Contacts: Jim McClure, Director Finance Programs John Reichard, Senior Loan Officer Tim Kishbach, Senior Loan Officer (c

1. SEDA-COG Local Development Corporation201 Furnace RoadLewisburg, PA 17837(570) 524-4491Fax (570) 524-9190Toll Free 800-326-4086Home Page: http://finance.seda-cog.org Contacts: Jim McClure, Director Finance Programs John Reichard, Senior Loan Officer Tim Kishbach, Senior Loan Officer (cell 570-847-9531) Mike Mignogna, SBA Specialist

2. SBA 504 Loan Program • The Small Business Administration (SBA) 504 Loan Program is a long-term, fixed asset financing program, which offers small businesses fixed interest rate loans with terms of 10 or 20 years. • The vehicle for these loans is a public sector, not-for-profit company designated as a Certified Development Company. SEDA-COG LDC is your local Certified Development Company. • INTENT AND GOAL: The intent of the SBA 504 Program is to stimulate local investment and create new, or save existing jobs.

3. SBA 504 Loan Program • ELIGIBLE PROJECTS: The program is available to start-up and successful small businesses planning an expansion or asset purchase. Eligible businesses with a three year track record and stable cash flow are desirable. • An eligible business must be a for-profit corporation, partnership or proprietorship. The Net Worth of the business must not exceed $8.5 million and Average Net Profit after tax must not exceed $3.0 million for each of the last two years. Option to look at 7a regulations to determine eligible size. • An ineligible business is one that is a not-for-profit organization, speculation project, gambling facility, monopoly, pyramid sales, offshore facility, or illegal activity, etc...

4. SBA 504 Loan Program • USE OF PROCEEDS: • Purchase of existing buildings • Purchase of land and land improvements • Construction • Modernization, renovation, or conversion of existing facilities • Purchase of machinery and equipment • Contingency reserve for cost overruns up to 10% • Professional fees (surveying, engineering, architectural, appraisal) • Repayment of interim financing, including fee and interest expense • COLLATERAL: • Mortgage on the land and building being financed, liens on machinery, equipment and fixtures, and lease assignments

5. SBA 504 Loan Program • JOB CREATION: • 1 job created and/or retained for every $65,000 in SBA funds ($100,000 for manufacturers) • PUBLIC POLICY GOALS (PPG): • Target areas for SBA lending • Women-owned business • Veteran-owned business • Minority-owned business • Rural Development • Business District Revitalization (ex. KOZ sites) • Expansion of Exports • Enhanced Economic Competition • Energy Projects • Impact job creation criteria and maximum loan size

6. SBA 504 Loan Program • TERMS: (a typical project) • The 504 loan program is a dual program which involves the SBA, through SEDA-COG, and a private lending source. Private lenders (banks) constitute 50% of the SBA 504 project total, using their normal credit terms. The SBA/SEDA-COG constitutes 40% of the project total (35% for start-ups), and the Business Borrower makes up 10% of the project total (15% for start-ups). The maximum participation for SEDA-COG is $1,500,000 (gross amount). Public Policy Goal projects up to $2,000,000 (gross amount). Manufacturers can access up to $4,000,000 (gross amount). The minimum is $50,000. • SBA 504 loans are generally second mortgage loans for 40% of the total costs. The private lending source is generally a bank. The rate charged by the private loan is set by the private lender and may be fixed, variable, or floating. The term is also set by the private lender, but must be at least a 10 year amortization on construction and building acquisition or a 7 year amortization for machinery and equipment projects. Call features are allowed, but not before the minimum term.

7. SBA 504 Loan Program • LOAN RATES: • The rate fluctuates with the market and is set once a month for loans that have closed the previous month. • When a loan funds, the rate is fixed and remains constant over the life of the loan. • LOAN FEES: • SEDA-COG charges a 1 ½% Commitment Fee, a $2,500 Legal Fee, and a .05% Monthly Servicing Fee. Other SBA Closing and Monthly Fees apply. All fees get added to the net loan amount and are built into the monthly payment. • All SBA 504 projects require an initial Processing Fee deposit equal to 1% of the loan or $2,500, whichever is less. In almost all cases, the entire amount is returned to the borrower.

8. SBA 504 Loan Program • OTHER CONDITIONS: • Debenture proceeds must be used for permanent financing of long-term assets. Interim financing may be required in order to bridge the gap between the loan approval date and receipt of funding from the debenture. • Personal guarantees from all persons who own 20% or more of a Small Business are required. • There is only a minimal borrower equity injection requirement which enables the business to have adequate working capital to sustain itself. • Ineligible purposes for 504 loans include: • Working Capital, debt consolidation or repayment; refinancing; financing a plant not located in the U.S. • The bank will incur a participation fee at the time of closing which will constitute 1/2 of 1% of the bank’s portion of the project total that is ahead of the SBA in collateral position. This fee can be waived with a shared lien/mortgage between the bank and the SBA.

9. Project Examples

10. Uses Land $307,000 Building $4,862,849 Professional Fees $628,100 Other $1,001,436 Total $6,799,385 Sources • Bank $3,682,859 • SBA $626,000 • PIDA $1,665,741 • Equity $724,785 • Total $6,799,385

11. Uses Land $340,000 Building $600,700 Professional Fees $54,750 Total $995,450 Sources • Bank $497,725 • SBA $398,188 • Equity $99,537 • Total $995,450

12. Uses Equipment $2,100,000 Ancillary M&E 402,000 Contingency 100,000 Total $2,602,000 Sources • Bank $1,266,000 • SBA 974,000 • SEDA-COG EDA RLF 100,000 • Equity 262,000 • Total $ 2,602,000

13. Uses Land $ 250,000 Building $1,200,000 Equipment $1,000,000 Soft Cost $50,000 Total $2,500,000 Sources • Equity $250,000 • SBA 504 $980,000 • RLF $100,000 • PIDA $580,000 • Bank $590,000 • Total $2,500,000

14. Testing Laboratory L & B Auto Dealership L & B Vegetable Canning M & E Pre Press Graphics L & B Quarry Company M & E Scientific Oven Manufacturer L & B Supermarket L & B Tour Buses Company M & E Box and Display Manufacturer M & E Mail Forwarding Company L & B Machine Tool Equip. Whole. L & B Electronics Manufacturer M & E Engineer & Design Company L & B Truck/Trailer Sales and Service L & B Hotel/Motel L & B Home & Business Security Co. L & B Moving and Storage Company L & B Trucking Company L & B Arts Academy L & B Catering Company L & B Tool and Die Manufacturer M & E Orthopedic Group L & B Furniture Manufacturer L & B Machine Shop L & B Weather Forecasting Company L & B Printing Company L & B Apparel Manufacturer L & B Plastic Resin Manufacturer L & B Pre-School Learning Center L & B Restaurant L & B Companies Served by the 504 Program through SEDA-COG

15. SBA 504 ProgramBank Advantages

16. SBA 504 ProgramBank Advantages Splits the risk in the project between the bank and the SBA 50% 40% 10%

17. Cash Flow Management for your Small Business Client SBA 504 ProgramBank Advantages (Long-term, Fixed Rate, Minimum Equity)

18. SBA 504 ProgramBank Advantages • Finance larger projects by spreading risk with lower loan to value ratio • Finance in specialized markets and/or specialized equipment (case by case basis) • Gives your small business client access to capital markets without the high expense of bond council • Blended fixed/variable rate with re-pricing capability • Primary lending term shorter than 504 program 7/10 and 10/20 (bank has 1st mortgage or lien and gets paid out first)

19. SBA 504 ProgramBank Advantages • A large portion of the project is financed at a fixed rate • Offers creative financing to differentiate your bank in the market place • Hedge your client’s exposure to rate increases as prime changes • Gives your client a cushion in their credit limit and allows you to keep those cultivated relationships without effecting your legal lending authority

20. SBA 504 ProgramBank Advantages • The long term fixed rate leaves more money available in your customer’s cash flow to pay your debt service • CRA credits on SBA portion • Spread your project risk - 50% Bank; 40% SBA; 10% Equity financing • Secondary market for the purchase of the first lien mortgage

21. Temporary SBA 504 Changes • Changes will be in effect until 12/31/09 or until funds are exhausted • Fees eliminated under the 504 program (savings is approximately 87 basis points) including the Third-Party Participation Fees and the CDC Processing Fees

22. Permanent SBA 504 Changes • Job creation guideline increased to: 1 job created/retained for every $65,000 borrowed (up from $50,000) • Some refinancing to be allowed in “eligible project costs” for SBA funding

23. Thank You • Thank you for the opportunity to present the SBA 504 Program available through SEDA-COG. More information can be found on our website. Contact us to give a formal presentation at your next lenders meeting.