Guide to SBA Lending and the SBA Advantages for Veterans

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1 Guide to SBA Lending and the SBA Advantages for Veterans BUSINE S S BA NK ING W HITE PA PER The U.S. Small Business Administration (SBA) recognizes the importance of our veterans and offers them special benefits through their SBA loan programs. We have outlined those advantages in this guide in order to help you better understand SBA financing, the features of the programs and how to prepare for the loan application process.

2 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 2 The U.S. Small Business Administration (SBA) CREDIT SOLUTIONS FOR MOST SMALL BUSINESS NEEDS > Commercial real estate purchase, expansion, renovations, leasehold improvements > Business acquisition, expansion or startup > Partner buyout > Equipment and inventory > Franchise financing > Permanent working capital > Refinance existing conventional debt > Export financing SBA FEATURES CASH FLOW ADVANTAGES VS. CONVENTIONAL FINANCING > Down payments typically as low as 10% > Longer repayment terms, including up to 25 years for commercial real estate, up to 10 years for a business acquisition or startup, up to 15 years on equipment > Opportunity to lend in less than fully secured situations > No prepayment costs for terms less than 15 years > No balloon payments SBA History The SBA was created in 1953 to counsel, assist and protect the interests of small businesses. Eventually, the SBA established governmentguaranteed loan programs with benefits like longer repayment terms, lower down payments and more relaxed collateral requirements compared to conventional loans. The idea was to help businesses start and expand while stimulating the economy and helping to add jobs in the communities they serve. The SBA has grown significantly and creates specialized programs that help small businesses in all areas. The SBA supports veterans by offering education, counseling and mentoring through various programs. How the SBA Loan Guarantee Program Works The SBA does not make direct loans to small businesses. Rather, it sets the credit and eligibility guidelines for loans, which are then made by its partners (lenders, community development organizations and microlending institutions). The SBA guarantees that these loans will be repaid, thus eliminating some of the risk to the lending partners. When a business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements with an SBA guaranty. The guaranty may allow the lender to collect up to 85% of the losses, should a loan default. Since this is a bank loan, applications are submitted to the bank, and loan payments are paid to the bank. The bank is also responsible for closing the loan and disbursing the loan proceeds.

3 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 3 SBA Veterans Advantage WHAT IS THE U.S. SMALL BUSINESS ADMINISTRATION (SBA) AND HOW DOES IT HELP VETERANS? The SBA helps businesses grow and succeed by creating loan programs that offer features and benefits not typically offered in conventional loans. The SBA s Veterans Advantage program gives veterans, and those who qualify as veterans, upfront fee waivers and reductions to help them start or grow a business. SBA Veterans Advantage The SBA is dedicated to helping veterans and military personnel obtain the education and financing needed to start or expand a business. Currently the SBA does not charge businesses upfront guaranty fees on SBA Express or SBA 7(a) loans less than $125,000. In addition to these benefits, upfront guaranty fee waivers and reductions on all SBA Express and SBA 7(a) loans greater than $125,000 up to $5,000,000 are available to qualified veterans. Features of SBA Fee Relief and the SBA Veterans Advantage Include: Veteran Fee Relief SBA 7(a) Loans SBA Express Loans For all 7(a) loans in the amount of $125,000 or less, the upfront guaranty fee will be 0%. This fee waiver includes both veteranowned and non-veteran owned businesses. For all SBA Express loans to veteran-owned small businesses, the upfront guaranty fee will be 0% up to the maximum loan amount of $350,000. SBA Veterans Advantage (non-sba Express Loans) Loan amounts of $125,001 up to and including $150,000: The upfront guaranty fee is 50% less for veteran-owned businesses as follows: 1.0% For loans with a maturity greater than 12 months, the fee will be 1.0% of the guaranteed portion. Loan amounts of $150,001 up to and including $350,000: 1.5% For loans with maturity greater than 12 months, the fee will be 1.5% of the guaranteed portion % For loans with a maturity of 12 months or less, the fee will be 0.125% of the guaranteed portion % For loans with maturity of 12 months or less, the fee will be 0.125% of the guaranteed portion. SBA 7(a) loans of $350,001 up to and including $5,000,000: The upfront guaranty fee reductions depend on the loan amount and the maturity of the loan as follows: 3.0% $350,001 $700,000: 3.0% of the guaranteed portion. 3.75% $700,001 $5,000,000: 3.5% of the guaranteed portion up to $1 million plus 3.75% of the guaranteed portion over $1 million. 0.25% For loans with terms less than 12 months, the guaranty fee is 0.25% of the guaranteed portion.

4 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 4 SBA Veteran Qualifications To qualify for the fees, businesses must be at least 51% owned and controlled by an individual or individuals in the following groups: Veterans (other than dishonorably discharged) Service-disabled veterans Active-duty military participating in the Transition Assistance Program (TAP) Reservists and National Guard members Current spouse of any veteran, active-duty service member, or any reservist or National Guard member Widowed spouses of service members or veterans who died during service or as a result of service-related disabilities SBA VETERANS ADVANTAGE DOCUMENTATION REQUIREMENTS Lenders determine whether an individual is a qualified veteran using the following documentation and include it in the loan file (copies must be provided to the SBA upon request): Veteran: Copy of DD Form 214, which is provided for other than dishonorably discharged veterans Service-Disabled Veteran: Copy of DD Form 214 or documentation from the DVA that the veteran has been determined to have a service-connected disability Transitioning Active-Duty Military Member: DD Form 2, U.S. Armed Forces Identification Card (Active), or DD Form 2, Armed Forces of the United States Geneva Conventions Identification Card (Active) and DD Form 2648 (Active Duty Military member) or DD Form (Reserve Component member) Reservists and National Guard: DD Form 2, Armed Forces of the United States Identification Card (Reserve) Current Spouse of Veteran: The veteran s DD Form 214 and evidence of status as a current spouse Current Spouse of Transitioning Active-Duty Military Member or Current Reservist/National Guard Member: DD Form 1173, Department of Defense Guard Reserve Family Member Identification Card and evidence of status as the current spouse Widow of Active-Duty Service Member Who Died in Service or Widowed Spouse of Veteran Who Died of a Service-Connected Disability: Documentation from DOD or from DVA clearly showing this to be the case In the event that the veteran s DD Form 214 is unavailable, a Certification of Military Service (NA Form 13038) is an acceptable equivalent. For any category listed here that requires a photocopy of a military ID, as an alternative to photocopying the military ID, the service member may provide a statement of service signed by, or by the direction of, the adjutant, personnel office, or commander of the unit or higher headquarters they are attached to. There is no single, unique form used by the military for a statement of service. While statements of service are typically on military letterhead, some may be computergenerated. The statement of service must clearly show: 1. The service member s full name 2. The service member s Social Security number (SSN) or the last 4 digits of SSN 3. The entry date on active duty or the entry date of applicant s reserve/ guard duty, as applicable (depending on whether the applicant is on active duty or is a current member of the reserves or National Guard) 4. The duration of lost time, if any (for active duty) 5. The name of the command providing the information 6. Note for current reserve/guard members: The statement must clearly indicate that the applicant is an active reservist and not just in a control group (inactive status).

5 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 5 SBA Solutions for Most Business Credit Needs SBA Loan Programs The three main SBA loan programs are SBA 7(a), SBA Express and SBA 504. You can work with a banker to determine which loan makes sense for your business situation. The general features and benefits of each of the loan programs are described below. SBA 7(a) SBA Express SBA 504 Used for business expansion, acquisition or startup; partner buy-out; permanent working capital; franchise financing; commercial real estate purchase, building renovations, construction and improvements; equipment, inventory or fixtures; refinance of existing debt Can be used for most business purposes including business expansion, acquisition or startup, permanent working capital, franchise financing, commercial real estate purchase, equipment, inventory or fixtures. Used to finance larger projects, including commercial real estate purchases, building renovations, heavy equipment and machinery. Can also be used to refinance large fixed-asset conventional debt. The structure is attractive to interest rate sensitive clients. Loan amounts up to $5,000,000 Extended terms: up to 10 years for business acquisition/expansions, up to 25 years for commercial real estate, up to 15 years for equipment Down payments typically as low as 10% 20% of total project cost No prepayment cost for loans up to 15 years Loan amounts up to $350,000 Minimal paperwork Issued as a line of credit or term loan Loan amounts up to $12,500,000 ($5,000,000 maximum on the SBA portion, or 40% of the total loan) Amortization up to 25 years on the first mortgage and 20 years on the debenture Down payments as low as 10% of the total project cost

6 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 6 Tips to Make the SBA Loan Process Faster Work with a Preferred Lender (PLP) Lenders who have been granted PLP status by the SBA due to their extensive experience such as PNC Bank have the ability to make their own credit decisions, expediting the approval process. In addition, PLP lenders have the SBA knowledge to move SBA loan requests from application to closing faster than lenders who do not have PLP status. Prepare in Advance to Meet with Your Lender Before meeting with your banker to discuss credit options, it is helpful to gather and share the documents listed below: Business Plan that includes managerial experience Three years of recent personal and business tax returns (if applicable) Three years of financial statements (if applicable) Having these items handy will help a lender determine if your loan is eligible for SBA financing and guide you to the loan choice that makes the most sense for your business s financial situation. Paper Readiness Bankers routinely request certain documentation. Ask upfront what paperwork you will be expected to provide and, if possible, get a head start on completing it. This will help expedite the loan process. You will be asked to complete the following SBA forms, which are required by the SBA of all lenders: SBA Form 1919 Personal history and financial statement (SBA Form 912 and SBA Form 413) Business financial statements, including a P&L statement current within 90 days of your application (if applicable) One year of projections A list of ownership and affiliations Business certificate and license Past loan application history Most recent business income tax return and most recent three years of personal income tax returns (if applicable) Resumes for each principal of the business (20% or more ownership) Business plan Business lease or correspondence from your landlord In cases of a franchise purchase, construction or business acquisition, additional paperwork may be requested.

7 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 7 SBA Eligibility and Credit Requirements SBA Eligibility Many small businesses meet the criteria needed to be considered for an SBA loan. The following are the standard eligibility requirements: Operate for profit Be a small business (see sba.gov/size for size standards) Be engaged in, or propose to do business in, the United States or its possessions Have reasonable invested equity Use funds for a sound business purpose General Credit Requirements Be able to demonstrate a need for the loan proceeds Use alternative financial resources, including personal assets, before seeking financial assistance Business is not engaged in lending, investment or rental real estate The SBA and lenders use similar criteria to test creditworthiness. Some general requirements include: Repayment Ability You must show that you can meet business expenses, owners draw and loan payments from the earnings of the business. This is usually demonstrated through historical performance and/or thoroughly documented cash-flow projections. Management You must show the ability to operate the business successfully. For a startup, you should have experience in the type of business you propose to start, as well as some significant work experience at a management level. Equity Depending on the business, experience and use of funds, owners must be prepared to put in typically 10% 25% of their own capital. Credit History Personal and company credit histories will be reviewed. Prudent lenders prefer applicants who have a history of meeting their obligations. If your credit has blemishes, prepare to provide an explanation.

8 GUIDE TO SBA LENDING AND THE SBA ADVANTAGES FOR VETERANS 8 Additional SBA Resources Available Your PNC Business Banker is always available to answer any question you might have. In addition, the U.S. Small Business Administration s website provides a list of resources for veterans, including but not limited to the following: Office of Veterans Business Development: The Office of Veterans Business Development s mission is to maximize the availability, applicability and usability of all administration small business programs for Veterans, Service-Disabled Veterans, Reserve Component Members, and their Dependents or Survivors. Boots to Business: Boots to Business is an entrepreneurial education and training program offered by the U.S. Small Business Administration (SBA) as a training track within the Department of Defense s Transition Assistance Program (TAP). The curriculum provides valuable assistance to transitioning service members exploring business ownership or other self-employment opportunities by leading them through the key steps for evaluating business concepts and providing the foundational knowledge required to develop a business plan. In addition, participants are introduced to SBA resources available to help access startup capital and additional technical assistance. Veteran Women Igniting the Spirit of Entrepreneurship (V-WISE): Veteran Women Igniting the Spirit of Entrepreneurship (V-WISE) is an entrepreneurial training program for female veterans of all service eras and branches who have a passion for and interest in either starting a new small business or growing an existing one. V-WISE enables female veterans to find their passion and learn business-savvy skills in order to turn their ideas or businesses into growth ventures while recognizing entrepreneurship as an important part of economic growth nationwide. Veterans Business Outreach Center (VBOC): The Veterans Business Outreach Center (VBOC) is designed to provide entrepreneurial development services such as business training, counseling and mentoring, and referrals for eligible veterans owning or considering starting a small business. The SBA has 19 organizations participating in this cooperative agreement and serving as VBOCs. All loans and lines of credit are subject to credit approval. Requires automatic payment deduction from a PNC Bank business checking account. Origination and/or other fees may apply. PNC and PNC Bank are registered trademarks of The PNC Financial Services Group, Inc. ( PNC ). CFO: Cash Flow Optimized is a registered trademark of The PNC Financial Services Group, Inc. Bank deposit, treasury management, and lending products and services are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC The PNC Financial Services Group, Inc. All rights reserved. PNC Bank, National Association. Member FDIC BB PDF