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Welcome to Georgia SSBCI Program Roll-Out Tifton, Georgia March 15, 2012

Welcome to Georgia SSBCI Program Roll-Out Tifton, Georgia March 15, 2012. Georgia Department of Community Affairs _______________________________. Community Development and Finance Division. Georgia Department of Community Affairs. DCA focuses on bottom up solutions

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Welcome to Georgia SSBCI Program Roll-Out Tifton, Georgia March 15, 2012

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  1. Welcome to Georgia SSBCI Program Roll-OutTifton, GeorgiaMarch 15, 2012

  2. Georgia Department of Community Affairs_______________________________ Community Development and Finance Division

  3. Georgia Department of Community Affairs • DCA focuses on bottom up solutions • As many approaches to community development as there are communities • Local problems – Local solutions

  4. Office of Economic Development • Financing gaps in the private capital markets • Economic development finance programs and incentives • Deal structuring • Credit analysis process • Evaluating financing options • Structuring financing packages • Job Tax Credits • Opportunity Zones, Military Zones • Distressed Census Tracts

  5. Spurring Job Creation Through Public/Private Partnerships By Bridging the “Financing Gap” with Economic Development Programs

  6. Challenges in 2012 • Some businesses are prepared to move forward with investments; however • A lender may be reluctant to provide financing because of perceived credit and collateral risks. • Good projects exists where these ‘gray areas’ of perceived risks can be stimulated though public/private partnerships, and • Using ‘gap financing’ through State/Federal funding.

  7. What is the State Role? The state takes “informed risks” • Public financing is most typically ‘gap financing’ • State E.D. programs take risks many private lenders will not take, or will not take alone.

  8. Why are we here today?Bank challenges which can be addressed through ‘gap financing’ • Need to protect, build and conserve capital • Need to increase reserves • Need to lower risks • Lower real estate values (less collateral)

  9. Georgia Department of Community Affairs Community Development and Finance Division Brian Williamson, Assistant Commissioner 404-679-1587 Steed Robinson, Director Office of Community Development 404-679-3168 Joanie Perry, Director Office of Economic Development 404-679-3173 Glenn Misner, Director Office of Field Services 404-679-3138 http://www.dca.ga.gov http://www.dca.ga.gov/economic/Financing/index.asp

  10. 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).

  11. Timing & Disbursement of SSBCI Funds • All states shall receive SSBCI funds in three one-third installments. GA has received first installment ($15,776,808) of funds. • State must certify expenditure of at least 80% of funds in most recent installment prior to receipt of next one-third installment of funds. • Target date for committing SSBCI funding is Dec 13, 2013.

  12. SSBCI Timeline in Georgia June 24, 2011 DCA submits SSBCI application Oct. 17, 2011 DCA submits final revision Nov. 29, 2011 Treasury notifies DCA of approval Dec. 13, 2011 US Treasury & Georgia sign Allocation Agreement Dec. 16, 2011 Treasury transfers first installment of SSBCI funds to Georgia ($15,776,808) March 31, 2017 Allocation Agreement expires.

  13. Georgia SSBCI Programs Georgia offers three SSBCI programs within a performance-driven approach: • GCAP (Georgia Capital Access Program) • SBCG (Small Business Credit Guarantee) • Georgia Funding for Community Development Financial Institutions (CDFIs)

  14. The Challenge – Why Georgia Pursued A Three-Pronged Approach U.S. Treasury guidelines for SSBCI program • Minimum $1:$1 Threshold: Each $1 of public investment will cause and result in $1 of new private credit. • Reasonable Expectation that $1 in public financing will generate $10 in private financing • States must demonstrate how SSBCI funds will be used to provide access to capital for underserved markets.

  15. GCAP (Georgia Capital Access Program) – Description • New lending program for the state of Georgia • 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. • GCAP encourages lenders to make loans to small businesses that fall just outside of conventional underwriting standards.

  16. GCAP - Description (cont.) • Eligible lenders include banks, credit unions, and CDFIs, as defined by SSBCI act. • Several other states are using SSBCI funds to expand pre-existing CAP programs (CA, NC, MI, etc.). • GCAP is anticipated to appeal especially to larger banks and lending institutions (larger loan volume = larger risk reserve pool)

  17. GCAP - Scope & Purpose • Each financial institution has a separate loan loss reserve fund managed by GCAP. • GCAP will use SSBCI funds to contribute an amount equal to the sum of the contributions paid by borrower and lender for enrolled loan.

  18. 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) may match borrower & lender contributions to loan loss reserve account at 1:1 ratio, but cannot exceed 7% match (SSBCI statutory limitation).

  19. 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.

  20. Small Business Credit Guarantee (SBCG) – Description • The Georgia Small Business Credit Guarantee (“SBCG”) Program will provide a 50% loan guarantee with a conversion option. • SSBCI funds will be leveraged with private capital from eligible lenders (banks, credit unions, qualified private lenders, and CDFIs).

  21. SBCG - Description (cont.) • 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%.

  22. SBCG - Scope & Purpose • 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 moved 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.

  23. 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 a $4 million CAP. • 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.

  24. SBCG - Terms & Conditions (cont.) • Max terms for SBCG guarantee: • Lines of credit - 24 months • Amortizing loans – 48 months • Deficiency guarantee – Lender must liquidate collateral prior to claiming guarantee • 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 (up to 750 employees, with exceptions)

  25. GA Funding for Community Development Financial Institutions (CDFIs) - Description I • GA Funding for CDFIs is a loan participation program to help CDFIs increase access to capital for Georgia’s underserved small businesses. • It is especially anticipated to assist to minority- and women-owned small businesses, and small businesses located in low- and moderate-income, minority, and other underserved communities. • State will enter into performance-driven, contractual relationship with CDFIs, structured under US Treasury guidelines.

  26. What Is A Community Development Financial Institutions (CDFI)? • CDFIs are private financial institutions certified by the U.S. Treasury to provide credit and financial services to underserved markets and populations. • There are approximately 20 different CDFIs in Georgia created by a combination of private for-profits (banks and developers) and special purpose non-profit corporations (e.g. ACE).

  27. What is a CDFI? (cont.) • CDFIs are already established in the market niches or underserved communities that must be addressed in the SSBCI application. • CDFIs provide alternative funding sources to small businesses for a portion of their working capital and fixed asset financing needs. • CDFIs will provide the gap financing (“but for”) to assist small businesses with obtaining the financing they need.

  28. GA Funding for CDFIs – Program Terms and Conditions • 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.

  29. GA Funding for CDFIs - Program Terms & Conditions (cont.) • Maximum SSBCI loan amount is $5,000,000, with target amount of $100,000 to $250,000. • Targeted to borrowers with 500 or fewer employees (up to 750, with exceptions) • 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.

  30. 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.

  31. 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

  32. 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.

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

  34. Step 1 - Georgia SSBCI Vetting Process • Eligible Lenders for GCAP (banks, CDFIs, and credit unions) and SBCG (banks, CDFIs, credit unions, qualified private investors) will be evaluated on following criteria: • Adequate management & lending experience • Financial capacity and ability • DCA will partner with GA. Department of Banking & Finance to ensure participating financial institutions are sound.

  35. 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

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

  37. 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.

  38. 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

  39. 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

  40. 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 • Annual Reports • Transaction-level data for each SSBCI-backed loan, plus subsequent private financing for OCSP loans

  41. 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

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