Action Capital Corporation. Creative Financing for Small Businesses Since National Veterans Small Business Engagement November 17-19,2015

Action Capital Corporation

Creative Financing for Small Businesses Since 1959

National Veterans Small

Business Engagement

Sources of Capital & Liquidity

Source of Capital

Relative Cost

• Trade or Supplier Credit

• Traditional Bank Debt or SBA Loans

• Specialty Debt (Leasing, etc)

• Finance Company Debt (Action Capital)

• Mezzanine Debt

• Equity from Principal, Family, Friends,

Investors

Lowest Cost

Characteristics/Requirements of

Various Capital Sources

• Trade or Supplier Credit

– FREE!

– Requires Operating History

– Must Maintain Trade Payment Terms (Net 30-45 Days)

– Higher Limits Will Require Good Quality Financial Statements – Only Available to Support Specific Product Purchases

– Payroll, Operating Costs, Taxes, Rent, Travel, Other Vendors Not Supported by Trade Credit

• Traditional Bank Financing

– More Expensive Than Free Trade Credit, but Less Expensive Than Other Debt Options

– Up Front Closing Costs, Legal Fees, Commitment Fees

– Requires Good Quality Financial Statements, Multi-Year Positive Net Income, Financial Reporting

– Positive Tangible Net Worth/Low Balance Sheet Leverage (Debt/Equity)

– Typically Requires Hard Asset Collateral (Equipment, Real Estate and in some cases, a lien against personal assets such as residence) and Personal Guaranties

Characteristics/Requirements of

Various Capital Sources

• Specialty Debt (Leasing, Off-Balance Sheet Structures)

– More Expensive Than Bank Debt Because of Costs of Financial Structuring

– Ultimately Requires Financial Strength & Support Required by Straight Bank Debt – Structure of Specialty Debt Structure May Allow Replacing One Financial Obligor with

Another

• Finance Company Debt (Accounts Receivable, Purchase

Order and Inventory Financing)

– Will Cost More Than Traditional Bank Debt

– Provides Capital to Segments that Do Not Qualify for Bank Financing

– Typically Funding Against Accounts Receivable, Inventory and sometimes, Purchase Orders

– Tight Collateral Monitoring

– Control of Collateral Allows Lender to Look Past Company Business Problems (losses, customer concentrations, liens, start-up, high growth)

– Much More Flexibility, Typically No Financial Covenants, Lighter Financial Reporting Requirements

Characteristics/Requirements of

Various Capital Sources

• Mezzanine Debt

– Typically a Subordinated Debt Instrument, but with Equity Warrants that Make it Very Expensive

– Focused on High Cash Flow or Growth Opportunities to Make Equity Piece Valuable

– Typically Wants Greater than $1 Million in Outstandings

• Equity

– Most Expensive - Difficult to Get Institutional Funds

– Some Ability to Raise “Friends & Family” Funds, but Not Likely Large Dollar Amounts

– Very Long Process to Raise Capital

– Provides Most Flexibility from Financial Structure, BUT Must Give Part of Company Ownership Away. New Equity Partner Will Have Vote in Strategic Direction of Company and Possibly Operations

Accounts Receivable Financing - Basics

• Funding Provided to Company Using A/R as Collateral

• Company Provides Copies of Invoices to Funding Source (Action Capital)

• Funding Source Advances Up to 90% of Collateral Value for Approved Invoices

• Company’s Customers Pay Directly to a Lockbox Service Provided by Funding Source

• When Payments Received On Invoices Funded - Applied Directly to Pay Down Loan Balance (Self Liquidating) and 10% Holdback

Balance is Released

• Requires Priority Lien on A/R and UCC Filing • Personal Guarantees of Owners Required

Accounts Receivable Financing

– Basics

(continued)

• Useful for Companies that Do Not Qualify For Traditional Bank Financing

• More Expensive than Traditional Bank Debt – but Certainly Less Expensive than Mezzanine Debt or Equity

• Receivable Characteristics That Are Important

– Credit Quality of Account Debtor – Credit Terms

– Nature of Work or Services Performed – Billing (Invoicing) Procedures

– Concentrations – Historical Dilution

What Does a Good A/R Aging Look Like?

Percent of Total A/R

Purchase Order (“PO”) Financing – Basics

– Submit Customer Purchase Order To Finance Company Along with Your Purchase Order to Supplier

– Finance Company Contacts Supplier to Verify and Sets Up a Direct Payment to Supplier for Release of Goods

– Finance Company Gets Acceptance of Goods from Customer

– Company Prepares Invoice to Customer and Finances That Invoice Less Amount Already Sent to Supplier

Inventory Financing – Basics

– Finance Company Advances For Purchase of New Inventory or a Percentage of Existing Inventory - “Inventory Loan”

– Inventory Advances May Be Made Directly To Suppliers For Inventory Purchases – As Company Sells Inventory to Customers, Finance Company Takes a

Percentage of Invoice Advance to Pay Back Inventory Loan Based on Inventory Cost.

– Difference is Advanced at 90% of A/R Advance Rate to Company For Working Capital

– As New Inventory Loan is Required, Company Provides Finance Company a Copy of Purchase Order and Finance Company Advances to Company or Pays Direct to Vendor For Purchases

Sample A/R Pricing Structure

Monthly Fee: 0.67% to 1%

Pricing Example – 30 Days

Client has $100,000 Financed With 90% Advance Rate All-in Cost for 1 month

Interest: $90,000 x Prime + 2% = $90,000 x (3.25%+2%) /12 =$393.75 Monthly Fee: = $90,000 x 1% =$900.00

Why Use Action Capital?

• Founded in 1959 – 50+ Year History

• Expert on A/R Financing For Small Businesses, Especially Government or Prime Government A/R

• Quick Response - Often Able to Complete Set Up in 2 Days • Aggressive Advance Rates up to 90%

• Competitive Interest Rates and Fees Based on Net Outstandings, Not Gross Outstandings (like most of our competitors)

• All Documentation Completed Internally - No Outside Legal Fees • Work Directly with Decision Makers

• No Long Term Contracts, Upfront Fees, Termination Fees

• Focus on A/R Quality Allows Ability to Work Around Problems

• Secure Website Updated Daily Provides Detailed Information on Open Items & Cash Collections

• Same Day Funding Via Wire or ACH

• Save Time\Money Using Free Deposit Lockbox to Apply Remittance Advice (EFT and EDI capable)

How to Contact Action Capital

Becky J. Cronister Patrick Thom

President EVP

becky@actioncapital.com patrick@actioncapital.com

Action Capital Corporation

230 Peachtree St, Ste 1910 Atlanta, GA 30303 Telephone (404) 524-3181 Toll-Free 1-800-525-7767 Fax (404) 577-4880 Website www.ActionCapital.com