U.S. Small Business Administration Borrowing the SBA Way

U.S. Small Business Administration Indiana District Office Presented by Peter D. Smith Lender Relations Specialist (317) ext

 Agency created in 1953 during President Dwight D. Eisenhower’s administration  SBA’s role is primarily a guarantor of loans made by financial institutions  SBA only offers direct loans in the event of a declared disaster  No direct grants from SBA for starting or expanding a business 3

4  Who is eligible for SBA loans?  What criteria does the SBA evaluate?  Where do you go to get an SBA loan?  Why use the SBA loan programs?  How do you get started?

 Size of Business  Type of Business  Borrower Qualifications & Character  Use of Proceeds 5

 For-Profit business located in the U.S.  Must qualify as “Small” per New Size Standard Tangible Net Worth of Applicant Not more than $15,000,000 And Average Net Income of Applicant Not more than $5,000,000 for the 2 full fiscal years before the date of application 6

7  U.S. Citizen, Lawful Permanent Residents, or Non-immigrant (documented) aliens  Good Character Criminal Record Personal Credit  Previous Federal Loan Payment History  Personal Resource Test

April 2010 | 8  Limited Membership Private Clubs  Purchase Partial Ownership  Repay Owners for their Investment  Pay Delinquent Taxes/Refinance Loan  Loan Packagers/Lenders  Passive Income  Speculative Ventures  Pyramid Structures  Illegal Activities  Political Activities  Religious Activities  Gambling Activities  Sexually-oriented Business

9  Ability to repay the loan on time from the projected operating cash flow  Feasible business plan  Management expertise and commitment necessary for success  Sufficient funds to operate the business on a sound financial basis  Adequate equity invested in the business (no 100% financing)  Sufficient collateral including personal guarantees

10  SBA guaranteed loans are made by commercial lenders at financial institutions  No direct loans from the SBA  Lenders have the forms necessary

11  Cannot qualify for conventional financing on reasonable terms  Longer Maturities Lowers Monthly Payment Improves Cash Flow  No Balloon payments on 7(a) loans  No Prepayment Penalties on 7(a) loans

504 Certified Development Company (CDC) Loan Program and 7(a) Loan Program 12

 Long-term, Fixed-asset Financing to: Purchase Land and Existing Building Purchase Land for New Construction Building Renovation or Expansion Purchase Major Machinery / Equipment Refinances are limited  Occupancy Requirements: 51% of existing building 60% of new construction (80% long term) 13

 Financing Structure SBA (CDC):up to 40% of total project costs Lender:50% of total project costs Borrower:10%* of total project costs  Additional 5% for start-ups or change of ownership (less than 2 years with same exact ownership)  Additional 5% for single purpose building Soft costs can be included in total project costs 14

15 Borrower – 10% SBA (CDC) – 40 % Lender – 50%

 Project Size Maximum:Unlimited  100% SBA Guaranteed Debenture (CDC) Minimum:$25,000 Maximum: $5.0 Million Standard $5.0 Million Public Policy Goal $5.5 Million Small Manufacturer or Energy Savings 16

 Maturity: Equipment:10 years Real Estate:20 years  Rates: Fixed, non-negotiable Established at bond sale, after project is completed Recently: Equipment 4.19% - 10 year fixed Real Estate 4.23% - 20 year fixed 17

 Non-SBA Loan (No Guaranty) 1 st Lien Position  Maturity: Equipment:Minimum 7 years Real Estate:Minimum 10 years Balloon Payments must be justified with SBA approval  Rates: Lender determines as long as Reasonable SBA sets Maximum, currently Prime % 18

 Lender 1 st Lien Position with only 50% Loan-to-Value 90% financing increases potential opportunities CRA credit  Borrower Lower down payment preserves capital Fixed Rate with full amortization  Community Creates or retains jobs 19

 Most used SBA Loan Program  Wide range of financing needs Funding for start-up businesses Purchase existing business Expand/renovate facilities Finance working capital/receivables Construction Refinancing* 20

 Maximum Loan Amount: $5.00 Million  Maximum Guaranty Amount: $3.75 Million  Maximum Guaranty Percentage: 85% up to $150,000 75% over $150,000  Multiple loans permitted up to $3.75 Million Guaranty Maximum 21

 Real Estate Up to 25 years  Equipment Up to 10 years or expected useful life  Working Capital Generally 7 years, but may be extended to 10 years depending on cash flow 22

$100,000, 10 year term  Fixed Rate Option: Base Rate: 5.16% %= 7.91%  Variable Rate Option: Prime: 3.50% %= 6.25% As of 06/01/

Approved Loan Amount $150,000 or less = 0.00% of Guaranteed Amt $150,001 to $700,000 = 3.00% of Guaranteed Amt $700,001 to $1,000,000 = 3.50% of Guaranteed Amt Over $1,000,000 = 3.75% of Guaranteed Amt on portion over $1Million Short-term: Maturity 12 Months or Less = 0.25% 24

25 ‣ Exporting Loans ‣ CAPLines ‣ Veterans Advantage

 For members of the military community (51% owned & controlled)  Maximum Loan Amount (Under Express System) :$350,000  Delegated Processing:Lender Underwriting Lender Closing Docs  Instant approval when submitted to SBA  Collateral is not required up to $25,000 26

 Veterans  Service-disabled veterans  Soon to be discharged active-duty service members eligible for the military’s Transition Assistance Program  Reservists and National Guard members  Current spouse of all of the above  Widowed spouse of: a service member who died while in service, or a veteran who died of a service-connected disability 27

 Fee Waiver for loans up to $350,000 under Express Processing (Savings of $5,250 on a $350,000 loan)  50 % Fee Waiver on all non-Express loans (Savings of $69,063 on a $5,000,000 loan) 28

 Finances short-term working capital needs  Usually a revolving line of credit  Can be offered by any 7(a) approved lender 29

 Working Capital  Builder  Contract  Seasonal 30

 Purpose: Basic line of credit for working capital business needs  Must sell on credit & create Accounts Receivable  Only CAPLine that allows refinancing of debt 31

 Purpose: Finances working capital needs for residential or commercial property which can include significant property improvements  For business with NAICS codes of: Commercial & Institutional Building Construction New Single-Family Housing Construction New Multifamily Housing Construction Residential Remodelers 32

 Purpose: Finances working capital needs for assignable contracts  Contract & Project Cost Schedule required  Contractor must have proven success 33

 Purpose: Finances seasonal increases of seasonal working capital needs  Must demonstrate a seasonal operation pattern  Last 12 months of prior operating experience required  Month to month cash flow projections required  30 day zero balance period required 34

Export Working Capital Program (EWCP) International Trade Export Express Maximum Loan Amount $5,000,000 $500,000 Maximum Guaranty Percentage 90% 90% for loans $350,000 or less 75% for loans Greater Than $350,000 35

36  Borrower equity injection is required (100% financing is not available)  All Borrowers with 20% or more ownership must give Personal Guaranty  Personal assets required to cover shortfall  Loan is with the Lender, not the SBA  SBA Guaranty is for the Lender  Borrower still liable for 100% of the loan

37 Step 1: Create / Update your Business Plan  Free Counseling Available from SBA Resource Partners SCORE Small Business Development Center (SBDC) Women's Business Center (WBC)

38 Step 2: Visit a Lender  Lists are available from the SBA Approved Lenders and Most Active Lenders  Lender makes initial credit decision May or may not need SBA Guaranty Lender has right to say ‘no’  Lender chooses appropriate SBA Loan Program SBA decision to Lender in 1-15 business days  Be Prepared Treat meeting like a job interview Having supporting financial documentation

39  Business Plan  Current Personal Financial Statement for each owner  Tax Returns of each owner (last 3 years)  Projections of revenue, expenses, profits, and cash flow for the next 1-3 years

40  Established Business Tax Returns for last 3 fiscal years Balance Sheet and Income Statement  Year End for last 3 fiscal years  Current Statements Accounts Receivable and Accounts Payable Aging  New Business Detailed estimate of start-up costs including owner’s capital injection and borrowing needs

U.S. Small Business Administration Indiana District Office Presented by Peter D. Smith Lender Relations Specialist (317) ext