The “Credit Crisis” What Should a Borrower Expect in Today’s Debt Market?

1. The “Credit Crisis” What Should a Borrower Expect in Today’s Debt Market? CEBI – Spring Summit 2008 Mike Flynn Member FDIC

2. What’s Happening? • Record Real Estate Foreclosures • Banks experience liquidity problems • Federal Reserve Intervening • Investors are panicking Member FDIC

3. Why is this Happening? • Adjustable Rate Mortgages adjusted upward • Sub Prime Borrowers can’t handle higher mortgage payments • Housing values are dropping • Housing starts have hit record lows • Supply of homes exceed demand • Securitization Market is Pushing Back Member FDIC

4. Why did this happen? • Loans to Sub Prime Borrowers increased to a record $600 billion • Basic underwriting standards were ignored • MBS and CDO were purchased by the billions much riskier than was understood • Major banks and investment banks have experienced record losses • As a result Housing markets tumbled Member FDIC

5. Effect on Credit Industry • Consumers are not willing to buy homes • Lenders are obligated to improve their due diligence • Lenders have tightened their lending standards even to traditionally strong borrowers • Investors are not willing to take the risk of purchasing securities which are exposed to mortgages • Fed has dropped short term interest rates Member FDIC

6. What should borrowers expect in 2008?  • Underwriting process could take longer • Credit requirements may seem more stringent • Terms and conditions may seem more stringent • Competition for your business may seem less Member FDIC

7. How to survive the crunch? • Be honest with yourself! If there is a problem, don’t keep putting it off. It won’t take care of itself • Find help in a turn-around expert. Ask for referrals from attorneys and accountants. The good ones pay for themselves • If you feel you can handle this on your own: • Increase your cash position • Stay on top your accounts receivable, start calling early and often • Make the most of your accounts payable – stretch it as far as you can without hurting your relationships • Make sure your inventory levels are rational -- eliminate the fluff Member FDIC

8. How to survive the crunch? • Reduce your more expensive interest rate debt first • Reduce your fixed expenses, outsource where you can • Don’t forget about friends and family financing • Start your banking search earlier • Let time take care of this situation • Don’t panic! Member FDIC

9. What are the banks looking for? • Some banks are just not lending at the moment because of their own business issues • Be right up front with the banker to quickly determine if they are interested in new business • If after 3 banks say “no”, consider finance companies, asset-based lenders and accounts receivable factors • Banks are looking for tighter structures • Smaller advance rates on collateral • Strong cash flow coverage ratios • Shorter maturities • More equity • Stronger profits Member FDIC

10. Underwriting Criteria • Cash flow • Collateral • Conditions • Capacity • Character Member FDIC

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14. If you have any questions: Mike Flynn American Chartered Bank mflynn@americanchartered.com Cell: 630-302-3729 Member FDIC