5Hello MA & RI Lenders !https://www.youtube.com/watch?v=TPNnRVgLSBs
6SBA en español Goes live on April 7 ,2015 Spanish version of SBA.gov Can be previewed at https://es.sba.gov/
7Extended thru 9/30/15 All SBA 7(a) Loans of $150,000 or less have: NO Guaranty feeNO on-going servicing fee for the lender51.9 basis points for loans above $150,000YTD savings $500,000 in MAYTD savings $100,000 in RIALL SBA Express loans to VETERANSNo guaranty fee up to $350,000Extended thru 9/30/15
8SBA Veteran Advantage All SBA loans to eligible veterans: reduces the up-front guaranty fee from 3% to 0% for SBA Express loans over $150,000Note that there is no reduction in the Lender’s annual service fee for loans over $150,000All other 7(a) loans: guaranty fee is reduced 50%servicing fees from lenders due when loan over $150,000 under ExpressOver 350, No reduction in annual service fee
9To QualifyBusinesses must be 51% or more owned and controlled by an individual or individuals in one of the following groups:Veterans (other than dishonorably discharged)Service-Disabled VeteransActive Duty Military service member participating in the military’s Transition Assistance Program (TAP)Reservists and National Guard MembersCurrent spouse of any Veteran, Active Duty service member, or any Reservist or National Guard member; or widowed spouse of a service member who died while in service or of a service-connected disability.
10364 pages of information gold SOP (G)A MUST READ364 pages of information goldFind your answer FAST w/Ctrl Button + FEffective Date10/01/2014This will change to (f) January 1, 2014.
11Personal Resource Test Credit Elsewhere Test RemainsThe purpose of the Credit Elsewhere test is to determine if the Small Business Applicant has the ability to obtain some or all of the requestedloan funds on reasonable terms from non-Federal Federal sources without SBA assistance.SOP (G), Page 84
12All 7a loans will use Forms 1919 & 1920 IRS Tax Transcripts must be reviewed PRIOR to submission to Citrus Heights on all non-delegated lendersprior to disbursement on delegated loansAll 7a loans will use Forms 1919 & 1920No more Form 4 or Form 4-ILenders may use their own Note & GuarantyMust be legally enforceable & assignable, have stated maturity & not be payable on demandMust include “SBA Language” re: interpretation & enforceabilityIf selling on the Secondary Market using Forms 147 & 148 is recommended
13What language ? Your own note: Your own guaranty: SOP (G), Page 202 When SBA is the holder, this Note will beinterpreted and enforced under federal law, including SBA regulations. Lender orSBA may use state or local procedures for filing papers, recording documents,giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waiveany federal immunity from state or local control, penalty, tax, or liability. As to this Note,Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeatany claim of SBA, or preempt federal law.”Your own guaranty:“When SBA is the holder, the Note and this Guarantee will be interpretedand enforced under federal law, including SBA regulations. Lender or SBA may usestate or local procedures for filing papers, recording documents, giving notice,foreclosing liens, and other purposes. By using such procedures, SBA does notwaive any federal immunity from state or local control, penalty, tax, or liability. AsSOP (G) Subpart BEffective Date: October 1,to this Guarantee, Guarantor may not claim or assert any local or state law againstSBA to deny any obligation, defeat any claims of SBA, or preempt federal law.”SOP (G), Page 202
14Electronic Signatures Effective January 1, 2015: 7(a) and 504 lenders may utilize electronic signatures in accordance with the performance standards outlined in Notice on SBA Forms and other documents requiring signatures
15Electronic Signatures Cont.… To maintain an electronic credit file for SBA loan customers, you can have all required documentation housed electronically as long as it can be made available (in either paper or electronic format) at the time of guaranty purchase or audit/review by OCRM. In addition, there are certain SBA forms and bank documents that must be retained in original format with original signatures. It includes authorizations, 912s, SBA application forms, and collateral documents such as notes, guaranties and security/mortgage documents. Also, Form 159 (for 7a) and whatever the lender needs to keep original/wet signatures that their regulator(s) and/or own legal wants.
167(a) Guaranteed Loan Program Standard a7a Small LoansSBA ExpressPLPMaximum Loan Size = $5,000,000
17The 7a Loan Guarantee Program 7 (a) Loan Program DetailsSBA’s Primary Business Loan ProgramBroad eligibility requirementsWide range financing optionsMaximum loan amount increased from $2 million to $5 million85% guarantee on loans up to $150,00075% on loans > $150,0007(a) Loan Program Maturities & Interest Rates5-10 years for working capital, machinery, equipmentUp to 25 years for real estate, constructionPrime % for loans of 7 years or lessPrime % for loans over 7 yearsRates can be higher for smaller loans7(a) Program Guarantee Fees2% on loans up to $150,000*3% on loans $150,001 - $700,0003.5% on loans $700,001 -$ 1 million3.75% on loans > $1 million*fee waiver for FY 15
19Why Do Lenders Use the SBA Guaranty? Longer maturities are neededCollateral may be inadequate to meet normal underwritingStart-up or certain types of businessesBusiness leverageLender’s legal or policy limitMinimize risk
20SBA Size Standard Manufacturing from 500 to 1,500 employees Wholesaling 100 employeesServices from $4.5 million to $32.5 million in average annual receiptsRetailing from $6.5 million to $26.5 millionGeneral construction from $6.5 million to $32 millionThe 2010 Jobs Bill expands the number of businesses eligible for SBA loans by increasing the alternate size standard to those small businesses with less than $15 million in net worth and $5 million in average net incomeSOP (G), Page 76
21Eligible Use of Loan Proceeds SBA loans may be used to:Purchase machinery, equipment, fixtures, buildings and land for businessFinance receivables and augment working capitalRefinance existing debt - including credit card debtFinance seasonal lines of creditExpand, renovate facilitiesConstruct commercial buildingsChange of ownership/purchase of a businessMost legitimate business purposesSOP (G), Page 107
22Eligibility Requirements For profitU.S. citizens or owners w/ green card statusNot exceed SBA size standardsOwners must be of good characterOwners must possess management ability and have experience in field.Demonstrate repayment abilityNot engaged in lending, real-estate development, investments or speculation
23Ineligible Use of Proceeds Repay delinquent IRS withholding taxes, sales taxes or similar funds held in trust.Provide or refinance funds used for payments, distributions, or loans to Associates of the Applicant, except payment of ordinary compensation for services rendered at a fair and reasonable rate.SOP (G), Page 108
24Loan Guaranty Percentages 7(a) loans under $150,0007(a) loans over $150,000SBA Express85%75%50%SOP (G), Page 125
257(a) Guaranteed Loan Program Fees Based on guaranteed portionLoan SizeFeesNotes$150,000 or lessZeroMaturitiesExceed 12 months$150,000 - $700,0003% of guaranteed portion$701,000 - $5,000,0003.5% of guaranteed portion (3.75% of guaranteed portion over $1 million)Short Term Loans –Up to $5 Million0.25% of guaranteed portionMaturities of 12 months or lessCHAPTER 2: ELIGIBILITY FOR 7(A) GUARANTY LOAN PROGRAMINTRODUCTIONThis section discusses the steps necessary to determine if a Small Business Applicant is eligible for an SBA guaranteed loan. The eligibility issues that apply to the lender or the structure of the loan are discussed elsewhere.Eligibility should be determined as early in the loan making process as possible. The small business must meet the eligibility requirements at the time of application and, with the exception of the size standard, must continue to meet these requirements through the closing and disbursement of the loan.An Eligibility Checklist is included in the lender application (SBA Form 1920SX, Part C) to identify eligibility issues.
267(a) Loan Interest Rates CHAPTER 2: ELIGIBILITY FOR 7(A) GUARANTY LOAN PROGRAMINTRODUCTIONThis section discusses the steps necessary to determine if a Small Business Applicant is eligible for an SBA guaranteed loan. The eligibility issues that apply to the lender or the structure of the loan are discussed elsewhere.Eligibility should be determined as early in the loan making process as possible. The small business must meet the eligibility requirements at the time of application and, with the exception of the size standard, must continue to meet these requirements through the closing and disbursement of the loan.An Eligibility Checklist is included in the lender application (SBA Form 1920SX, Part C) to identify eligibility issues.Vary by loan size and maturity
27Credit Underwriting Standards There is a separate attachment for the instructor
28Credit Underwriting Standards Separated 7a small LoansCredit scored7(a) over $350,000Full AnalysisAny ExpressLoanNo change - Follows your bank’s proceduresUnderwritingStandards
29Lets Talk SBA Express Maximum Loan Amount: $350,000 Fast Turnaround timeGuaranty on a true Line of Credit
30Express Benefits Continued… Follows lenders’ own underwriting policesCan use a “credit score” modelCan use credit cards to access the line of creditLenders are not required to take collateral for loans up to $25,000.Uses lenders own collateral policy for loans above $25,000Do not have to take personal residence
31Top Issues Found No Express Authorization in Credit file For LOC, must include maturity date in noteEx. On demand but no later than 04/xx/2022
32SBA Credit Scoring for loans up $350,000 All applications begin with credit scoringPredict risk more accurately than complex underwritingSimilar to liquid credit from FICO/Dun & BradstreetTakes information from Business Credit Bureau to generate scoreCommercial loan, lease, and card dataNumber of trades and utilizationSales FiguresNumber of years in businessNumber of EmployeesRatio information as compared to industry averagesGuarantor credit scoresDoes not apply to SBA Express Loans
34Credit Score a Loan Begin in ETRAN Input required data Loan detailsOwners of 20% or more name, SSN, addressBusiness name, address, phone, EIN, DUNS (if available)Click the Check Credit Score button*Credit Score will be generated*soft credit hit to applicants
35Loan scored less than 140? Go SBA Express Send it in to SBA Resubmit under SBA Express for 50% guarantyNo questions askedSend it in to SBAPLP lenders can use their delegated authority OR submit to LGPC for reconsiderationNon-PLP lenders must submit the full 10-tab to LGPC for reviewNote: Lender does a full underwriting as required for a Large 7(a) loan
36Credit AnalysisAn Acceptable Credit Score indicates the applicant is credit worthy:There is no need to discuss the following in your credit analysis:Credit history of the applicantThe strength of the businessHistorical earning and projected cash flowThe applicants ability to repay the loanNo debt service coverage requirementFinancials still must be obtained, but don’t need to be spreadIRS 4506-T is still required:Verifies the business is smallVerifies the business pays taxesFraud prevention
37Credit Analysis Continued… Still Must Cover:Business HistoryManagement Team AnalysisLength of Time in business, undercurrent management, depth of the management, industry or related experienceAnalysis based on lender’s policies and procedures for similarly sized non-SBA guaranteed loans:Owner/Guarantor AnalysisPFS analysisObtain personal financials & complete an analysis based on personal cash flow analysis or credit scoringEquity and Debt-to-Worth must be analyzedEquity injection requirements match lender’s similarly sized non- SBA guaranteed loans
38Collateral, Affiliates & Credit Memo List collateral and estimated values, if securedAppraisals & formal valuations are not required unless they would normally be required by the lender on non-SBA Guaranteed loansAffiliates ConsiderationSize DeterminationOutstanding Guarantee EligibilityRepayment ability – will they positively or negatively impact the borrower’s ability to repay the SBA Guaranteed loanCredit Memo TemplatePart A states the customer’s credit scorePart B covers the remaining points.SBA does not require you use our “template”Q & A will be out within the next couple weeksMemo Sample will be out within the next couple weeks
40What Else?Multiple Loans in a 90 day Period – Second loan takes the customer over the $350,000 AggregateCustomer’s Second Loan MUST be underwritten to large 7a standardsCASH FLOW ANALYSIS CANNOT BE WAIVEDIf a loan goes to purchase:Debt Service Coverage will NOT be a point of discussion at purchase if:The loan was approved on or after July 1, 2014The loan scored 140 or higherThe loan was not the companion loan that pushed the borrower’s aggregate loan amount over $350,000 within a 90 day periodSmall 7(a) Loan Purchases will be handled in Little RockRemember 90 day rule on guaranty percentage, fees, and NOW UNDERWRITING REQUIREMENTS as well
41Credit Memo For Loans of $350,000 or Less For Loans of $350,000 or LessLenders must verify and reconcile the applicant’s financial data against income tax data prior to submitting a request for guaranty for a loan of $350,000 or less using Standard, CLP, or PLP processing.Prior to submission for all non delegated loansPrior to disbursement for delegated loans
42Equity InjectionLenders must verify the injection prior to disbursing loan proceeds and must maintain evidence of such verification in their loan files. Verifying a cash injection requires the following documentation:A copy of a check or wire transfer along with evidence that the check or wire was processed showing the funds were moved into the borrower’s account or escrow;A copy of the statements of account for the account from which the funds are being withdrawn for each of the two most recent months prior to disbursement showing that the funds were available; andA subsequent statement of the borrower’s account showing that the funds were deposited or a copy of an escrow settlement statement showing the use of the cash.A promissory note, “gift letter” or financial statement is not sufficient evidence of cash injection without corroborating evidence consistent with paragraph aboveLender must determine if the equity and the pro-forma debt-to-worth are acceptable based on its policies and procedures for its similarly-sized, non-SBA guaranteed commercial loans. If the lender requires an equity injection and, as part of its policies and procedures for its similarly-sized, non-SBA guaranteed commercial loans verifies the equity injection, it must do so for SBA loans.
43SBA Application Process CHAPTER 2: ELIGIBILITY FOR 7(A) GUARANTY LOAN PROGRAMINTRODUCTIONThis section discusses the steps necessary to determine if a Small Business Applicant is eligible for an SBA guaranteed loan. The eligibility issues that apply to the lender or the structure of the loan are discussed elsewhere.Eligibility should be determined as early in the loan making process as possible. The small business must meet the eligibility requirements at the time of application and, with the exception of the size standard, must continue to meet these requirements through the closing and disbursement of the loan.An Eligibility Checklist is included in the lender application (SBA Form 1920SX, Part C) to identify eligibility issues.
44Key Changes to Application Process Universal set of forms for all 7(a)Lenders may use their own Note and Guaranty formsBusiness Financial Statements required to be dated within 180 days of submission to SBA, not 90Personal financial statements to be dated within 90 days of submission to SBASynopsis of Chapter 6
452 Forms for all 7(a) loansBORROWERLENDERForm 1919Form1920
46Personal Financial Statement Dated within 90 days of submissionUse your own form or SBA Form 413Must be submitted for all officers, directors, principals and 20% owners, and spousesSOP (G), Page 191
47Business Financial Statements Year End Balance Sheets and Profit/Loss Statements for previous 3 yearsStatement of Net WorthInterim Balance Sheet and Profit/Loss Statement ( no less than 180 days old)Cash Flow ProjectionSame statements for any affiliates/subsidiaries
48CAIVRSUsed to determine if any of the individuals or businesses have outstanding Delinquent Federal DebtWhen?Bank approves the loanEx. SBA Express, PLPIF SBA approves the loanSBA will run report
49Inquiries related to listing SBA Procedural NoticeInquires for individuals/business in CAIVRSare submitted to SBA’s Birmingham’s Offset DivisionOnly for positive hits in CAIVRS
50IRS Form 4506-T (Request for Transcript of Tax Return) SBA’s Tax Verification process is to determine if:Small Business Applicant filed business tax returns; andSmall Business Applicant’s financial statements provided as part of the application agree with the business tax returns submitted to the IRS.Prior to 1st disbursementPrior to submissionNon - DelegatedWhen ?DelegatedSOP(G), Page 182
51IRS Form 4506-T (Request for Transcript of Tax Return) Required for the last 3 years(unless Borrower is a start-up business) For a sole proprietorship, the lender must verify the Schedule C. For a change of ownership, the lender must verify the seller’s business tax returns or a sole proprietor’s Schedule C. Where there is an acquisition of a division or a segment of an existing business, other forms of verification may be used in lieu of the 4506-T (e.g. Sales tax payment records).SOP(G), Page 182
52IRS Form 4506-T (Request for Transcript of Tax Return) Important include signature, title, and date in bottom sectionIf a Small Business Applicant has not filed required federal tax returns, the applicant is not eligible for SBA financial assistance# 1 REASON SENT TO WRONG FAX NUMBERSOP(G), Page 182
53Form 912 If response to question 3 reveals that he/she is If your borrower has answered “Yes” Question 1:APPLICANT IS NOT ELIGIBLE FOR AN SBA LOANIf borrower answers “Yes” to Question 2 or 3:You must complete the 912 FORMIf response to question 3 reveals that he/she iscurrently on parole or probation, then the Small Business Applicant isnot eligible.Nolle prosequi = unwilling to prosecute
54912 Processing Normal Processing time is 6-8 weeks Name Checks take longer to processFBI recently installed new computer reporting systemSOP 50(G), Page 90
55Real Estate Acquisition If loan proceeds are to be used to purchase or construct real estate, we look for “owner occupancy”Eligible Small Business must:Occupy 51% + of an existing facility or60% of a newly constructed facility on day one, with expansion to 80% in 10 years
56Debt Refinancing: Unreasonable Terms Existing debt is presently on unreasonable terms if it is:a) short or long term debt structured with a demand note or balloon payment;b) debt with an interest rate that exceeds the SBA maximum interest rate for the processing method used;c) credit card obligations used for business related purposes;d) debt that is over collateralized (however, the SBA guaranteed loan must meet SBA collateral requirements).e) revolving lines of credit (short or long term) where the original lender is unwilling to renew the line or the applicant is restructuring its financing in order to obtain a lower interest rate or longer term;f) debt with a maturity that was not appropriate for the purpose of the financing (e.g. a 3 year term loan to finance a piece of equipment with a useful life of 15 years);g) debt used to finance a change of ownership under certain conditionsh) debt the Lender believes no longer meets the needs of the Small Business Applicant.SOP 50(G), Page 109
57Debt Refinancing: Credit Card Criteria: Used for business purposes The borrower must certify that the amount being refinanced was used exclusively for business purposes and provide appropriate documentation, such as a copy of the note and/or current loan statement, to demonstrate that the debt was, in fact, used for business purposes.SOP (G), Page 110
58Debt Refinancing: Another Lender Lender may refinance an existing non-SBA guaranteed loan or borrower debt from another lender if: The existing loan no longer meets the needs of the applicantRequires “substantial benefit” to applicantLooks to 10% improvement in monthly payments (P & I)SBA requires copies of all notes that will be refinancedDemand, interest only, balloon notes will automatically meet substantial benefit test
59Debt Refinancing: Lender’s Own Debt Must adhere to previous provisionsIn addition, must submit to SBA a transcript of account showing that the debt has never been more than 29 days past due, within the last 36 month period.New loan must not reduce the lender’s existing credit exposure to the borrower (only applies to Express)
60CHANGE OF OWNERSHIP / BUSINESS VALUATION If amount being financed (including 7(a), 504, seller) or any other financing (minus the appraised value of real estate and/or equipment being financed) is $250,000, or less, Lender can perform valuation.If amount is more than $250,000, or if there is a close family relationship between buyer and seller, valuation has to be done by a “qualified source”
61CHANGE OF OWNERSHIP/ BUSINESS VALUATION A “qualified source” is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations:Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers;Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers;Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants;Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts; andAccredited Valuation Analyst (AVA) accredited through the National Association of Certified Valuation Analysts.SOP (G), Page 167
62Business Purchase Forms Needed Copy of Buy-Sell AgreementSeller Financial Statements for previous 3 YearsPro forma Balance SheetsInterim Statements ( no less than 180 days old)
63CollateralOne of the primary reasons lenders use SBA is for thoseSmall Business Applicants that demonstrate repayment abilityBut lack adequate collateral to fully repay the loan if the loan defaultsSBA does not permit its guaranty to be used as a substitute for available collateral.
64Collateral Collateral is NOT required for loans of $25,000 or less Collateral is required on loans of more than $25,000 up to $350,000 with the lender following their own collateral policies & procedures for non-SBA guaranteed loans BUT at a minimum the lender must obtain a lien on the applicant’s fixed assets to secure the loanFor loans in excess of $350,000 the loan must be collateralized to the maximum extent possible UP TO THE LOAN AMOUNTTrading Assets MAY be skipped with the lender going directly to personal real estate if trading assets are needed as collateral on a LOCAn SBA Guaranty CANNOT be used as a substitute for available collateralExpress collateral has not changed. Banks must follow same policies as non SBA portfolio.Pages 164Do NOT use an SBA guaranty in place of available collateral – we expect our loans to be collateralized up to the loan amount based upon liquidation value if possible if the loan amount is greater than $350,If you would require all available collateral to be taken on an non-guaranteed loan of $25,000 to $350,000 you have to do it on an SBA guaranteed loan of that amountTrading assets – page 168; Fully secured page 169assets owned by the spouse on page 169 –When an individual alone or an individual and his or her spouse together own 20% or more of the Small Business Applicant, the lender must consider taking as collateral available equity in personal real estate that is owned individually, by the applicant owner as well as available equity in personal real estate owned jointly. Real estate transferred by the applicant to the non-owning spouse within 6 months of the date of the application will not be exempt from consideration as available collateral.Self imposed restrictions (pre-nups) are not recognized by the government...
65For loans above $350,000All Requests for 7(a) Guarantee of loans greater than $350,000 processed through Standard, CLP, or PLP procedures,Lender’s analysis must demonstrate the Small Business Applicant’s ability to repay the loan from the cash flow of the business.The Analysis should conclude that repayment ability of the proposed SBA loan and all other debt reasonably exists from the operating cash flow of the business defined as earnings before interest, taxes, depreciation and amortization (EBITDA);
66Debt Service CoverageThe small business applicant’s debt service coverage ratio (OCF/DS) must be 1.15 to 1 or greater on a historical and/or projected basis.
67Submission of Application for Guaranty All Submissions via E-TranWHERE TO SUBMIT APPLICATION FOR GUARANTYAll Lenders with an executed 750 Agreement are eligible to submit Applications for Guaranty to SBA using standard processing procedures.Lenders with supplemental agreements can submit applications based on what the agreement covers, such as PLP, CLP CA, and SBA Express.Standard 7(a), CLP, and CapLines (non-delegated) applications must be sent via E-Tran, or to the 7(a) Loan Guaranty Processing Center (“LGPC”) electronically.if attachments are less than 9 megabytes in size.Website: click on “Submit 7(a) Document Here” or “sendthisfile.com”.To Require Electronic Submission of all Standard, CLP, and non-delegated Caplines
68Request User ID/Password Can also gain access to ETRAN through the Lenders page.
74Matrix Continued…All 7(a) lenders will be required to notify SBA via E-Tran for the following unilateral actions:- Cancel the SBA Guaranty*- Extend the Maturity Date (prior to the stated maturity expiring)*- Change the loan from revolving to non-revolving- Change the Borrower’s name or address- Assumption of the loan without release of an Obligor (adding a borrower)- Adding a Guarantor to the loan- Classify the loan in “liquidation” statusNote: After entering the appropriate information into Etran, no further action is required