Small Business Lending Csb

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What lenders look for from prospective borrowers.

What lenders look for from prospective borrowers.

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  • 1. Small Business Lending with the SBA By: Dan Warren, Commercial Lending
  • 2. Small Business Lending
    • Small Business defined as total annual receipts up to $6.5 million for retail trade.
    • Not for Profit organizations are ineligible for SBA financing.
    • Loan Needs :
    • Working capital lines of credit
    • Business acquisitions
    • Real Estate purchases/refinances
    • Equipment financing
  • 3. Lender Questions
    • What is the purpose or use of the funds?
    • What collateral will secure the loan?
    • How long has the business been operating?
    • What products or services are produced?
    • Who is your competition?
    • What is management’s expertise?
    • Management comments on profit margins and revenue trends.
  • 4. Business Planning
    • A written business plan will help your lender:
    • Define your business
    • Identify your goals
    • Allocate resources
    • View financial projections
  • 5. Writing the Plan
    • What goes in a business plan?
      • Description of the business
      • Marketing
      • Finances
      • Management
      • Addenda – should include an executive summary, supporting documents, and financial projections
  • 6. Preparing and Presenting a Loan Proposal
    • Provide a written description of your business:
    • Type of organization (LLC, S-Corp, C-Corp, Partnership)
    • Date of information
    • Location
    • Product or service
    • Brief history
    • Proposed Future Operation
    • Competition
    • Customers
    • Suppliers
  • 7. Other items needed:
    • Management Experience : resumes of each owner and key management members.
    • Loan Repayment : brief written statement indicating how the loan will be repaid, including sources and time requirements. Cash flow schedules, budgets, and other appropriate information should support this statement.
    • Collateral : list real property and other assets to be held as collateral.
  • 8. Other items as they apply…
    • Lease (copies of proposal)
    • Franchise Agreement
    • Purchase Agreement
    • Articles of Incorporation or Organization
    • Plans, Specifications (if new construction)
    • Copies of Licenses
    • Letters of Reference
    • Letters of Intent
    • Contracts
    • Partnership Agreement
  • 9. Loan Types for Businesses
    • Conventional Financing – less documentation, shorter terms, higher down payment requirements, no SBA guarantees for lender
    • Small Business Administration (SBA) Financing – more flexibility, increased documentation requirements, partial guarantees for lender in case of default
  • 10. Typical Documentation Request
    • 3 years business and personal tax returns
    • Year-end financial statements :
    • Income Statement
    • Balance Sheet
    • Personal Financial Statement
    • Proforma statements (startups)
    • Accounts Receivable & Accounts Payable Aging Reports
    • Applicable SBA Forms
  • 11. Loan Decision Criteria
    • Business and Personal Cash Flow
    • Personal Credit History
    • Leverage (Debt to Worth)
    • Legal Purpose
    • Liquidity
    • Sufficient Collateral
    • Loan Structure
  • 12. SBA Express Program
    • Maximum Loan Size - $350,000
    • Maximum Loan Term – 7 years
    • Rate of Interest – Prime rate based
    • Guaranty Fee – 2 to 3% of guaranteed amount passed on to the SBA
    • Fees – $1000 packaging fee
    • Job Creation Requirement - None
    • Use of funds – primarily working capital, and equipment needs
  • 13. SBA 7A Program
    • Maximum Loan Size - $2 million
    • Required Down Payment – 10% (min. 30% for start ups)
    • Maximum Loan Term – Up to 25 years for real estate
    • Rate of Interest – Prime rate based
    • Balloon Payment - None
    • Guaranty Fee – Currently waived through 12/31/09
    • Job Creation Requirement - None
    • Use of funds – business acquisition involving real estate, working capital, and equipment needs
  • 14. Benefits of 7A Program
    • Smallest level of equity investment requirement
    • Longest amortization provides smallest possible monthly payment
    • Shortest prepayment penalty period with the ability to prepay 25% without penalty
    • No job creation commitment
  • 15. Best Used For…
    • Rapidly growing small business or business acquisitions involving real estate
    • Companies refinancing existing higher rate or shorter term loans.
  • 16. SBA 504 Program
    • Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50% of the project cost, a loan secured with a junior lien from the CDC/SBA 504 (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the costs, and a contribution of at least 10% equity from the small business being helped.
  • 17. SBA 504 Highlights
    • Maximum Loan Size - $2.0 million ($4.0 million for small manufacturers)
    • Required Down Payment – 10%
    • Maximum Loan Term – 20 years
    • Rate of Interest – Fixed rate for 10 to 20 years
    • Balloon Payment – None
    • Assumable by qualified applicants
    • Guaranty Fee – Currently waived through 12/31/09
    • Job Creation Requirement – one job must be created for every $65,000 of loan debenture amount
    • Use of funds – to be utilized for real estate and major equipment purchases
  • 18. Benefits of 504 Program
    • Longest term of fixed interest rate
    • Larger loan amounts
    • Reduced amount of equity injection amount from that of conventional loan
    • Example: $3MM purchase of office building
    • 50% - $1.5MM conventional loan
    • 40% - $1.2MM SBA 504 (through CDC/Bank)
    • 10% - $300M equity injection from borrower
    • 100% - $3MM Total Project Cost
  • 19. Best Used For…
    • Mature companies that are not as likely to outgrow the acquired facility or sell the company and real estate for a longer period of time.
  • 20. Conventional Bank Financing
    • Maximum Loan Size – N/A
    • Required Down Payment – 20% in most cases
    • Maximum Loan Term – Up to 20 years
    • Rate of Interest – Fixed rate for 3 to 10 years
    • Balloon Payment - Yes
    • Closing Points – 1% of loan amount
    • Job Creation Requirement - None
    • Use of funds – business acquisition involving real estate, working capital, and equipment needs
  • 21. Benefits of Conventional Financing
    • Fixed rates available
    • Reduced amount of fees
    • Provides smaller prepayment penalty
    • Larger equity investment will most likely result in smaller monthly payments
  • 22. Best Used For…
    • Mature companies that possess a substantial level of capital to fund a larger portion of the real estate acquisition.
  • 23. Questions???
    • Please call me to discuss your loan request. I would be happy to assist you!!
    • 480-905-4072