Government Guaranteed Loans

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Government Guaranteed Loans

• Presented by
• Bill Hartley
• President, 1st American Business Capital, LLC

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Types of Government Guaranteed Loans

• SBA 7(a) and 504
• USDA Business and Industry (BI)
• Other (BIA, OPIC, etc.)

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1st American Business Capital focuses on.

• SBA 7(a)
• USDA Business and Industry (BI)

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Small Business Administration (SBA)

• 75 guarantee to lender up to 2 million
• Loan Sizes are typically 250 thousand to 2
  million
• Loan Proceeds can be used for Debt Refinance,
  Expansion, Equipment Purchase, and Working Capital

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USDA Business and Industry (BI)

• 80 guarantee to lender up to 5 million and 70
  guarantee to lender up to 10 million
• Loan Sizes are typically 1 million to 10
  million
• Loan Proceeds can be used for Debt Refinance,
  Expansion, Equipment Purchase, and Working
  Capital

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Typical Collateral for Government Guaranteed Loans

• Commercial Real Estate
• Residential Real Estate
• Equipment
• Accounts Receivable and Inventory are typically
  not taken as collateral but can be depending on
  the deal.
• Some loans may be under collateralized if
  cashflow is strong.

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Commercial Real Estate

• Advance rates up to 90 of appraised value
  (including special purpose properties)
• Typically 50-65 of raw land value
• Loan terms are 25 years for SBA and 30 years for
  USDA

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Residential Real Estate

• Lenders will typically take residential real
  estate as additional collateral when a borrower
  doesnt have sufficient collateral to qualify for
  a loan or as an abundance of caution.
• Advance rates are typically 80 of the market
  value less any outstanding mortgages on the
  property.

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Equipment

• Advance rates are typically 50-65 of the market
  value
• Loan Terms are 10 years for SBA and 15 years for
  USDA (or useful life)

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Who and Where?SBA Guaranteed Loans

• Generally, SBA guaranteed loans can be made to
  for profit businesses that are owned by a U.S.
  Citizen or permanent resident. The business
  itself can be located in either urban or rural
  areas.
• There are size standards associated with SBA
  loans, which include maximum number of employees
  or sales volumes.
• Generally, manufacturing businesses must have
  less than 500 employees while service businesses
  must have less than 5-21 million in annual
  sales, depending on business type.
• www.sba.gov will provide size standard
  information.

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Who and Where?USDA Guaranteed Loans

• Generally, USDA guaranteed loans can be made to
  for profit or not for profit businesses that are
  at least 51 U.S. Citizen owned and are located
  in rural areas.
• Rural areas are defined as those towns or cities
  with 50,000 population or less.
• Size standards do not apply for USDA guaranteed
  loans.

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Why Government Guaranteed Loans?

• A government guaranteed loan will allow the small
  business owner the opportunity to (1) borrower a
  greater amount against fixed assets, and (2)
  extend terms so that monthly payments are lower
  as compared to conventional bank financing.
• Because of the government guarantee, most lenders
  will not require that accounts receivable or
  inventory be taken as collateral. They prefer
  that these assets be left unencumbered so that
  the business can obtain working capital.

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ABC TruckingTrue Life Example

• 3 million USDA guaranteed term loan
• 15 year amortization resulted in reducing monthly
  payments from 90 thousand to approximately 25
  thousand.
• Lender required that the borrower obtain a 600
  thousand commitment for working capital as a
  condition to closing its loan.

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Balance SheetPre-Closing
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Use of Proceeds

• Cash 150,000
• Closing Costs 100,000
• Accounts Payable 384,200
• Debt Refinance 2,365,800
• TOTAL 3,000,000

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Balance SheetPost Closing
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Terms of Loan

• 15 Years, Fully Amortizing
• No Balloons and no calls
• WSJ Prime 2
• 1 Origination Fee
• 48,000 USDA Guarantee Fee
• 5,4,3,2,1 Prepayment Penalty

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Collateral Package(000)
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Benefits to Borrower

• Cash Balance went from negative to positive at
  Closing
• Working Capital was a negative 1.5 million prior
  to loan closing, but increased to a positive 86
  thousand after loan closing
• Reduce Monthly Payments from 90 thousand to
  25 thousand
• Cash savings of 780 thousand annually
• Gave the owner the ability to manage his business
  again instead of managing his cash position every
  day.

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Typical Borrower Profile

• Company is either (1) a start-up, (2) has been in
  business a short time but has experienced better
  than average growth, which has been financed
  through a hodge podge approach thereby
  straining its balance sheet, or (3) is an older
  company that is facing a changing business
  environment or has lost a major customer and
  needs to restructure its balance sheet to
  survive.
• Company has some hard assets, including real
  estate (but this isnt always necessary if cash
  flow is strong).

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Borrower Profile, Cont.

• Borrowers cash and working capital position are
  both relatively weak.
• Borrower may be in an industry that is out of
  favor.
• Borrower may have special purpose property for
  collateral that most lenders will not accept as
  collateral.
• Personal guaranty is not very strong.

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Typical Industries

• Manufacturing
• Service Companies that own or lease their real
  estate facilities
• Hotel/Motel
• Restaurant
• Assisted Living Facilities
• Entertainment