Welcome! Moderator: Jeff Bevis CFE, Co-Founder & CEO, FirstLight HomeCare Presenter: Chris Parker, Lieutenant Colonel US Air Force Ret Presenter: Candice Caruso, President Pango Financial Presenter: Kale Gaston, Senior Vice President, Head of SBA Lending

For Veterans Considering a Franchise  Franchising: Is this “marriage” for you?  Own boss, responsibility (it’s like having kids … always on your mind), employees  How do you select among 1000’s of franchises?  Start Early (2-3 yrs prior to separation/retirement). Get help. Eliminate non-players/sectors.  Honest self assessment. Match strengths/experience vs requirements. Interest? Excitement?

For Veterans Considering a Franchise  Compatibility. Do priorities match up? Visit multiple sites. Talk to owners/employees. “Would you do it again?” “What’s the hardest/worst part?”  Consider: Corporate Support, Training, Franchise History, Lawsuits, Performance, Failure %, Growth, Awards, Royalties/Fees, Affordability, Competitors, Simple vs Complex Business Plan, Structured vs Unstructured, employee profile, etc.  Try to verify what corporate is telling you

For Veterans Considering a Franchise Don’t rush in. Take as much time as you need. Am I willing to make this commitment? Once you sign … it’s too late to have second thoughts, and things start happening very quickly. Workload: Triple what you think it will be!

For Franchisors Considering Veterans  You will need to reach out to the vets! Most vets plan on staying in same sector as contractor/consultant/Government employee.  Comfortable with structure. If you need something done a specific way … spell it out and give it to them. If you don’t have structure, they will create it.  Train them the way you want them. They will learn to do the job, but you may not like how.  Logical sequence of events.

For Franchisors Considering Veterans  Know, and target, your audience. If you are looking for specific skill sets, find where they are stationed. However, vets have some common traits.  Effectiveness over Efficiency. Most have never had to worry about profit.  Leadership vs Followership. They have been trained at both.  Decision making. Give them ALL the pertinent information. Most are not afraid to make a decision.  High standards; truthful, integrity, work ethic, etc.  Goal oriented

Franchise Funding for Veterans The Veteran Market • • • •

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250,000 services members transition out of military each year – Delaware Business Times Veterans are twice as likely as civilians to start a new business - SBA Close to 14% of businesses are owned by Veterans, up from 12% in 2012 – SBA 3 million Veteran owned businesses employ more than 5.5 million & pay $221 Billion in annual compensation – US Census Bureau Small Business Administration (SBA) loans, to veterans, increased 100% in 2015 to $1.2 billion - SBA

Programs to Prepare for Business Ownership • •

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SBA – Operation Boots to Business – 2 day intro to entrepreneurship & 8 week instructor led online course on Business Plans and starting a business SBA – Veterans Business Outreach Centers (VBOC) - 15 locations nationwide provide business training, counseling, mentoring and referrals SBA / Institute for Veteran and Military Families at Syracuse University – Entrepreneurial Bootcamp for Veterans with Disabilities (EBV) for disabled Veterans post 9-11. 10 Universities across the country SCORE – www.SCORE.org - free business mentoring from volunteer business counselors across the country

Programs to Prepare for Business Ownership

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Dept of Veteran Affairs – www.VetBiz.com – certification for Veteran owned businesses for federal contracts

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Dept of Veteran Affairs – Veteran Entrepreneur Portal (VEP) – connects entrepreneurial vets to federal, state and local programs, resources and opportunities

How to prepare a Veteran for funding a franchise for startup or growth capital? • • • • • • • • •

Define your goals Prepare your business for scrutiny Demonstrate your company is a good risk Prepare for questions and answers Honesty and Transparency is key when sharing your financials Be prepared to discuss any business problems you encountered in the past Offer preventative measures Your candor counts Know your audience Banks are conservative & Investors want an aggressive return on investment Do I have a realistic plan to generate funds to repay debt or provide a return on investment?

Types of Business Funding Debt Financing -Set Terms -Interest payments plus principal are set at time of funding -Amortization schedule for repayment of debt -May require security or personal guarantee

Equity Financing -Raise capital by selling interest to investors -No guaranteed return -Investors share in company’s wealth -Investor sharing in management and control

Funding your business with the Rollovers as Business Startups (ROBS) plan: The Rollovers as Business Startups plan enables entrepreneurs to invest existing retirement savings in their own business without tax or penalty. Some eligible retirement accounts: 401(k) plan

Thrift savings plan (TSP)

Profit sharing plan

Rollover IRA

Traditional or Simple IRA

Governmental 457(b)

Note: Roth Accounts are not eligible for rollover to a Rollovers as Business Startups plan.

Important Compliance Requirements: • • • • • • • • • •

All eligible employees must have the ability to rollover and have employer stock as an investment option. You cannot amend the plan to eliminate the investment option while any other participant is holding the employer stock in their retirement plan account. All fees must not be paid from plan assets. Valuation of assets must occur each time there is a purchase or sale of stock to meet the adequate consideration requirements. All contributions must purchase the same amount of stock on a dollar for dollar basis per the valuation. Fair Market Value should be updated by the trustee annually for reporting purposes. All employees must be notified of plan benefits if eligibility is met. Each trustee must provide plan notifications and participant statements timely. The plan must have all informational filings prepared timely and complete required compliance testing. Individual electing to rollover and invest retirement savings to meet the equity requirement must guarantee the SBA 7(a) loan even though the plan is the stockholder.

Steps to Establish the Rollovers as Business Startups (ROBS) plan: STEP 1: Service provider sets up C corporation. If it is an existing business it must be determined if the state of incorporation allows for an LLC conversion. The client may also do a revocation from an S corporation to a C corporation. A C corporation is the only corporate structure that can utilize a Rollovers as Business Startups plan design. STEP 2: The business sponsors a new qualified retirement plan where employees roll over current qualified retirement plan funds, such as IRAs, 401(k)s, etc. For the new Rollovers as Business Startups plan the trustee chooses either a profit sharing or a 401(k) plan. Trustee with the help of the service provider can review the features and benefits of each to help you decide which plan design is right for their business and for their employees.

STEP 3: The participant can determine how much of the rollover funds to invest into the stock of your new business. The participant can also choose to diversify their portfolio. STEP 4: The Rollovers as Business Startups plan will then purchase stock for working capital in the sponsoring business. This investment can be used as working capital for legitimate business expenses deemed by the company’s CPA. Since this is equity it can be utilized to secure debt financing including an SBA loan. The Rollovers as Business Startups plan is established providing a long term employee benefit and tool to continue to save for retirement. It must receive contributions to keep the plan’s tax deferred status. These rules also apply to an Employer Stock Ownership Plan (ESOP) under the Employee Retirement Income Security Act of 1974 also known as ERISA.

SBA Loans The Small Business Administration is a key tool in funding a startup business or a business seeking growth capital. This incentivizes local banks to take on the risk of lending to small businesses. You will be required to personally guarantee the loan for your business.

Most Popular SBA Loan Programs 7(a) Loan Program 504 Loan Program

Microloan/Express loan

Important: Be sure to find out if your bank is a preferred SBA lender. Being a preferred lender can accelerate the approval process of your loan.

SBA Loans for Veterans The Small Business Administration has special loan programs for Veterans. The SBA has waived or reduced fees for certain loans to Veterans.

How much can I borrow? Patriot Express Pilot Loan Initiative – up to $500,000 Military Reservist Economic Injury Disaster Loan (MREIDL) Up to $2,000,000

All active military personnel, veterans and service-disabled veterans are eligible

SBA Loans for Veterans What are the interest rates? Patriot Express Pilot Loan Initiative – 2.25 to 4.75% over current prime interest rate Military Reservist Economic Injury Disaster Loan (MREIDL) 4%

All active military personnel, veterans and service-disabled veterans are eligible

Documentation Needed for an SBA Loan: • • • • • • • •

Personal Background information and Resumes of Principals Business Plan (SCORE is a great resource!!!) Personal Credit & Business Credit Report Income tax returns Financial Statements Bank Statements Collateral Legal Documents: • Business licenses and registrations • Articles of Incorporation • Copies of contracts • Franchise agreements if applicable • Commercial Lease The SBA loan programs are more accessible to franchisors listed on FranchiseRegistry.com.

SBA 7(a) Loan Guaranty Program Parameters • • •

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Maximum Loan Amount = $5 million 75% SBA Guarantee of loan amount Maximum Term: – CRE = 25 years – Equipment = 15 years or useful life (the less) – Work Capital = 7 to 10 years Rate is negotiable but is subject to SBA maximums (WSJP + 2.75%) Underwriting to basic credit standards of bank –

Consider a Preferred Lender that has delegated approving authority

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Predictable cash flow and DSC are the drivers Most banks use the program as a credit enhancement, not a credit shield.

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Loan Use • • • • • • •

Purchase land or buildings Construct commercial buildings Expand or renovate facilities Finance receivables and supplement working capital Purchase machinery, equipment, fixtures, and leasehold improvements Refinance existing debt (must meet certain criteria) Purchase an existing business

SBA 504 Loan Program Parameters •

Maximum Loan Amount = $5 - $5.5 million, depending on the type of business.

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Loan Structure: 50% Lender / 40% CDC/ 10% injection Maximum Term: – CDC Loan: 10- or 20-year term fixed interest rate – Lender Loan: Unguaranteed financing may have a shorter term. May be fixed or adjustable interest rate

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Fixed rate established when the debenture backing loan is sold. – Declining prepayment penalty for ½ of term. Underwriting to basic credit standards of bank –

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Same as 7a

Loan Use • • • •

Purchase land or buildings Construct commercial buildings Expand or renovate facilities Long-term, fixed-asset loans

SBA Express Loan Program Parameters • • •

Maximum Loan Amount = $350,000 50% SBA Guarantee of loan amount Maximum Term: –

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Up to 7 years for revolving lines of credit including term out period. Otherwise, same as 7(a).

Underwriting to basic credit standards of bank Tend to be quicker closing with streamlined underwriting and closing process

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Loan Use • •

Revolving lines of credit (up to 7 year maturity) Term Loan (same as (7a))

SBA Veteran Advantage Loan Guaranty Program Parameters • • •

Maximum Loan Amount = $350,000 50% SBA Guarantee of loan amount Maximum Term: –

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Maximum Interest Rates: – –

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Up to 7 years for revolving lines of credit including term out period. Otherwise, same as 7(a).

Loans $50K or less = prime + 6.5% Loans over $50K = prime + 4.5%

Underwriting to basic credit standards of bank Tend to be quicker closing with streamlined underwriting and closing process SBA fee waived

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Loan Use • •

Revolving lines of credit (up to 7 year maturity) Term Loan (same as (7a))

DEAL EXAMPLES

Franchise Start-Up - $284,000 • Start-Up Papa Murphy's in Williamsburg, VA with no prior experience in the restaurant industry. • Husband and wife team

• Unsecured loan • Wife manages the store. Husband retained his position as Director of Operations within annual salary of $160M. He retired from the U.S. Army with 24 years of experience, including over 12 years as an Acquisition Professional with the Department of Defense.

Franchise Start-Up - $272,000 • Start-Up Papa Murphy's in Goldsboro, NC with no prior experience in the restaurant industry. • Husband and Wife team

• Fully secured on a liquidated basis. They had a rental home in Alaska with minimal debt that we took a 2nd mortgage on to get us fully secured. • Both are involved in operating the store. Husband retired as a U.S. Air Force Commander after 21 years of service. As a result, he also has outside income from his military retirement, which is enough to support their living expenses.

Franchise Start-Up - $1,227,164 •

Start-Up Pet Supplies Plus in Jacksonville, FL (Northeast Florida Pet Nutrition LLC).

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$395,000 in Tenant Allowance at a leased location

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$200,000 in Contributed Equity ($400,000 initially till improvements completed)

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100% collateralized with Dad's commercial rental real estate

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$554,000 SBA 7a loan after TA's reimbursed

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Funded part of construction soft cost, construction in excess of TA's, Working Capital/soft costs, M&E, F&F and inventory.

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Equity paid for part of construction, working capital/closing costs, M&E and F&F and Franchise Fee

Borrower is a Veteran and along with his dad, each own 50%. When we first starting looking at the deal, the borrower was going to re-deploy overseas as a Military Contractor Pilot (ex-marine pilot commander) and at time a site had not been selected and approved by Franchisor. But while the borrower was overseas for next 60 days, we were able to pull together most of the pertinent information to determine our interest in the project. Our goal was to be able to get to a commitment before the borrower had to re-deploy again and so he could give notice of his intent not to re-deploy. Very motivational for all involved.

Five tips for applying for a U.S. Small Business Administration Loan •

Prepare a Strategic Plan. It is important to have a strategic plan for your business that defines your strengths and weaknesses, what your short, medium and long-term financial targets are and the tactical plans you have in place to meet those targets

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Explore U.S. Small Business Administration (SBA) as an option. If you don’t qualify for a traditional bank loan, or want to seek alternative options, talk with your banking partner to see if you might qualify for a SBA loan. In addition, make sure the bank you work with is a SBA Preferred Lender. That means the program at that bank has received underwriting delegation from the government and will assist you throughout the process.

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To qualify for a SBA loan, the government requires a few things from you as the business owner. While your banker can help you get everything in order, and make sure you qualify, check out SBA.gov. It’s another great web resource to find checklists for the loan application process and learn more about the program.

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Understand your business. If you apply for a loan – SBA or traditional – the bank is going to want to see that you have your revenue, expenses and project plan mapped out. It is very important that you know your business inside and out and can anticipate what questions the bank will have about your business and the project you are considering.

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Have your information readily available. Regardless of what path you take to get the funds needed for your business, you should work with your accountant and your team to have your business financial information (the last three years of historic tax returns and/or financial statements for your existing business or business plan for a new operation), the last three years of historic personal tax returns, your personal financial statement, any fixed debt obligations you currently have and a summary of your project.

Final Q & A What additional questions do you have for our panel?

Thank you! We also welcome your individual questions after our session.