Financial Assistance

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Financial Assistance

• Loans
• Primarily made by private lenders, with SBA
  guaranties
• Guaranties are generally up to 85 of loans to
  150,000 75 of loans above 150,000
• Equity Investment
• Provided by SBA-licensed small business
  investmentcompanies
• Surety Bonds
• Guaranties of bid, performance and payment bonds

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Why SBA Loans areImportant to Small Business

• SBA loan guarantees give bankers an added
  incentive to make small business loans
• SBA loans can provide longer terms for borrowers
• SBA loan guaranties allow banks to provide funds
  when bank policy prohibits a loan

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SBA Serves a Wide Variety of Capital Needs
Equity SBIC
2.0 million Surety Bonds
1.3 million (Guaranty) 504 Loans
Growth in Business Changes in Capital Need
1 million (Guaranty) All Other 7(a) Loans
150,000 SBALowDoc 250,000 SBAExpress
35,000 Microloans
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SBA Lending Enhances Community Involvement

• Because of extended maturities of loans,
  businesses are long-term customers
• Jobs created in the community, increasing
  customer base
• Cross-selling opportunities for owners and
  employees
• Ability to leverage lenders available assets to
  meet community needs

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Basic 7(a) Loan Guaranty Program

• You apply for a loan guaranty with an SBA
  participating lender
• Lender submits application for SBA review and
  approval
• After SBA approval, lender disburses funds

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7(a) GuarantyProgram is Versatile

• Proceeds can be used for a wide variety of
  business purposes
• Maximum guaranty is 85
• 75 when loan exceeds 150,000
• Maximum guaranteed dollars is 1 million
• Total loan cannot exceed 2 million

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Loan Proceeds Eligible for Most Business Uses

• 7(a) loans may be used to
• Expand, renovate facilities
• Buy machinery, equipment, fixtures, buildingsand
  land for business
• Finance receivables and augment working capital
• Refinance existing debt (with compelling reason)
• Finance seasonal lines of credit
• Construct commercial buildings
• Finance direct costs on contracts

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Maximum Size Standards

• Manufacturing
• 500 employees or less
• Wholesaling
• 100 employees or less
• Service and Retail
• 6 million or less in annual receipts
• There are many variations so check with the
  District Office if you feel your business is
  close to these maximums

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Eligibility Requirements

• Business must
• Be operated for profit
• Not exceed size standards
• Not be engaged in lending, real-estate
  development, investments or speculation
• Not be engaged in promotion of a specific
  religion
• Not restrict patronage
• Not engage in prurient sexual materials or
  services
• Not be a gambling enterprise

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SBA Lender Requirements

• Common documentation includes
• Purpose of loan
• Business history
• 3 years of company tax returns
• Current financial statements
• Schedule of term debts and leases
• Aging of accounts receivable and payable
• Projected opening-day balance sheet
• Amount of owner investment in business
• Projections of income, expenses and cash flow
• Signed personal financial statements
• Personal résumés
• for existing businesses for new
  businesses

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SBA Borrower Requirements

• Good character
• Management expertise and commitment to succeed
• Reasonable personal contribution or business
  equity
• Feasible business plan
• Sufficient collateral
• Ability to repay loan from projected operating
  cash flow

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Terms

• Flexible maturities
• Generally 7 to 10 years for working capital
• Generally up to 25 years for fixed assets
• Real estate
• Construction
• Equipment (Not to exceed useful life of
  equipment)
• Interest rates
• Negotiated between borrower and lender
• Typically cannot exceed prime rate plus 2.75

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SBA One-Time Borrower Fees

• Maturity Total Loan Amount Guaranty Fee
• Year or Less Any amount up to 2
  million 0.25
• Over 1 Year 150,000 or less 2.0
• Over 1 Year Over 150,000 to 700,000 3.0
• Over 1 Year Over 700,000 3.5
• Fees apply only to guaranteed portion of loan

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Fee Calculation Example

• Total Loan x Guaranty Max.
  Guaranty Total Fee
• 150,000 x 85
  127,500 2,550
• 700,000 x 75 525,000
  15,750
• 1,000,000 x 75
  750,000 26,250
• 1,333,000 x 75 1
  million 35,000

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Collateral

• Personal guaranties from principals owning 20
  percent or more
• Liens on personal assets may be required
• Loans are not declined solely for insufficient
  collateral

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SBA 7(a) LoanGuaranty Programs

• Lender submits a completed loan applicationto
  the SBA
• SBA analyzes entire application
• Approval process usually 5 days or less
• Processing can occur in the local District
  Office, Hazard, KY or Sacramento, CA
• Type of loan determines processing location

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SBALowDoc Low Documentation Loan Program

• For loans up to 150,000
• Generally 7 to 10 years for working capital
• 25 years for fixed assets
• 85 guaranty
• One-page SBA application
• SBA response to lender within 36 hours

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Eligibility Issues onSBALowDoc Program

• Maximum loan amount
• Credit history
• Character
• Size standards

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Character Issues inSBALowDoc Program

• Prior criminal record by any owner, principal,
  partner or authorized official of the business
  may disqualify applicant or require submission
  under regular 7(a) loan program

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Use of Proceeds for SBALowDoc

• Debt Refinancing
• May refinance debt
• To participating lender using not more than 25
  of proceeds of the requested New SBALowDoc loan
• To other lenders using entire proceeds of the
  requested New SBALowDoc loan
• Refinancing must result in 20 cash-flow
  improvement for borrower

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Ineligible Loans UnderSBALowDoc Program

• Export Working Capital Loan Program
• International Trade
• CAPLines
• Defense Loan and Technical Assistance (DELTA)

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Other Ineligible Loans inSBALowDoc Program

• Pollution and Environmental Control Loans
• Employee Stock Ownership Plans (ESOP
• or ERISA)
• Community Adjustment Investment Program (CAIP)

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Guaranty Fee forSBALowDoc Program

• Loan Total
• 150,000 or less
• Maturity of 12 months or less

• Fee
• 2
• 1/4

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Environmental Investigationon SBALowDoc

• Required on commercial real estate collateral for
  any loan in excess of 25,000
• Questionnaire consistent with American Society
  for Testing and Materials (ASTM) minimums
• Addresses environmental issues of real estate
  within one mile radius or more
• Additional guidance in SOP 50-10(4), Subpart A,
  Chapter 5, paragraph 7

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Enhanced SBAExpress
An enhanced guaranty program your lending
institution will not want to miss!
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Program Designed to

• Increase the number of Smaller SBA Loans
• Increase Lender Participation

• Minimize SBA Forms/Procedures
• Expedite SBA Loan Processing
• Standardize Processing of Routine Loans
• Attain Efficiency of Centralization

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Key Features

• Maximum Loan Amount - 250,000
• Extended As Pilot Through 9/30/05
• Available to SBA Lenders with 85 Currency
• Available to Non-SBA Lenders Processing
  Significant Number of Business Loans of 50,000
  or Less
• Lenders Use Mostly Own Documents Procedures

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Key Features (continued)

• Loan Notes - Legally Enforceable
• Loans Processed in Sacramento
• May Be Faxed - Soon Via Internet
• Usually Instant SBA Response -
• 24 Hours Assured
• Purchases -Little Rock Fresno Loan Servicing
  Centers

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Other Features

• Lenders May Charge Interest Rates up to
• 6.5 over Prime for Loans of 50,000 or less
• 4.5 over Prime for Loans above 50,000

• Standard Guaranty Fees Apply

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Other Features (continued)

• Multiple Loans May Be Made but

• Must Not Circumvent SBA Fees
• Total May Not Exceed 250,000

• No Collateral - Loans of 25,000 or Less
• Lender Follows Own Collateral Policy Over 25,000

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Other Features (continued)

• Revolving Lines Eligible

• Maximum - Seven Years
• Termouts - Available at Outset

• May Be Sold on Secondary Market
• May Be Accessed by Credit Card
• Applicant Commits to Business Purposes - Lender
  Not Required to Monitor Each Disbursement

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Lenders Use Mostly Own Documentation, Including

• Application
• Internal Credit Memoranda
• Loan Notes (Legally Enforceable)
• Collateral Documents
• Liquidation Documents

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Basic Borrower Information Sheet

• Forms Submitted to SBA
• SBA Form 1919
• Eligibility Checklist (Lenders with Authority to
  Determine Eligibility do Not Submit Checklist)

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Lender Uses Mostly Own Procedures

• Same As for Non-SBA Loans
• Lender - Does Credit Analysis
• Qualified Lenders do Eligibility Determination

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Ineligible Businesses

• Types of businesses not allowed
• Agriculture
• Fishing
• Medical Facilities
• Mining
• Firms in business in other countries
• Teaching, indoctrinating of religion
• Sex related
• Gambling

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Refinancing Rules

• SBA debt may not be refinanced
• Non-SBA borrower debt
• No longer meets needs
• Meets SBAs minimum cash flow improvement
  requirement
• Current last three years
• No conflict of interest

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Not Eligible

• Piggy-back loans
• 90 start-up or real estate financing
• Previous government loss
• Any yes response on Form 1919
• Application previously submitted
• Violation of ethical requirements
• Environmental problems

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Lender Authorization

• Responsible for completeness of loan
  authorization
• Lender signs on behalf of SBA
• Closes and disburses loan using own procedures
• Sends signed copy of authorization to SBA

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EWCP (Export Working Capital Program)

• Short-term financing for small exporters
• SBA guaranty up to 90 of the loan or 1
  million
• One-page application answer usually 10 days or
  less
• Maturity
• Matches a single transaction cycle up to 18
  months, or
• Supports a line of credit, generally 12 months
• Repaid from the proceeds of the export sales
• May be used for both
• Pre-shipment working capital
• Post-shipment exposure

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ITL(International Trade Loan)

• Long- and short-term financing
• Guaranty amounts up to 1.25 million
• For businesses that are
• Engaged or preparing to engage in international
  trade
• Adversely affected by import competition
• May be used for
• Working capital and/or
• To purchase facilities or equipment that will be
  used within the U.S. for producing goods or
  services

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Loans for Fixed Assets 504 Certified Development
Company Program

• Long-term, fixed-rate financing
• Up to 1.3 million in SBA-backed debentures
• SBA debenture guaranty of up to 40 of total loan
• Must create or retain one job for every
  35,000of SBA debenture proceeds
• DELTA funding also available under this program

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Benefits of a SBA 504 Loan

• High-leveraged financing for fixed-asset
  purchases
• Long-term pay back - 10 or 20 years
• Lower interest rate

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To Qualify for a 504 Loan

• Business must be operated for a profit
• Tangible net worth of less than 7 million
• Average net income of less than 2.5 million for
  the preceding two years
• Business cannot be involved in
  speculation or rental real estate
  investment

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A Typical 504 Project

• A private sector loan covering up to 50
• A loan from the CDC covering up to 40(100
  SBA-guaranteed debenture) and
• At least 10 equity from the small business
• Participating lender has first lien on assets

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