Your Small Business Resource Helping Small Business U.S. Small Business Administration Hancock Bank Plaza 2510 14th Street Suite 103 Gulfport, MS. 39501 SBA Loan Programs Lance Foster lance.foster@sba.gov Your Small Business Resource Helping Small Business start, grow and succeed www.sba.gov

Our Mission SBA’s Purpose Assist Small Business Counseling & Training Opportunities Administer SBA Guaranty Loan Programs Facilitate Government Contracting Provide Disaster Assistance Training & Counseling Credit Contracting Disaster Assistance

SBA Defines A Small Business As A Business must be For Profit One that is Located in the United States Owned by U.S. Citizens or legal permanent residents Net-worth less than $15,000,000 Net-profit (after taxes) less than $5,000,000

Mitigates Loss to Lender Provides Additional Services to Borrower What is an SBA Loan? Federal Loan Guaranty For Small Businesses Needs Capital Provides Capital Mitigates Loss to Lender Provides Additional Services to Borrower Borrower Bank SBA

Who is the SBA Borrower? A borrower who may be short on collateral A borrower who doesn’t fit the lenders standards of lending A start-up with no proven history A borrower who currently has non-SBA financing under less than favorable terms

The SBA Loan Guaranty The SBA promises to reimburse a lender for losses at an agreed percentage of loss Up to 90% As low as 50% Lender Benefits Reduced Risk Increased Liquidity Borrower Benefits Access to business credit Better terms and rates

Where Does the SBA Loan Fit? Factors that determine this range: Business Profile Most Viable Least Viable Experienced Management High Debt Service Cash flow Sterling Credit Fully Collateralized Growth/Mature Industry High Retained Earnings Cash flows w/ longer terms Covers Reasonable Collateral Shortfall Quality Start-up Regulation/Liquidity Environment No Management experience No potential chance of repayment Impractical business idea No financial reserves No equity investment Lender Range SBA Range No Range

How the Guaranty Works Borrower is approved a $1,000,000 loan Lender disburses loan fully SBA provides a guaranty on 75% of the loan Borrower defaults Lender liquidates assets & collateral SBA pays lender for 75% of the loan that is charged off Any payments after the loan is charged off are distributed pro rata to the lender and the SBA. $500,000 balance $100,000 recouped SBA pays $300,000 (75%) of the remaining balance back to the lender Borrower still owes $400,000

SBA’s Major Guaranty Loan Programs 7(a) Term Loan SBA Express Loan Patriot Express Loan CDC-504 Loan See loan comparison chart

7(a) Term Loan See loan comparison chart Up to $5 Million Refinance Business Debt Change of Ownership Lease Buildings Working Capital Start Up Costs Inventory Fixtures Equipment & Real Estate/Buildings 7 to 10 year maturity for Working Capital & Equipment 25 year maturity for real estate See Loan Chart For Interest Rates & Other Info See loan comparison chart

SBA Express Up to $350,000 Business Debt Refinancing Change of Ownership Leasing Building Working Capital Start Up Costs Inventory Fixtures Equipment & Real Estate/Buildings Typically Used as a revolving Line of Credit & Carries Higher Interest Rates See Loan Chart For Interest Rates

Patriot Express For Veterans Up to $500,000 Business Debt Refinancing Change of Ownership Leasing, Working Capital Start Up Costs Inventory Fixtures Equipment & Real Estate/Buildings Maturities for WC & RE same as Standard 7(a) See Loan Chart For Interest Rates

CDC-504 Loans $25,000 to $5,000,000 ($5,500,000 for manufacturers) Create 1 job / $65,000 (Vets/Women Owned Exempt) For financing real estate and or equipment only Loan-to-Value program Three part loan Commercial lender provides 50% (1st Lien) 504-CDC portion is up to 40% (2nd Lien) Owner/Borrower makes up the difference 504-CDC part term 20 year fixed rate for real-estate 10 year fixed rate for equipment Occupancy requirement 51% of existing & 60% of new construction *Administered through Certified Development Companies*

Other SBA Loan Programs Exporting International Trade Loan Program Export Express Loan Program Export WC Loan Program Self Liquidating Lines of Credit Contractors Seasonal Businesses Business that sells on credit

Loan Programs Just to Make Sure You Know Start up costs Depending on the program, proceeds can be used for: Start up costs Working Capital Inventory Equipment Fixtures Business Acquisition/Change of Ownership Business Debt Refinancing Purchase land and buildings Leasing

Credit Criteria Is Business Realistic/Eligible If Refinancing Debt, does it improve the finances of the business? Do You Have Management Ability Repayment Ability Adequate Cash Flows Sufficient Down Payment Collateral Good Credit *The business must be able to meet all of it’s debt payments (Not Just the SBA Portion) when being considered for a loan*

Things You Should Know SBA Does Not Have a Grant Program Generally No 100% Financing Financing can take extended periods of time so be patient Denial for a loan does not preclude applying at another bank Some business operations are not eligible for SBA financing i.e. Speculative Ventures

Things You Should Know Cont. Prepare for your meeting with the lender like you would a job interview Familiarize yourself with language of “Finance” Create a network of people who can be of assistance as you pursue your business “The goal is to get the right people on the bus and in the right seat”. Jim Collins, Author “From Good to Great”

Preparing a Loan Package Business Plan Answers the who doing the what, where and when Amount of a Loan & Uses Answers how much and why its needed. Collateral Offered to Secure Loan Current Financial Statements for Business & Personal 3 Years Business & Personal Income Tax Returns 1 Year Projected Income & Expense Projected Financials Attorney & Accountant Make a Appointment with Your Favorite Lender

Before you call/approach a Lender Find out the rules for business loans Is the lender active in your industry Ask for a loan application ahead of time Make an appointment Rehearse The lender is in essence your first customer Never assume they understand the language of your industry. Your presentation should empower them to seek more info regarding what you do

Meeting with the Lender Dress appropriately Have documents organized and presentable Be positive and confident Know your industry Answer negatives with positives Document your meeting with notes Be open to various forms of financing offers depending on your lender Nothing is personal unless you make it personal

Questions You May Want to Ask What is the lender’s loan process like? Localized or Centralized? What SBA lending authorities does the lender have? (not all SBA Lenders are created equal) Inquire about the lender’s SBA loan volume via your local SBA office What types of industries does this lender like to lend to? What are the bank’s collateral guidelines?

Lender Questions How much of a loan request? How was this amount determined? How will you use the loan proceeds? What Collateral is available to secure the request? How much are you able to invest in the business?

8 C’s What a Lender Looks For Capacity to Repay Capital Collateral Skin in the Game AKA Equity Collateral Assets to secure the loan Conditions Business’s needs are justified Character Credit Commitment Cash Flow (Working Capital) 8 C’s

SBA Deal Breakers Non-profit businesses Businesses primarily engaged in lending / investment Apartments, investment or rental property – landlords Business or applicant that the Government has experienced a loss Pyramid plans – Multi-level sales distribution plans Speculation, R&D Restricts patronage – i.e. men or women only health clubs Gambling activities On parole or probation

What if you are rejected? Ask why and ask for it in writing Are you “turned down” or can it be remedied? Will other lenders have the same issues? Will alternative financing sources mitigate the issues identified? No matter what, remember that at this point you know more than you did before

Top Mistakes No Equity Capital Not Enough Projected Working Capital Lack of skin in the game indicates you either cannot accept the risk or are unable to Not Enough Projected Working Capital The “Blood” of your small business Entrepreneurs tend to underestimate their needs Not Paying Yourself A livable wage should be garnered from your business

Because Nothing is Free Guaranty Fee Computed based on guaranteed amount Up to $150,000 (7(a) Loan 85% guaranteed) 2.0% of $127,500 amounts to $2,550 $150,000 to $700,000 (7(a) Loan 75% guaranteed) 3.0% of $525,000 amounts to $15,750 $5,000,000 (7(a) Loan 75% guaranteed) 3.5% of $3,750,000 amounts to $131,250 0.25% on > $2,750,000 amounts to $6,875 Total of $138,125 Can be rolled into the loan

Methods of Financing Commercial Term Loans Lines of Credit Leasing SBA Loan Guaranty Programs Lines of Credit Credit Cards Home Equity Loans - Real Estate Loans Leasing Investors – Partners Seller Financing Friends and Family Seed & Venture Capital Equity Investors

Resources Information to help you start and maintain your business Financial Assistance Federal Government Contracting Assistance Business Training and Counseling Disaster Assistance Visit www.sba.gov/ms for SBA Mississippi office/resource locations

Resources SBA Free Online Training – www.sba.gov Local SBA Workshops Service Corps of Retired Executives (SCORE) Small Business Development Center (SBDC) The SBA’s Jackson District Office The SBA’s Gulfport Branch Office Your local PTAC Office

www.sba.gov

U.S. Small Business Administration Thank You www.sba.gov