Small Business Lending Csb

Small Business Lending with the SBA By: Dan Warren, Commercial Lending

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

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.

Business Planning
A written business plan will help your lender:
Define your business
Identify your goals
Allocate resources
View financial projections

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

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

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.

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

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

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

Loan Decision Criteria
Business and Personal Cash Flow
Personal Credit History
Leverage (Debt to Worth)
Legal Purpose
Liquidity
Sufficient Collateral
Loan Structure

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

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
Use of funds – business acquisition involving real estate, working capital, and equipment needs

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

Best Used For…
Rapidly growing small business or business acquisitions involving real estate
Companies refinancing existing higher rate or shorter term loans.

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.

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

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

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.

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
Use of funds – business acquisition involving real estate, working capital, and equipment needs

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

Best Used For…
Mature companies that possess a substantial level of capital to fund a larger portion of the real estate acquisition.

Questions???
Please call me to discuss your loan request. I would be happy to assist you!!
480-905-4072

Small Business Lending Csb

by danwarren on Apr 03, 2009

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Small Business Lending Csb — Presentation Transcript