What Does It Really Take to Get an SBA Loan?

Transcription

1 What Does It Really Take to Get an SBA Loan? Mike Mora Na*onal Business Development Specialist U.S. Department of Commerce Minority Business Development Agency January 19, 2012

2 Presenta*on Outline Overview of SBA Eligibility Requirements 7(a) Loan Program 504 Loan Program General Packaging Requirements QuesFon & Answer Contact InformaFon

3 What is the Role of the SBA? To provide credit enhancement and encourage more private sector lending to small businesses in the U.S. than would normally be available To allow private sector lenders to offer longer terms and more favorable rates to small business borrowers To allow private sector lenders to retain relafonships with exisfng small business clients To help banks make larger loans than they normally could (SBA guaranteed porfons do not count against bank s lending limit)

4 Types of SBA Loans Guaranteed / 7 (a) Loans CDC / 504 Loans

5 7(a) Loan Types Loan Program Maximum Loan Amount % Maximum Guarantee Amount Standard 7(a) $5,000, $3,750,000 CLP $5,000, $3,750,000 PLP $5,000, $3,750,000 Small/Rural Lender Advantage $350, $262,500 SBA Express $350, $175,000 Patriot Express $500, $375,000 InternaFonal Trade Loans $5,000, $4,500,000 Export Express $500, $350,000 Export Working Capital Program (EWCP) $5,000, $4,500,000 Gulf Opportunity $150, $127,500 Community Advantage Lenders $250, $212,500 Small Loan Advantage Program $250, $212,500

6 Regular 504 Permanent Refinance Temporary Refinance CDC / 504 Loan Types

7 Be an operafng business Be organized for profit SBA Eligibility Requirements Be located in the United States (includes territories and possessions) Be small (as defined by SBA) Demonstrate a need for the desired credit

8 What is Considered a Small Business? As of September 27, 2010, a new, temporary alternafve size standard is established by SecFon 1116 of the Small Business Jobs Act: o Maximum tangible net worth of the applicant is not more than $15,000,000; AND o Average net income acer Federal income taxes (excluding any carryover losses) of the applicant for the 2 full fiscal years before the date of the applicafon is not more than $5,000,000. Note: This is a temporary permanent size standard. definifon unfl the SBA and Congress approve a

9 a) Large Businesses b) Non profit OrganizaFons c) Gambling establishments d) MonopolisFc business e) Pyramid sales organizafons f) Investment and speculafve businesses Ineligible Businesses g) ParFal purchase of a business h) Lending insftufons i) Real estate held for speculafon, investment or rental j) Religious organizafons k) Businesses located in foreign countries l) Illegal businesses m) Over 30 day rental operafons n) Businesses owned by people who are on parole or under indictment o) Business that has access to funds through personal resources and/or personal credit and/or excess assets p) Private clubs not open to the public q) Borrower who previously failed to repay a federal loan

10 Credit Criteria for an SBA Loan 1) Sufficient equity injected from borrower 2) Loan to be used for business purposes 3) PotenFal for long term success 4) Good character and reputafon 5) Repayment ability reasonably assured

11 What is a 7(a) Standard Loan? Funding Amount: Gross loan amount is limited to $5,000,000 per loan with the SBA guaranty amount limited to $3,750,000 to one borrower / guarantor and enfty (and any affiliates). The SBA Guarantee is 85% for loans of $150,000 or less; 75% for loans over $150,000. Guarantee acts as an insurance policy against loss Funds Uses: Working Capital Purchase of Land and Buildings, Construction, Renovations, and Business Acquisition Machinery & Equipment Furniture & Fixtures Refinance

12 7(a) Guaranteed Standard Loan Structure 25% 100% Lender Exposure 75% Loan to Small Business SBA Guarantee

13 7(a) Loan Terms & Interest Rates SBA loan maturity is based upon the ability to repay and the following schedule: a) Working capital loans: 5 to 7 years (10 years if necessary for repayment) b) Equipment loans: 10 years, limited to the useful economic life of asset c) Real estate and building: Up to a maximum of 25 years Interest rates are based on the prime rate and according to the following schedule: a) Loans of $50,000 or more with a maturity of less than 7 years: Prime rate plus 2¼ % b) Loans over $50,000 or more with a maturity of 7 years of more: Prime rate plus 2¾ % c) Loans up to $25,000: Prime rate plus 4 ¼ % or 4 ¾ % d) Loans over $25,000 to $50,000: Prime rate plus 3¼ % or 3¾ %

14 INELIGIBLE DEBT SBA guaranteed loan proceeds may not be used to: For non business related expenses / payments, investments, or compensafon payments for anything other than actual services provided Refinance debt originally used to finance a loan purpose that would have been ineligible for SBA financing at the Fme it was originally made. Refinance personal debt, limited excepfon of credit card debt in the personal name used for business purposes.

15 What is a 504 Loan? A loan program of the SBA Provides long term, fixed rate financing for commercial real estate and/or machinery and equipment. Promotes local economic development through the financing of long term fixed assets. Loans provided through CDCs

16 Funding Amount: 504 Loan Program Overview Maximum SBA debenture is 40% of project costs up to $5 million across all industries. Loans can go up to $5.5 million for manufacturers and businesses creafng energy efficient operafons. There is no limit on the lender loan. Funds Uses: The purchase of land, including exisfng buildings The purchase of improvements, including grading, street improvements, uflifes, parking lots and landscaping The construcfon of new facilifes or modernizing, renovafng or converfng exisfng facilifes The purchase of long term machinery and equipment

17 Fixed Assets Proceeds from 504 loans must be used for fixed asset project with a useful life of at least 10 years. Owner Occupied Real Estate Occupy 51% of exisfng building Occupy 60% of new building

18 Ineligible 504 Expenses The Regular 504 Program cannot be used for working capital or inventory, consolidafng or repaying debt, or refinancing. Under current guidelines in the Jobs Act, proceeds may be used to cover previous expenses of this type 6 months prior and 18 months forward unfl September 27, 2012 (so long as the loan to value does not exceed 90%).

19 504 Loan Structure Standard Financing 10% 40% 50% Third Party Lender SBA / CDC Borrower New Business or Limited or Special Purpose Property BOTH New AND Limited or Special Purpose Property 15% 20% Third Party Lender Third Party Lender 50% SBA / CDC 50% SBA / CDC 35% Borrower 30% Borrower

20 Up to 90% financing Benefit to Borrower Long term compeffve fixed rate loan Bank interest rate usually more favorable Establishes borrower s long term relafonship with parfcipafng bank SBA porfon of loan is assumable

21 7(a) 504 Comparison 7(a) Loan Maximum project size is $5,000,000 and a limit of $3.75m in benefits SBA guarantees bank loan with % depending on the loan amount 504 Loan 504 program has no limit on project size, just on the benefit amount Funds from CDC / SBA Bank has 1 st lien on all assets and CDC / SBA have 2 nd lien posifon on all assets.

22 504 Permanent Refinance Program Funding Amount: Maximum loan amount is 90% of the fair market value of the fixed assets. SBA exposure ranges from 30 40% of the project up to $5 million. There is no limit on the lender loan. MulFple loans can be refinanced and loans must be disbursed within 6 months of approval date. Fund Uses: Must be adding substanfal new 504 project costs to the business (expansion or new locafon).

23 504 Temporary Refinance Program

24 Eligibility for 504 Refinancing ExisFng loans that were originally used to finance 504 eligible costs (fixed assets). 85% of debt must have been used for eligible costs (cannot refinance exisfng 7a or 504 debt). Company must have been in business for 2 years. Debt must be at least 2 years old. Under the Permanent 504 Refi program, monthly payments must decrease by at least 10% for the porfon that is being financed under the new terms. There is no 10% benefit test under the Temporary Refi program.

25 General Packaging Requirements for SBA Loan History of the Business. Current personal financial statement and cash flow on all owners. Current internal financial statement with aging of accounts receivable & payable. Accts. Rec. and Accts. Payable agings (per balance sheet). Last three years business income tax w/ original signatures. Last three years internal prepared financial statements for the business Last three years personal income tax returns on all owners Last two years income tax returns or two years financial statements, and a current financial statement (not older than 90 days) on any affiliated business. Financial projecfons with assumpfons for the next 2 years showing the benefit of loan. A complete schedule of business debt that corresponds to most recent balance sheet and schedule of personal debt if business operates as a sole proprietor. Resumes on the owners and key management. Personal credit reports on the owners and a D&B report on the business. Business Plan for start ups, and source of cash injecfon.

26 Packaging Requirements, cont. Business CerFficates / Agreements Copy of earnest money contract and/or real estate seolement sheet; list of equipment and purchase orders or esfmate of FF&E cost. A wrioen cost esfmate or contract if the project involves construcfon. Environmental reports, if available. Appraisal is required when project cost exceeds $100,000. ExisFng lease agreement, if applicable. Personal history on all business owners and officers (SBA Form 912). Franchise agreement, if applicable. Copy of previous SBA loan authorizafons, if applicable.

27 QUESTION & ANSWER QuesFons may be submioed by typing quesfons and sending in the chat box. Unanswered quesfons will be addressed individually, please include name and .

28 For more informaaon and a free consultaaon, contact: Cindy Thyfault, Founder and CEO Westar Trade Resources 2030 Main Street, Suite 410 Dallas, TX