Alternative Acquisition Financing Structures

ALTERNATIVE ACQUISITION FINANCING STRATEGIES

The Bancorp Commercial Lending

IBBA 2021OCTOBER 16, 2021

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Contents

• Meet the Team ................................................................................................................3

• Why Alternative Financing? ............................................................................................5

• SBA Programs & Benefits ...............................................................................................8

• SBA Lending Case Study .............................................................................................12

• Managing Business Acquisition with Rolling Stock (Vehicles) ..................................17

• Acquiring Rolling Stock Through Fleet Leasing .........................................................24

• Questions and Open Discussion .................................................................................30

TODAY’S AGENDA


MEET THE TEAM

IBBA 2021

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LENDING & LEASING SPECIALISTS

Meet the Team

Hetal EngineerDirector, SBL Producing Sales Manager

Stan SalterVP, SBL Business Development Officer

Paul PollockDirector, Leasing Sales

Melissa BeldingAVP, Account Executive Leasing


WHY ALTERNATIVE FINANCING?

IBBA 2021

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Why Alternative Financing?

EXPAND FUNDING SOURCE OPTIONS

Alternative financing is how to look at the business for sale and what options there are to get the deal funded.• While SBA loans are an important piece in many

acquisitions, they are only one financing option.

• In today’s market, even smaller deals need to have layered

or structured financing, which can typically include:

• Borrower equity

• Seller financing

• Debt

• Leasing options

• In this presentation, we provide an example of how to

leverage alternative financing strategies when transactions

include vehicles.

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Why Alternative Financing?

When an acquisition includes vehicles in the purchase structure it becomes more complicated.• Even if vehicles make up only a small portion of the

purchase price, it will significantly impact the ability to get

the transaction closed and funded.

• Many lenders don’t want to manage the vehicle title transfer

requirements.

• Today we’re going to focus on how to leverage alternative

financing strategies when vehicles are involved.

MANAGING VEHICLE PURCHASES


SBA LOAN PROGRAMS & BENEFITS

IBBA 2021

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SBA Loan Programs & Benefits

SBA LOAN GUARANTY PROGRAMS

7(a) - An all-purpose loan• Loan amounts up to $5 million• Terms up to 10 years; 25 years for owner-occupied

commercial real estate• Wide-ranging use of loan proceeds

504 - Commercial mortgage financing• Loan amounts up to $10 million• Major projects/purchases, including commercial real

estate, heavy equipment and machinery• Long-termfixed-ratefinancing

Express - expedited application process• Maximumloanamount:$350,000(upto$500,000 forExportExpress)

• Revolving line of credit or term loan

There’s an SBA loan for almost any business need.

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WHY USE AN SBA LOAN?

Conventional Loans• Larger down-payment

• Shorter amortization

• Collateral dependent

Private Equity• Structured financing for larger request

• Strict loan covenant

Seller Financing• Bridge the gap between other

financing

SBA• Higher leverage financing – less

money down

• Longer term – lower monthly payment

• Less collateral dependent

What are SBA loan benefits compared to other forms of financing?

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SBA CHARACTERISTICS TO CONSIDER

SBA loans are indispensable to American entrepreneurs and are designed to support qualified, eligible businesses no matter the project, location or industry.

SBA Loan Qualifications:• Demonstrated historical or projected cash flow

• Direct and transferable industry experience

• Principals actively involved in business

• Acceptable personal and business credit scores

• Solid post-closing liquidity

• Owners with greater than 20% ownership stake providing personal guarantee

• U.S. citizen or legal permanent resident alien

• Commercial property must be owner-occupied


SBA LENDING CASE STUDY

IBBA 2021

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FINANCING FOR BUSINESS ACQUISITION

SBA Lending Case Study

Business Details:• Acquisition of a water/fire damage restoration franchise

that has been in business since 2004.

• The total price was $2,550,000 to be allocated among

goodwill, equipment, inventory and rolling stock

(vehicles).

• Two SBA 7(a) loans were used to finance the business

and the rolling stock.

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VEHICLE ACQUISITION INVENTORY BREAKDOWN


Make Model/Year VIN Mileage Term Buyout/Balance 7/19/2021

Lien Holder Fair Market Value

CHEVY SILVERADO 2019 92841 48 $22,063.47 Lease One Magnolia $

CHEVY CG33903 18' BOX TRUCK 2020 2119 60 $34,667.02 GABC $

CHEVY E25C EXPRESS 2020 45781 60 $28,872.08 GM FINANCIAL $

CHEVY EXPRESS 2019 50041 48 $22,818.54 GM FINANCIAL $

CHEVY EXPRESS 12' BOX TRUCK 2019 27761 60 $34,531.32 GABC $

CHEVY SILVERADO 2020 10685 60 $30,574.59 ALLY $

CHEVY EXPRESS 2020 10495 60 $30,524.02 M&T BANK $

CHEVY SILVERADO 2019 72650 48 $21,440.01 GM FINANCIAL $


CHEVY EXPRESS 2020 18899 60 $29,831.76 ALLY $

CHEVY SILVERADO 2634 60 $29,383.83 Huntington National $

CHEVY SILVERADO 2020 61591 60 $28,214.14 Magnolia Bank $

FORD F150 2019 81361 48 $21,117.70 Lease One Magnolia $

CHEVY EXPRESS 2020 13053 60 $47,072.02 ALLY $

CHEVY CG23405 EXPRESS 2020 26827 60 $34,667.02 GABC $

FORD TRANSIT CONNECT NEW 2021 2291 36 $24,760.26 Ford Motor Credit $

FORD TRANSIT CONNECT NEW 2021 1377 36 $24,760.26 Ford Motor Credit $


CHEVY EQUINOX 45678 60 $23,025.25 ALLY $

CHEVY SILVERADO 896 60 $36,167.23 BB&T $

CHEVY EXPRESS 2020 21198 60 $31,415.68 M&T Bank $

CHEVY GC3350 12' BOX TRUCK 2019 34040 60 $34,530.46 GABC $

CHEVY SILVERADO 2021 28729 60 $30,302.60 ALLY $

CHEVY EXPRESS 2019 65366 48 $22,740.49 GM FINANCIAL $

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Barrier• Business acquisition with a higher level of goodwill and vehicles

included in the purchase price.

Solutions• Longer term financing – 10 years, no balloon

• SBA guaranteed loan due to lack of collateral

• Structure a seamless transition of vehicle ownership

Approval Considerations• Buyer had prior business ownership experience

• Historical cash flow and business performance during COVID-19

• Buyer was flexible to structure as two loans

FINANCING FOR BUSINESS ACQUISITION

SBA 7(a) funding used to purchase the existing business and working capital.

Required equity injection = 20% of total cost

Total Project $2,684,100

Business Acquisition – Intangible, Equipment

$2,265,000

Working Capital $250,000

Closing Costs, Packaging Fee

$19,100

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SBA 7(a) funding used to purchase the existing vehicles.

Required equity injection = 10% of total cost

Vehicle Acquisition $ 285,000

Closing Costs, Packaging Fee $ 25,350

Total Project $310,350

Barrier• How to account for vehicle financing in a shorter amortization

to match the useful life of the vehicles.

Solutions• 5-year amortized loan

• Partner with Fleet Leasing team for expertise in vehicle title transfers

• Provide a one-stop solution for the business and vehicle acquisition for buyer and seller

Approval Considerations• Structure the loan to allow for release of vehicles

• Provide a combined 10-year/5-year loan for business/vehicles

• Navigate the title transfer and state-specific requirements with Fleet Leasing representative

FINANCING FOR ROLLING STOCK (VEHICLES)


MANAGING BUSINESS ACQUISITION WITH ROLLING STOCK (VEHICLES)

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BUSINESS CONSIDERATIONS

Managing Business Acquisition with Rolling Stock (Vehicles)

The tasks involved with this type of acquisition include: • Breaking down the acquisition within goodwill, equipment,

inventory and vehicles

• Allocating the cash injection in the use of proceeds

• Estimating the current value of the vehicles for title transfer

• Potentially dividing the contract to separate the vehicle

purchase

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BUSINESS CONSIDERATIONS


What to Look ForWhen brokering a business sale, whether the sale includes an

entire fleet or 1-2 trucks:

• Make sure it’s in your selling memorandum

• Get any info on the vehicles that you can on the front end

including:

• VIN numbers, make/model and mileage where available

• Will they transfer in the transaction?

• Are you paying off other loans/leases?

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SBA LOAN CLOSING PROCESS


SBA procedures for acquiring vehicles are labor intensive: • There are many considerations and administrative

requirements to close an SBA loan for rolling inventory.

• The ability to hasten the process depends on how quickly

the buyer and the seller can complete the necessary

paperwork, which may be different during every phase.

• These are three phases to close the loan:

• Preclosing

• Closing

• Post-Closing

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PRECLOSING • The SBA Loan for vehicle purchase can include applying

for temporary license plate(s) at your local DMV/tag office.

• Documents needed depend on the paperwork you have on-hand.

• With an executed POA the documents needed are:

• Title

• Proof of insurance

• FEIN

• Pre-SBA closing documents

• Purchase agreement

• Without an executed POA you will need:

• Title

• SBA loan documents

• Proof of insurance

• Purchase agreement

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CLOSING 1. Tag & Titles – These documents are typically acquired

during the closing process and require quite a few documents in order to register the vehicle with the DMV.1,2

• Title• POA• Proof of insurance• Bill of sale• Inspections, emissions, weight slip• Loan-closing documents• Temporary license plates if needed

2. Transfer Documentation

• Provide purchase agreement and drafted bill of sale to attorney

• Bill of sale must include vehicles being purchased.• Attorney must draft POA to be signed at closing.

3. Vehicles with Liens:

• Pay existing lender• Secure original title• Confirm lien has been released

1. All tag & title work can take 4-6 weeks to complete upon the receipt of all necessary documentation. 2. All paperwork must include VIN, year, make, model.

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POST-CLOSING • During this phase, the borrower must ensure that copies of

the paperwork are provided to the SBA lender.

• If an SBA lien is applied to the vehicles or if there is a lien

and title transfer, an SBA lien must also be applied to the

vehicles purchased.

• There are many additional documentation requirements

and steps required to meet the SBA lender’s post-close

requirements.

However, there is a way to cut down on the time, paperwork

and paid intermediaries involved.


ACQUIRING ROLLING STOCK THROUGH FLEET LEASING

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FLEET MANAGEMENT/LEASING COMPANY (FMC) ADVANTAGES

Acquiring Rolling Stock Through Fleet Leasing

Working with an FMC can save you time and effort when acquiring vehicles. Their capabilities should include: • Paying-off existing loans or leases

• Handling all of the tag and title transfer work

• Purchasing the vehicles and equipment from the seller

• Obtaining temporary tags for immediate operation of the

vehicles

• Offering fleet management guidance and objective advice

going forward

• Structuring new leases for each vehicle or piece of

equipment to either accelerate payoffs or manage monthly

cash flow

• Offering a line of credit for new and/or replacement

vehicles without needing an SBA or other loan

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FLEET LEASING COST SAVINGS


Make Model/Year Mileage Term Buyout/Balance 7/19/2021

Lien Holder Fair Market Value Monthly Payment Term RV New Monthly Payment

Monthly Savings

CHEVY SILVERADO 2019 92,841 48 $22,063.47 Lease One Magnolia $29,400.00 $1,409.47 24 $2,500.00 $879.00 $530.47

CHEVY CG33903 18' BOX TRUCK 2020 2,119 60 $34,667.02 GABC $30,050.00 $809.94 60 $3,500.00 $619.00 $190.94

CHEVY E25C EXPRESS 2020 45,781 60 $28,872.08 GM FINANCIAL $28,475.00 $640.77 48 $3,000.00 $625.00 $15.77

CHEVY EXPRESS 2019 50,041 48 $22,818.54 GM FINANCIAL $24,425.00 $651.23 36 $2,500.00 $629.00 $22.23

CHEVY EXPRESS 12' BOX TRUCK 2019 27,761 60 $34,531.32 GABC $26,125.00 $785.61 48 $3,500.00 $745.00 $40.61

CHEVY SILVERADO 2020 10,685 60 $30,574.59 ALLY $30,425.00 $651.82 60 $3,000.00 $549.00 $102.82

CHEVY EXPRESS 2020 10,495 60 $30,524.02 M&T BANK $30,725.00 $633.42 60 $3,000.00 $549.00 $84.42

CHEVY SILVERADO 2019 72,650 48 $21,440.01 GM FINANCIAL $22,150.00 $729.38 30 $2,500.00 $595.00 $134.38


CHEVY EXPRESS 2020 18,899 60 $29,831.76 ALLY $30,275.00 $633.65 60 $2,500.00 $545.00 $88.65


CHEVY SILVERADO 2021 11,146 72 $29,009.91 US Bank $30,175.00 $471.70 60 $3,500.00 $509.00 $(37.30)

CHEVY EXPRESS 2019 69,454 48 $20,608.10 Wells Fargo $23,900.00 $826.37 30 $2,000.00 $679.00 $147.37

CHEVY EXPRESS 2020 12,313 60 $31,413.30 M&T BANK $30,725.00 $651.02 60 $3,000.00 $565.00 $86.02


CHEVY SILVERADO 1500 2021 3,103 72 $27,981.10 US Bank $31,100.00 $457.89 60 $2,500.00 $499.00 $(41.11)

CHEVY SILVERADO 2,634 60 $29,383.83 Huntington National $31,100.00 $551.29 60 $2,500.00 $535.00 $16.29

CHEVY SILVERADO 2020 61,591 60 $28,214.14 Magnolia Bank $26,750.00 $736.49 48 $2,500.00 $619.00 $117.49

FORD F150 2019 81,361 48 $21,117.70 Lease One Magnolia $25,575.00 $1,433.45 24 $2,000.00 $859.00 $574.45

CHEVY EXPRESS 2020 13,053 60 $47,072.02 ALLY $24,850.00 $978.16 60 $4,500.00 $845.00 $133.16

CHEVY CG23405 EXPRESS 2020 26,827 60 $34,667.02 GABC $29,500.00 $665.01 60 $3,000.00 $629.00 $36.01

FORD TRANSIT CONNECT NEW 2021 2,291 36 $24,760.26 Ford Motor Credit $24,925.00 $554.25 60 $2,500.00 $445.00 $109.25

FORD TRANSIT CONNECT NEW 2021 1,377 36 $24,760.26 Ford Motor Credit $24,925.00 $554.25 60 $2,500.00 $445.00 $109.25


CHEVY EQUINOX 45,678 60 $23,025.25 ALLY $18,425.00 $451.93 48 $2,000.00 $499.00 $(47.07)

CHEVY SILVERADO 896 60 $36,167.23 BB&T $31,100.00 $692.50 60 $3,500.00 $649.00 $43.50

CHEVY EXPRESS 2020 21,198 60 $31,415.68 M&T Bank $30,025.00 $651.02 60 $3,000.00 $565.00 $86.02

CHEVY GC3350 12' BOX TRUCK 2019 34,040 60 $34,530.46 GABC $28,850.00 $785.59 60 $3,000.00 $625.00 $160.59

CHEVY SILVERADO 2021 28,729 60 $30,302.60 ALLY $28,475.00 $629.18 60 $3,000.00 $545.00 $84.18


TOTALS $843,337.26 $827,575.00 $21,608.52 $15,098.00 $18,494.00 $3,114.52

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THE BENEFITS OF LEASING VS. OWNERSHIP


Benefit from end-to-end services

(streamlined fleet administration)

based on your needs

Access to fleet incentives and

discounts

Conserve cash/free capital for

other purposes

Pay for vehicle costs over multiple

budget years

Cycle your fleet faster and reduce

ongoing maintenance costs

Minimize your investment in

depreciating assets

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EXPERIENCE WITH FRANCHISE FLEETS


An FMC should also be able to manage franchise requirements for fleets: • Brand-preferred make and model

• System-specific equipment packages

• Brand-approved graphics

• Equipment and graphics costs bundled into lease

• Other franchise-related expenses

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MEETING A VARIETY OF NEEDS


The FMC should be able procure any type of vehicle (e.g., SUV, work trucks, vans) and equipment, regardless of make or model.

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QUESTIONS & OPEN DISCUSSION

THANK YOU

REQ0003822 09/2021

Hetal EngineerDirector, SBL Producing Sales Manager

407.758.3926

[email protected]

Stan SalterVP, SBL Business Development Officer

512.504.7416

[email protected]

Paul PollockDirector, Leasing Sales

215.353.2898

[email protected]

Melissa BeldingAVP, Account Executive Leasing

407.253.4449

[email protected]