Small Business Administration 504 Loan Program West Central Texas Council of Governments Council Finance, Inc.

Made up of cities, counties, and special governmental districts Addresses issues regional planning, economic development, emergency planning, aging, youth, pollution control, 911 services, law enforcement, transportation

WCTCOG Economic Development West Central Texas Housing Finance Corporation West Central Texas Economic Development District Council Finance, Inc. Revolving Loan Fund

Council finance, Inc.-Certified Development Company What are CDCs? Certified Development Companies (CDC) are organizations certified by the SBA to provide funding for small businesses under the SBA 504 program Approximately 260 CDCs nationwide Operates under the leadership of a board of directors Must provide at least four 504 loan approvals during two consecutive fiscal year

What is the SBA 504 Loan Program? Provides financing and/or refinancing for major fixed assets Real Estate Equipment Construction Renovation or expansion of an existing facility Debt Refinance Professional Fees

What is the SBA 504 Loan Program? Intended to create jobs Funded from local bank, and a CDC Bank- 50% CDC/SBA- 30-40% Borrower- minimum equity injection of 10%

Example Project 1 Project Uses Dollars Acquisition of building 800,000 Renovations 100,000 Machinery 50,000 Soft Costs Total 1,000,000 Financing Sources Dollars Bank-first lien 500,000 CDC/SBA- second lien 400,000 Borrower’s equity injection 100,000 Total 1,000,000

What Are the Loan Maximums? For a generic SBA 504 loan or if the business meets a public policy goal the maximum loan is $5,000,000 If the borrower is involved in manufacturing, the loan my be as much as $5,500,000

What Are the Minimums? The minimum project size is $125,000

Items of Interest Term Fixed interest rate Fees typically 2.5% 10 or 20 years Fixed interest rate March 20 year-4.799% March 10 year-4.401% Fees typically 2.5%

Quirks Prepayment Penalty Interest Rate

What Are the Qualifications? Tangible net worth not to exceed $15 million Average net income for the preceding two years is not to exceed $5 million Must be owner occupied Job Creation 1 job for every $65,000 borrowed 1 job for every $100,000 borrowed (for manufacturers)

Why Are 504 Loans of Interest to Banks? Provides risk and liquidity management Banks portion secured by the first lien position Provide fee and interest income Interim interest, origination fees, selling their first-lien loan in the secondary market Help banks fulfill their mission of local economic development

Why Are 504 Loans of Interest to the Small Business? Low Equity Injection Preservation of working capital Fixed-rate of interest Fully amortizing, long term loan 10 or 20 years

Debt Refinance Permanent Debt Refinance Must involved expansion

Permanent Debt Refinance Must have expansion of small business Federal debt and federally guaranteed debt is eligible Equity from equipment is NOT eligible Debt to be refinanced may not exceed 50% of expansion cost Project cost is the cost of expansion + refinanced debt + soft costs

Permanent Debt Refinance Bank must finance 50% of project cost SBA will finance up to 40% of the project cost Borrower does NOT have to inject 100% of available equity but must inject at least 10-20% based on current SBA requirements

Example Project 2 Project Uses Dollars Equity In Land 150,000 Addition to Current Facility 800,000 Machinery 200,000 Debt Refinance 350,000 Total 1,500,000 Financing Sources Dollars Bank-first lien 750,000 CDC/SBA- second lien 600,000 Borrower’s equity injection 150,000 Total 1,500,000

Application Projections Schedule of Debt Personal History Statement Personal Financial Statement and 2 years of tax returns Current Financial Statements Two years past tax returns and financial statements Appraisal Projections Schedule of Debt Schedule of Previous Gov’t financing Tax returns of affiliates Franchise Information Credit history release Project Cost Documentation Environmental

How Does the Application Process Work? Underwriting and Processing Performed by both the bank and the CDC Processing for the CDC takes 2 weeks Loan Committee reviews loans Wait for approval from SBA SBA may “screen out” our loan Appraisal and Environmental Can be ordered after application is approved Typically take between 2-3 days to get approved

How Does the Application Process Work? Underwriting and Processing Performed by both the bank and the CDC Processing for the CDC takes 2 weeks Loan Committee reviews loans Wait for approval from SBA SBA may “screen out” our loan Appraisal and Environmental Can be ordered after application is approved Typically take between 2-3 days to get approved

U.S. Small Business Administration 7(a) Lending Bank holds the note Guarantee from the Gov’t Program exceptions Nothing 504 Program Dual Mortgages 2nd Mortgage is guaranteed Program Exceptions Franchise Fees Working Capital Inventory Rolling Equipment Goodwill

WCTCOG Revolving Loan Fund Loan Size-$2,000-$20,000 Term & Amortization up to 7 years Qualifications: Less than 50 employees Gross Revenue less than $1MM Must be located in the WCTCOG 19 county region Must be in an area defined as rural

RLF Use of Funds: Real Estate Machinery Equipment Furniture Working Capital Inventory

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Daniel Hutson Council Finance, Inc. 325-518-4942 dhutson@westcentraltexas.org