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March 5, 2017 <br /> Patrick Brama <br /> Page Three <br /> When it comes to community based lending it is important that everyone understand what should <br /> happen before you get to the stage of using collateral as a "secondary source of repayment."You only <br /> seize collateral and pursue the guarantees once you get to the default stage. <br /> Very few borrowers drop from "repaying as expected"to "default" overnight. Repaying in an orderly <br /> fashion through strong cash flow is always the "primary source of repayment". Before arriving at the <br /> default stage there is usually a progression in the borrower's deterioration.All along that path, <br /> alternative sources of repayment are usually available, such as refinancing,the sale of non critical assets, <br /> additional cash injection or restructuring the loan. In summary the point I want to make is that there are <br /> more choices than simply getting repaid by the cash flow of a borrower or by the liquidation of <br /> collateral. <br /> Experience has taught me that when it comes to community based revolving loan funds you should <br /> regard collateral less as a source of repayment and more as a loss mitigation tool. By the time you seize <br /> the collateral,you are usually going to take a loss. More often than not, as a borrower's financial health <br /> weakens,the value of both the collateral and the guarantees diminish as well. If circumstances warrant <br /> a collateral sale,the EDA may face steep discounts and significant expenses related to the sale. <br /> In the end it is very important that you focus on cash flow which is the single most important element in <br /> determining whether a business has the ability to repay debt. In our judgment American Print and <br /> Digital has sufficient historical cash flow to repay the proposed debt. <br /> Recommendation <br /> CMDC recommends approval of the loan request based on the information provided subject to <br /> • Loan approval of The Bank of Elk River <br /> • Loan approval from Minnesota Business Finance <br /> • Loan Approval from the US Small Business Administration <br /> • Corporate guarantee of American Print and Digital and Zap Properties LLC <br /> • Personal guarantee of Jason H. Farrell <br /> Best regards, <br /> Michael Mulrooney <br /> President <br />