The SBA 504 Loan Program

1. The SBA 504Loan Program A “Win-Win” for the bank and the small business! www.seedcorp.com Updated by SEED Corp. 10/11

2. What is the SBA 504 Loan Program? It is the Small Business Administration’s “economic development financing program” • Loans are provided to expanding small businesses to aid in job creation • SBA loans are guaranteed by the Federal • Government

3. Selling the 504 Option • If the answer to any of the following questions is yes, then give the customer an introduction to SBA 504. • Is working capital important to the success of the business? • Is a long term fixed rate important for cash flow? • Is a low down payment important? • Does the business want protection in the event of a devaluation of real estate?

4. Benefits to the Borrower • Financing for a fixed asset project with only 10% injection. • Long-term, fixed rate funds…enhancing cash flow for business. • SEED’s effective rate as of October 2011 is: - 4.77% on a 20-year debenture - 3.55% on a 10-year debenture • Ability to include soft costs, equipment and furniture and fixtures in a real estate project…enabling businesses to minimize out of pocket expenses and preserve cash. • Lower down payment conserves working capital.

5. Benefits to the Bank • Bank’s maximum loan-to-value is typically 50%, minimizing risk and improving liquidity. • Ability to provide 90% financing to a small business client. • Program allows reliance on financial projections – for startups and businesses with inadequate historic cash flow. • The bank’s first mortgage can be sold in the secondary market for a premium. • The CDC is responsible for all of the paperwork!!

6. Other Considerations • There is a prepayment penalty for the first half of the term of the debenture. • The debenture is assumable by another borrower. • The fees on the 504 loan currently total 2.65%; however, they are financed with the 504 loan. • The SEED minimum project size is $200,000. • SEED’s 504 loans range from $80,000 to $5.0 million for standard industries and up to $5.5 million for manufacturers. • SEED’s other loan programs can be used in conjunction with 504 projects, or can replace the SBA 504 portion on small projects.

7. Structure of a Typical $1 Million Project Loan % of EntityAmountProjectSecurity Lender $500,000 50% 1st Mortgage SEED/SBA $400,000 40% 2nd Mortgage Borrower $100,000 10%* TOTAL: $1,000,000 100%  Total Debenture: $411,000 (rounded up) (Up front fees include 2.65% on $400,000) * Projects that involve a new business and/or special purpose building will require an additional 5-10% from the borrower.

8. Fees Charged by CDC Financed as part of 504 loan – 2.65% of net debenture CDC Processing Fee: 1.50% SBA Guarantee Fee: 0.50%Paid to SBA- one time fee Underwriting Fee: 0.40% Covers expense of pooling & underwriting 504 debenture, paid directly to Merrill Lynch Funding Fee: 0.25% Paid to Central Servicing Agent (Colson Services) Total: 2.65%

9. Effective Rate Rate the borrower actually pays Note rate (as of 10/11 Sale) 2.807% Plus Fees: Annual Central Servicing Agent Fee 0.100% CDC Servicing Fee (SEED .800 + SBA .125)  0.925% SBA Fee 0.938% Total Fees 1.963% SEED’s Effective Rate (As of 10/11) 4.770%  SBA Required Servicing Fee – This fee can go up to 1.5%. CDC’s Servicing Fees vary and impact the client’s effective rate!

10. Legal Fees Closing costs are financed into the gross debenture & paid to CDC’s closing attorney • Legal Fee – Maximum of $2,500 • Other Eligible Closing Costs: • Title Insurance • Recording fees • Flood Insurance • Filing fees and title searches • Surveys

11. What’s needed for SEED to approve a 504 request? • Purchase & sales agreement for project property and cost parameters for construction/renovation projects. • Three years of tax returns and/or financial statements for the business. • Information on the borrower’s existing debt. • Personal financial statement and two years of personal tax returns for each principal of the business (20% or more ownership). • Property appraisal and environmental assessment can be submitted to SEED after approval. NO APPLICATION FORM IS REQUIRED!!! WE USE ESSENTIALLY THE SAME UNDERWRITING DOCUMENTATION AS THE BANK!!!

12. The 504 “Process” • Borrower or the bank submits a loan package to SEED. • The loan request is presented to SEED’s Loan Review Committee (meeting or email). • A SEED commitment letter is sent to the borrower and bank. • Loan is packaged and forwarded to SBA for issuance of the SBA Authorization (3 day turn around). • Bank closes on permanent loan and the bridge loan. SEED closes simultaneously on turnkey projects. • SEED/SBA payoff the bank’s bridge loan in 90 days on turnkey projects or after the project is completed (construction & renovation projects).

13. Use of Funds Fixed-Asset Acquisition or Expansion Including: • Purchase land & construction of new buildings • Purchase and/or renovate existing buildings • Acquire/Install machinery & equipment • Refinance existing fixed asset debt up to 50% of new SBA 504 Project • Soft costs related to the project (appraisal, environmental, interim interest, other) Ineligible uses of funds: • Purchase of trucks and autos • Working Capital • Franchise fees

14. Use of Funds (Cont.) Temporary Debt Refinancing Under Small BusinessJobs Act of 2010: • All loans must be approved by 9/27/12. • Commercial mortgages or balloon payments. • All loans must be funded within 6 months of approval. • There will be an ongoing guaranty fee of 1.103%. • At least 85% of loan was used for 504 eligible purposes. • New rules released 10/11/11. Contact CDC.

15. Use of Funds (Cont.) Temporary Debt Refinancing Under Small BusinessJobs Act of 2010: • Up to 90% of current appraised value or 100% of outstanding mortgage (whichever is lower). • Loans must be current for the past year (transcript required for same institution debt). • Debt must have been incurred not less than 2 years prior to date of application. • An independent appraisal dated within 6 months of the date of application is required.

16. Use of Funds (Cont.) Temporary Debt Refinancing Under Small BusinessJobs Act of 2010: • An environmental report dated within one year is required. • Existing SBA 504 and government guaranteed loans (SBA 7A, USDA, etc.) are not eligible. • SBA 504 loan size may not exceed the number of employees times $65,000, if job creation/retention or policy goals are not met. • Eligible refinancing costs and some business expenses can be included.

17. Bank’s Permanent First Mortgage • Permanent financing must be for at least 10 years – (on a 20-year debenture) with no balloon payments during that time. • Interest rate on the bank’s mortgage is set by bank. • Bank can charge points. • One-time fee of 0.5% on the bank’s first mortgage portion is currently being paid by SEED Corporation (up to $34, 375 on a $13.75 million project).

18. Occupancy Requirements • Existing Building: Business must occupy at least 51% - may lease out up to 49% • Newly Constructed Building: Business must initially occupy at least 60% - must occupy up to 80% within 10 years - can sublease 20% indefinitely

19. Job Requirements Create/Retain one job for each $65,000 borrowed through the 504 Program unless the project meets a Public Policy Goal. Public Policy Goals: • Rural Development • Expansion of Minority, Women or Veteran-Owned Businesses (51% + owned) • Expansion of Exports • Business District Revitalization • Enhanced Economic Competition • Restructuring Due to Federally Mandated Standards and/or Policies • Changes Necessitated by Federal Budget Cutbacks • Manufacturing businesses – one job per $100,000 • Energy-consumption reduction of at least 10% or sustainable design or equipment and process upgrades

20. Why YOU Should Consider a SEED/SBA 504 Loan • Up to 90% financing for project • Lower down payment for client • SEED pays the .5% bank fee • SEED provides quick & efficient turn around (SBA approved for the Abridged Submission) • Note is assumable by another borrower • SEED provides loans up to $200,000 at 5% fixed to replace the down payment • SEED is responsible for all the paperwork www.seedcorp.com