SBA Loan Programs for Financing Small Business

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SBA Loan Programs for Financing Small Business

• American Institute of Certified Public
  Accountants (AICPA)

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CAPITAL ACCESS

• COMMITTED TO SUSTAINING CONTINUOUS SOURCES OF
  CAPITAL FOR SMALL BUSINESS
• OPERATES AS A GUARANTOR OF SMALL BUSINESS LOANS
  MADE BY LENDER PARTICIPANTS

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CREDIT POLICY

• PROMOTE SMALL BUSINESS FINANCING WHEN IT IS NOT
  OTHERWISE AVAILABLE ON REASONABLE TERMS
• PRIMACY OF CASH FLOW LENDING
• LOANS NOT DENIED STRICTLY FOR LACK OF COLLATERAL

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IMPACT FOR SMALL BUSINESS

• Loans not meeting lenders conventional credit
  policies may be SBA eligible.
• Term to maturity
• Start-up business
• Outside lenders credit box
• 63 Billion outstanding

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PORTFOLIO ATTRIBUTES

• HIGH CONCENTRATION OF START-UP SMALL CONCERNS
• MOST LOANS ISSUED TO UNDERSERVED BORROWERS
  INCLUDING WOMEN, MINORITIES, VETERANS AND RURAL
  CONCERNS
• TYPICALLY RISKY INDUSTRIES
• REASONABLY WELL-COLLATERIZED
• LOANS RANGE IN SIZE FROM 5,000 TO 3.5 MILLION.

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7(A) LOAN PROGRAM

• GOVERNED BY
• SMALL BUSINESS ACT
• TITLE 13 CODE OF FEDERAL REGULATIONS (13 CFR)
• STANDARD OPERATING PROCEDURES (SOP)
• ALL PARTICIPANTS EXECUTE MASTER FORM OF GUARANTY
  AGREEMENT

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LOAN TERMS

• GUARANTY PERCENTAGE 50, 75- 80
• GUARANTY AMOUNT - MAX. 1.5 million to one
  borrower (including affiliates)
• GUARANTY FEE - 2 TO 3.75
• LOAN AMOUNT - 2 million
• MATURITY - UP TO 25 YEARS
• INTEREST - UP TO PRIME 2 3/4
• (higher rates for SBAExpress and Community
  Express)

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ELIGIBILITY

• BASIC PURPOSE / USE OF PROCEEDS
• Working Capital, Machinery Equipment, Real
  Estate, Inventory, and Furniture Fixtures
• SIZE
• Employees or Receipts
• TYPE OF BUSINESS
• For Profit, For General Public (Not
  Discriminating), etc.

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PROCESS FOR APPROVAL

• BUSINESS PLAN, MARKET ANALYSIS STRATEGY
• CASH FLOW FORECASTS - MONTHLY
• BANK APPLICATION
• SBA GUARANTY REQUEST

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SBA DELIVERY PROGRAMS

• REGULAR 7(a) - 1958
• CERTIFIED LENDERS PROGRAM (CLP) - 1979
• PREFERRED LENDERS PROGRAM (PLP) - 1981
• SBAEXPRESS - 1995

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REGULAR 7(a)

• BASIC LOAN DELIVERY
• APPLICATION WITH SUPPORTING DOCUMENTS SENT TO
  CENTRAL PROCESSING UNIT
• SBA REVIEWS CREDIT ANALYSIS
• THIS DELIVERY FORM CAN BE USED FOR ALL ELIGIBLE
  7(a) LOANS

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PREFERRED LENDERS PROGRAM (PLP)

• LENDER DEMONSTRATES COMMITMENT TO EXCELLENCE IN
• PROCESSING
• SERVICING
• LIQUIDATION OF SBA LOANS
• RESULTS IN QUICKER PROCESSING OF LOAN APPROVAL
• SBA DOES NOT REVIEW CREDIT
• PROCESSING CENTER IN SACRAMENTO

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SBAEXPRESS

• BANK HAS CREDIT AUTHORITY
• BANK GENERALLY USES ITS OWN FORMS
• CENTER DETERMINES ELIGIBILITY
• 24 HOUR RESPONSE TIME AT PROCESSING CENTER
• LOANS PROVIDED WITH 50 GUARANTEE

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CERTIFIED DEVELOPMENT COMPANY
504 Loan Program

• Project financing vehicle for long-term,
  fixed-rate financing for purchasing or
  constructing facilities or for purchasing
  machinery equipment
• Maximize public/private sector financing
• Fulfill community/public policy goals
• Source of job creation

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Typical 504 Project

• Use of proceeds to purchase land and building for
  expanding business
• Borrower provides at least 10 percent equity

• First mortgage lender provides 50 percent of
  financing (no SBA guaranty)
• SBA provides balance of financing secured by
  second mortgage

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MECHANICS OF PROJECT FINANCING

• Borrower obtains first mortgage loan from 3rd
  party lender.
• Borrower is approved for subordinate note from
  CDC.
• CDC sells subordinate note to public debenture
  vehicle and issues proceeds to borrower.
• Debenture is sold to investors with full faith
  and credit provision.
• Borrower has two separate fixed-rate note
  payments.

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Certified Development Companies (CDCs)

• CDCs are nonprofit organizations established to
  promote economic development
• SBA certifies and regulates CDCs
• There are approximately 270 CDCs nationwide

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Debentures

• Maturities of 504 loans are for 10 or 20 years
• Funds to the small businesses come from investors
  who buy shares in the pooled debentures for that
  month

• The loan rate is established at the time the
  debenture is sold and is fixed for the term
• There is a declining prepayment penalty extending
  for 1/2 the maturity of the debenture

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Maximum Debenture Size

• Public Policy Goal Loans - 4.0 million for
  manufacturers. Otherwise, 2.0 million
• Other Goals - 1.5 million
• 20 billion outstanding

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Office of Entrepreneurial Development

• AICPA Web Forum
• May 13, 2008

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Office of Entrepreneurial Development

• The OED oversees a network of programs and
  services that support the training and counseling
  needs of small businesses. It is SBAs technical
  assistance arm with resource partners located
  throughout the country.
• Provide services to 1.4 million business clients
  annually and information and training to an
  additional million through SBAs website.

Anoop PrakashAssociate AdministratorOffice of
Entrepreneurial Development
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Small Business Development Centers (SBDCs)

• The U.S Small Business Administration (SBA)
  administers the Small Business Development Center
  Program to provide management assistance to
  current and prospective small business owners.
  SBDCs offer one-stop assistance to individuals
  and small businesses by providing a wide variety
  of information and guidance in 63 networks with
  over 950 locations.
• The program is a cooperative effort of the
  private sector, the educational community and
  federal, state and local governments. It
  enhances economic development by providing small
  businesses with management and technical
  assistance through counseling and training.
• Emphasis on long-term counseling.
• http//www.sba.gov/aboutsba/sbaprograms/sbdc/index
  .html

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Womens Business Centers

• The Office of Women Business Ownership provides
  oversight of the WBC program. OWBO promotes the
  growth of women-owned businesses through programs
  that address business training and technical
  assistance, and provide access to credit and
  capital, federal contracts, and international
  trade opportunities.
• There are 113 WBCs across the country in 44
  states and 2 US territories providing
  community-based services tailored to local needs.
• Special target socially and economically
  disadvantaged women.
• Provide counseling and training in finance,
  management, marketing, procurement, and the
  Internet.
• www.sba.gov/women

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SCORE

• Representing Counselors to Americas Small
  Business, SCORE is a nonprofit association
  dedicated to providing entrepreneurs with free,
  confidential face-to-face and email business
  counseling from its 10,500 volunteers.
• The national SCORE program provides workshops and
  free business counseling through 389 chapters at
  over 800 service delivery locations across the
  country.
• Provides 24/7 online counseling.
• Emphasis on core coaching for nascent and
  start-up businesses.
• www.score.org

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ED Initiatives

• Emerging 200
• E200 has also been launched in eleven
  participating cities Boston, Philadelphia,
  Baltimore, Atlanta, Memphis, Chicago, New
  Orleans, Albuquerque, Des Moines, Milwaukee, and
  Oakland. E200 is a training initiative targeted
  to inner city companies showing promise for
  growth. The companies that will most benefit
  from the training are those that have been in
  business for at least three years and have
  revenues of at least 400,000
• ED Annual Report
• OED will be issuing a first-ever annual
  report by June 1, 2008. This report gives
  transparency to the process and lays out new
  effectiveness metrics used to evaluate the
  performance of our resource partners provide
  independent customer service validation, and set
  forth strategic issues for the future
• ED Impact Study
• The ED Impact Study was designed to target OED
  programs over a period of years measuring all
  appropriated partner resources in a consistent
  and simultaneous manner. The study examines three
  key indicators
• Client Value-Added Measures measuring the
  clients perception of service provide.
• Managerial, Marketing Operations, Implementation
  measuring the extent the client implemented
  changes to their managerial and marketing
  operations.
• Economic Impact measuring the change in the
  clients business revenue, employment based on
  the face to face counseling received and new
  business starts.  
• Results of the survey show that OED resources
  served a broad spectrum of clients and that
  those clients reported, albeit a small sample,
  positive economic impacts.
• International Visitors
• International Visitors Service provides
  general briefings on the American free-enterprise
  system and SBAs unique role in entrepreneurship.
  In 2007 ---134 countries 1106 visitors.
• Co sponsorships
• Junior Achievement co sponsorship for
  young entrepreneurs online at www.mindyourownbiz.o
  rg.
• Online library http//www.sba.gov/tools/resource
  library/publications/index.html

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Small Business Training Network

• This online training network is a virtual campus
  providing quality and targeted online training to
  meet the information needs of prospective and
  existing small business owners.
• It is an E-Government initiative, powering a
  comprehensive menu of business courses, designed
  to serve more customers, more efficiently. The
  Training Network operates like an electronic
  umbrella under which many SBA and agency resource
  training programs are captured, aggregated,
  sorted by content and made available in multiple
  formats.
• Over 1000 persons a day are taking courses.
• http//www.sba.gov/services/training/index.html

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Helping Your Clients Succeed in the Federal
Procurement Market

• Tony Robinson
• Office of Government Contracting
• U.S. Small Business Administration

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Government Prime Contracting Market

• 340 Billion in Fiscal Year 2006
• 77 Billion Awarded to Small Businesses

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Government Prime Contracting Goals

• 23 Prime Contracts
• 5 Small Disadvantaged
• 3 percent Hubzones
• 5 Women-Owned Small Businesses
• 3 Service Disabled Veteran Owned Small Busineses

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Government Subcontracting Contracting Goals

• 40 of all Subcontract Dollars (est.)
• 5 Small Disadvantaged
• 3 percent Hubzones
• 5 Women-Owned Small Businesses
• 3 Service Disabled Veteran Owned Small Businesses

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SBA Tools and Resources

• Contract Set Asides
• Procurement Center Representatives (PCRs)

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New Trends

• Best Value
• greatest overall benefit means greater
  contracting officer discretion Lowest price is
  not necessarily determinative
• Past Performance is key
• To be successful small businesses need to perform
  according to contract specifications.
• Customer Satisfaction is essential for success.

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Small firms face new challenges in the
acquisition arena

• Acquisition Reform
• Fewer acquisition personnel
• New Acquisition Vehicles
• New paradigms
• Internet
• E-commerce

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New Opportunities

• Hubzones
• Service Disabled Veteran Owned Small Businesses
• Teaming Arrangements
• SBIR
• http/www.sba.gov/gc

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Best Practices

• Get Tech
• Web page, credit card, e-mail (mandatory)
• Get Registered
• http//www.ccr.gov/
• https//www.fbo.gov/
• Get Scheduled
• GSA schedules are large growing very rapidly
• http//wwwGSA.gov

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Best Practices

• Get Real
• federal market may not be right, try local first
• Get Personal
• Know your buyer, personal relationships count
• Get Commercial
• Recognize the new commercial emphasis
• Get Specific
• Target your market

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8(a) Business Development

• promote the business development of small
  business concerns owned and controlled by
  socially and economically disadvantaged
  individuals
• promote the competitive viability of such
  concerns
• clarify and expand the program for procurement
  by the United States

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8(a) Business Development

• Initial Eligibility Determination
• Annual Program Review
• Management Technical assistance
• Mentor Protégé
• Joint Venture
• Surplus Property
• Contract Assistance
• Sole Source (5.5 million for manufacturing and
  3.5 million for all other contracts)
• Limited Competition

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8(a) Business Development

• During FY 2006
• 9,000 firms
• More then 1,600 training sessions
• 12.4 billion in contracts
• Since 8(a) Inception
• More Than 120 billion in contract support

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8(a) Contracting

• FY 1999 - 6.3 B (3.39)
• FY 2000 - 5.7 B (2.88)
• FY 2001 - 6.3 B (2.86)
• FY 2002 - 5.7 B (2.39)
• FY 2003 - 10.1 B (3.64)
• FY 2004 - 8.4 B (2.81)
• FY 2005 - 11.7 B (3.68)
• FY 2006 - 12.4 B (3.67)

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Small Disadvantaged Business Certification

• Initial Eligibility Determination
• Re-certification Determination

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SDB Contracting

• FY 1999 Goal - 5 Actual - 6.2 B (3.31)
• FY 2000 Goal 5 Actual - 7.2 B (3.61)
• FY 2001 Goal 5 Actual - 15.6 B (7.12)
• FY 2002 Goal 5 Actual - 15.9 B (6.75)
• FY 2003 Goal 5 Actual - 19.5 B (7.01)
• FY 2004 Goal 5 Actual - 18.5 B (6.18)
• FY 2005 Goal 5 Actual - 20.9 B (6.55)
• FY 2006 Goal 5 Actual - 22.9 B (6.76)

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U. S. Small Business Administration
DISASTER ASSISTANCE Federal Disaster Loans
for Homeowners, Renters and Businesses of All
Sizes
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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

• After hurricanes, floods, earthquakes, wildfires
  and other disasters, SBA disaster loans are the
  primary form of Federal disaster assistance for
  the owners of private property.

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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

Not Just for Small Businesses

• SBA disaster loans for property damages are
  available to homeowners, renters, businesses of
  all sizes, and private, non-profit organizations.

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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

Disaster Loans Help Recovery

• Disaster losses are unexpected and create
  financial hardships for most disaster victims.
• SBA disaster loans with low interest rates and
  long terms make recovery affordable.

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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

• SBAs disaster loans are a critical source of
  economic stimulation in disaster-ravaged
  communities.
• They help spur employment and stabilize tax
  bases by protecting jobs.

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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

Making Recovery Affordable

• The law gives SBA several powerful tools to
  make disaster loans affordable
• low interest rates (about 3-4)
• long terms (up to 30 years)
• refinancing of prior debts (in some cases)

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U. S. S m a l l B u s i
n e s s A d m i n i s t
r a t i o n

• SBAs role in disaster recovery

Types of Disaster Declarations

• When the President declares a Major Disaster
  Declaration for Individual Assistance, SBAs
  disaster loan program is automatically activated.

President George W. Bush
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• SBAs role in disaster recovery

Types of Disaster Declarations

• For smaller disasters, SBAs Administrator may
  issue an SBA-only declaration (called an Agency
  or Administrative declaration).

SBA Administrator Steve Preston
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Loan Limits
Home Repair/Replace Real Estate 200,000 Per
sonal Property 40,000 Refinancing (in some
cases) 200,000 Mitigation (up to 20)
48,000
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Loan Limits
Business Repair/Replace Real
Estate/Machinery/Equip./ Furniture and
Fixtures 1.5 Mil Economic Injury
(EIDL) 1.5 Mil (Combined loan limit
is 1.5 Mil)
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Loan Limits

• The 1.5 million statutory limit applies to the
  total of all loans to a single borrower and its
  affiliates.
• If a business is a Major Source of Employment,
  SBA may waive the statutory limit.

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• Current Interest rates

Home Business Non-Profit EIDL No Credit
Avail. 2.687 4.00 4.000 4.000 Credit Avail.
5.375 8.00 5.250 N/A Credit available
elsewhere means that the disaster victim can
provide for their own recovery through
private sector borrowing on reasonable rates
and terms without causing financial
hardship. SBA makes the majority of disaster
loans at the lower interest rates
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• Loan Terms
• SBA determines the loan term in accordance with
  each borrowers ability to repay.
• The maximum term is 30 years.

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Credit Requirements

• Credit History
• Applicants must have a credit history acceptable
  to SBA.

• Repayment
• Applicants must show the ability to repay all
  loans.

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Refinancing

• In cases with substantial damage (generally 40)
  SBA may refinance recorded liens on real estate
  or machinery and equipment.
• Liens eligible for refinancing
• Home loans - real estate liens only
• Business loans - real estate and chattel (UCC
  filings) liens

Note Existing Federal loans are not eligible for
refinancing.
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Collateral Requirements

• Physical loans over 10,000 require collateral.
• EIDLs over 5,000 require collateral.
• SBA takes real estate as collateral when it is
  available.
• SBA will not decline a loan for lack of
  collateral, but requires you to pledge what is
• available.

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Loan Eligibility Restrictions

• Only disaster losses not fully compensated by
  insurance or other recoveries are eligible.
• Applicants who have not complied with terms of
  previous SBA loan agreements (e.g. failure to
  maintain required insurance) are not eligible.
• Hobby businesses are not eligible.

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Loan Eligibility Restrictions
The types of businesses ineligible for EIDLs
include

• Speculative businesses
• Nonprofit organizations
• Multi-level sales organizations (pyramids)

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Relocation
Relocation occurs any time the victim either
elects to move, or is required to move, from the
damaged property to any other location.
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Relocation

• Applicants are required to provide details
  regarding their relocation plans, if known. SBA
  must approve the plan.
• - Address
• - Cost breakdown of property to be
  acquired or leased

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Insurance Requirements

• SBA requires borrowers to obtain
  and maintain appropriate insurance as a
  condition of most loans.

Hazard insurance - Required on all secured loans.
Flood insurance - Required for property located
in a Special Flood Hazard Area (SFHA) flood
disasters.
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Application/Appeal Process

• Original request
• Reconsideration - 6 months deadline to seek
  reconsideration
• Appeal - 30 days to request a final appeal

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Filing Deadlines
Physical 60-days from date of declaration EIDL
9-months from date of declaration For
Presidential declarations FEMA may extend the
filing deadline for all Federal programs,
including SBA.
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FOR MORE INFORMATION

• U. S. Small Business Administration
• Disaster Assistance Customer Service Center
• [phone]
• TTY [phone]
• or
• Visit our website at www.sba.gov/services/disaster
  assistance

Federal Regulations 13 CFR 123
U. S. Small Business Administration