SBA Loans 2009


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An introduction to the SBA loan process.

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SBA Loans 2009

  1. 1. Gateway Business Bank Presents SBA Loans “Nuts & Bolts of the SBA Process”
  2. 2. SBA Loan Program-Overview <ul><li>Created by Congress in the Small Business Act of 1953. </li></ul><ul><li>Nearly 20 million small businesses have received funding since 1953 </li></ul><ul><li>Current loan portfolio has roughly 219,000 loans worth more than $45 billion </li></ul>
  3. 3. SBA Loan Program-Overview <ul><li>SBA is not a direct lender. The banks are the direct lenders </li></ul><ul><li>SBA is the guarantor of the loans that are funded by participating lenders. </li></ul><ul><li>Typical SBA guarantee is 75% of the loan. </li></ul><ul><li>Borrowers have no direct contact with SBA. </li></ul><ul><li>All loan servicing, billing, etc. are handled by the originating lender </li></ul>
  4. 4. SBA Loan Program-Overview <ul><li>SBA has specialized outreach programs for women, minorities and armed forces veterans </li></ul><ul><li>Also provide loans to victims of natural disasters </li></ul><ul><li>Specialized advice and assistance in International Trade </li></ul>
  5. 5. Loan Programs <ul><li>7a Loan Program (Start-ups, franchises, expansions, etc.) </li></ul><ul><li>SBA Express </li></ul><ul><li>Patriot Express </li></ul><ul><li>CDC/504 Loan Program </li></ul><ul><li>International Trade </li></ul><ul><li>Disaster Assistance </li></ul>
  6. 6. Eligibility-Size Standards <ul><li>Majority of business are considered small by SBA </li></ul><ul><li>Industry Specific </li></ul><ul><li>Is based off of Annual Sales or # of Employees </li></ul>
  7. 7. Eligibility-Credit Factors <ul><li>FICO Score </li></ul><ul><li>What is your payment history </li></ul><ul><li>Are there foreclosures, bankruptcies, etc. </li></ul><ul><li>Equity Investment-How much is there? </li></ul><ul><li>Earnings Requirements-Cash flow services debt </li></ul><ul><li>Working Capital = Current Assets-Current Liabilities </li></ul><ul><li>Collateral </li></ul><ul><li>Resource Management </li></ul>
  8. 8. Eligibility-Basic Requirements <ul><li>Business Plan </li></ul><ul><li>Loan Request </li></ul><ul><li>Collateral </li></ul><ul><li>Business Financial Statements </li></ul><ul><li>Personal Financial Statement </li></ul><ul><li>Business Tax Returns </li></ul><ul><li>Personal Tax Returns </li></ul>
  9. 9. Budget/Start-Up Expenses <ul><li>Prepare a budget </li></ul><ul><ul><li>Construction of leasehold improvement </li></ul></ul><ul><ul><li>Equipment (buy vs. lease) </li></ul></ul><ul><ul><li>Vehicles </li></ul></ul><ul><ul><li>Furniture & Fixtures </li></ul></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Accounts Receivable </li></ul></ul><ul><ul><li>Working Capital </li></ul></ul>
  10. 10. 7a Loan Program <ul><li>SBA’s Primary Loan Program </li></ul><ul><li>Flexible Program </li></ul><ul><ul><li>Start-Ups: Franchises and Non-Franchise </li></ul></ul><ul><ul><li>Working Capital </li></ul></ul><ul><ul><li>Leasehold Improvements </li></ul></ul><ul><ul><li>Furniture & Fixtures </li></ul></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Land and Real Estate </li></ul></ul>
  11. 11. 7a Loan Program <ul><li>Loan Maturity is 7-10 years for non-real estate & 25 years for fixed assets/real estate </li></ul><ul><li>Maximum Loan amount is $2,000,000 </li></ul><ul><li>Interest Rates </li></ul><ul><ul><li>Negotiated between borrower and lender. Is pegged to the Prime Rate (3.25% as of 12/01/09). Subject to SBA maximums. </li></ul></ul><ul><ul><li>Can be fixed or variable </li></ul></ul>
  12. 12. 7a Loan Program <ul><li>Interest Rates cont. </li></ul><ul><ul><li>Loans of $50,000 or more must not exceed Prime + 2.25% if maturity is less than 7 years </li></ul></ul><ul><ul><li>If maturity is 7 years or longer the rate cannot exceed Prime + 2.75% </li></ul></ul>
  13. 13. 7a Loan Program <ul><li>Prepayment Penalty: If loan proceeds are used for Real Estate there is a prepayment penalty for 3 years. </li></ul><ul><li>Non-Real Estate uses will not have a prepayment penalty </li></ul>
  14. 14. 7a Loan Program <ul><li>Fees: Both the lender and the borrower share the responsibility of paying the fees to the SBA </li></ul><ul><li>Primary fee will be the Guarantee Fee. It is based off of the guaranteed portion of the loan amount </li></ul><ul><li>For 2010 the Guarantee Fee is waived. </li></ul>
  15. 15. 7a Loan Program <ul><li>Guarantee Fee Schedule: </li></ul><ul><ul><li>$150,000 or less = 2% </li></ul></ul><ul><ul><li>$150,001 - $700,000 = 3% </li></ul></ul><ul><ul><li>$700,001 – Up = 3.5% </li></ul></ul><ul><ul><li>$1,000,000 – Up = 3.75% </li></ul></ul>
  16. 16. CDC/504 Program <ul><li>Provides long-term, fixed rate financing for major fixed assets, such as land and buildings </li></ul><ul><li>CDC (Certified Development Company) is a non-profit corporation set up to contribute to the economic development of it’s community </li></ul><ul><li>They work with the SBA and private sector lenders to assist small businesses </li></ul>
  17. 17. CDC/504 Program
  18. 18. CDC/504 Program <ul><li>Requires 3 approvals: Bank, CDC & SBA </li></ul><ul><li>Maximum Debenture is $2,000,000 when meeting the job creation criteria or public policy goal. </li></ul><ul><li>Manufacturer’s have a maximum debenture of $4,000,000 </li></ul><ul><li>Funds cannot be used for working capital, inventory or refinancing debt </li></ul>
  19. 19. CDC/504 Program <ul><li>Rates: Private lender determines the index for their portion. The CDC/SBA portion will be pegged to the 5 or 10 year Treasury bond </li></ul><ul><li>Maturities: Private lenders portion will typically be for 25 years. The CDC/SBA portion will be for 20 years. </li></ul><ul><li>Collateral: The project assets being financed are used as collateral. Personal guaranties of principals are required. </li></ul>
  20. 20. Conclusion <ul><li>SBA loans are a viable option to finance your business opportunity. </li></ul><ul><li>Turn around time and processing will be a function of the lender that you choose </li></ul><ul><li>Be prepared to do some work </li></ul><ul><li>Try to maintain a positive attitude and be patient </li></ul><ul><li>Do not give up if turned down by the bank </li></ul>