Small Business Lending Csb


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What lenders look for from prospective borrowers.

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Small Business Lending Csb

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