Live Oak Bank Preparing Financing Your Business for

Live Oak Bank Preparing & Financing Your Business for Growth 8(a) Conference – Anchorage, AK June 2017

What is Live Oak Bank? • FDIC chartered bank • #2 SBA lender in • Live Oak the U. S. Bank has • 5 billion sinception (2008) • $1. 3 B in SBA loans government in 2016 3 contracting domain experts

3 Keys to Success: Past performance, capacity, and leveraging set asides Past Performance • According to Grant Thornton study 73% of incumbents win re-compete 4 Capacity • FAR Subpart FAR 9. 104 -1(a) requires financial capacity • Are you turning down work because you are worried you won’t be able to scale? Leveraging Set Asides • Small business set asides = 25% • WOSB = 5% • SDVOSB = 3% • 8(a) = 5% • HUB Zone = 3%

Marketplace Lending Options SBA Loan + Live Oak Bank Non-Bank Factoring Alternative Financing Up to $5 MM Invoice Dependent $5 K-$500 K Business Term Loans Loan Amount Line of Credit Factoring Contract dependent N/A $2 K-$300 K 6. 75 -8. 5%; 6. 75 -9% (plus fees) 20%+ 8 -108% Terms 1 -10 years 1 -2 mos (fact per) 1 mos – 5 yrs Approval Time 24 -72 hrs Varies 1 -7 days 10 -30 days 1 -5 days Varies (650+ pref) N/A 500 term; 600 LOC 1 year 1 -2+ years Contract dependent Varies $75 K/year Line of Credit Amount Average APR Earliest Receipt of Fin Min Credit Score Min Years in Business Min Income Requirement Personal Guarantee

How do you finance past performance, capacity and the ability to leverage set asides? Contract Mobilization • Awarded multiple contracts in a short period • Inadequate capital to fund related contract expenses • Will not realize payments from the government until 60 -120 days after contract award Purchase Order Financing • Trade credit required • W/o trade credit suppliers require up to 90% COG • Will not realize payments from the government until 90 -120 days after contract award Acquisition Financing • Winning awards is labor-intensive, costly and inefficient • Unable to win new contracts • Sunsetting of certifications (e. g. 8(a)) limits new growth prospects CAPACITY/ SET ASIDES PAST PERFORMANCE AND CAPACITY

Case Study #1: Contract Mobilization Addresses the classic working capital gap that small business Federal contractors encounter after they win a new order/contract, but will not realize payments from the Government until 60 -120 days after contract award Borrower Challenges • Awarded $25 M contract award • Borrower needed $850 K to cover contract start up • Typical line of credit only allowed them to advance against invoices Product: Contract Mobilization • Mobilization capital to cover 100% of the $850 K need (the first 2 -3 months of direct expenses) • First 2 -3 invoices cover outstanding principle • Remaining invoices cover outstanding interest and fees with remainder going to borrower Outcomes • Borrower able to bid confidently on new opportunity knowing that they will have capital to cover expenses and mobilize resources

Case Study #2: Purchase Order (P. O. ) Financing Involves the shipment of a finished good from a known supplier to a known account debtor (AD), with the reseller (LOB’s customer) in the middle Borrower Challenges • Insufficient trade credit or capital prevents borrower from being able to bid on and deliver on a supplies contract • Borrower wants to purchase and sell surplus energy products from large national supplier Product: Purchase Order Financing • Order-specific draws provide sufficient capital to purchase supplies until the Government pays (usually ~30 days post acceptance) • No hidden fees or surprises • Facility limit for borrower is $5 M Outcomes • Helps establish trade credit with new suppliers, leading to higher margins and faster growth • Government considers borrower to be responsible according to FAR 9. 104 -1(a) • Borrower now able to bid on new orders with confidence

Case Study 3: Business Acquisition Traditional banks often don’t understand unique nature of projections in this sector and typically won’t provide financing Borrower Challenges Product: Business Acquisition Outcomes • Business identified with: • $11 M revenue • $985 K EBITDA • $5. 5 M purchase price • Purchase price based on projected revenues from new awards, rather than historical income • Buyer has little liquidity to use as down-payment • No collateral • LOB finances purchase of business assets combined with a seller note • LOB loan amount totals $4. 3 M– to include additional working capital and soft costs • Seller holds note for $1. 3 M, on standby for 2 years, for added skin in the game • Borrower injects $50 K • Payments stretched over 10 years • Buyer able to acquire new business with little out of pocket-liquidity then helps fund growth-related Op. Ex • Seller has incentive to help buyer succeed in transition • Business grows with injection of new revenues from acquired contracts • Assumption of relationships and past performance enhances ability to capture new work

How does it work and where do you find a target? 6 -8 months from today…. . Data Sources • Look at USASpending. gov for potential firms • Data is public and you can find targets • Competing for contracts and you know your competitors and the mentors 10 Your Network Business Advisory Services • Look at your competitors, people you have teamed with and mentors • Review options and hire someone to do the work • Understand the payment structure and what you will get from the transaction