Scott E. Baker Senior Vice President First Citizens Bank (919) 716-4164

1. Scott E. BakerSenior Vice PresidentFirst Citizens Bank(919) 716-4164 • Purpose of Today • Analyzing the opportunity (make sure it is an opportunity) • Doing your homework prior to obtaining the financing • 3. Meeting the bank (primary lender) prepared

2. Questions to Consider Before Meeting With a Lender/Investor • Any lender or investor you approach for funding will evaluate your strengths and weakness as the owner or manager of your business. Below are several questions that lenders or investors may ask you when evaluating your ability to run your business. Consider your answers carefully; the answers could be deal makers -- or deal breakers. 1) How well do you get along with different personalities? • Business owners must develop a working relationship with a variety of people including lawyers, accountants, bankers and clients. Can you deal with a demanding client or an unreliable vendor in the best interest of your business? 2) Do you have the stamina to run a business? • To run your own business is a lot of work. Can you face twelve-hour workdays, six or seven days a week? You must have physical and emotional perseverance. 3) How good are you at making a decision? • Often you are required to make quick decisions under pressure and independently.

3. Questions to Consider Before Meeting With a Lender/Investor 4) How well do you plan and organize? • Organization of finances, inventory, schedules, production, etc. can help avoid potential pitfalls. Many business failures could have been avoided through better planning and organization. 5) Is your drive strong enough to maintain your motives? • A leader must have a strong drive to avoid feeling burned out by carrying all responsibilities on their own shoulders. 6) Will your spouse or mate support you? • The first few years of business start-up can be hard on your family. The strain of a non-supportive spouse may be hard to balance against the demands of starting or expanding business. There is usually some financial difficulty for a few months or years until a business becomes profitable. You and your spouse must be ready to adjust to a lower standard of living and understand that you may be putting your family assets at risk on a daily basis.

4. Seven Important Questions the Lender Will Ask • How much money do you want? • Decide how much money you need to borrow for a specific purpose - before you go to the bank. This will take some careful thought and research into exactly what you hope to buy with the money (equipment, personnel, another firm) and how much it will cost. It's best to be as precise as possible. For example, if you want to set up an Internet business and you need a web server, tell the bank the specifications and brand of the server, not just that you want "a server." Your banker will double check your figures and prices, so be prepared to explain your choices and your overall plan. 2) What are you going to do with the money? • As far as the bank is concerned, there are only four ways to spend cash from a loan: 1)You can buy new assets; 2) Pay off old debts; 3) Buy out a partner or associate; or 4) Pay for expenses (equipment and the like) needed to generate new revenue. Avoid saying that you are "just going to use the money for working capital." Although this is often listed as a choice on forms and in Small Business Administration documents, many bankers consider this answer a sign that you don't have a well thought-out plan.

5. Seven Important Questions the Lender Will Ask 3) Why is this loan good for your business? • It may seem like a very obvious question, but lenders have a limited amount of money available for small businesses. The lender wants to give this money to support businesses that have well thought-out plans and that represent a low risk for default. Be prepared to discuss in detail what the money will do for you -- not just what you plan to spend it on, but what spending the money will mean for you from a competitive and growth standpoint. Don't forget to explain why your business represents a good risk. 4) Why do you need the bank's money to implement your plan? • The thinly veiled question here is, "Why don't you have enough money of your own to do this?" In this case, the lender is trying to find out whether an internal management problem is to blame for your financial need, or whether there are other reasons (such as to support rapid growth). If you have prepared a careful answer to question #3, this question will be easy to answer. Don't get flustered; emphasize the benefits of the loan to your company's competitive position and growth plans.

6. Seven Important Questions the Lender Will Ask 5) When will you pay the loan back? • When the lender asks this question, he or she is expecting to see a cash flow projection that clearly indicates that the business will bring in more money than it spends so that the loan can be repaid in a timely fashion. This statement will be most effective if you have a positive cash flow in the months or years prior to applying for the loan. To demonstrate this, you'll want to provide historical data as well as future projections. 6) How will you repay the loan? • When you answer this question, don't be vague. Use your financial projections and your business plan to convince the banker of the long-term profitability of your business. Be prepared to supply a copy of your business plan, complete with financial projections.

7. Seven Important Questions the Lender Will Ask 7) What happens if your plans don't work out or your projections are off? • This is why many banks require collateral and personal guarantees (putting up personal assets to guarantee a loan). In answering this question, you'll want to assure the banker of the value of your collateral in case your projections are not correct. While entrepreneurs are generally positive about their chances of success, bear in mind that bankers are inevitably somewhat skeptical. • A Note About Collateral: Real estate (owner-occupied or commercial) that is used as collateral must be appraised by a third-party appraiser for loans of $50,000 or more. Other types of collateral include marketable securities, equipment, vehicles, boats, stocks, bonds, and similar items. Without sufficient collateral, a bank will often require the owner to offer a personal guarantee - meaning that the owner will tie his or her personal assets to the business for the purposes of the loan. The loan officer does this because he or she figures that while you might sacrifice your business in bankruptcy, you will think twice before you give up your personal assets.

8. Before You Go to the Bank: Check Your Credit Rating • Before applying for any loan, it is a good idea to check your personal and/or business credit history to make sure there are no unfavorable items on the report. This is essential, because running a credit check is the first thing that a loan officer will do after receiving your loan application. If there is anything negative on your credit report, it could make it more difficult for you to get a loan. There are three major credit bureaus that most banks get reports from. These are: TRW Consumer Credit Service 12606 Greenville Ave. P.O. Box 749018 Dallas, Texas 75374 (800) 422-4879 Trans Union Consumer Relations 1561 E. Orange Thorpe Ave. Fullerton, CA 9263 or 760 Sproul Rd. P.O. Box 403 Springfield, CA 19064-0403 (216) 779-7200 (800) 851-2674

9. Before You Go to the Bank: Check Your Credit Rating Equifax Credit Information Services P.O. Box 740256 Atlanta, GA 30374 (800) 879-4094 (800) 685-1111 • Each of these credit bureaus is required by the Federal Credit Reporting Act (FCRA) to tell you what is in your file - and to allow you to correct any errors on your record. You are entitled to one free credit report each year - if you ask for more, you may have to pay a fee. It's a good idea to order a report from each of the major credit bureaus. Mistakes could appear on one report and not another, and you cannot be sure from which vendor a bank will order a report. How to Remove Unfavorable Items from Your Record • When you receive the credit report, look for possible errors in the file. Negative items that are not true or even partly untrue should be disputed. You also should dispute any vague, outdated, or misleading items.

10. Before You Go to the Bank: Check Your Credit Rating • To dispute any item, send a letter to the credit bureau. Some bureaus will accept phone calls about disputes. Whether you choose a letter or a phone call, be organized and level-headed when you assert your claim. It is a good idea to check your records for evidence, such as canceled checks or letters, that can be used to prove a mistake was made. Be sure you have all of your facts straight and can present them in a precise, logical, brief fashion. Also, be prepared to send or fax a copy of your evidence. • By law, credit bureaus must investigate any disputed information and either issue a response to you or correct the problem within 30 days. If the source of the original, negative data does not respond to the credit bureau within 30 days, the bureau will remove the item from your report. • If your report was corrected, you may ask the credit bureau to send corrected copies to anyone that received a copy of your report within the last six months. • If mistakes were not made and there are negative items on the report, you have the option to insert a consumer statement explaining any item(s) on the report. The statement must be 100 words or fewer.

11. Before You Go to the Bank: Check Your Credit Rating • If you do have a less than sterling credit rating, it is a good idea to work on improving your rating. Consider taking out a small loan that is tied to your savings account. Be careful to make every payment ahead of the due date, and pay off the loan before the maturity date. This will show the banker that you can fulfill your obligations, and will increase his or her trust in you. This will make it easier to qualify for other, larger loans later. • IMPORTANT NOTE: Be extremely wary of credit repair agencies. If you consider using one, be sure to investigate it thoroughly in advance by calling the Consumer Fraud Agency of your state (and the state the agency is in, if it is in a different state), as well as the Better Business Bureau in the city the firm is located in. Many of these firms do little to repair your credit.

12. Checklist of Documents You'll Need to Apply for a Loan ALL LOANS • Most current financial statement for the business. (Many lenders have their own form that they'll want you to use to present this information. Ask the lender for a copy of this form and use that to display your financial statement.) • Income tax returns for the last two (2) years for the business. (Include reasonable supporting schedules, such as depreciation schedules or other lists of tangible property used in the business.) • Other business records, such as aged accounts receivable and accounts payable reports, lists of property owned by the business, lists of inventories, etc. • Personal, current financial statement. (Many lenders have their own form that they'll want you to use. Ask the lender for a copy of this form and use that to display your financial statement.)

13. Checklist of Documents You'll Need to Apply for a Loan ALL LOANS • Personal income tax returns for the past two years. (Unless your company has a long operating history and substantial assets, you should expect the lender to require the individual guarantee of the principal owners of the business. Generally, lenders will want to see two years' worth of income tax returns.) • Current business plan or other specific explanation of how you plan to use the loan proceeds. (It is hard to put a specific definition on this document. In most cases, you will be borrowing money for specific purposes: to start a new business; to build, buy, or upfit space; to purchase or lease vehicles; to finance inventory or for working capital. Whatever the purpose, including a detailed description of the use of proceeds is advisable.) • Resumes of the company's principal owners and managers (even if not owners). (The object here is to show that owners and managers have sufficient experience to successfully operate the business.)

14. Checklist of Documents You'll Need to Apply for a Loan ALL LOANS • Copies of any important business contracts. (Include copies of space or vehicle leases and copies of any other notes, mortgages, or security agreements including a recent statement from the lender showing the payoff.) • Depending on the size of your company, you may want to include a list of employees, their duties and salaries, including any rights or bonuses or equity promised. As a general rule, this is advisable if payroll is a significant expense for the business or if any employees have long-term (one-year or more) contracts.

15. Checklist of Documents You'll Need to Apply for a Loan SPECIAL SITUATIONS: • If you are buying a business, contracting a building, upfitting leased space, buying vehicles, etc., include a copy of the Purchase Agreement, Construction Agreement, etc. • If you are building anything, include copies of drawings of the improvements. • If you are buying commercial or residential rental property, include a rent roll showing the current rent and other charges and the status of any leases.

16. Business Plan • Business Plan • Background, education, experience of Owner • Site Selection • Strategy • Revenues • Costs/Expenses • *Projections* • Implementation

17. Six Steps You Can Take to Help Ensure the Banker Approves Your Loan 1) Build a relationship with your banker. • One of the easiest ways to dramatically increase your chances for loan approval is to build a good relationship with a banker (or two!) before you ask for a loan. Once a relationship is established, the banker can help advise you on who to contact, how to go about applying for a loan, and provide an insider's perspective on the process. In some cases, the banker may take a special interest in your application and put in a good word for you with the loan department - which helps your application stand out from the rest of the pile on the loan officer's desk. With a banker willing to vouch for your character and integrity, the loan officer may be more inclined to approve your application. 2) Choose a bank carefully. • Don't just drop into the most convenient bank to try your luck at getting a loan - do some research first. Ask business colleagues, mentors and others where they got a loan or do their corporate banking. Ask if they are pleased with the service and satisfied with the loan process. • After you get some input, call the banks that you have heard good things about and ask what types of loans are currently available. Banks sometimes change the types of loans they offer, so it pays to investigate the types of loans available before you go to the bank. You also should investigate the types of checking, savings, safe deposit, credit card, and other services the bank offers. Banks that extend a loan to you may want to gain this business as well, and being willing to sign up for these services may help get your loan approved.

18. Six Steps You Can Take to Help Ensure the Banker Approves Your Loan 3) Try to get a personal introduction or recommendation. • After you decide what bank to approach, try to find someone who is a good customer of the bank to introduce you to the banker. The introduction can be as simple as a phone call to the banker explaining that "I spoke to George Porge today and suggested he contact you about your services. He should be in today." • If possible, it is even better to have the person offer a recommendation for you. This also can be simple: "I spoke to George Porge today and suggested he contact you about your services. He's a really good guy with a great new business that I think could become a good account for you. I told him to stop by and talk to you about banking services that you offer before he signs on with another bank. He should be in today." • Having a personal introduction or recommendation alerts the bank that you are coming and allows the banker time to prepare. More importantly, having a recommendation from a good customer also gives you instant credibility and makes the banker feel more comfortable with you.

19. Six Steps You Can Take to Help Ensure the Banker Approves Your Loan 4) Dress properly every time you go to the bank. • Even though casual dress is popular in the workplace, lenders still tend to prefer more formal attire. Dress conservatively and cleanly every time you go to the bank - resist the temptation to run into the bank to drop off a form while painting your new office. Bankers will pay attention to you every time you go to talk to them, and they are looking for a serious, business-like, conservative professional to lend money to. 5) Be prepared for every meeting. • You must be calm and collected for every meeting. Do not provide all your documents at the first meeting; simply carry on a conversation by asking about the loans that they have (although you already have investigated this in advance). Interview the banker without intimidating him or her. Always look the banker in the eyes; do not look around and do not bring anything along that would distract or annoy the banker, such as children, pets, cellular phones, beepers or packages. Speak honestly and softly, and be prepared to respond to any questions that could be asked. Have a friend or coworker quiz you before you go to the bank so you can answer confidently.

20. Six Steps You Can Take to Help Ensure the Banker Approves Your Loan 6) Invite the banker to visit you at your place of business. • Suggest an appropriate time for the banker to visit your office, shop or job site to show him or her what your business is all about. This will help convince the banker that you are serious and will help build rapport. Make sure that the office, shop or job site is clean (no stacks of empty cartons, mess on the floor or food trash lying around) and that employees are dressed cleanly and neatly. Although this may seem like common-sense advice, bankers deny more loans than they approve, and most have many, many stories about inappropriate behavior or attitudes that discouraged them from approving a loan.