Sign Banking Word New Jersey Myself

Industry sign banking new jersey word myself

[Music] me [Music] [Music] is [Music] good morning everyone um and welcome to our three-part webinar series uh for restaurant recovery with this is uh hosted by score uh monmouth we are a business mentoring uh service in uh based in new jersey we offer free business mentoring to uh the local business communities today's webinar is geared towards restaurant recovery and and the impact that um covert has had during on restaurants in these times so we have a number of presenters today it's not just myself and our actual guest presenter we have a number of guests today we have chris carlson who is a long time score mentor and volunteer he is very much in tune with the financing that is available for all businesses but today it's to do with restaurants he we have babette gallagher who is from our back and that's a certified development company any of you who i get my introductions incorrect you can correct them when uh when you take the floor we have richard santori who is from belo santori mike carafa from mana manuscrim bank the vice president of commercial lending and andy glatz from p pack gladstone bank i think i got everybody so um i'm going to hand this out oh just a couple of small housekeeping things we will be taking q a throughout the presentation and throughout the discussion so if you could place your questions in the q a function box uh on zoom and not in the chat box we'll do our best to get to all the questions this is being recorded so it'll be available on us on our um youtube channel after the webinar today and i think that's it chris i'm gonna hand over to you all right and good morning everybody i'm going to see here if i can start sharing my screen with you i think that is it there we go and yes good morning welcome to scores in bilat centauri's restaurant financing series um i'm myself i'm chris carlson i am a retired ceo and entrepreneur of 25 years nowadays i do kind of what i like to do and i help small and mid-sized companies typically that are in some kind of financial trouble and then i also do a lot of volunteer work for score and today one with score to gather with richard and santori at bilat centauri is doing this three part restaurant hospitality financing series i am excited to have richard with us he is a 30-year on 30-year veteran in the restaurant hospitality industry financing area with a lot of experience knows a lot and for those of you who will attend all three it is actually certificate program so you will get a little certificate at the end i am more of a generalist numbers guy and finance type person richard is expert in the restaurant financing industries will be relying on him a lot we also have great leaders in the industry like claire said before michael carafa with manuscrimbon bank andrew glatz and berbet um gallagher uh andrew with uh p pack glassen and babette with our back and cdc so let's kind of jump in today it's more of an overview we're looking at different options of financing you may have at the restaurant or hospitality owner um we're going to do more of a deep tie deep dive into these in a subsequent seminar today is more of an overview and kind of give you a reader's digest and kind of break down a little bit of what these different programs mean so with that let's just kind of jump in keep in mind also when you listen to everything like this about financing lenders banks and sometimes it's hard to remember but banks lenders are actually in the business of wanting to make loans that's their business that's how they make money they're not here to try to turn you down they're actually to try to give you a loan so anytime you work with a bank have that in mind they actually want to help you uh so and richard you're the resident guru in this area so anytime you want to jump in just jump in feel absolutely free okay thank you chris um so we're going to start with the commercial loans and they also usually referred to as term loans or mortgages used for business purposes and typically with properties there are liens associated with this also sometimes called ucc's which means that there is a security by the bank attached to your property and typically what you end up doing is to have a separate entity buying a property they have an operating entity operating a business in that property that kind of the basis for it and michael you're probably going to jump in and i'm going to ask you a little bit more about that particular why you do that do this and what's the benefits of it sure so if if you're going to be buying a property um typically they there's two reasons you do it number one for tax purposes and number two for liability purposes when you create a real estate holding company you insulate your assets your your business that your operating business assets from any liability that may come from somebody who falls on your property and sues the real estate holding company so that would be one reason why you would want to separate the two entities have an entity that owns the real estate and an entity that's going to operate the business separately um in terms of filing a mortgage when you buy a piece of property the bank is going to file a mortgage against that piece of property that's recorded at the state and the county levels so that anytime anybody goes and runs searches they're going to see that that manuscript bank has a mortgage against the property we finance the acquisition along with that typically is an assignment of rents and leases so you may decide that you no longer want to operate your business out of the property but you're going to hold the real estate for you know for future for income purposes so what will happen is the bank files this assignment of rents and leases which says that in the event that you decide to default and not pay the bank anymore the bank can then go to your tenant and ask the tenant to pay you directly um you know additionally if you're going to be in an owner-occupied space the bank will typically ask the operating business to guarantee the loan which means in a default scenario they're going to approach the operating company to help repay the loan um in a situation like that the bank will file ucc's which basically attaches any equipment that the business has or owns that is not financed elsewhere um the bank then does have the ability to to take that back as collateral and and use that to repay the loan as well right and also what it practically means is that if you go after the loan like this happens if you go and try to do another financing for that entity that owns the real estate or in the real estate any any lender will actually be able to see that there is security on that property already that's correct uh and here also we see the current practicable rates and i think this might actually be a little bit outdated but we have seen lately that the rates are starting to inch up a little bit and also typically when you see this kind of commercial loans you see two different timelines one is the term which means that that's the time over which the the loan is actually going to be outstanding and if it's a five year term that means that in five years this loan is going to be repaid as a balloon or refinanced by the lender or this another lender or the same lender then you have the other portion usually a lot of owners get confused with this two and that's the the time over which the loan is calculated to pay be paid back and that is the payout or the amortization time so you can have a five year term on the loan but you can have a 25 year calculation of the loan so divided up to 12 months in 25 years ltv is an important term loan to value that tells the bank how much of the appraised value of the property that the bank is willing to land on the dscr the debt service coverage ratio is also one that typically the owner doesn't really understand what it means and in a very abbreviated description of that it's really says how much profit over the loan that the entity that has this loan has to have so if you pay hundred thousand dollars a year in loan payments if it's 1.2 you have to have 120 000 worth of a measure of profit and we'll go into that in subsequent seminars but that's basically what it means uh maybe michael you want to jump in a little bit more here to give some more color when you look at an applicant for commercial loans going to buy a building for example or maybe refinance the building that they're in what's the first thing you look at for that applicant the first thing that we're going to look at for the applicant is the we're going to look at the business assuming it's over occupied we're going to look at the strength of the business because the reality is that that business is paying the debt on that property so we want to see historically you know what type of revenues you've generated how your expenses trend over usually a three to four year period sometimes five um and then we want to see what your your net cash flow is in situations you know with smaller businesses we will most banks will require personal guarantees what that means is that they're gonna they're gonna take the individual who owns that business and owns that property and they're gonna sign a guarantee and they're we're gonna then use their income as as as an asset to help repay the loan so when when you look at everything you're going to look at everything as a whole so you're going to say well the owner may take all of the profits out of the business but when you add the owner back into the cash flow perspective now you're looking at a global what we call global cash flow so you're taking into account not just what the business generates but also the income that that owner is taking out of the business and using that to pay back the loan as well just to kind of touch base on a couple things you said chris in regards to turn terms and amortizations typically commercial mortgages are 20 to 25 years owner owner occupied um loan to values up to 80 so what that means you know just to make it a little simpler if you 100 if you want an 80 000 loan and you want and you get an 80 loan to value your property has to be worth 100 000 um a balloon so a typical mortgage would have a 25 20 or 25 year amortization so your payment is based on if it's 25 years 300 payments now in some some banks do balloons after five years so what that means is you're going to make 560 payments after that 60th payment that whole balance that's unpaid is going to be doing full some banks like my bank in particular mana squad what we do is a rate reset so we'll fix you your your rate for five years and then at day one of the sixth year that rate will reset to a spread over an index now that's typical mortgage on equipment financing if we're talking about a term loan per se you you're gonna have a fixed period depending on the depreciable life of that asset that you're purchasing five seven maybe ten years depending on what you're what you're buying and typically those are fixed terms and where there's no balloon there's no there's no rate reset it's a straight it's a straight payout so if it's a five year loan it's the loan is paid off in full after 60 payments and um michael we have a question for you here and that is what do banks look for when a new restaurant is looking for a loan i.e one without an operating history they're going to start a new restaurant so the the three things that that we're going to look for first are the owner's experience um that that's going to be the key because it if you're looking to to start a new venture you know what is going to what is going to give the bank some security what is what is going to help us get comfortable with with it with a new restaurant in the normal request so the first thing is going to be the experience in the industry how long have you been in the industry what aspects have you managed in a restaurant have you managed were you the restaurant general manager were you a cook were you a bartender those kinds of things that's the first thing the second thing is what kind of liquid injection you're going to put into the into it so if you're going into a space how much money they're going to put in yes how much money they have to put down on the on the um on the the acquisition on the on the new project and the third thing would be are the projections and the business plan you put together is that something that that we can wrap our heads around that we can understand and know do those numbers make sense and that's the biggest thing with that that's probably when it comes down to it is the biggest thing is what the projections look like is it is it pie in the sky are these really not attainable numbers are your table terms way too high for what you're for the space you're projecting and the market you're in is does your menu which is going to which would be a projection number and a business plan number um does that make sense for the market you're going into so there's those are those are the three key things that that we as a bank would look at for for a new restaurant okay great and on that last note there richard in a separate webinar he's going to be in deep diving into the projections and how you get to the right position for for a loan um typically for commercial loan not involving sba or any other entity what's the time frame from from typically from the start when you start the process with a bank until you close how long time does it take just you you started to chime in there did you i just wanted to add to what uh what chris was saying regarding the at the end of this at the end of towards the end of this webinar tonight well this morning we're going to go over uh the ingredients that michael's talking about on putting a loan requisition uh package together we're just going to outline the components uh we have two uh follow-up webinars the next one will be actually assembling the loan requisition package and the third one as chris said will be how to put all the pro forma statements that michael's talking about that the bank is going to be looking for to to see if this is a a viable loan so we're going to get to that toward the end of this and an outline form and into successive uh webinars right sure and then chris well i'm sorry what was your question one more time typically i'm not asking for specific just the general um general statement as to typically in in the normal typical average case how long does it take from somebody says i'm going to go and get the loan they contact you and typically how long is the process till you actually end up closing so for an existing business where we have historical financials you probably 30 to 45 days for an approval and anywhere from 45 to 60 maybe it may be 75 days to actually get to the closing table for two to three months two to three months typically um and and you know during that time frame the bank is completing it's it's underwriting um we're getting our approvals we're running our searches um you know judgment searches lean searches that that'll factor into getting to the closing table if it's a new business it you know those are those are digested a little bit slower slower um we're going to analyze those a little bit deeper especially you know being in being a new entity so those are probably going to take 45 to 60 days for an approval and probably overall 60 to 90 days so about three months to get to the closing table richard on that note what do you typically see in kind of a very general short quick answer what can borrowers do potential boards do to speed up those timelines so the question for me chris yeah yes you know the the real thing that borrowers could do to speed up is to assemble the information that's going to be required when we when we go through this loan requisition package you'll see that we like to submit a complete package with everything in it and give it to the banker so that the banker doesn't call and said you know you forgot this can you get this and that that just delays and delays if you give it to the banker all in one shot we found in our experience that you know we'll get it we'll get a yes or no within within 14 days either yes we want to do this loan or notice this is not a loan for our bank and that helps because if it's not if it's not a loan for the f rst bank we go to we in a short time frame we know we gotta we have uh look for another uh financing source right and and to piggyback off that typically when i'm looking at a loan request i'll send typically an email and i'll have bullet points i need x a b c x y and z the e the quicker you are to respond with all that information and all that information in one shot gives me an ability there's always going to be follow-up questions when you're underwriting but at least if i have the information ahead of me we're not having the back and forth before i'm asking you for the information okay let's jump over to the line of credits and credit is very short described as as that's a loan where you have a maximum amount and at any given time you can draw from zero to that amount and find help finance your business with that and typically the size and that depends on what the lender what the bank think you can muster what they can risk that you actually take out and for smaller companies typically that even that line of credit is secured by business assets so michael and this what what what are good candidates for line of credits um those those people who have the first thing that that that people tend to to confuse with a line of credit is the line of credit really is not used to buy hard assets okay it's really not used to buy equipment for the business that you're going to operate and and it's typically not that way because a standard line of credit may have a 12-month term and it's going to be at a higher interest rate then typically what your equipment financing would be so that's the first thing to understand what what a line of credit really should be used for is to support your payroll to support your inventory purchases so if you're a restaurant you know you need to buy fish for the day you know you'll use the line of credit and then as you sell that fish you pay back the line credit so it's it's a shorter term it's typically a floating higher rate um product so so when we say we're going to finance the business you want to finance your day-to-day operations not your not your hard assets not your equipment so that's the first thing the second thing that we're going to look at is we're going to look to see typically how you handle how you handle your your receivables and your payables if you have payables you know when they're stretched out why are they stretched out is it because you're you really need a line of credit you need to help turn those a little bit faster lines of credit typically are are better suited for existing operating businesses um you know to help them with their existing business now if you're talking about a startup business that's that's kind of a different that's a little bit of a different animal right there and how you look at that normally there's a there's a degree of of permanent capital financing that that's built in at the be at the onset of you know a new entity a new business to help them do that initial stock up for their for their inventory for for whatever it is that they sell we have a question here from the audience and that is that um a restaurant owner has a long experience and typically he sees that most loans that he has been able to do has been sba related how many loans do you does your bank do in the restaurant hospitality industry not backed by sba how common is that that's a little bit of a loaded question but i would say that we probably do we do acquisitions primarily um with the with the help of the sba and typically myself work very closely together um and then actually you know the three of babette and richard you know we've all worked together on on multiple multiple occasions so probably 60 to 70 of what we do is in the sba world um if you have a long-term [Music] operator who has strength behind them who has equity in the business that's somebody that we could do on a on a conventional basis without the sba involved so it's really the very strong credit risks the very strong companies end up doing without the sba the rest is really with sba yeah that yes okay um we're gonna jump to the next one this was michael korafa vice president of the commercial landing management bank thank you very much michael thank you don't jump off please i'm not going anywhere so here um we're gonna now jump into uh andis area and talk a little bit about sba express and sba 7a loans um to me personally and i think that is for a lot of people the whole sba is kind of a little bit bewildering at the same time i i yes i have had an sba loan myself a long time ago and i have a lot of friends when the last couple of years have been very successful being able to get sba loans either directly to bank or through cdc's um and what quickly richard uh your overall view here what how do you see it do you see this market heating up you're seeing that uh something going to happen here after we get out of the pandemic well the one thing i see and then i'll turn it over to andy because he he knows this more in depth than i do but the one thing that i see is that the sba the government is now making a big push to try to help small businesses uh there are there are some some very good programs out there right right now especially in this second round of this stimulus to help uh to help restaurants uh mostly in the acquisition phase you know it's really not that much in the uh in the refinancing although it can be done under on some some sba programs that we'll talk about but mostly for acquisitions the the government's offering favorable terms willing to waive fees and and to help small businesses get back on their feet after you know a year of shutdown here and i i think uh you know if the government has done something good the sba has has stepped up in this in this time frame andy um you can add your color here i have do have questions this x express loan and the 7a loans um who are these specifically for what do you see who gets these type of loans um well let's see i'd say qualified small businesses but that's that's another loaded question there i would if i could if i could just back up to rich's point there with the sba and uh to what you said earlier with the banks wanting to lend money the sba wants to lend money as well and you know especially in this challenging environment that we've we're in and we've been in for the last year the the you know the sba has rolled out a couple you know really good incentive programs to promote the bank to land and also to try to you know help out the small businesses so a little more detail on that from now until september 30th the sba is waiving the guarantee fee and that's the fees that are associated with closing the loan they'll range anywhere on the on the 7 8 program from two to three percent of the loan so that's a big savings to the borrower and that's not added to the loan that's not paid back later that's uh you know right in their closing documents the fee is waived and they're also going to make the first three payments principal and interest payments on the loan it's capped at nine thousand dollars but still that's a pretty good incentive um is it going to work for everybody you know maybe not but it it does you know the way the sba is looking at it and also the bank is to say all right those three months of payments hopefully as things continue to improve vaccines are rolled out and the economy continues to improve a little bit maybe those three months will carry through that transition period or get us into the summer when things start to really improve it's a big difference sorry andy i have seen some dates out there with or is there an expiration to these programs september 30th that's the fiscal year end for the sba that's what they're putting this as a as a stop date they may extend it but right now that's the date they're looking at so from now until september 30th was when these programs are available and that's through that's nationwide any of the uh you know the the sba lenders are can you know handle this for you so it's the nationwide program with the 7a um and it's you know it's a good program i i think you know we've been using it a lot it's a benefit to the bank you know we get an increased guarantee from the from the sba and it's also a benefit of cost-saving benefit to the borrower because you know just to take a second there you know you mentioned with the sba and why use it it's still difficult uh and you know it's hard to candy coat it but with the you know everything going on in restaurants and hospitality and hotel they've been you're struggling it's a tough industry banks wanna lend new money to customers help out our existing customers you know all banks are the same we want to try to help the people very challenging when we see financials and and the you know the marketplace and you know where things are the sba sometimes they help us overcome that hurdle they help they you know provide that guarantee they provide us the ability to you know maybe expand our credit box a little bit more yeah you know right what's that chris i i not in the restaurant industry but a couple of times here for a couple of companies i've been helping turning around uh 2020 has been a completely different year and we've been successful in saying that forget 2020 let's go back to 2019 we were successful 2021 will return to 2019 soon do you see something like that too in the restaurant sector that banks and yes we are willing to look at the world that way no absolutely and i think that's the only way you can look at it a little more challenging to do that without some you know without the assistance of uh the sba or eda or some other program out there because you know banks are still required to you know have our regulators out there and do full underwriting so that's why i think the sba is such a great program where we can look at projections and pro formas and and take that into consideration you know that you know last year was what it was but we have the prior years we have some good performers the assumptions to support it you know mike made a great point and that's always up there the the management experience you know can you know have they done this before how did they handle some other downturns in the market you know what was their capacity at the the place that they're running now you know they have the experience because you know we're bankers we're not we're not restaurant owners so we we rely on their expertise in the industry to uh to get them through it so if if to to get that across to the people on the call i'd make sure that your lender understands that and you know it sounds silly we always ask for resumes and backgrounds that's important uh you know i put as much information as you can down there to say that give that give your lender comfort that you can run this business that these projections aren't just pie in the sky you know they're that you can support them you've done it before or you know when i know it's very again challenging times but the more support and comfort that you can give your lender i think that's that's key yeah andy you know a lot of my clients when they're first-time acquisitions and i uh direct them to the sba loans they said oh look i don't want to be bothered with the sba's months and months of paperwork and it takes six months to get a loan and they and they don't realize that you their loans are really coming from the banks being guaranteed by the sba can you talk a little bit about the benefit and the advantages of working with preferred sba lenders such as your bank people gladstone right so that rich good point so as a preferred lender what the sba does is they delegate the authority to certain banks or lenders and the reason is the sba doesn't have the resources so they dedicate that authority to certain banks out there to streamline the program so as a preferred lender we don't have to have it underwritten again by the sba and what that means is that that's a time delay so usually you know mike was right you know it takes 45 60 days to get a loan done if we have to go back to the sba or bank has to go back to the sba it could be could be double that and that's where you hear some of these stories it takes you know three four five months there that's tough that's that's a long time where normally it should take that 45 to 60 days to get it done and a preferred lender is you know it's a big benefit to the borrower and andy another question from the audience here and that is and that might be both you and babette and that is that um there is a new cares act going on and there is a rumor that there are some more incentives coming in that on the landing side you know anything about that i um the one i mentioned earlier is part of it that was with the the waiving of the guarantee the increased guarantee to the bank uh a couple months of payments to new loans uh you know three months of principal interest payments you know there's there's always talk out there that you know there's going to be another you know i don't know if this would be uh ppp3 or another cares act i haven't seen it uh the challenge with that though chris is you know if you wait by the sideline sometimes it doesn't come or doesn't receive the approval and then the one that is out there now is uh exhausted and you know you're not avail it's unavailable anymore it's hard to say from the sound of it everything going on if you can muster it if you have some resources right now and your 19 was good this might be one of the best time to actually get alone and the easiest time that you've seen a long time i uh you know i agree with that i agree with that because the you know especially you know i'm talking from the sba world here with the the increased guarantees and you know the incentives out there it it's uh you know it could be a good time i hesitate a little bit you know you know your business you know uh be realist you know make sure that the projections make sense uh i would always you know mike babet we do the same thing we sensitize them when we look at him anyway to say all right that's maybe a little bit of a pie in the sky we'll we'll ratchet it down but you know be a realist with the projections because that's what we're going to do we're going to look at it and say all right if 19 was this i don't think you're going to double business i think it may improve but i don't think it's going to be doubling so you know just you realist uh you know do the best you can but now i think could be a good opportunity for people uh to get back on their feet and if i could just speak that pro forma projections you know what we've been doing with the banks during this covet is we've been that we've been uh putting in a pro formas at 100 occupancy but we've also put an additional performance at a 50 percent occupancy to show the bank that even at 50 percent there's still that one 1.2 to 1 uh debt coverage ratio available to pay the loan i mean the owner may may not make any money he may pay his health and pay his loan but the loan is able to be serviced and i think that's that's key for for a bank to look at that in in this environment right now rich yeah rich you're right on right we're going to look at the break even what do they need to make what occupancy you know we never talked about this before but you know if just suppose there's some more restrictions in place or they don't release them as quick as we think can can it support the debt based on 75 50 35 where does it fall off and that's just you know you're right we're going to look at that very important okay um so we let's jump on and we come back to i'm sure that christians are going to come in we've got to cut roll back to everybody and thank you andy and please stay on i'm sure they're going to be questions for you thank you um appreciate it and now let's jump into sba community advantage and dig a little bit deeper into that part of sba and we have the bet gala from a cdc with us here maybe but if you could start with explaining what a cdc is um do they contact you directly should they go can they go through a bank how does all that work right so thank you chris so our back as chris mentioned is a certified development company otherwise known as the cdc we can work directly with clients on requests such as a co munity advantage loan those generally will come to us maybe maybe through a bank for a client maybe the loan request just doesn't fit the bank's criteria or it might be on the smaller side of um of a loan amount and they may reach out to us to provide that financing for clients so um but essentially a community advantage loan um it's basically a 7a loan similar to what andy would provide in terms of you know the use of those funds it can be for any business purpose it can be to acquire assets um it can be you know used for you know just permanent working capital needs but the maximum loan amount on the community advantage loan is 250 000 so um the the sba sort of created this community advantage loan program um to to serve those clients that maybe you know the credit needs are just less than the banks are you know have the capacity to handle the volume so um for loan amounts up to 250 000 the sba provides a guarantee of 85 percent uh for loans up to 150 thousand and 75 percent of loans between 150 000 and 250 000 the maximum that we can do um is dependent on the collateral that is uh pledged for the loan um and again we're going to look you know at personal credit scores repayment ability use of the funds you know various things go into the underwriting decision on these loans the rates will generally float between prime plus three or prime plus four and they can be used like i said for any business purpose so um that is you know just sort of in a nutshell what the community advantage loan program is um and again borrowers can come directly to a cdc for those loans uh very often they'll come the referral will come to us through a bank um you know where whereby maybe the applicant just doesn't meet the bank's lending criteria okay so so you you pick up a little bit where the bank can't do it by themselves so then you have some more ability to serve a community that can't do directly through the bank right so our you know our credit underwriting although it's still stringent um might be a little bit um a little bit less stringent than the banks would be um so you know we encourage people maybe uh maybe that are either starting a business or um are just new you know not not all that established yet community advantage can kind of fill that um that need where um you know the banks are just not ready to lend to that company yet so this program was kind of designed to fill you know to fill that need in the market uh talk a little bit about sba 504 loans most people who are not in the lending industry like me more don't really understand the difference between like a 7a and a 504 and what they're right how it works the guarantees and who who puts in what money all that stuff right right so the spa 504 loan program um is very specific in its purpose um and that is to provide long-term fixed rate financing uh typically for um you know it's really designed for owner occupied real estate and equipment purchases or refinancing so when you think 504 you know think about um as an option to finance assets cannot be used for working capital cannot be used you know to purchase a liquor license but it can be pro used to purchase um say a restaurant business a building i'm sorry or the um the equipment that would go into the restaurant so um it's definitely a fixed asset type loan program um and it's very specific in its purpose the the design of the 504 program we're always going to be participating with a bank when you do a 504 loan you're always going to have a bank that provides the 50 first mortgage lien position loan the sba is going to participate with the bank um using a 504 loan which is a second lien position loan on the property so the 504 loan is always going to act as a credit enhancement to the bank um because the bank is always going to be in first lien position on the property and the sba 504 loan is going to provide up to 40 percent of the project cost in a second lean position i'm sorry chris in this so in five or four months sp actually puts money in they actually fund right so and this is important to understand the funding of the 504 loans um is created once a month the sba sells a government guaranteed bond they sell a 20-year bond and they sell a 25-year bond the proceeds of that banda venture are used to fund all the 504 loans in the country so the borrower um ends up with the first mortgage loan to the bank and a completely separate loan to the sba 504 so so it it's unlike the 7a loan program where the bank provides all of the financing and the sba gives the bank a guarantee on that note with a 504 loan the bank's first mortgage is a conventional first mortgage but it's it's capped at 50 typically of the project so the sba 504 loan is funded directly by the sba the bond and um and it's always in the second lean position okay um let me just real quickly the the benefits of the program to the borrower um like i said it can it can actually provide up to 90 financing so where the banks might stop it you know depending on the project they might cap their loan to values at 70 75 80 percent when you use the 504 loan um that loan to value can go up to 90 percent so it's less of a cash injection from the borrower when you use the 504 loan and the other major advantage to the program is because these loans are funded uh with the 20 or 25 year bonds the the rate on the 504 loan will never change for the 20 or 25 year term those rates right now are right around 3 and once the 504 loan funds it's a fully amortizing 20 or 25-year loan um with a fixed interest rate attached to it so you know that's that's another huge benefit to the program where when mike spoke about great adjustments on the bank's loans normally the banks will adjust their rate every five years but with a 504 loan their rate does remain fixed for the 20 or 25 year life of the loan um that's the big advantage and a lot of times the banks will use the 504 loan program um you know to mitigate their risk it's definitely a credit enhancement for the bank um and the bank can um you know sometimes just do a little bit more for that client outside of that project if they use a 504 loan to help support the financing okay great thanks appreciate that one one thing i was i was uh surprised to learn and uh there are only three cdcs community development corporations in new jersey which you are one of them right so yeah so our back happens to be the largest of the certified development companies in new jersey we can administer the community advantage loan program and the 504 loan program throughout the entire state of new jersey eastern pennsylvania and southern new york state so um and it's only through a cdc that you can get a 504 loan uh we sort of act as a conduit to the program and we're licensed by the sba to administer those loan programs one other question but with the new with the new uh stimulus program is there is there a new wrinkle and yet and the 504 loans being able to refinance what they couldn't before right so um we talked about 504 loans being used to you know to finance the purchase of real estate and equipment it can also be used to refinance real estate and equipment um the and we can also provide some cash out based on the appraised value of the property when we do a refinance there are some changes that are coming to the sva 504 refinance program whereby we should be able to refinance 7a loans that were used to purchase the commercial real estate for our client that program is yet to be rolled out so we expect that later on this year that will have that revised refinance program that will allow us to refinance existing government guaranteed debt which we're not able to do right now what what would that mean that means that somebody who needs working capital they can refinance and get some money out of the property and right so right so right now chris we are able to refinance and we've done some of these projects um actually with madison bank where the client may have equity in the real estate so we're able to go in refinance the first mortgage loan and also carve out an additional piece for eligible business expenses based on the appraised value so um it has been really useful for some clients especially over the past year where they can pull some money out of their real estate um and use it to help support their business so um so that's a very a very nice feature with our with the refinance program great thank you i think that we'll cover the other programs later and richard why don't you jump in and start talking a little bit kind of a little primer about uh the business plans and the loan requisitions chris can i can i just make one comment i just want to piggyback off of that when the bed had said that the ventures are funded once a month so just to be cl just so everybody's on the same page when you're doing a 504 with a bank the bank is going to approve you for two loans they're going to approve you for that first that first mortgage that 50 loan that second loan that the sba is going to take out the bank is going to have to do a bridge loan right so when you when you go into when you go to a bank and you approach a bank for a 504 program the bank is actually going to underwrite you for two loans the sba is going to approve you for that for that bridge loan that bridge loan is what's going to take get taken out and convert it to a 20 or 25 year permanent facility with the sba okay all right richard you want to jump in yes i'd like to thank berbet and michael and andy for joining on i've been working with them for years chris gave me a made me a little younger in his introduction he said i've been doing this for 30 years actually this is my 39th year in in this business and we've been financing or helping our clients finance uh for 39 years and uh you know what all of these all of our panelists said is very true you know there are things that that we need to know when we go into into a deal and they and they are they already spoke to those the loan the value it's very important to know you know how much you're able to borrow what makes sense for a bank you know we we put that in perspective right up front when when we work with our clients the debt coverage ratio to make sure that the business can pay the debt is is secondarily important the third one which wasn't uh mentioned yet but the credit worthiness of of the applicant is key if if you don't have good credit it's going to be very uh tough to place a place alone and the fourth one is your experience which which michael and andy both talked about and your experience is really unfolded by the lender or the investor by them going through and reading your loan requisition package right that's how they get to know you that's how they get to absorb what you know what your goals what your project is all about that's how they learn about your business that's how they see how much you know about your business how your financials projections look and and these are these are the key elements you know we talked about the different kind of financings that are out there the commercial loans the seven aid loans the 504 loans even the crowd funding all of those you need a presentation you need a package to get that loan and without that presentation without a complete presentation your chances are are are not as good as getting a loan even if you have even if you have a terrific business if you can't spell that out to a banker or to an investor you know they might pass on on your loan so this particular uh part of this webinar is i think the most important and uh for 39 years we've been doing it and to show you how far we go back we really got our first training on putting a a a a loan package together from alan turtle tab i don't know if you remember alan he started something called the money store now you remember the money store years ago was a was a very big sba sba lender and he told us right from the beginning look if you're not going to give me all the information up front i'm not even going to look at this because it's just going to be you know going back and forth and and and piecemeal and it's not going to work so over the years i'm not going to say we perfected a loan requisition package because it could never be perfected but we've refined it and we keep refining it and we keep adding to it and we're going to go over the components in an outline form today and as chris said in subsequent uh webinars we'll we'll drill down into exactly what they look like and how to put the performance together but but the first thing you need to sit down and do is put a business plan together you know a road map right what what are you looking to do why are you seeking this financing what is your concept all about right how do you plan to work through uh the next five ten years or whatever the loan you're requesting and and make sure that loan gets paid consistently in a timely manner a lot of that is is your own words you write it you sit down you edit it and you perfect it right but you want to also show visuals to a backer you want to show you know your design concept your photos or the renderings of your place what it looks like you know like a picture speaks a thousand words and if nfa if you're doing a new outdoor bar and deck or if you're putting a new room on your restaurant or if you're renovating your entire kitchen you know showing showing a a lender or an investor what that looks like really helps him get her get a better idea of what you're looking to do all right um a sample menu should be included and that may be one of the most important types of your brand you know your sample menu should include prices and those prices are the basis of your detailed cost analysis when you when you put your uh pro forma together this gives lenders right a clear understanding of your price points right it's the first uh building block to figure out your check averages it's like i said it's the basis of your financial projections and it's an added assurance to the to the lender that you know you you've done your homework the next part of that presentation is your management team right who is running this place i'll tell you one thing right now an investor or a banker does not like to see and you'll probably get a know very quickly is absentee management if you think that you're going to uh own a restaurant and not work there and get a loan your chances are are slim and none right the the banker or the investor is going to want to see a hands-on operator right so you need to put an overview of yourself your resume what you've done what you've done this far how established you've become demonstrating in your work experience and how you you know acquired all this experience to run a successful restaurant even if you've never owned a restaurant before like mike said if you've been a manager or a bar manager or a chef but you you know the industry and you're looking for your first crack at all in your own place that is very important right your experience level and also your team if you are a a restaurant owner who is your chef who is your general manager who is going to to run your weight staff all this should be laid out in the full deck to to the as part of your requisition package it's always important to talk a little bit about your service right you know your service is how your restaurant will will operate are you going to do takeout are you going to do curbside these are big now outdoor seating you know before the covet restaurants really pass past on those they say come on in my restaurant sit at my bar sit at my table but now they've seen that there are other profit centers right curbside and takeout helped a lot of restaurants get through through this clover to this port outdoor has become gr has become big they know they see it in the in the fair weather months and we only have a few of them here in the northeast but there is there is money to be made outside so you you want to you want to illustrate to that to the lender what kind of what kind of marketing and publicity are you going to do right the restaurant landscape is very competitive right you have you have one just about on every corner right or if you drive down a highway you got one at every uh three or four properties so discuss your pre and post opening marketing plan show the lenders and investors how you plan to gain traction and how you want to keep that momentum going once you get that traction talk about your target market who's going to eat at your restaurant who are going to be your customers how old are they how young are they what's their average income where are they coming from are they walking to your restaurant are they driving if they're driving do you have parking for them all of these things are important to uh to include in in your in your package you know in the market at the target market also includes your location talk about the city the area the demographics of where you are give them a little overview of the area you might even want to show the competition in the area and and to show the lenders you know these are my main competitors and these this is why i think our concept and our operation you know we'll be able to chip away at some of their business because we're we're doing things they're not or we can do things better than they're doing another key ingredient i can't extract express this uh uh more importantly who are the specialists and the consultants that you're working with you need to have a good attorney right especially if you're gonna deal with banks and bank financing and sba financing believe me there is a mountain of paperwork that needs to be processed processed on any one of these loans you don't have the time to do it nor do you have the expertise i don't have the time to do it you need an attorney that has a has an office that's done these right they can go through this paperwork that can do the searches that could could uh you know expedite the the uh the uh closing documents for the banks if you don't have an attorney that's familiar with real estate transactions and in most cases liquor licenses as well what you're doing is you're paying for his education and you could be jeopardizing his loan so the attorney and the accountant that you choose or work with are very important in in getting your and getting your financing the accountant is is going to have to have ready for you all the necessary tax returns and financial statements profit and loss balance sheets that the bank is going to request from you at the time right if you ha if you're redoing your restaurant or renovating or gutting and opening up a new one who's your architect who's your designer who's your contractor right all these things should be you know a paragraph about each and you know maybe some photos about the work they have done within there very important for a bank to know that you're surrounded by uh good uh good professionals the business structure we touched about a little bit before i'm not gonna go into that but you know you should let the bank know if you're if you're incorporated if you're a partnership if you're a limited liability company uh those are those are things that will have to be spelled out and usually as as chris pointed out in the beginning you're going to have an entity that buys the real estate you're going to have an entity that owns the liquor license and operates the the business there's going to be a lease between the two from the operating to the real estate company and the bank is going to want to see that lease is is at least uh the rent payments in that lease or at least the amount to cover the mortgage in the taxes etc all right and the very last part of the this uh this uh package is the pro forma statements and you heard all the all the backers you know talk about it it's a it's it's what they look at in the approval process right and and they're really two core reasons they look at it one is to ensure that you can make the debt service based on the cash flow uh that's available but the second one's even more important to ensure that you understand your business and your industry as andy said if you if you if you give a bank some pie in the sky projections you know they're going to look at them you know with a with a uh with a blank stare all right they they've seen enough of these that they know you know what what a restaurant or a bar or a cating facility uh you know can generate and what what their average gross profit is and what their expenses should be to know that if they're way out of line you know they're going to put that loan to the side uh and and really not give it a hard look so the pro forma statements that are typically provided are several a projection of the income and expense for the first year and as i and i said before now in this covet environment it's not only based on 100 percent indoor occupancy it needs to be based on on maybe 50 occupancy we're at 35 right now uh 50 occupancy is a reasonable number because there are other elements that we spoke about the curbside to take out the outdoor that that even if we still are at 35 you you would average out 50 percent or better a 12-month operating forecast break that year down into months and show what the cash flow is for each and every month a five or ten year projection of your income expense a break even analysis that break even analysis shows an investor or a bank exactly the amount of gross sales you need to do based on your cost of goods and your expenses to show that you can pay the debt you got zero left over but everything's paid your expenses your cost of goods and the and the uh and the uh and the mortgage or the debt service the source and use of funds you're requesting a certain amount of money from the bank what are you gonna do with that money right where are you gonna where are you to use it how is it going to be utilized right that's that's an important if you're going to do construction you're going to need a breakdown of an estimate of what your improvements are going to be another one that's not listed here is is a is a add back analysis for restaurants or in the hospitality industry and you're tuning into this you know that uh that uh every every single nickel isn't really displayed on on a formal document if i can just say that correctly and but you can show a bank based on your tax return using an ad back analysis that there's plenty cash available to pay the debt right and that and that's a that's an important part of of your presentation the bank's always going to look for the collateral right they're going to want a mortgage on on your first mortgage on your real estate in the case of the 504 they're going to want a first and second mortgage they're going to want to first a pledge security interest and all the furniture fixtures and equipment they're going to want to pledge of the stock or the membership units in the uh entity that holds the liquor license they're always going to want a personal guarantee from the borrower and if your collateral is not sufficient in your asset itself they may look for outside collateral such as a residence or another property that's that's owned you're going to get tied up pretty good on a loan they're going to the bank's going to make sure that they're going to get paid one way or the other and you you got to know that going into it if you if you're going to go into a a loan and say look i'm not going to sign personally then you know i'm going to tell you you're not going to get the you're not going to get the loan so personally they're going to want to see your resume they're going to want to see your credit you're going to look at your personal financial statement and at least three years uh personal tax returns if if you own other businesses and you're and you're working with the sba you're also going to have to present corporate returns on those other other businesses that that you own right so it's an in-depth package i mean it soup the nuts from the business plan all the way through through a hefty set of financials everything has to be put together in a neat and tidy binder and in the old days we used to bind them up physically and deliver them to the bank but now with dropbox and banks have their own system you know we deliver them electronically uh to them and it's and it saves a lot of time and with all the and with all the bankers that we're working with you know madison uh ppac gladstone and and uh babette and all back they are they're extremely efficient they are extremely responsive uh they're probably some of the best in the business from from my uh from my experience and uh you know they're going to give you a fair shake they're going to give you a fair shake they want to do the loan like chris says that's how they make their money but they want they want the information precise compiled accurately and presented at one time yeah um richard is gonna leave it off and thank to that for many business owners this seems like an overwhelming process but i would also say if you use somebody like richard who has done it many times they know richard knows exactly where to you should go to get this information that you need so that you can get as fast as you can they would know where in your financials to get the information where to look tell you how to get it fast you can't do this alone you're gonna need help and the other comment to that is that this is not just for the bank typically when you do this this is a roadmap for how you see yourself doing a successful business that's one of the keys that you have when i do turnarounds this is one of the things you do first things you do this is how we're going to do it and then you got to stick to it as much as you can of course okay um we're running a little bit over and maybe we should kick it back here to um to claire to do the wrap up and i personally thank everybody i think it was a great webinar and i'm looking forward to see you at the different aspects of this in the future and thanks to everybody thank you so much chris maybe you could just uh stop sharing your screen we'll do that yes i can't hold that task talk can do that um so thank you everybody for joining i hope you found it valuable and insightful and thank you so so much to all the presenters here it was really it was great uh we have our next um next uh webinar on this series on march 25th it's thursday march 25th at the same time if anybody had problems logging in um or if anybody had knows of people who may have had problems logging in i know there was a little bit of confusion with uh with how our system works and how it sends out the invites so please um let everybody know that this is available on our youtube channel monmouth score and we'll send that and i'll actually what i'll do after this is send a link to the recording when it's posted to everybody who had registered just so that they can see it um again thank you very very much uh and rick yes the the replay will be available on our youtube channel i just saw you posted that question so yes it will um and we'll also probably try and put it onto our facebook page as well uh share the link to the youtube channel on our facebook page um again um just about score we are a uh a free mentoring service and we offer free webinars to uh the local business communities we are a nationwide entity uh sponsored and powered by the sba and sba funding but we are all run by volunteers uh in each of our chapters so if anybody you know is looking for a mentor or looking for webinars please check out our website at monmouth.score.org or our facebook page because that's where you'll find all the information um again thank you so so much to the presenters uh we really appreciate your time it's uh very very valuable information especially for the struggling restaurant industry at the moment so um we appreciate your support and with that uh i will sign off and say thank you for attending and we will see you on the next webinar thanks everybody have a good day thank you thanks everybody thank you all thank you