Loan Purpose:

This loan is with OBDC Small Business Finance as an intermediary lender. The source of funding is the NEDF Fund. The loan in the amount of $65,000 is for construction, equipment, and working capital.

The borrower is seeking a 6-year term loan and the loan guaranty request is for 50% for an amount of $32,500. The total sources and uses of funds are $65,000. As collateral, a 2002 Porsche (value $34,000) will be offered.

Company Background/Management:

Joe Smith started BBQ House as a Sole-Proprietorship in September of 2014, but the barbecue restaurant has yet to open. The business, located in North Oakland, will be a full-service restaurant featuring a variety of flavored BBQ meals along with condiments and will also offer alcoholic (beer and wine) and non-alcoholic beverages. All meats will be supplied by Taylors Sausage in Swans Market and Restaurant Depot, which are both located in Oakland. Once the restaurant opens, Joe plans to run inventory management and order process on touch screen monitors. The software also includes a point of sale system, inventory control analysis, credit card sales, and office management. BBQ House will have a competitive advantage over the restaurants in its immediate vicinity because many of the restaurants nearby are breakfast and/or lunch only. In order to meet the required DSC of 1.25 the restaurant will need to serve an average of 44 customers or generate $728 per day. Given the success of nearby establishments, this number is rather conservative and achievable.

Joe began construction on BBQ House with $61k of his own funds and a $140k Community Advantage loan from OBDC. Since then, Joe has completed much of the construction and has purchased much of the equipment. Unfortunately, unforeseen costs to comply with codes have increased what Joe needs to finish the project. With the additional loan for $65k, Joe will be able to complete construction by putting down payments on the amounts that he owes his contractors and negotiating terms to repay the rest. The loan will also cover twelve months of advance payments on the Community Advantage loan from OBDC and four months of working capital. There will be a twelve-month grace period with repayment on the loan to begin in December 2019.

Secondary Income: Joe Smith collects $30,000-40,000 a year from his police officer pension.

Line 51 Projected Financials

FY 2018

Revenue/Sales $ 256,000

COGS $ (63,512)

Gross Profit $ 193,188

Expenses $ (103,984)

Net Profit $ 89,204

Annual Debt Service $ 34,523

DSC 2.58

Cash Flow:

FY 2018, the business is projecting annual revenues of $256,000 with a net profit of $89,204 to

service the debt. The 2018 DSC of 2.58:1 exceeds the States recommended debt service coverage

of 1.25:1 or 125% of revenue coverage of operating expenses including the loan payment.

Credit History:

Per FICO, Joe Smith has a credit score of 627, with a revolving balance of $4,802, and a revolving

availability of 50.0%. He has no real estate balance as he sold his home to reduce living costs and is

now paying $2,000 per month for rent. His monthly household expenses total $3,400.00 and he plans to draw $400.00 per month from the business to cover about 10% of his living expenses.

Secondary Income: Joe Smith collects $30,000-40,000 a year from his police officer pension.

Weakness:

• Business is a start-up and has a minimal amount of assets and collateral.

Strengths:

• FY 2018, the business is projecting annual revenues of $256,000 with a net profit of $89,204 to

service the debt. The 2018 DSC of 2.58:1 exceeds the States recommended debt service

coverage of 1.25:1 or 125% of revenue coverage of operating expenses including the loan

payment.

• Secondary Income: Joe Smith collects $30,000-40,000 a year from his police office pension.
• Joe Smith began BBQ House with $61k of his own funds and a $140k Community Advantage loan from OBDC.

• Joe has completed much of the construction and has purchased much of the

equipment.

• All meats will be supplied by Taylors Sausage in Swans Market and Restaurant Depot, which are both located in Oakland.
• Joe plans to run inventory management and order process on touch screen monitors. The

software also includes a point of sale system, inventory control analysis, credit card sales, and

office management.

• BBQ House will have a competitive advantage over the restaurants in its immediate vicinity because many of the restaurants nearby are breakfast and/or lunch only.
• In order to meet the required DSC of 1.25 the restaurant will need an average of 44 customers or $728 per day. Given the success of nearby establishments, this number is conservative and achievable.
• There will be a twelve-month grace period with repayment on the loan to begin in December of

2019.

• Jobs: 5 full-time jobs will be created.
• As collateral, a 2002 Porsche (value $34,000) will be offered.

Justification:

The borrower qualifies for the State Guaranty Program primarily as the lender may not normally make

this loan because:

1. Business is a start-up and has a minimal amount of assets and collateral.

Recommendations:

Approve OR not approve this request for the above stated loan, with a 50% ($32,500) guaranty for the six-year term loan of $65,000.

Date: 11/4/2018 Recommended By: Mary Williams

Title: Junior Loan Officer

BASED ON THIS CASE ANSWER THE FOLLOWING

1. Determine if you would have approved or disapproved the loan guarantee, taking into consideration that you would have NOT wanted to see the guarantee exercised because the applicant defaulted on the loan. You must clearly state whether you would have approved or disapproved the loan guarantee.
2. Document your complete 5M analysis as to why you either would have approved or disapproved the loan guarantee. In essence, it should be clear to me why you would have approved/disapproved the guarantee from a motivation, marketing, money, manufacturing, and management perspective. You need to clearly cite, from the case, your rationale in each of the evaluative areas. Clearly label your rationale in each area for the maximum points.