Community Advantage (CA)

1. Community Advantage (CA) Pilot Loan Program U.S. Small Business Administration September 2014

2. Program Agenda SBA Community Advantage Overview Program Sustainability Best Use of the Program Associate Program Questions and Contacts

3. Panelists Chuck Evans, Prudent Lenders, President and CEO Kitty Barbee, Eastern Maine Development Corporation, Deputy Director – Business and Economic Development Lisa Holmes, South Eastern Economic Development (SEED) Corporation, Sr. Vice President and Lending Team Leader

4. What is the Community Advantage (CA) Program? • A Pilot Loan Program introduced by US SBA to meet the credit, management and technical assistance needs of small businesses in underserved markets. • CA is designed to provide mission-oriented lenders, primarily nonprofit financial intermediaries focused on economic development, to access to 7(a) loan guarantees for loans of $250,000 or less. • CA will operate through March 15, 2017 and may be extended or made permanent at SBA’s discretion.

5. Is my organization eligible to participate as a CA Lender? • Certain organizations making loans in underserved markets are eligible to participate in CA: • SBA Authorized Certified Development Companies (CDC’s) • SBA Authorized Microloan Intermediaries • Non-Federally Regulated Community Development Financial Institutions (CDFI’s)

6. What are the SBA’s goals for CA? • Increase access to credit for small businesses located in underserved areas; • Expand points of access to the SBA 7(a) loan program by allowing non-traditional, mission-oriented lenders to participate; • Provide Management and Technical Assistance (M&TA), as needed; and • Manage portfolio risk at acceptable levels.

7. Why and when has SEED utilized the program? Example 1: • Infancy, minority-owned retail pharmacy • Enhanced cash flow of a growing business by paying off short term payable • Collateral was limited Example 2: • Pre-existing, ML client that was in operation five years, but was overcoming a hurdle in last FY • Relying on in-house figures after a difficult year • Limited collateral Wanted to support good 9-month results! Support an excellent previous client during recovery time!

9. SBA Program Overview – Interest Rates • Interest Rates – • Loans can be fixed or variable. • SBA establishes maximum rates based on term of the loan • Two sets of maximum rates: < 7 years and > 7 years. • The maximum rate is Prime plus 6% or 9.25%, • Lender pays SBA servicing fee (52 bps) annually on guaranteed amount resulting in reduced rate margin.

10. SBA Program Overview - Eligibility • Eligibility – • Organized for Profit • Small Business Concern -SBA Size Standards for the industry or the Alternate Size Standard ($15MM Tangible Net Worth and $5MM Average Net Income After Tax - 2 years) • Affiliates as well as franchise, dealer, jobber and license arrangements come under scrutiny in determining size standard. • The business must need the loan as determined by the "credit elsewhere test".

11. SBA Program Overview - Collateral • Collateral – • SBA will not decline a loan request solely on the basis of inadequate collateral. • SBA does not permit its guaranty to be used as a substitute for collateral. • “All Available Collateral” - SBA requires that the Lender collateralize the loan to the maximum extent possible up to the loan amount. If the business assets do not fully secure the loan, the Lender must take available personal assets of the principals as collateral. • First security interest in assets purchased by SBA loan proceeds is required.

12. SBA Program Overview – Loan Terms • Fixed asset acquisition (RE, Equipment, or Machinery), refinancing, furniture and fixtures, Line of Credit term-outs, working capital, and business acquisition are all eligible. • Loan terms are based on the use of proceeds: • Working Capital: 7-10 years • Equipment: 10-25 years (depends on useful life) • Building: 25 years • Goodwill: 10 years • No balloons

13. SBA Program Overview – Best Use • The most common way to utilize the 7a program is in expanding the conventional credit box by: • Reducing the collateral requirement of lender; • Providing longer terms than would be required conventionally; • Reduced Equity injection in the project versus what would be required conventionally. • Start-ups • 504 Companion Loans

14. Who Are We? • Private non profit, established in 1967 (EDD & CDC) • Located in Bangor Me and serve the four Eastern Counties of Maine: Hancock, Penobscot, Piscataquis Counties as well as portions of Waldo County • Our service area covers almost 11,000 square miles with a population of 257,334 and is the largest economic development district in Maine • Our professional staff members are divided into three service areas - business, community and workforce development

15. EMDC – CA Lender • First loan approved January 26, 2012, in the amount of $225,000 • Since then, a total of 42 loans have been approved • Average amount $121,000 • Industries include: manufacturing, hospitality, medical office, transportation and others • YTD 2014: 14 approved 6 in process

16. Community Advantage 7(a) Performance #5

17. How the Process Works • Business Visitation/ Client counseling • Assistance with necessary paperwork and application • Underwriting by staff • Review by loan review committee and board • Submission to Small Business Administration • Loan funded by EMDC • Loan servicing

18. Examples Two Rivers Realty Refinance to remove balloon payment$150,000 Print CentralLeased buildingPurchase of existing business, equipment$250,000 Dog Not Gone2nd 7(a) loanexpansion of business, inventory & working capital$125,000

19. Advantages • Streamlined process • ETran system, simple to utilize • Dedicated support • Quick turnaround time

20. Affiliate Program: Not a Lender? Be a CA Associate • Allows for additional leverage of capital • Expands reach and impact of program • No application or paperwork required by SBA • Form 159(7a) must be completed • MOU between organization outlining agreement • Sub notes between organizations

21. Questions?

22. Excellent SBA Resources for CA Amy Bassett Deputy District Director New Hampshire District Office US Small Business Admin. 55 Pleasant St, Suite 3101 Concord, NH 03301 202-481-0190 Amy.bassett@sba.gov Michelle Genovese Financial Analyst Office of Economic Opportunity US Small Business Admin. 409 3rd St, SW Washington, DC 20416 202-401-8282 Michelle.genovese@sba.gov