Credit Evaluation School Instructor eBook - Oct 2023

Internal Use Only

HaySeed Steak and BBQ: PASS & SUBSTANDARD VERSIONS • There are two existing restaurants, in Waynesville and Lebanon. Both locations have around for 10+ years. • We financed the original locations and both properties paid off via sales from normal operations. • The loan is for leasehold improvements to a third location, Branson, which is secured by a first REM positions on both original locations. • The Branson location is in a tourist area and managers have marketed the location to bus tour operators. This has been well received. • Debt paying back quickly People: Business is in the restaurant industry with two existing restaurants, in Waynesville and Lebanon. The borrowers are in process of expanding to a 3 rd location. John & Amy Hay along with Jim Seed own 50% each of the business and have been in the restaurant industry for 30+ years. Purpose: The loan is for leasehold improvements to a third location, Branson, which is secured by a first REM positions on both of original locations. Payment: Profitable existing restaurant locations with a strong DSCR after proposed 3 rd location is complete. Protection: 1 st REM on both of original locations valued at $1,560,000 or 64% LTV. Borrower’s balance sheet is strong. Two restaurant locations with no debt. Debt to assets of 27%. Current position okay at nearly 1 to 1. Loan is also 90% SBA guaranteed as well further enhancing collateral protection. PASS VERSION Performance: Debt is paying back quickly. Borrower has made some additional principal payments. The Branson location is in a tourist area and managers have marketed the location to bus tour operators. This has been well received and the location is doing better than anticipated. Past due history is not an issue and is related to the Performance: Tour bus marketing was extremely successful, much more than in previous locations. Unfortunately, this success was largely due to a manager. The manager was selling fraudulent time-shares to tourists and giving the bus drivers a kickback as an incentive to bring customers to the restaurant. Word got back to the Police who visited the Branson location a couple of months ago and arrested the manager. The manager, not an owner of the company, has since been fired. The Branson location was very dependent upon tour bus business. The Branson location has closed as a result. The tour bus company wasn’t too happy and has stopped visiting all HaySeed Steak and BBQ locations. Updated financials were provided yesterday. This update has taken into account the loss in revenue associated with the loss of the Branson location and decline in revenues at other locations. Based on these calculations, it looks like the existing locations can service the Branson debt at a coverage ratio of 0.71x. NOTE: During Substandard scenario, diligent Examiners may ask about extending amortization from 10 years to a longer term. owners being out of town. SUBSTANDARD VERSION