Capital Access: SBA Financing Options for Your Small Business

1. Capital Access: SBA Financing Options for Your Small Business Presented by U.S. Small Business Administration’s Colorado District Office

2. SBA Loan Guaranties-Understanding How It Works SBA does not provide: • Grants • Low interest rate loans • Minority- or women-owned small business loans • 100% financing • Direct business loans

3. 7(a) Loan Guaranty Program • Applicant applies for commercial loan at bank • If commercial loan declined, applicant may ask SBA participating lender to consider an SBA 7(a) guaranteed loan. • Lender submits SBA guaranty application to SBA. • After SBA guaranty approved, lender disburses funds to applicant. • SBA guaranties range from 50-90%.

4. SBA Eligibility Requirements Businesses must: • Be independently owned and operated for profit • Not dominant in its field of operation or industry • May not exceed SBA size standards (based on average annual receipts for past 3 fiscal years or average number of employees over last 12 months)

5. SBA Basic Requirements • Management: related industry experience, education, ownership and management experience • Repayment ability: historical/projected cash flow & debt service coverage • Collateral: Secondary source of repayment • Credit: personal/historical business credit experience • Leverage: debt/tangible net worth, retained earnings & capitalization • Equity injection: cash injection/seller carry-back (Generally on full standby during term of SBA loan)

6. SBA Requirements (Con’t) • Cash/Equity injection required: generally 20-30% in a normal economy • SBA considers type of business & its industry risk • Availability of funds from other sources • Personal guaranties required of all owners of 20% or more of business

7. SBA Requirements (Con’t) • Businesses Ineligible for SBA Guaranty: • Non-profits • Businesses engaged in lending activities • Speculative or investment type businesses • Businesses engaged in gambling • Illegal businesses • Businesses providing prurient sexual material • Businesses promoting religion

8. Use of Proceeds • Expand & renovate facilities; • Purchase machinery & equipment, construct leasehold improvements, purchase land and existing building for business; • Finance receivables & augment working capital; • Refinance existing debt (with compelling reason); • Finance seasonal lines of credit; and/or • Construct commercial buildings.

9. Loan Terms Flexible maturities: Up to 10 years for working capital Up to 10 years for equipment Up to 25 years for fixed assets: Real estate Construction Capital Equipment (based on economic life of equipment) Interest rates: Negotiated between borrower & lender Under 7 year term cannot exceed base rate plus 2.25% Over 7 year term cannot exceed base rate plus 2.75% Base rate options: NY prime, 30-day LIBOR + 3% or SBA peg rate (3.375%)  May be higher for SBAExpress program or smaller loans

10. SBA Loan Programs • 7(a) Loan Program • Expedited Programs • SBAExpress • Small Loan Advantage • Veterans Advantage • CAPLines • 504 fixed asset financing • Micro-loan program

11. 7(a) Loan • Can be used for basically any purpose. • Loan up to $5M • SBA guaranty of 75% - 85% • Maturity length and interest rates as discussed previously

12. SBAExpress • Lender uses its own forms • Loan or revolving lines of credit up to $350,000 • Limited SBA guaranty of 50% • Interest rates: 4.5% over prime for loans over $50,000 but 6.5% over prime for loans under $50,000 • 36-hour response from the SBA

13. Small Loan Advantage • $350,000 Max Term Loan • Uses expedited credit scoring method • Maturity Length same as standard 7(a) • Proceeds to be used for all of the same items as listed in 7(a) • 85% guaranty for loans $150,000 or less, 75% on loans greater than $150,000

14. Veterans Advantage • Targets veterans and service-disabled veterans, reservists, National Guard, their spouses or widowed spouses • Uses expedited SBA review & approval process • Maximum loan amount of $350,000 • 75-85% loan guaranty to bank depending upon loan amount • NO FEES!!!

15. CAPLines Working Capital Program) • For short-term & cyclical working capital needs • Maximum loan of $5.0 million • Proceeds advanced against inventory or receivables • Types of CAPLines: • Seasonal Line • Contract Line • Builders Line • Working Capital

16. 504 Fixed Assets Financing • Long-term, fixed-rate financing (10 & 20 year terms) • Up to $5.0 million in SBA-backed debenture under job creation goal; $5.5 million for manufacturers • Used for Property, Building, and Large Fixed Assets

17. A Typical 504 Project — • A third party lender (bank/credit union) provides 50% of project financing • 504 loan through a CDC provides up to 40% of project financing backed 100% by SBA debenture sold to institutional investors • At least 10% of project financing provided by applicant (additional 5% for single or limited use building & additional 5% for startup business)

18. Micro-Loans • SBA provides direct loan through non-profit intermediary • Micro-lender loans of up to $50,000 to small businesses • Term of up to six years • Used for — • Machinery, equipment & fixtures • Leasehold improvements • Inventory • Working capital • Technical assistance available

19. Questions & Answers