10/15/2012. Banking 101. Current Banking Landscape. The New Banking World

Transcription

1 The New Banking World Banking 101 Current Banking Landscape 1

2 Survival of the Fittest Economic Developments Role Investors Community Bank 860 North Rapids Rd. Manitowoc, WI Tim Schneider, Co-CEO and Co Founder 2

3 Funding: The New Banking World SBA 101 Presented by Dan Schneider, Executive V.P. of A CERTIFIED DEVELOPMENT COMPANY Wisconsin Business Development Finance Corporation Founded in 1981 as a private, not-for-profit, member-based organization created to assist Wisconsin businesses: Gain Access to Capital Create Jobs Promote Community Development through long-term fixed rate financing at a market-based interest rate. 8 SBA Financing: What is SBA? Independent Agency Provides assistance to America s small businesses 4 primary area of assistance: Advocacy Management Procurement Financial Assistance 9 3

4 SBA & Lender Relationships When originally founded, the SBA was the lender of last resort SBA required turn down letters from lender to be considered for a direct loan from SBA The SBA no longer lends money directly to small businesses with the exception of disaster loans (as with Hurricane Katrina) 10 To Benefit: The Borrower The Lender The Community Why use SBA financing? 11 A Win-Win-Win Situation Overview of Commonly Used Programs 12 7(a) SBA Guaranteed Term Loans SBA Express Term Loans & Lines of Credit CAP Lines Lines of Credit Certified Development Company Loan Program aka 504 4

5 7(a) Guarantee Program Most basic and most used program Must have the involvement of a lender SBA guarantees the lenders loan Business applies to the lender, not SBA 13 Use of Proceeds Expansion/renovation of facilities Purchase M/E, F&E, and leaseholds Finance receivables and working capital Purchase land & building(s) Refinance existing debt Purchase businesses, including goodwill 14 Terms 15 Number of years to payoff based on the use of proceeds: Machinery & 10 Years Working 7 Years Land & 25 Years Debt Refinance based on original use of proceeds Weighted average for multiple uses 5

6 SBA 7(a) Guaranty Fees Based on loan size & guaranteed portion of the loan. Loan Amount: Fee % of Gty d Portion: $150M or Less 2% $150M to $700M 3% Over $700M 3.5% Guaranty $1MM+ 3.75% 0.545% annual servicing fee charged on outstanding guaranteed portion 16 Eligibility Business must be for-profit Business must be small based on: Number of employees or Sales average from prior 3 years OR Net worth of applicant and affiliated businesses less than $15 million and average net income under $5 million 17 Ineligible Businesses 18 Business engaged in lending Pyramid sales Gambling Real estate development Investment or speculation Passive investment 6

7 SBA 504 Loan Program 19 AKA CERTIFIED DEVELOPMENT COMPANY PROGRAM SBA 504 Eligible Use of Funds Land, Building, and Equipment Project Related Eligible Soft Costs Professional Fees Cost of Appraisal & Environmental Reports Interim Interest Refinance w/ Expansion Up to 50% of expansion costs 20 Ineligible 504 Project Costs Working Capital, Inventory, and Other Current Assets Goodwill and Other Intangible Assets Typical 504 Finance Structure Bank 50% WBD -40 % Borrower 10% 21 Lender Front-End Loan : 1 st lien on project real estate and/or equipment. 504 Debenture: 2 nd lien on project real estate and/or equipment In mixed-use projects, SBA generally requires a 1 st lien on shorter term assets Note: Lender funds entire 90% in interim period 7

8 Borrower s Contribution 22 Cash Equity Injection/Owner s Cash Cash from Operations Interim Interest Down Payments related to eligible project costs Proceeds of a loan, TIF Borrowed funds secured on project assets must have the same term as the 504 debenture Equity in Real Estate As Is Appraised value less debt against RE Terms Year Debenture (Real Estate) Lender s loan must have a minimum maturity of 10 years Combined RE & Equipment projects (mixed-use) possible based on concentration 10-Year Debenture (Equipment) Lender s Loan must have a minimum maturity of 7 years Equipment term may be 20 years based on useful life SBA 504 Fixed Interest Rates 20 Year Debenture 10 Year Treasury at the time of sale + Spread (YTD Fiscal 2012 average is 2.811%) 10 Year Debenture 24 5 Year Treasury at the time of sale + Spread (YTD Fiscal 2012 average is 3.107%) Current Effective Rates 20 Year 4.28% (September 2012) 10 Year 3.49% (September 2012) 8

9 What do lenders look for in the application? 25 Lenders review what is referred to as the 5 C s of Credit when evaluating risks Character, Capacity, Capital, Collateral, and Conditions There is a checklist of needed items for both the 504 and 7(a) loan programs that details what is needed both from the lender and the borrower in terms of application Most of items match a bank s requirements for considering a conventional loan Tips for Successfully Obtaining a SBA Loan Be prepared Your plan should address the 5 C s Address any personal credit blemishes Take available courses / training to prepare yourself to do business 26 Percentage of Applicants Successfully Financed & 7(a) >95% of applicants received by SBA are approved However, an unknown percentage are declined by the lender or CDC before SBA submission 9

10 Other Government Loans Available 28 The SBA s 7(a) and 504 programs are by far the most commonly used programs The comparison sheet provided gives an overview of two other loan programs WHEDA Small Business Guaranty USDA B & I Other sources include local revolving loan funds & State Commerce Programs 29 ANY QUESTIONS? 10