and unsecured • Focus on Rural Development • Phone:1 866 668-2332 • Email:info@oacfdc.com • www.ontcfdc.com

10. Business Development Bank of Canada • Business counseling, training and financing for small businesses • Short and long term financing – up to $150,000 • Resource material for business start ups 1 877 BDC- BANX (232-2269)www.bdc.ca

11. Input Suppliers/Equipment Dealers • Input Suppliers • Short term operating funds/line of credit • Equipment dealers • Financing for equipment • Typically in alliance with bank or Farm Credit Canada

12. Loan terms • Amount of the loan you are requesting • Interest rates • Negotiable with the lender • Based on the lender’s risk assessment • Many use prime rate as the base --- prime = 2.25% (May 09) • Ex: prime plus 1% or prime less ¼ % • Typically real estate loans have lower interest rate

13. Loan terms • Length of term • Operating 1 year • Equipment 5 – 7 years • Real estate 20 – 25 years • Security/collateral that will be required: • Will depend on the loan • Short term (maybe none…) • Personal property - Inventories, equipment • Long term - mortgages • Real estate

14. What are lenders looking for – 5 C’s • Capital/Commitment – how much you are relying on debt to finance the business • Capacity/Cash Flow – can you make your payments • Collateral – what can you offer as security if you can’t pay • Character – experience, creditworthiness • Climate/Conditions – what are the opportunities and threats in your business

15. Credit Rating • Rating given to a person by credit bureaus that measures their “credit worthiness” or ability to repay a loan • experience managing credit (credit cards, mortgage, loans, etc.) • reliability making loan payments • current financial condition (income, savings, outstanding debt, etc.) • other factors • Credit Bureaus – Equifax, Experian, and TransUnion • contact directly to get a copy of your credit report. • contact all three - they often offer slightly different information • may have errors

16. Character & Climate/Conditions • Character (internal to the business) • Credit bureau report • Personal record/credibility with your lender • Personal experience, strengths • Climate/Conditions (external to the business) • Market prospects/your marketing strategy • Opportunities/threats in your industry • A well prepared business plan will go a long way to address these areas

17. Borrowing from Family & Friends • Can get complicated… • But can be “patient” lenders • longer terms • flexibility to make payments • low interest • May want to become part owners or “limited partners” • No management but provide financing and take on limited liability

18. Evaluating your Options • Truth is, that it’s hard to get funding for a new business, especially in agriculture, so come prepared! • If raise funds for business, what is your tolerance for risk and comfort with debt? • If self-finance, how much of your investment do you want to repay yourself over time? • Gift? • Lending? • Repay when reach certain level of profitability? • Repay only when sell farm? • Regular repayment schedule?