The Community Advantage Network OEO - “Building Success in Underserved Markets” U.S. Small Business Administration Office of Economic Opportunity March 2013

Background on the CA Network 2 Community Advantage (CA) is a pilot program launched by the SBA in February It enables mission lenders to deliver government guaranteed loans to small business in underserved markets. In February 2013, the SBA’s Office of Economic Opportunity (OEO) became the coordinating office for the CA Network. Purpose:  Increase access to credit for small businesses in underserved markets  Expand points of access to SBA loans through mission lenders  Manage risk by harnessing the experience of mission lenders, especially in underwriting and the provision of management and technical assistance Status as of March 2013  Nationally, the program has 57 CA Lenders, who have approved 295 loans for $39.4 million. “Building Success in Underserved Markets”

Who is eligible for Community Advantage? 3 As CA Lenders  U.S. Treasury Certified Development Financial Institutions (CDFIs)  SBA Certified Development Companies (CDCs)  SBA Micro Loan Intermediaries As Partners in the CA Network  Lender Service Providers (LSPs)  Agents who carry out lender functions such as originating, disbursing, servicing or liquidating SBA loans for compensation.  Community Advantage Associates  Mission-oriented organizations that may act in partnership with a CA Lender to source and originate SBA loans.

Community Advantage Loan Parameters 4 $250,000 Maximum loan size Prime + 6% Maximum interest rate 5% cash reserve on unguaranteed portion of loan LLRF requirement 60% of the number of CA loans must be in underserved markets Markets served Encouraged when appropriate but not required Management and technical assistance

Key Community Advantage Program Features 5 85% guaranty for loans of $150,000 or less 75% guaranty for loans greater than $150,000 Percent of Guaranty Maximum of 10 years for working capital Maximum of 10 years or useful life for equipment Maximum of 25 years for real estate Maturity 0.25% for maturities ≤ 12 months For maturities > 12 months 2.0% for gross CA loan ≤ $150, % for gross CA loan > $150, % on-going guaranty fee paid by lender Guaranty Fees

6 Business Eligibility and Use of Proceeds Business EligibilityUse of Proceeds  Be an operating business  Be organized for profit  Be located in the United States (includes territories and possessions)  Be small (as defined by SBA  Demonstrate a need for the desired credit  Working capital  Furniture and fixtures  Machinery and equipment  Purchase of land and buildings, including construction and renovations  Business acquisition  Refinancing of existing debt*

CA Lender Application Process 7 1.Applicant collects information and certifications listed in Community Advantage Participant Guide located at: (page 7). 2.Applicant completes SBA Form 2301, Part E, which can be found on page of the SBA website, and required attachments. 3.Applicant sends application package to local SBA District Office. SBA District Office s to advise that an application is on the 4.SBA District Office forwards application package to Director, Office of Credit Risk Management for evaluation and final decision. Brand Promise: A decision will be made no later than 45 days after SBA receives a complete application.

Profile of Approved CA Applicants 8 Approved CA Lenders typically have the following qualities:  Demonstrated relevant experience in small business lending  Mentoring and technical assistance capability and/or established relationship with an outside provider  A well developed business plan with a description of proposed service delivery area and a clearly explained plan for marketing and outreach  Sufficient, clear & well documented loan policies and procedures  Unrestricted net assets of more than $350,000  Ability to fund CA loans through cash, income, or a balance sheet that would permit additional borrowing  Good standing with SBA/CDFI Fund and no material weakness audits

How Are CA Lenders Funding Loans? 9 Funding Sources  Existing funds or current income stream  Sale of loans on the secondary market  Grants, program related investments and warehouse lines of credits from commercial and investment banks. Financial partners include: Bank of AmericaJPMorgan Chase Wells FargoCITI Goldman SachsMorgan Stanley US BankHuntington

Secondary Market Sales 10 Lender sells guaranteed portion of loan through broker dealerLender receives premium for saleLender retains unguaranteed portion of loan Lender continues to service the loan for an ongoing fee (usually 1%). Lender transmits the pro-rata share of principal & interest to Colson, the fiscal transfer agent

Community Advantage Associate Background 11  The Community Advantage Program first began with a number of CA Lenders operating in independent silos.  The CA Associate concept was introduced in July 2012 and made official in November 2012 to provide a referral mechanism for CA Lenders.  A CA Associate is a mission-based organization that serves as a referral agent for a CA Lender by mutual agreement.  This effectively gives CA Lenders a larger footprint by providing more “storefronts” in more communities. The CA Associate would be responsible for sourcing loans and referring any business deals to the CA Lender, who would ultimately be responsible for making the loan on its books. Borrower Small business borrower has existing relationship with a CA Associate, or an entrepreneur has a business plan and is looking for financing. CA Associate CA Associate approaches CA Lender to match small business borrower with CA Lender. Any fees or consideration is negotiated between parties. CA Lender CA Lender and small business borrower complete SBA Form 159(a) for any fee charged to the borrower and/or paid by the CA Lender for the referral.

CA Associate Concept Illustrated 12  Eight CA Lenders currently operate in California in various locations, with potential to serve other markets.  No coverage currently in Hawaii.  SBA Microlender in Hawaii, Pacific Gateway, would like to participate in the CA Network but lacks the capacity to be a CA Lender.  OEO has referred them to CDC Small Business Finance in San Diego (#8). Any fee to be worked out is negotiated between the parties.  Pacific Gateway would refer potential borrowers to CDC Small Business Finance, where the CA loan would be booked. In return, CDC has a deal referral source and potential servicing agent in Hawaii if needed.

Illustration of the CA Network 13 CA Associate Commercial LSPs High Capacity CA Lender(s) [LSPs for other CA Lenders] CA Lender Housing CDFIs and minority and women- focused business trade associations are prime CA Associate candidates. Small Business Leverage Resources  SBA (OCA, OED)  Business Development  Large Commercial Banks  Investment Banks  Fortune 500 Cause related philanthropy (Starbucks/OFN)  SBLF, Equity Grants  CAP Program (for LLRFs) Small Business CA Lender

Community Advantage Program HQ Contacts 14 OEO Contacts: Onica Alan Rodney The mission of the Office of Economic Opportunity (OEO) is to expand access to capital for small businesses and entrepreneurs in underserved communities, thus helping to drive economic growth and job creation.