Financing for a Small Business

1. Financing for a Small Business Hudson Library & Historical Society February 11th, 2013 Presented By: Jon Novak, PNC Business Banking Officer Lisa O. Rucker, PNC VP SBA Business Development Officer

2. Overview of Today’s Presentation • Introduction to PNC • Cash Flow: Quick Points • Lending to Small Businesses - What Bank’s Look At • Lending to Small Businesses - Underwriting • PNC Conventional Loan Products • SBA • SBA Documentation and Key Factors • Resources • Q & A

3. Introduction to PNC PNC Financial Services Group, Inc. is a highly diversified and growing financial services organization. • Ranked among top small business lenders • One of the top 10 bank wealth managers according to Barron’s • Grow Up Great – A $350 Million multi-year initiative started in 2004 • One of the largest banks in the United States based on deposits and branches • Approximately 57,000 Employees in the U.S. and abroad • Approximately 6.5 million checking account customers • Approximately 2,900 branches in 19 states & the District of Columbia with close to 7,300 ATM’s

4. Introduction to PNC • Awards and Recognition • Most admired Companies. Fortune magazine (2012) • Fortune 200 company – No. 165 on Fortune 500 listing (2012) • One of the World’s Strongest Banks, Bloomberg Markets magazine (2012) • Great Workplace Award for Employment Engagement, Gallup (2012)

5. ICE BREAKER……. • What business do you own or plan on starting? • What do you hope to learn or take away from this presentation?

6. Why are we here? Most business owners, or those that would like to start a business, do not focus on the current banking environment. You are not supposed to be an expert in banking but rather an expert in your respective field. That is the roll that we take as business bankers. We help in all aspects of cash flow including credit. Think of us as a business partner.

7. Cash Flow: Quick Points Speed up receivables, slow down payables; take control of your cash flow and prevent fraud! • ACH Debit • Deposit Now • Merchant Services • Wires-in • Lockbox • ACH Credit • Business Credit Card • Wires-out (web/verbal) • ECR – Earning Credits • Sweeps • PNCi • Online Banking • Pinacle Express Select - modules

8. Credit: What Banks Look At • Start-Up Businesses • What’s the plan? A thorough and thought-out business plan. • What we’d like to see in a start-up business plan: • Time in industry/related business (non-compete?) • Competitive advantage and how success will be obtained • Realistic costs and first 2-3 years expected return • Fancy binders don’t help • Liquidity. After you’ve paid to finance the start-up, what type of reserve will you have? Is this enough to sustain anticipated growing pains? • Collateral?

9. Credit: What Banks Look At • In Business 2+Yrs. • Three Years Business Tax Returns • Is there a trend? If it is positive or negative, what has created it and what is being done to correct or sustain? • Expected sales and margins for following fiscal year? • Anticipated future borrowing needs? • What will the money be used for? • Two Years Personal Tax Returns of Principal Owners • Personal Financial Statement of each Guarantor • Collateral?

10. Underwriting • Industry Risk • Global Debt Service Coverage • Business + Personal Debt Service. Personal income is discounted to compensate for ‘normal’ living expenses • Business must support current and proposed debt • Difficult to measure with start-up; need supporting factors to decision • Loan to Value (LTV). Is the request within bank/regulative guidelines? • Does the request make sense? Is it the correct facility to accommodate both the client and the bank? • Relationship with Bank • 4 C’s of Underwriting: Collateral, Character, Credit, Cash Flow

11. Conventional Loans Turn for Current PNC Loan Options – Term Credit Products ≤ $3 Million

12. What loans are available?

13. Conventional Lines of Credit Please Turn for Current PNC LOC Options – Revolving Credit Products ≤ $3 Million

15. PNC’s SBA Finance Group

16. Leading the Way Along Your Journey PNC Bank’s SBA Finance Group has a history of solving tough financial challenges for thousands of businesses. We understand that our ability to deliver helps you manage your business effectively. Over time, you will see what sets PNC’s SBA Finance Group apart: • Reliable SBA Lender that has the ability to work through and structure difficult loan requests • Rapid loan decisions by an underwriting team that specializes in only SBA transactions • Responsive closing team that takes pride in assisting customers right up to the day of closing • Innovative financing strategies and overall Full Service Business Banking solutions backed by the 5th largest depository institution in the country • 14th largest SBA 504 lender in the nation closing 51 loans for $40.3 million

17. Dedicated, Local Team • As a Business Development Officer, I ensure a positive borrowing experience for you and your clients. My commitment to you will be to: • Provide a single point of contact. • Coordinate a team of experienced specialists. • Identify appropriate solutions for your clients. • Keep you abreast of the programs that are relevant to your business • Bring in-depth knowledge of your industry. • Work to ensure high client satisfaction at all times. • Be there as your personal SBA advisor PNC Business Development Officer Your Business

18. The PNC Advantage • Why PNC? • The teamwork in PNC’s SBA Finance group results in precise solutions that the customer expects to meet their financing needs. • With experts in the SBA Finance Group, PNC understands the nuances of the program, while providing a high level of personalized service. • PNC delivers a consistent level of customer service - no empty promises. • Committed to developing new resources to make it easy to work with us and help accelerate your business objectives • One of the top SBA lenders in the nation, closing over $100 million in SBA 7(a) & 504 loans in FY 2012 • The PNC Advantage.

19. SBA Financing vs. Conventional Financing • Why go SBA? • The SBA program requires less equity injection than in a conventional loan • SBA terms are longer reducing monthly payments • SBA loans are available for industries that are considered a little more riskier for a conventional loan • SBA is an alternative to conventional financing when the borrower doesn’t have as much collateral to support the loan, but they have sufficient cash flow • SBA financing is available for approved franchise start-ups

20. SBA Products at a Glance • SBA 7(a) • Used for business acquisitions, expansions or franchise loan requests • 51% owner/user occupied commercial real estate or improvements • Equipment, inventory or working capital • Injection typically between 15 – 20% • 25% injection minimum for start-ups • Commercial Real Estate between 10 – 20% • Loan amounts up to $5 million • Maturity depends on use of proceeds • No balloon payments • No prepayment penalty on maturities less than 15 years

21. SBA Products at a Glance SBA 504 • Used for major fixed asset financing such as commercial real estate, improvements, renovations, or equipment • Three party loan structure • 50% Lender • 40% Certified Development Company (CDC) • 10% borrower* • Rates vary based on use of proceeds • Maturities vary based on use of proceeds • Long term fixed rate and no balloon on CDC portion *Equity injection may be greater than 10% in some cases

22. SBA Products at a Glance • SBA Express • Largely used for Working Capital lines of credit • May be used for smaller term facility • Any loan amount not to exceed $350,000.00 • Express loans can be done in conjunction with SBA 7(a) • Minimal SBA paperwork

23. SBA • Documentation & Key Factors

24. Profiles of Companies Suited for SBA Financing at PNC • Profiles of companies that are typically best suited for SBA financing include: • Insufficient collateral to secure the loan on a discounted basis • Erratic earnings but are well-managed and have a track record of financial success • Growing but have a debt/worth that slightly exceeds conventional guidance but falls within SBA limits • Wish to preserve capital through lower down payments • Well capitalized but are looking to restructure their balance sheet to increase cash flow • Want or need a longer amortization beyond what conventional guidelines will allow to meet satisfactory debt service requirements • Industry and Business segments include (but are not limited to): • Franchises with a well-established track record and/or appearing on the Franchise approved list • Manufacturers with knowledgeable and successful management that are reasonably well-capitalized • Professionals who are established with several years of operations and solid management

25. Eligibility Considerations for SBA at PNC • Eligibility Guidelines at PNC for SBA loans • No bankruptcy in the last 10 years • Commercial real estate requires 51% of the building to be occupied by owner (60% if new construction) • The business operates for profit • The business is located in the PNC footprint • Customer has direct industry experience • Business has been in operation for at least two years (less than two qualifies as a start-up) • Company is not in a high risk industry • Customer can show they have 15-20% in liquid assets • Personal Credit Score • Maximum loan amount • SBA Express: $350,000.00 • SBA 7(a): $5 million • SBA 504: No max $ for total project ($5.5MM max for 40% CDC portion)

26. SBA Ineligible Use of Proceeds • There are certain restrictions on SBA loans, which cannot be used for these purposes: • To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing • To effect a partial change of business ownership or a change that will not benefit the business • To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business’s continuance until the loan supported by SBA is disbursed • To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow • For a non-sound business purpose

27. Credit Considerations for SBA at PNC • General credit considerations at PNC includes: • Customer must show sufficient cash flow to repay the proposed debt • Target is 1.25x but SBA programs can mitigate down to 1.0x • Startups are considered on a select basis • Business acquisitions are entertained and are subject to a sensitivity analysis that reduces current income by ~15%, resulting in a higher DSC requirement • Financing for expansions should support a reasonable and well-defined purpose (e.g. purchase equipment, increase in permanent working capital, etc.) • Construction is acceptable with proper controls in place

28. SBA Loan Package To speed up the loan approval process, the following are typical items that need to be collected from the borrower for loan submission: • 2 years of Federal Personal Tax Returns, including all schedules on all owners greater than 20% • Jointly prepared and signed PNCPersonal Financial Statement by all owners greater than 20% • 3 years of Federal Business Tax Returns, including all schedules (if business acquisition, seller must provide) • Balance Sheet and Income Statement not older than 90 days (if business acquisition, seller must provide) • Accounts Receivable and AccountsPayable aging as of same date as Balance Sheet and Income Statement (if business acquisition, seller must provide) Note: Other documentation may be requested by the business development officer or underwriter.

29. Resources:SCORE – www.akron.score.org • Cash Flow!?

30. Resources:SCORE – www.akron.score.org

31. Resources:SCORE – www.akron.score.org • Akron SCORE Chapter 81 Facts • HQ : 175 S. Main St. Akron, OH 44308 • Founded: 1965 • Org. Type: Nonprofit association that is a resource partner with the U.S. Small Business Administration. Nationally, SCORE has more than 370 chapters with approx. 13,200 members. • Purpose: Dedicated to entrepreneur education and the formation, growth and success of small business through counseling and mentoring. • Services: Conducts workshops, face-to-face counseling and special outreach programs throughout it’s four-county service are (All services are free). • No. of Counselors: 70 veteran area executives and small business owners who donate their time and expertise to assist new and existing businesses. • Types of Workshops: Business Basics, Business Plan, Marketing, Customer Service, Financial Management, QuickBooks, Not for Profit and Resume Preparation, Simple Steps for Starting Your Business (five sessions).

32. Questions?

33. Thank You! • Jon Novak PNC Business Banking Officer: • 330-375-8026 • Jon.Novak@PNC.com Thank you for your time! If you have any questions after leaving tonight please do not hesitate to contact Jon or Lisa. • Lisa Rucker PNC VP SBA Business Development Officer: • 216-222-3435 • Lisa.Rucker@PNC.com