Georgia Department of Community Affairs _______________________________

1. Georgia Department of Community Affairs_______________________________ State Small Business Credit Initiative

2. 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 • Georgia’s allocation is $47,808,507 (top 10 among states in $ amount).

3. 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

4. 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

5. 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

6. 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.

7. 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.

8. GCAP - Program Terms & Conditions • Borrower & lender make contributions to loan loss reserve account, from 2% to 7%. (Borrower may pay lender’s contribution & vice versa; contributions may be financed.) • Federal SSBCI funds (GCAP) will match borrower & lender contributions to loan loss reserve account at 1:1 ratio, but cannot exceed 7% match (SSBCI statutory limitation).

9. 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 < 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.)

11. GCAP CASE SAMPLE – Bldg Expansion & Inventory for Small Business

12. 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).

13. SBCG – Description (cont.) • Financial institutions will be incentivized to leverage private lending at 10:1 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.

14. 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.

15. 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

17. SBCG Case Sample – Accounts Receivable for Software Small Business

18. 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 Georgia’s 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.

19. 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.

20. GA Funding for CDFIs - Thresholds • To meet US Treasury SSBCI threshold of $1:$1 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 $10:$1 ratio of private financing to public financing.

21. 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.

23. GA Funding for CDFIs CaseSample –Bldg renovation & equipment for restaurant

24. Getting Started – What You Need to Know • Vetting Process for Participating Lenders • Program Participation Agreements • Loan Enrollment Procedures • Transaction Documents • Reporting Requirements & Compliance

25. 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.

26. 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

27. 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 DCA’s Georgia Housing & Finance Authority Economic Development Financing, Inc. (GHFA EDFI) • The Agreement contains terms and limitations of state and federal SSBCI regulations.

28. 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.

29. 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

30. 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

31. 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

32. Contact Information Holly Hunt, SSBCI Program Manager (404) 679-3144; holly.hunt@dca.ga.gov Joanie Perry, Director – Office of Economic Development (404) 679-3173; joanie.perry@dca.ga.gov Brian Williamson, Assistant Commissioner (404) 679-1587; brian.williamson@dca.ga.gov John Kingery, Credit Manager (404) 679-1486; john.kingery@dca.ga.gov www.georgia-ssbci.org