Tootsie Roll Industries, Inc. Loan Package
22 September 2011
Now that the small business idea has become more that just fine print, it is time to put together a loan package that explains the story of the company. There are important questions to answer, demonstrating the company’s ability to correctly make important financial decisions, and detail how the business will pay off the loan. This paper will include the requirements of a loan package, creditor requirements, a ratio analysis, loan justification, and how the company plans to use the proceeds.
Tootsie Roll Industries, Incorporated Loan Package
Loan Package Requirements
Like a job application, the business will start the loan package with a cover letter as well as an updated business plan. A description of the company’s history, vision statement, market, products and services, the management, the reason for the loan, how it will impact the business, and method of repayment is also required.. The United States Small Business Administration (SBA) requires the business owner to complete an Application for Business Loan, “SBA Form 4” (www.sba.com) that will be completed by the lending institution. A personal background information statement also needs to be completed on SBA Form 912.
Bank loan officers require financial statements assembled by an accountant that include three to five years of balance sheets, income and cash flow, and audits. Tax returns are also required that authenticate the company numbers. According to Robyn Barrett, managing member of Factors Southwest which is an alternative lender says, “do not put a package together until your taxes are done”. (www.factorssouthwest.com). 90 percent of the lenders’ decisions are based on tax returns and financial data.
Forecasts or projections included in the loan package should consist of at least three to five future years or the complete loan term. The forecasts need to show the best, middle, and the worst case scenarios as based on current market assumptions. Ultimately, the banks’ goal is for you to repay the loan.
Collateral is required as a means for repaying the loan in the event that the business cannot pay with the primary revenues of cash flow. Banks may also request a business guarantee repayment of loans with personal assurances such as the assets of the executives or owners.
Liquidity Ratios: a short-term measurement of how maturing obligations are paid
Current Ratio – short-term debt paying ability
Current Assets = $ 199,726 = 3.45
Current Liab. = $ 57,972
Working Capital - a measurement of financial health (Kimmel, 2009)
Current Assets – Current Liabilities
$ 199,726 - $ 57,972 = $141,754
Current Cash Debt Coverage Ratio – accounts for the ratio between cash and liabilities
Cash provided by operations = $ 90,064= 1.50
Average Current Liabilities = ($ 57,972 + $ 62,211)/2
Solvency Ratios: measurement of a company’s long time survival
Debt to Total Assets Ratio - a measurement of the creditor’s risk assessment
Total Liabilities = $ 174,495 = 21%
Total Assets $ 812,725
Cash Debt Coverage Ratio – a measurement of a company’s cash solvency
Cash provided by operations = $ 90,064 = 54%
Average Total Liabilities ($ 174,495 + $ 160,958)/2
Profitability Ratios: measurement of income and operating for a period of time.
Return on common stockholders’ equity ratio - the amount of net income dollars a
company earned for stockholders’ equity
Net Income – Preferred Stock Dividends = $ 90,064 - $ 46,685 = 7%
Average Stockholder’s Equity($ 638,230 + $ 630,681)/2
Return on assets ratio - measures the profitability of a company
Net Income = $ 90,064=...