Georgia Department of Community Affairs _______________________________

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Georgia Department of Community
Affairs_______________________________

• State Small Business Credit Initiative

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History Background of State Small Business
Credit Initiative (SSBCI)

• Component of Small Business Jobs Act,
• bi-partisan legislation signed into law on
• Sep. 27, 2010
• 1.5 billion set aside for SSBCI to strengthen
  state-run lending programs that support small
  businesses
• Georgias allocation is 47,808,507
• (top 10 among states in amount).

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Advantages and Opportunities for Georgia Lenders

• Credit enhancements to strengthen marginal loans
• Delegated lending - Lenders manage underwriting
  process
• SSBCI program - quick turnaround and streamlined
  format
• Opportunity for CRA credit

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Georgia SSBCI Programs

• GCAP (Georgia Capital Access Program)
• Provides portfolio insurance with borrower and/or
  lender fees that are placed in a loan loss
  reserve fund
• SBCG (Small Business Credit Guarantee)
• 50 loan guarantee with a conversion option into
  a risk reserve pool offering up to 80
  reimbursement
• Georgia Funding for Community Development
• Financial Institutions (CDFIs)
• Loan participation program specifically designed
  to increase capital to underserved small
  businesses

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SSBCI General Eligibility Criteria

• Loan proceeds can be used for eligible business
  purposes, including
• Start-up costs
• Working capital
• Business procurement, franchise fees
• Equipment inventory
• Purchase, construction, renovation, or tenant
  improvements of eligible place of business

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SSBCI Eligibility Criteria (cont.)

• Eligible small businesses include corporations,
  partnerships, joint ventures, cooperatives, sole
  proprietorships, state-designated charitable
  other
• non-profit institutions.
• Participating lenders and borrowers will be
  required to provide certain assurances and
  certifications as required by US Treasury SSBCI
  guidelines.

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GCAP (Georgia Capital Access Program)
Description

• GCAP provides portfolio insurance to lenders by
  requiring insurance premiums to be paid, by the
  borrower and lender, into a loan loss reserve
  fund for each loan enrolled.
• Eligible lenders include banks, credit unions,
  and CDFIs, as defined by SSBCI Act.
• Each financial institution has a separate loan
  loss reserve fund managed by GCAP.

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GCAP - Program Terms Conditions

• Borrower lender make contributions to loan loss
  reserve account, from 2 to 7. (Borrower may pay
  lenders contribution vice versa contributions
  may be financed.)
• Federal SSBCI funds (GCAP) will match borrower
  lender contributions to loan loss reserve account
  at 11 ratio, but cannot exceed 7 match (SSBCI
  statutory limitation).

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GCAP - Terms Conditions (cont.)

• Lender must have meaningful amount of its own
  capital at risk (generally defined as 20).
• Qualified small business borrowers will have
• lt 500 employees.
• Loans will not exceed 500,000, with exceptions.
• GCAP lenders must submit plan for reaching
  underserved communities. (Existing CRA plan
  generally will suffice.)

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GCAP CASE SAMPLE Bldg Expansion Inventory for
Small Business
Total Project Cost 1,500,000
- Private Bank Financing 1,350,000
- Borrower Equity 150,000
- GCAP enrolled loan amt 500,000 (amts gt 500k require exception)
Lender/Borrower Fee 20,000 (assuming 4 fee)
GCAP Match 20,000
Total Placed in Reserve 40,000
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Small Business Credit Guarantee (SBCG)
Description

• The (SBCG) Program will provide a 50 loan
  guarantee with a conversion option.
• The conversion option under the loan guarantee
  enables financial institutions to build a Risk
  Reserve Pool (RRP) held by the State in a
  centralized fund.
• Enrolled loans are covered with a 50 loan
  guarantee loans converted to the RRP can be
  covered up to 80.
• SSBCI funds are leveraged with private capital
  from eligible lenders (banks, credit unions,
  qualified private lenders, and CDFIs).

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SBCG Description (cont.)

• Financial institutions will be incentivized to
  leverage private lending at 101 through the
  conversion option.
• Financial institutions decide when to convert
  their 50 loan guarantee to the RRP.
• 10 of the balance on a converted loan will be
  transferred to the RRP.
• Under the RRP, the lender may receive up to 80
  reimbursement for losses on individual credits.
• Reserves can cover losses on any enrolled loans.

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SBCG - Program Terms Conditions

• Borrower fees 2 first 12 months, 0.5 annually
  thereafter (paid at closing and beginning of year
  for term loans, deducted pro-rata as advances are
  made on LOCs)
• Maximum loan amount will generally be 500,000.
  (Higher amounts may be approved by DCA on an
  exception basis.)
• Concentration limit - The 50 guarantee on the
  SBCG Pool will be limited to 4 million.
• Lender concentration limit Max combined
  guarantees under 50 loan guarantee pool 10
  RRP outstanding at any time to a single lender
  generally will be 5 million.

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SBCG - Terms Conditions (cont.)

• Max terms for SBCG guarantee
• Lines of credit - 24 months
• Amortizing loans 48 months
• Deficiency guarantee Lender must diligently
  pursue collection of amounts owed by the borrower
  prior to filing claim
• RRP will be held by State, not lenders
• 80 limit on reimbursement of losses (to preserve
  20 lender capital-at-risk)
• Targeted to borrowers with 500 or fewer employees

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SBCG Case Sample Accounts Receivable for
Software Small Business
50 Guarantee Pool Risk Reserve Pool
Total Project Cost 250,000
- Conventional Bank 200,000
- Borrower Equity 50,000
- SBCG Guaranteed Amt 100,000
Initial Fee 2 2,000 NA
Annual Fee ½ of 1 of guarantee balance 0
Contribution to RRP assuming loan balance of 180,000 at the end of Yr 1 20,000 (10 of loan balance plus initial fee)
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GA Funding for Community Development Financial
Institutions (CDFIs) - Description

• GA Funding for CDFIs is a loan participation
  program specifically designed to increase access
  to capital for Georgias underserved small
  businesses (minority- and women-owned small
  businesses, and small businesses located in low-
  and moderate-income, minority, and other
  underserved communities).
• CDFIs are private financial institutions
  certified by the U.S. Treasury to provide credit
  and financial services to underserved markets and
  populations.

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GA Funding for CDFIs - Program Terms Conditions

• Target loan amount of 100,000 to 250,000.
• Targeted to borrowers with 500 or fewer employees
• State will accept subordinated collateral
  position behind other project lenders.
• State expects CDFIs to offer interest rates on
  SSBCI loans that are lower than participating
  private lenders, for lower blended rate to
  borrower.

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GA Funding for CDFIs - Thresholds

• To meet US Treasury SSBCI threshold of 11 for
  private to public funding, banks and other
  investors participating with CDFIs must have 50
  capital-at-risk (including borrower equity).
• CDFIs are encouraged to leverage SSBCI funds to
  greatest extent possible to meet 101 ratio of
  private financing to public financing.

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GA Funding for CDFIs Program Terms and
Conditions

• State will enter into performance-driven,
  contractual relationship with CDFIs.
  Participating CDFIs will earn fees for
  underwriting, closing, and servicing SSBCI loans,
  and may participate in one of two capacities
• Loan originator/servicer State forwards SSBCI
  funds directly to borrower.
• Contracting entity State forwards SSBCI funds
  to CDFI CDFI loans SSBCI funds to borrower.
  CDFI may retain SSBCI loan payments and revolve
  these funds into future SSBCI projects, subject
  to State SSBCI regulations and approval by US
  Treasury.

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GA Funding for CDFIs Case Sample Bldg
renovation equipment for restaurant
Total Project Cost 600,000
- Private Bank Financing 440,000
- Borrower Equity 60,000
- CDFI (with SSBCI funds) 100,000
Terms Private bank 1st lien on bldg equip State second lien
Bank interest rate 6 CDFI interest rate 5
Contracting entity CDFIs retain and revolve interest and principal payments into new SSBCI projects.
Originator/servicer CDFIs receive principal interest payments and remit them to state CDFI fund.
Both contracting entity originator/servicer CDFIs earn fees for loan underwriting, closing and servicing.
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Getting Started What You Need to Know

• Vetting Process for Participating Lenders
• Program Participation Agreements
• Loan Enrollment Procedures
• Transaction Documents
• Reporting Requirements Compliance

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Step 1 - Georgia SSBCI Vetting Process

• Eligible Lenders for GCAP (banks, CDFIs, and
  credit unions) and SBCG (banks, CDFIs, credit
  unions, qualified private lenders) will be
  evaluated on following criteria
• Adequate management lending experience
• Financial capacity and ability
• Additional lender criteria for SBCG private
  lenders
• DCA will partner with GA. Department of Banking
  Finance to ensure participating financial
  institutions are sound.

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Step 1 - Vetting Process (cont.)

• CDFIs seeking participation in GA Funding for
  CDFIs will be evaluated on the following
  criteria
• Legal structure (min two yrs as Georgia-based
  corporation, CDFI Treasury certification)
• CARS Rating or equivalent info (management
  capacity, business history/service area,
  underwriting)
• Participation as a contracting entity has
  additional requirements
• Qualified non-profit, non-depository CDFIs
• Respond to RFQ

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Step 2 Program Participation Agreement

• Each lender approved for participation in the
  Georgia SSBCI program (GCAP, SBCG, and GA Funding
  for CDFIs) must sign a Program Participation
  Agreement with DCAs Georgia Housing Finance
  Authority Economic Development Financing, Inc.
  (GHFA EDFI)
• The Agreement contains terms and limitations of
  state and federal SSBCI regulations.

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Step 3 Enrolling Loans

• Lender determines if borrower is good candidate
  for SSBCI funding (meets basic eligibility
  requirements and just outside of conventional
  lending parameters).
• Lender reviews Borrower Certification Form and
  SSBCI requirements with borrower.
• Lender performs underwriting.
• Lender submits required loan documentation to
  State.

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Transaction Documents

• General Forms Applicable to All GA SSBCI Lenders
• Borrower Certification and Enrollment Form
• Loan Filing Form and Lender Certification
• Sex Offender Certification
• Loan Renewal Form

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Additional Transaction Documents

• GCAP Notice of Material Change or Extension,
  Claim Form, Follow-up Claim Form
• SBCG Loan Enrollment Acknowledgement Form,
  Notice of Transfer from Loan Guarantee Pool to
  RRP, Claim Form
• GA Funding for CDFIs Loan Enrollment
  Acknowledgement Form

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SSBCI Reporting Requirements

• Lenders will supply required information to the
  State State will forward required reports to US
  Treasury.
• Quarterly Reports
• Total amount and use of allocated funds, program
  income generated, and charge-offs
• SBCG lenders also required to file monthly
  reports
• Annual Reports
• Transaction-level data for each SSBCI-backed
  loan, plus subsequent private financing for OCSP
  loans

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Contact Information

• Holly Hunt, SSBCI Program Manager
• [phone] holly.hunt_at_dca.ga.gov
• Joanie Perry, Director Office of Economic
  Development
• [phone] joanie.perry_at_dca.ga.gov
• Brian Williamson, Assistant Commissioner
• [phone] brian.williamson_at_dca.ga.gov
• John Kingery, Credit Manager
• [phone] john.kingery_at_dca.ga.gov
• www.georgia-ssbci.org