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Financial Assistance

Financial Assistance. Loans Primarily made by private lenders, with SBA guaranties Guaranties are generally up to 85% of loans to $150,000; 75% of loans above $150,000 Equity Investment Provided by SBA-licensed small business investment companies Surety Bonds

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Financial Assistance

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  1. Financial Assistance • Loans • Primarily made by private lenders, with SBA guaranties • Guaranties are generally up to 85% of loans to $150,000; 75% of loans above $150,000 • Equity Investment • Provided by SBA-licensed small business investmentcompanies • Surety Bonds • Guaranties of bid, performance and payment bonds Financial Assistance

  2. Why SBA Loans areImportant to Small Business • SBA loan guarantees give banker’s an added incentive to make small business loans • SBA loans can provide longer terms for borrowers • SBA loan guaranties allow banks to provide funds when bank policy prohibits a loan Financial Assistance

  3. Equity SBIC SBA Serves a Wide Variety of Capital Needs $2.0 million Surety Bonds $1.3 million (Guaranty) 504 Loans Growth in Business & Changes in Capital Need $1 million (Guaranty) All Other 7(a) Loans $150,000 SBALowDoc $250,000 SBAExpress $35,000 Microloans Financial Assistance Financial Assistance

  4. SBA Lending Enhances Community Involvement • Because of extended maturities of loans, businesses are long-term customers • Jobs created in the community, increasing customer base • Cross-selling opportunities for owners and employees • Ability to leverage lender’s available assets to meet community needs Financial Assistance

  5. Basic 7(a) Loan Guaranty Program • You apply for a loan guaranty with an SBA participating lender • Lender submits application for SBA review and approval • After SBA approval, lender disburses funds Financial Assistance Financial Assistance

  6. 7(a) GuarantyProgram is Versatile • Proceeds can be used for a wide variety of business purposes • Maximum guaranty is 85% • 75% when loan exceeds $150,000 • Maximum guaranteed dollars is $1 million • Total loan cannot exceed $2 million Financial Assistance

  7. Loan Proceeds Eligible for Most Business Uses • 7(a) loans may be used to: • Expand, renovate facilities • Buy machinery, equipment, fixtures, buildingsand land for business • Finance receivables and augment working capital • Refinance existing debt (with compelling reason) • Finance seasonal lines of credit • Construct commercial buildings • Finance direct costs on contracts Financial Assistance

  8. Maximum Size Standards • Manufacturing • 500 employees or less • Wholesaling • 100 employees or less • Service and Retail • $6 million or less in annual receipts • There are many variations so check with the District Office if you feel your business is close to these maximums Financial Assistance

  9. Eligibility Requirements Business must: • Be operated for profit • Not exceed size standards • Not be engaged in lending, real-estate development, investments or speculation • Not be engaged in promotion of a specific religion • Not restrict patronage • Not engage in prurient sexual materials or services • Not be a gambling enterprise Financial Assistance

  10. SBA Lender Requirements • Common documentation includes: • Purpose of loan • Business history* • 3 years of company tax returns* • Current financial statements* • Schedule of term debts and leases* • Aging of accounts receivable and payable* • Projected opening-day balance sheet** • Amount of owner investment in business** • Projections of income, expenses and cash flow** • Signed personal financial statements** • Personal résumés** • * for existing businesses ** for new businesses Financial Assistance

  11. SBA Borrower Requirements • Good character • Management expertise and commitment to succeed • Reasonable personal contribution or business equity • Feasible business plan • Sufficient collateral • Ability to repay loan from projected operating cash flow Financial Assistance

  12. Terms • Flexible maturities: • Generally 7 to 10 years for working capital • Generally up to 25 years for fixed assets: • Real estate • Construction • Equipment (Not to exceed useful life of equipment) • Interest rates: • Negotiated between borrower and lender • Typically cannot exceed prime rate plus 2.75% Financial Assistance

  13. SBA One-Time Borrower Fees Maturity Total Loan Amount Guaranty Fee Year or Less Any amount up to $2 million 0.25% Over 1 Year $150,000 or less 2.0% Over 1 Year Over $150,000 to $700,000 3.0% Over 1 Year Over $700,000 3.5% * Fees apply only to guaranteed portion of loan Financial Assistance

  14. Fee Calculation Example Total Loan x Guaranty % = Max. Guaranty Total Fee $150,000 x 85% = $127,500 $ 2,550 $700,000 x 75% = $525,000 $15,750 $1,000,000 x 75% = $750,000 $26,250 $1,333,000 x 75% = $1 million $35,000 Financial Assistance

  15. Collateral • Personal guaranties from principals owning 20 percent or more • Liens on personal assets may be required • Loans are not declined solely for insufficient collateral Financial Assistance

  16. SBA 7(a) LoanGuaranty Programs • Lender submits a completed loan applicationto the SBA • SBA analyzes entire application • Approval process usually 5 days or less • Processing can occur in the local District Office, Hazard, KY or Sacramento, CA • Type of loan determines processing location Financial Assistance

  17. SBALowDocLow Documentation Loan Program • For loans up to $150,000 • Generally 7 to 10 years for working capital; • 25 years for fixed assets • 85% guaranty • One-page SBA application • SBA response to lender within 36 hours Financial Assistance

  18. Eligibility Issues onSBALowDoc Program • Maximum loan amount • Credit history • Character • Size standards Financial Assistance

  19. Character Issues inSBALowDoc Program • Prior criminal record by any owner, principal, partner or authorized official of the business may disqualify applicant or require submission under regular 7(a) loan program Financial Assistance

  20. Use of Proceeds for SBALowDoc Debt Refinancing • May refinance debt • To participating lender using not more than 25% of proceeds of the requested New SBALowDoc loan • To other lenders using entire proceeds of the requested New SBALowDoc loan • Refinancing must result in 20% cash-flow improvement for borrower Financial Assistance

  21. Ineligible Loans UnderSBALowDoc Program • Export Working Capital Loan Program • International Trade • CAPLines • Defense Loan and Technical Assistance (DELTA) Financial Assistance

  22. Other Ineligible Loans inSBALowDoc Program • Pollution and Environmental Control Loans • Employee Stock Ownership Plans (ESOP or ERISA) • Community Adjustment & Investment Program (CAIP) Financial Assistance

  23. Loan Total $150,000 or less Maturity of 12 months or less Fee 2% 1/4% Guaranty Fee forSBALowDoc Program Financial Assistance

  24. Environmental Investigationon SBALowDoc • Required on commercial real estate collateral for any loan in excess of $25,000 • Questionnaire consistent with American Society for Testing and Materials (ASTM) minimums • Addresses environmental issues of real estate within one mile radius or more • Additional guidance in SOP 50-10(4), Subpart “A”, Chapter 5, paragraph 7 Financial Assistance

  25. Enhanced SBAExpress An enhanced guaranty program your lending institution will not want to miss!

  26. Program Designed to: • Increase the number of Smaller SBA Loans • Increase Lender Participation • Minimize SBA Forms/Procedures • Expedite SBA Loan Processing • Standardize Processing of Routine Loans • Attain Efficiency of Centralization

  27. Key Features: • Maximum Loan Amount - $250,000 • Extended As Pilot Through 9/30/05 • Available to SBA Lenders with 85% Currency • Available to Non-SBA Lenders Processing Significant Number of Business Loans of $50,000 or Less • Lenders Use Mostly Own Documents & Procedures

  28. Key Features(continued): • Loan Notes - Legally Enforceable • Loans Processed in Sacramento • May Be Faxed - Soon Via Internet • Usually Instant SBA Response - • 24 Hours Assured • Purchases -Little Rock & Fresno Loan Servicing Centers

  29. Other Features: • Lenders May Charge Interest Rates up to: • 6.5% over Prime for Loans of $50,000 or less • 4.5% over Prime for Loans above $50,000 • Standard Guaranty Fees Apply

  30. Other Features(continued): • Multiple Loans May Be Made but: • Must Not Circumvent SBA Fees • Total May Not Exceed $250,000 • No Collateral - Loans of $25,000 or Less • Lender Follows Own Collateral Policy Over $25,000

  31. Other Features(continued): • Revolving Lines Eligible • Maximum - Seven Years • Termouts - Available at Outset • May Be Sold on Secondary Market • May Be Accessed by Credit Card • Applicant Commits to Business Purposes - Lender Not Required to Monitor Each Disbursement

  32. Lenders Use Mostly Own Documentation, Including: • Application • Internal Credit Memoranda • Loan Notes (Legally Enforceable) • Collateral Documents • Liquidation Documents

  33. Basic Borrower Information Sheet • Forms Submitted to SBA • SBA Form 1919 • Eligibility Checklist (Lenders with Authority to Determine Eligibility do Not Submit Checklist)

  34. Lender Uses Mostly Own Procedures: • Same As for Non-SBA Loans • Lender - Does Credit Analysis • Qualified Lenders do Eligibility Determination

  35. Ineligible Businesses • Types of businesses not allowed • Agriculture • Fishing • Medical Facilities • Mining • Firms in business in other countries • Teaching, indoctrinating of religion • Sex related • Gambling

  36. Refinancing Rules • SBA debt may not be refinanced • Non-SBA borrower debt • No longer meets needs • Meets SBA’s minimum cash flow improvement requirement • Current last three years • No conflict of interest

  37. Not Eligible • Piggy-back loans • 90% start-up or real estate financing • Previous government loss • Any yes response on Form 1919 • Application previously submitted • Violation of ethical requirements • Environmental problems

  38. Lender Authorization • Responsible for completeness of loan authorization • Lender signs on behalf of SBA • Closes and disburses loan using own procedures • Sends signed copy of authorization to SBA

  39. EWCP(Export Working Capital Program) • Short-term financing for small exporters • SBA guaranty — up to 90% of the loan or $1 million • One-page application; answer usually 10 days or less • Maturity — • Matches a single transaction cycle up to 18 months, or • Supports a line of credit, generally 12 months • Repaid from the proceeds of the export sales • May be used for both — • Pre-shipment working capital • Post-shipment exposure Financial Assistance

  40. ITL(International Trade Loan) • Long- and short-term financing • Guaranty amounts up to $1.25 million • For businesses that are — • Engaged or preparing to engage in international trade • Adversely affected by import competition • May be used for — • Working capital and/or • To purchase facilities or equipment that will be used within the U.S. for producing goods or services Financial Assistance

  41. Loans for Fixed Assets504 Certified Development Company Program • Long-term, fixed-rate financing • Up to $1.3 million in SBA-backed debentures • SBA debenture guaranty of up to 40% of total loan • Must create or retain one job for every $35,000of SBA debenture proceeds • DELTA funding also available under this program Financial Assistance

  42. Benefits of a SBA 504 Loan • High-leveraged financing for fixed-asset purchases • Long-term pay back - 10 or 20 years • Lower interest rate Financial Assistance

  43. To Qualify for a 504 Loan* • Business must be operated for a profit • Tangible net worth of less than $7 million • Average net income of less than $2.5 million for the preceding two years * Business cannot be involved in speculation or rental real estate investment Financial Assistance

  44. A Typical 504 Project • A private sector loan covering up to 50% • A loan from the CDC covering up to 40%(100% SBA-guaranteed debenture) and • At least 10% equity from the small business • Participating lender has first lien on assets Financial Assistance

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