economic development finance
DESCRIPTION
TRANSCRIPT
Wisconsin Basic Economic Development Course
Economic Development Finance
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2
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Presenters:Presenters:
Moderator: Marcia Theusch, CEcD, MEDC
Panelists:
- Marianne Dickson, Wisconsin Women’s
Business Initiative Corporation
- Dana Hoffmann, Great WI Credit Union
- Deb Clements, Dept. of Commerce
- Steve Kohl, WI Business Development
- George Krueger, Platteville Industrial Devt.
- Joe Kremer, WI Angel Network
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3
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Access to CapitalAccess to Capital
Debt Financing:
- From Banks, Credit Unions, Savings and loans
- Mortgages, term notes, and lines of credit
- Credit, collateral and cash flow
- Equity Financing:
- From founder, friends and family
- Angel Investors and Venture Investors
- Rate of return on investment
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4
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
ED FinancingED Financing
Economic Development Financing -“GAP” financing:
• Bridges gaps in private sector market.
• Does not supplant the private lender/financing.
• Leverages private investment.
Public Financing Goals:
• Mitigate risk of bank
• Lower cost of borrowing for customer.
• Create jobs and tax base for community.
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5
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Case Study 1: Studio 305Case Study 1: Studio 305
• Early stage company, ‘graduating’ from incubator
office to leased office.
• Type of business: graphics design,
marketing/promotional items.
• Ownership: female/minority.
• Three years in business, 2.5 staff
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Studio 305 Financing Studio 305 Financing Financing NeedsFinancing Needs
• Office Furniture, printer, computer, phone, internet access, new stationary, business cards, lease down payment, with some working capital reserves.
• She also has 10,000 in business credit card debt that she would like refinanced.
Total: $60,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
WWBIC Microloan
Owner Equity
TOTAL
FFE & Equipment
36,000
4,000
40,000
Working Capital
9,000
1,000
10,000
Refinance Credit Card Debt
9000
1,000
10,000
Total $54,000 $6,000 $60,000
Studio 305 – Studio 305 – Financing OptionsFinancing Options
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8
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Studio 305 – Discussion Studio 305 – Discussion QuestionsQuestions
• WWBIC Term and Amortization?
• WWBIC Collateral requirements?
• Is owner equity required?
• Could a bank do all or part of this deal? Use SBA??
• Would local ED programs be available?? Commerce??
• Is credit score considered? Other fact credit factors?
• Familiar with incubator concept??
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9
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Case Study 2: KemKleen Case Study 2: KemKleen
• An existing company (7 yrs old) with new process for
chemically cleaning equipment in a variety of industrial
settings. (Process meets new EPA requirements).
• Two customers have beta-tested the process and are
pleased with the results.
• Funding is needed for mfg machine, inventory, working
capital, sales and marketing.
• Ten new jobs with expansion.
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Kemkleen Financing NeedsKemkleen Financing Needs
Equipment $300,000
Sales and marketing 150,000
Working capital, inventory 300,000
Total: $750,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
KemKleen Financing OptionsKemKleen Financing Options
Bank Bank/Line
of Credit
Dept. of
Commerce
Customers Owner
Equity
Equipment 275,000 25,000
Working
Capital
150,000 50,000
Working
Capital
100,000
Sales &
Marketing
150,000
Total 275,000 150,000 100,000 150,000 75,000 750,000
37% 20% 13% 20% `10%
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12
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Kemkleen - Discussion QuestionsKemkleen - Discussion Questions
• Where is the gap??
• Who finances working capital??
• Isn’t sales and marketing working capital?
• Bank terms and collateral requirements?
• Commerce terms and collateral requirements?
• Role of customers/investors: expect return? Subordinate?
• Are the customers angel investors ?
• What if customers are not willing to invest?
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13
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Case Study 3 – Wisconsin Case Study 3 – Wisconsin Manufacturing, IncManufacturing, Inc. .
• An established manufacturer needs to
expand production of new product line.
• Expanding building with 18,000 square feet.
• Adding additional equipment.
• Twenty new jobs projected.
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Wisconsin Manufacturing, Inc. -- Wisconsin Manufacturing, Inc. --
Financing Needs Financing Needs
• Building Renovations $1,000,000
• Equipment 500,000
• Term Working Capital 250,000
Total $1,750,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Wisconsin Manufacturing Inc. -- Wisconsin Manufacturing Inc. -- Financing OptionsFinancing Options
Bank Local
RLF
Bank
SBA 7A
Owner
Equity
Total
Building
Renovation900,000 100,000 1,000,000
Equipment 450,000 50,000 500,000
Term
Working
Capital
225,000 25,000 250,000
Total 900,000 450,000 225,000 175,000 1,750,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Wisconsin Manufacturing, Inc. --Wisconsin Manufacturing, Inc. --Discussion QuestionsDiscussion Questions
• Where’s the “gap”?
• Is building expansion reasonable cost?
• RLF terms and collateral?
• Role for local ED organization?
• What is ‘term’ working capital vs. line of credit?
• Owner equity – 10%
• SBA Role?
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Case Study – Day Care Case Study – Day Care
Startup Daycare:
• Need in the community: 546 kids of day care age, 56 certified day care slots.
• Existing day care is willing to operate third facility
• Decide to build new building and lease to operator
• Financing needs:
• Construction $300,000
• Furniture, equipment 25,000
• Working Capital 25,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Break Break
Group discussion on case study
—day care
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Day Care Financing Options—Day Care Financing Options—Small Group Responses Small Group Responses
Construction
FFE
Working
capital
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Day Care Financing—The rest Day Care Financing—The rest of the story of the story
• Day care was non profit.
• Extensive market research was completed.
• SWCAP built the facility and leased to an experienced
operator. (Lease covered mortgage payment)
• The local EDC provided 20% of financing.
• Forward Community Investment (FCI) provided 80% of
financing.
• Day care provided furniture and equipment.
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
SBA 504 ProgramSBA 504 Program
•Fixed asset financing
•In partnership with a commercial lender
•SBA 504 subordinate portion:
• Usually 30% to 40% of project
• Funded with Long Term Debenture
• Competitive Fixed Rate
•Public Policy:
• Creating / Retaining Jobs
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
SBA 504 ProgramSBA 504 Program
Borrower10%-20% down payment
project cost cash/land equity
Borrower10%-20% down payment
project cost cash/land equity
WBD504 is up to 40%
debenture 2nd lien ten or twenty year fixed rate
WBD504 is up to 40%
debenture 2nd lien ten or twenty year fixed rate
SBAGuarantees 504
debenture collects ½% from bank
on 1st lien/one time
SBAGuarantees 504
debenture collects ½% from bank
on 1st lien/one time
BankUp to 50% 1st lien,
Not SBA guaranteed
BankUp to 50% 1st lien,
Not SBA guaranteed
504504
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
• Competitive long term fixed rate
• Low down payment
• Conserve working capital
• Position the business to:
• Weather the storm in an economic slowdown
• Respond to the cash flow demand of growth
SBA 504 AdvantagesSBA 504 Advantages
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
SBA 504 Case Study SBA 504 Case Study
• An established chiropractor is looking to build a new office in the same market area.
• Project includes the purchase of land, the construction of the new facility and the purchase and installation of equipment.
• Project Financing Needs:
• Land $ 100,000
• Construction $ 800,000
• Equipment $ 300,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
SBA 504 Case Study-SBA 504 Case Study-Financing OptionsFinancing Options
Uses of Funds $ Sources of
funds
$ %
Land 100,000 Bank 600,000 50%
Construction 800,000 SBA504/WBD 480,000 40%
Equipment 300,000
Borrower’s
Equity 120,000 10%
Total 1,200,000 1,200,000
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
SBA 504 – SBA 504 – Discussion QuestionsDiscussion Questions
• All one project??
• Bank term and collateral?
• SBA 504 term and collateral?
• SBA fees?
• Best projects for SBA 504?
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Other Financing ResourcesOther Financing Resources
• Community Reinvestment Fund (WBD)
• New Markets Tax Credits --2008 Allocatees:
• WI Community Devt./Legacy Fund ($100mm)
• WI Business Growth Funds (WBD) ($30mm)
• MEDC ($50mm)
• Johnson Bank ($40mm)
• See: www.cdfifund.gov
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Equity Investing – BootstrappingEquity Investing – Bootstrapping
• Funds from you, friends and family
• Savings, home equity, credit cards
• Lease where possible
• Sell, sell, sell
• Postpone paying yourself—keep your day-job
• See: www.bootstrapit.com
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Equity Financing - AngelsEquity Financing - Angels
• Average investment is $50,000-$1million
• Early stage businesses with a basic concept and business strategy are most eligible
• High net-worth individuals investing separately or as a group
• Eligible for tax credits if apply to Commerce and are certified.
• See: Wisconsin Angel Network
www.wisconsinangelnetwork.com
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Equity Financing – Equity Financing –
VentureVenture Capital Capital
• Average investment $2-8 Million
• Less than 1% of all startups are VC funded
• Typically a managed fund makes the investment
• Seek a rate of return averaging 20:1
• VC’s will have representation on Board and
ownership in company
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Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Email contactsEmail contacts: :
Marcia Theusch: [email protected]
Marianne Dickson [email protected]
Dana Hoffmann [email protected]
Deb Clements [email protected]
Steve Kohl [email protected]
George Krueger [email protected]
Joe Kremer [email protected]
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32
Wisconsin Basic
Economic Development
Course
Madison, WI
Nov 10-13,2008
Welcome
to the world of
Economic Development
Finance!!