Presentation on theme: "Thursday, February 24, 2011 New Haven, CT"— Presentation transcript:
1Thursday, February 24, 2011 New Haven, CT BDC Capital: Innovative Financing Solutions CDC New England: SBA 504 Update How Bankers Can Mitigate Risk and Get Deals Done!Thursday, February 24, 2011New Haven, CT
2Seminar Presenters BDC Capital / CDC New England Carol Brennan x204 Director of Business DevelopmentConnie Karsh x205(203) cellBusiness Development OfficerCarol Muradian x207Senior Administrative Officer20 Church St., Hartford, CT Tel
3About Us BDC Capital www.bdcnewengland.com A private company Funded by 28 banks (can work with any lender)More than $1 billion in financingTo more than 5,000 companiesOver the past 57 yearsCDC New EnglandAn affiliate companyActs as an agent for SBA in providing SBA 504 LoansFor fixed asset financing: real estate and machinery & equipment90% financing with low, 20-year fixed rates
4BDC / CDC Loan and Investment Solutions BDC Fully-followed Lines of Credit$500, $3,000,000BDC Term Loans: $500,000 - $3,000,000BDC Mezzanine Investments: $750,000 - $5 millionCDC New England SBA 504 Loans: typically $250,000 project size and upWe work with your bank to provide the complete financingthat a business needs to grow.
5BDC Secured, Revolving, Asset Based (ABL), Lines of Credit Secured by a company’s collateral, primarily receivables and inventoryLoan revolves daily, increasing by each advance and decreasing via cash receiptsCash is controlled via a lockbox and collateral account at a bank (not BDC)Loans are formula driven: an example of advance rates might be:80% of eligible receivables, and35% of eligible inventory$500K to $3MM or larger with a participation
6BDC Lines of Credit – Typical Candidates Manufacturers, Distributors, Wholesalers, some Service companies with:With temporary earnings issues or balance sheet leverageSolid management teamGood financial controls, with financials prepared by a reputable accounting firmNOT construction companies with progress billingsNOT companies with inventory financing needs greater than A/R financing
7Benefits of a Revolving Line of Credit – for the borrower Ability to:Have cash immediately available for useFinance growth – can borrow on new sales based upon the formula advance rate.Borrow efficiently - only pay interest on daily outstanding loan balance.Take vendor discounts, thereby increasing profitability.Maintain relationship with their existing bank for treasury (cash) management.
8Benefits of a Revolving Line of Credit – for the banker In some cases, we may participate a loan with the existing/prospective lender, allowing the lender to:stay in a relationship / gain a customerprovide cash management serviceslessen the bank’s exposureadd more oversight to their loan.
9Advantages of a Revolving Line of Credit vs Advantages of a Revolving Line of Credit vs a Typical Bank Line of Credit (LOC)Revolves daily rather than through a monthly borrowing base (faster access to cash)The focus is geared to collateral quality and not financial ratios.Generally will accept a higher degree of leverage than a typical LOC.The additional monitoring of A/R can provide comfort when dealing with other issues.No annual “30 day pay-down” feature.Substantially less costly than a finance co. or factor.Interest rate = LIBOR (26bps) plus 6 – 7%
10BDC Term Loans Term loans: $500,000 to $3,000,000 With or without an SBA 7(a) guarantee (BDC Capital is an SBA preferred lender)In a senior or junior secured position or in a participation loan with a lenderRates as low as 5.5% - floatingMeant to supplement bank financing
11BDC Term Loans Example of Borrower Needs: Additional working capital needs: BDC to refinance portion of line of credit into 7(a) term loan – took 2nd position on assetsRefinance existing term debt to free up cash flow for real estate acquisitionBusiness acquisition – participation loan with bank and SBA 7(a) guarantee
12BDC Mezzanine Investments BDC’s 3nd Mezzanine Fund – Raised $28 millionFor acquisitions, leveraged buyouts, management buyoutsFor healthy, growing companies looking for “growth capital” - equity base too thinCompanies with:Solid managementStrong cash flows (usually limited collateral)Barriers to entry
13BDC Mezzanine Investments Investment size: $750,000 to $5,000,000A market rate of interest (12%); 5 year termPlus either :- a royalty fee tied to sales (tax deductible)- or a warrantDon't give up ownership / controlDon’t require personal guaranteesLess dilutive than equityCan fill the “collateral gap”
14The SBA 504 AdvantageAsk Your Borrower the Following Question When Acquiring Real Estate and Machinery & Equipment:Is working capital important to your business success?Is a long term fixed rate important?Do you want to protect yourself in the event of a devaluation of real estate?
15SBA 504 Loan OverviewThe borrower obtains up to 90% financing with a low fixed rate on the SBA portion.The bank provides a conventional loan in a first mortgage position with a 50% loan-to-value ratio; SBA provides a second 40% pieceNew England Certified Development Corporation (a “CDC”) takes care of all of the SBA paperwork.“New money” expansion – with limited refinancing permitted as part of an expansion project.Refinancing allowed – with certain restrictionsCan also be for used machinery & equipment
16SBA 504 Eligible UsesAcquisition or new construction or improvement of owner-occupied real estate51% occupancy for existing building60% occupancy for new constructionMachinery & Equipmenti.e., fixed assets with a useful life of 10 or more years
17SBA 504 Case Study Purchase Price of Real Estate $500,000 Build out / renovations $150,000Purchase fork lift $ 50,000TOTAL: $700,000 Project CostBank: $350,000 (50%)CDC: $280,000 (40%)Borrower: $70,000 (10%)
18SBA 504 Loans – Interest Rates Bank sets pricing on 50% first mortgageMinimum 10 year term for 20 year project;Minimum 7 year term for 10 year projectSBA funds 40% share (through CDC New England)Interest Rates:-low, 20-year fixed rate for real estate:-low, 10-year fixed rate for M&ECall us for most recent rate.
19SBA 504 - Benefits for the Borrower Low down payment90% financingConserves working capital for other needs associated with the expansionFixed interest rate on SBA portionSubstantial interest savingsOpportunity to blend short and long-term interest rates
20SBA 504 - Benefits For Lenders Set yourself apart by presenting a 504 optionDifferentiation is important in a crowded marketplaceMitigate Collateral RiskBorrowers will be in a stronger cash positionA way to manage overall lending limits and industry exposureSecondary market available for first mortgagecall us for more details!
21SBA 504 Eligible Businesses Must be operated for profitProgram does not finance speculative real estate venturesSelf-storage units are now eligibleBusiness must be “small”:Net worth under $15 million andNo more than $5 million average profit for last 2 years
22SBA 504 Dollar Limitations Maximum Debenture Size$5 millionTotal Project Size: $12.5 million or higher$5.5 million if manufacturer or certain energy goal objectivesTotal Project Size: $13.75 million or higher
23CDC New England does almost everything (SBA forms, etc.) Easy for Bank and Borrower - bring us in earlyWe can underwrite and get approval while the bank is still working on the bank credit memoNot much to cut regarding rate and feesbut we will not be undercutOur closing team is very easy to work with!Only PREMIER CDC in New EnglandCan do bridge and down paymentfinancing through BDC
24SBA 504 Debt Refinancing with expansion Project must involve 504 eligible expansionCan add up to 50% of “expansion” amount from existing indebtednessDebt refinanced will be added to the expansion cost to establish the total project costsOriginal Proceeds of loan must have been used for fixed asset acquisitionFixed assets collateralizing existing debt must also collateralize 504 loan
25SBA 504 Debt Refinancing – no expansion Benefits borrowers facing imminent real estate loan maturity or balloon paymentsA business does not have to expand to qualifyCan refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower.A borrower must meet several criteria: Imminent Maturity Date: On or before December 31, Duration of Outstanding Debt: At least two years Duration of Business: At least two years Current Status on All Debt: No payment deferralsNo past dues of more than 30 days in the past 12 monthsSBA will accept refinancing applicationson February 28, 2011through September 30, 2012
26SBA 504 Debt Refinancing – no expansion Loan Structure - First Mortgage - not less than 50%SBA 504 Loan - not more than 40%Borrower's Equity - not less than 10% (may be satisfied by the project property or other fixed assets acceptable to SBA as collateral)No extra down payment for special use propertiesSubstantially all (85%) or more of the proceeds of the loan being refinanced must have been used for SBA 504 real estate eligible purposes
27SBA 504 Debt Refinancing – no expansion No refinance of loans which are currently part of an existing SBA 504 Project or are subject to an existing federal guaranty.Ongoing fee of 1.043% versus 0.749% - increase of 0.294%Added into effective rateIf amount of refinance is not sufficient to repay debt, lender may(i) forgive the balance(ii) accept payment from the borrower for all or a portion of the deficiency, or(iii) accept a new note which will besubordinate to the liens securing the refinance anda three-year standby requirement (this is negotiable)
28Thank you for attending! QUESTIONS???(Applause???)Give us a call!!!