Chesapeake Business Finance Corp. John Sower, President 1101 30 th St NW #500 Sower1@erols.com Washington, DC 20007 www.chesapeake504.com Tel: 202-625-4373 Cell: 202-257-5871 Fax: 202-342-0389 John Sower Summary Bio John is President of Chesapeake Business Finance Corp, a mid-sized SBA Certified Development Corporation that provides SBA 504 loans to businesses in Maryland, DC and Northern Va. He was the founder and first president of NADCO the professional trade association for the SBA 504 loan program and won their life-time Hall of Fame award for his work in creating the 504 program. He has worked with SBA 504 loans and small business financing in Maryland for over 25 years and has commercial banking experience with a subsidiary of Comerica Bank, mortgage banking experience with Sonnenblick-Goldman, and investment banking experience with Enright & Co. He has a BA from Lawrence University in Wisc. and a MBA in Finance from the University of Mich. He lives in Washington DC and travels throughout Maryland providing SBA 504 loans to businesses..
Rick Scheller Branch Banking & Trust Company (BB&T) Mr. Scheller has been in the banking industry since 1977. He has been working with Small Business and Middle Market companies as a commercial lender and relationship manager for 26 years. Rick is currently a Vice President and Certified Business Services Officer with BB&T and serves as a business relationship manager for 100+ companies in Harford, Baltimore & Cecil counties. He is a graduate of Loyola High School and Loyola College, both in Maryland and resides in Fallston, Maryland with his business office in Bel Air.
U.S. Small Business Administration MACPA Business Expo How to Finance Your Business The SBA Advantage Resources and Programs for Success Financing the Small Business The American Recovery and Reinvestment Act is an unprecedented effort to jumpstart our economy, create or save millions of jobs, and ensure our nation can meet the challenges of the 21st century. 1
Financing the Small Business Reduced fees 90 Percent Guarantee America s Recovery Capital (ARC) Stabilization Loans Refinancing Secondary Market Expansion Surety Bonds Financing the Small Business SBA Loan Products Regular 7(a) SBAExpress CommunityExpress Patriot Express CapLines International Trade Loan Program Export Working Capital Program Microloans 504/Certified Development Company America s Recovery Capital (ARC Loan) Dealer Floor Plan Program See loan chart at www.sba.gov/md or on page 26 in the SBA Resource Guide 2
Financing the Small Business The 7(a) Loan Program SBA s primary business loan program Broad eligibility requirements Wide range of financing needs Maximum loan amount: $2 million Maximum guaranty: 90% of loan to $1.666 million 90% to 75% of loan from $1.666 to $2.0 million Financing the Small Business SBAExpress Maximum loan amount: $350,000 Maximum guaranty: 50% Uses: revolving line of credit/ term loan The bank s own forms quick SBA. turnaround time Maximum interest rates: Prime +6.5% for less than $50,000; Prime +4.5% for more than $50,000 3
Financing the Small Business Patriot Express Maximum guaranty: 90% Maximum loan amount: $500,000 Uses: Broad eligibility requirements including revolving line of credit /term loan The bank s own forms quick SBA. turnaround time Must be a military community member Financing the Small Business Patriot Express Loan For military community members, including: Veterans Service-disabled veterans Soon to be discharged active-duty service members eligible for the military s Transition Assistance Program Reservists and National Guard members Current spouses of any of the above The widowed spouse of a service member or veteran who died during service or of a service-connected disability 4
Financing the Small Business CapLines Microloans Export Working Capital Program International Trade Loan Programs Financing the Small Business 504/Certified Development Company Maximum loan amount: $1.5 to $4 million Project costs: financed by 504 Loan 40% lender finances 50% equity finances 10-20% Uses: long-term; fixed assets Maturity: generally 10-20 years Interest 504 portion: fixed below market rate established when debenture is sold Interest lender portion: usually adjustable rate but is negotiable with lender 5
Financing the Small Business 504/Certified Development Company The best part is the borrower s 10%- 20% equity doesn t have to be cash from the business owner. It can be a loan from the local economic development authority or from the seller as long as the cash flow from the business covers it. For more information Go to www.sba.gov/md and click on The SBA 504 Loan Program. Dealer Floor Plan financing (NEW) Will be available July 1, 2009 Minimum loan of $500,000 Maximum loan of $2,000,000 Repayment term of 5 years or less 75% Guaranty Titled inventory-new or used auto, RV, manufactured home, etc 6
America s Recovery Capital (ARC) Loan Program Provides a viable business up to $35,000 over 6 months to be used for principal and interest payments on qualifying debt. Payment deferred for 12 months 100% guaranteed by SBA with no fees or interest to borrower and a 5 year term Viable business is one that has history of good performance and beginning to struggle w/ making loan payments, but can reasonably project that it can get back on track with infusion of ARC loan funds and benefit deferred payments ARC LOAN PROGRAM Qualifying loans/debt include: Secured & unsecured conventional loans (mortgages, term loans/lines of credit) Capital leases Notes payable to vendors/suppliers/utilities CDC (504) first mtg loans Credit card obligations Loans made w/ SBA guaranty after 2/17/09 http://www.sba.gov/recovery/arcloanprogram/ 7
Financing the Small Business Funding - Credit Your borrowing power is based on what lenders refer to as the "Five C's" of credit: Capacity (ability to repay) Capital (money being invested in the business) Collateral (your assets that secure the loan) Character (you and your credit history) Business and Personal Conditions (anything that will affect your business, economy, finances, experience, competitors) Financing the Small Business Funding Credit To improve your chances of obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk. Lenders want the relationship 8
Financing the Small Business Funding Credit Your personal credit impacts your business credit. Know your credit score. You can get a credit score for less than $10 at www.annualcreditreport.com You can also get a free copy of your credit report once a year. Banks can do an SBA loan with less down, less collateral, longer terms and get a guaranty Financing the Small Business The SBA and its partners provide business counseling and training at numerous locations. SCORE http://www.score.org/ 410-962-2233 SBDCs (Small Business Development Centers) www.mdsbdc.umd.edu 877-787-7232 Government Contracting Assistance through the SBA 8(a) Business Development and HUBZone Programs 9
Government Contracting Assistance through the SBA 8(a) Business Development and HUBZone Program. Financing the Small Business My contact information: Stephen D Umberger District Director (410) 962-6195, x318 stephen.umberger@sba.gov Small Business Administration Baltimore District Office 10 South Howard Street, Suite 6220 Baltimore, Maryland 21201 http://www.sba.gov/md 10
Chesapeake Business Finance Corp. SBA 504 Subordinated Loans for Small and Mid-sized Businesses Chesapeake Business Finance Corp. 1 Typical SBA 504 Loan Uses Purchase property $ 1,000,000 Construction/renovation 500,000 Equipment 450,000 Soft costs 50,000 Total 2,000,000 Sources Bank 1,000,000 50% 1 st DoT SBA 504 800,000 40% 2 nd DoT Owner 200,000 10% Cash Total $ 2,000,000 100% Chesapeake Business Finance Corp. 2
Eligible Businesses For-profit businesses Book net worth < $8.5 million Average 2 yr net income < $3 million Or: Manufacturers < 500 employees Wholesalers < 100 employees Sufficient projected cash flow to repay Chesapeake Business Finance Corp. 3 Eligible Purposes Purchase land and building Purchase machinery and equipment Construction or renovation Leasehold improvements Eligible soft costs professional fees (environmental, appraisal) interim interest, recordation fees, out-of-pocket fees, other Ineligible soft costs Bank fees, bank legal, borrower s legal fees for closing, other Chesapeake Business Finance Corp. 4
Ineligible Uses of 504 loans Non-profit organizations * Investment companies Lending institutions Real estate development projects Working capital * Refinancing * * = Exceptions Chesapeake Business Finance Corp. 5 Project Ownership By the Operating Company (O.C.) By a Borrower which leases 100% to O.C. Individuals Limited Liability Company (LLC) Partnership Trust Chesapeake Business Finance Corp. 6
Loan Amounts Minimum $ 250,000 Maximum $ 1,500,000 Public Purpose Maximum $ 2,000,000 Rural areas Targeted business districts Exporters Impacted by federal regulations Woman, Veteran or Minority owned Increased productivity Energy saving Manufacturers $ 4,000,000 Chesapeake Business Finance Corp. 7 Loan Conditions and Collateral Second deed of trust/lien on property being financed Company guarantee Personal guarantee of all owners of 20% or more of the company or the property entity Occasional supplemental collateral Occupancy of property 51% for rehab and 60% for new construction (intent to use additional 20%) Environmental reviews (Transaction Screen or Phase I) Appraisal Chesapeake Business Finance Corp. 8
Loan Terms Maturity: Collateral: Rate: Fees: Funding: Other: Liquid assets 20 years on land and buildings 10 on equip Subordinated lien or mortgage 2 nd or 3 rd Typically approximately 5-5.5% fixed.65% of principal amount in loan proceeds Permanent commitment funded at 2 nd closing Declining prepayment fees Projects > $500k = Not > total project cost Chesapeake Business Finance Corp. 9 Benefits to Business & Owners Own property long term appreciation of value Low cash down typically 10% of total project cost (+5% if start-up/purchase + 5% if special purpose) Fixed interest rates No supplemental collateral Preserve cash for working capital More funds than available from bank alone Control facilities - Avoid paying rent to others Chesapeake Business Finance Corp. 10
Application Process Banker calls Chesapeake Telephone review of transaction Chesapeake sends summary proposal letter Schedules meeting with Company Chesapeake prepares & submits package Loan approvals in 2-3 days after package is complete Authorization letters in 4-5 days Chesapeake Business Finance Corp. 11 Funding the 504 loan After the SBA Authorization is received: Chesapeake reviews and e-mails authorization to bank & borrower Chesapeake counsel sends requirements letter Chesapeake coordinates closing process Chesapeake Business Finance Corp. 12
Issues during Funding Process Changes in project costs Appraisal comes in low Environmental issues Title/permit issues Adverse change Borrower s attorney Chesapeake Business Finance Corp. 13 Benefits to Banks Better loan to value Lower monthly payments to business Fixed interest rates to business More flexibility for future bank financing Better financial structure for client Competitive with other banks Chesapeake Business Finance Corp. 14
Role for CPAs Financial advice to Clients SBA-504 Two years US tax returns for Company Two years financial statements (compiled) Personal financial statements > 20% owners Interim Company financials < 90 days Chesapeake Business Finance Corp. 15 Chesapeake Business Finance Corp. Authority: Board: Licensed/regulated by SBA Bankers, business owners, & others Contact: John Sower, President: 202-625-4373 Michael Schwartz, Advisor: 301-668-1844 David Daniels, Vice President: 443-296-9344 Counsel: Area: Website: Address: Levin & Gann PC Towson, Maryland Maryland, DC, Northern Virginia, Southern Delaware, & Eastern WV www.chesapeake504.com Chesapeake Business Finance Corp. 1101 30 th St NW #500 Washington, DC 20007 T: 202-625-4373 F: 202-342-0389 jsower@chesapeake504.com Chesapeake Business Finance Corp. 16
HOW TO FINANCE YOUR BUSINESS MACPA S MARYLAND BUSINESS & ACCOUNTING EXPO RICK SCHELLER JUNE 16, 2009 I. Introduction -- BB&T and RFS II. III. IV. Banking/Lending Environment Today *** National, Regional & Community Banks *** Centralized versus Decentralized Approval Process Types of Loans *** Conventional Commercial *** SBA Guaranteed 7A, SBA Express, ARC *** SBA 504 *** State Guaranteed Maryland CAP, MSBIDFA Credit Analysis A. 6 C s of credit 1) Character -- Business & Management Review, Personal Character of Owner 2) Credit -- Business (D&B) and Personal (Equifax, Transunion, Experian) 3) Capacity -- Ability to pay Cash Flow Analysis 4) Capital -- Owners capital (Business Net Worth) 5) Collateral -- Security for Loan 6) Conditions -- Terms, Pricing, Covenants B. Global Cash Flow Coverage, Leverage & Liquidity Analysis C. Lender s Rules of Thumb: 1) Cash Flow is King (primary source of repayment) 2) Good Personal & Business Credit expected 3) Collateral (secondary source of repayment) required 4) Personal guarantees necessary V. Develop a relationship with a Commercial Lender/Business Relationship Manager VI. Future Banking/Lending Outlook *** 10-12 National Banks and small Community Banks *** Centralized Loan Approvals *** Conservative Credit Underwriting due to economic conditions & business failures (ie. charge-offs) VII. Questions