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Business Financing | Business Finance Group | Doing Business 2.0
 

Business Financing | Business Finance Group | Doing Business 2.0

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The Business Finance Group presented at the Washington, DC Economic Partnership's Doing Business 2.0 event (1/16/13).

The Business Finance Group presented at the Washington, DC Economic Partnership's Doing Business 2.0 event (1/16/13).

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    Business Financing | Business Finance Group | Doing Business 2.0 Business Financing | Business Finance Group | Doing Business 2.0 Presentation Transcript

    • SBA 504 Loan Program Growing Small Businesses, Jobs, Communities
    • What is 504?Economic Development Financing ToolFinances fixed assets for healthy, expanding businessesLow down payment to preserve cash to fund growthCommunity BenefitsJobs created and/or retainedIncreased tax baseDelivery SystemDelivered by nationwide network of 260 CDCs – typicallynon-profits with an economic development mission
    • Typical 504 Structure Borrower 10% Total Project Costs Bank Loan $1,000,000 504 Loan 50% 40%
    • 504 Source of Funds Interest Rate• Bonds sold on Wall Street to institutional investors 4.033%* 4.033 – Life insurance companies All-in-fixed for 20years January 2013 – Pension plans Bond Sale – Mutual funds• Interest Rate is based on 10 year treasury rate – Plus spread to bond investor – Plus servicing fees to SBA, CDC, and SBA’s bookkeeping contractor• * For 504 Refinance Loans add 0.1655% due to increased fees
    • Fees- Bond Sale Costs CDC Processing Fee 1.50% SBA Guarantee Fee 0.50% Funding Corp Fee 0.25% Bond Broker Fee 0.40% TOTAL 2.65% Approximately 1% of the total project costs Fees are added to the 40% 504 portion and financed over 20 years Adds approximately 25 basis points (0.25%) to the 504 interest rate on an “APR” basis Bank pays 0.5% fee on 1st trust loan amount
    • Prepayment Penalty Sample Prepayment Penalty• Prepayment penalty Year % declines during first 10 1 3.00% years to 0%  2 2.70% 3 2.40%• Loan is assumable and 4 2.10% prepayment penalty 5 1.80% does not apply 6 1.50% 7 1.20% 8 0.90% 9 0.60% 10 0.30% 11-20 0.00%
    • Business Eligibility For-Profit & Privately Held “Small” • Net Worth < $15.0 million • After Tax Income < $5.0 million (2 year average) Creates or Retains Jobs* Or meets a public policy or community development goal of SBA *1 job per $65,000 in 504 loan dollars
    • Eligible Project CostsReal Estate (owner occupied)•Existing Buildings•Addition/Major Renovation•Land/Building ConstructionMachinery and Equipment•Minimum 10 Year Life•Printing Press or Manufacturing EquipmentSoft Costs•Appraisal & Environmental•Title & Recording Taxes•Closing Costs, Bank PointsRefinancing•Permanent 504 Refinance Program – Expansion costs and existingdebt (up to 50% of New Costs in Expansion)•Temporary 504 Refinance Program – Straight Refinance of QualifiedDebt plus Cash Out for Eligible Business Expenses
    • Project EligibilityOccupancy Project SizeExisting Building 51% Min = $200,000New Construction 60% Max = No max project size ๏ 20% permanently leased Max 504 Loan: ๏ 20% to be occupied in 10 years ๏ $5,000,000 for most loansDown Payment ๏ $5,500,000 for manufacturers &Typical 10% certain energy efficient projectsStart-up 15% Bank Loan can exceed 50%Special Use 15%Both 20% Projects could be as large as $20+ million
    • 504 Loan vs. Conventional LoanEligible Project Costs 504 Financing StructureLand/Building 500,000 Third Party Lender $ 500,000 50%Renovation 400,000 504 portion $ 400,000 40%Equipment 50,000 Borrower Contribution $ 100,000 10%Soft Costs: TOTAL SOURCES $ 1,000,000 100% Title Charges 3,500 Recording Taxes 15,000 Conventional Financing Appraisal 3,500 20% of hard costs $ 190,000 Environmental 3,000 Soft Costs $ 50,000 Architect / Engineer 15,000 Borrower Contribution $ 240,000 Bank points 10,000TOTAL PROJECT COSTS $ 1,000,000 BORROWER SAVINGS WITH 504 $ 140,000
    • Application Items NeededEssentially same information any commercial lender requires: Tax returns on the business Projections, if start-up business Personal financial statement and tax returns for owners Brief History/description of business and owners’ resumes Purchase Contract or Letter of Intent, construction/renovation estimatesApplication checklist available on our website:www.businessfinancegroup.orgHow long does it take?Working with us, 10 business days for our approval;5 business days for SBA approval
    • 504 Refinance Loan with Cash Out for Eligible Business Expenses Jobs Act Temporary Program until 9.27.12
    • EligibilityBASIC ELIGIBILITY Property must be minimum 51% owner occupied at the time of 504 application Operating company must be at least 2 years old Project property must have been acquired minimum 2 years ago with financing. Age of existing loan is irrelevant. Loan must have been current for last 12 months •No payment deferred or past due for more than 30 days •Payments must be current under original or modified payments terms. All modifications must have been in writing prior to 10.12.11 •Transcript must be provided to demonstrate compliance No federal debt is eligible for refinance (i.e. existing SBA loans, tax-exempt bond financing, etc.)
    • Example – Refinance with Cash-OutAppraised Value of Property $1,400,000Outstanding Balance of Debt $1,000,00090% LTV $1,260,000TYPE OF LOAN $ % NOTESThird Party Loan $700,000 50.0% 50% of appraised valueSBA 504 Loan $560,000 40.0% 40% of appraised valueBorrower $140,000 10.0% 10% of appraised valueContributionTOTAL PROJECT $1,400,000 100%Cash-out for Eligible Business Expenses $260,000
    • Use of ProceedsCash-out for Eligible Business Expenses If the project property has sufficient equity, the borrower can cash out for eligible business expenses up to a maximum 90% loan to value Eligible Business Expenses include items such – • building repair and maintenance cost (paint, carpet, roof, etc.) • utility bills • rent • salaries • inventory • pay down/off business line of credit Expenses must have been incurred prior to date of 504 application or must be due within 18 months of 504 application
    • Credit Underwriting ConsiderationsNote – bank requirements may vary
    • Credit Underwriting Considerations• EXPERIENCED MANAGEMENT• GOOD PERSONAL CREDIT• ADEQUATE COLLATERAL• ACCEPTABLE BUSINESS CASH FLOW
    • Credit Underwriting Considerations •Proven Management • Cash Flow Coverage – Minimum 1:1 cash flow coverage based on historical operations or projections (if start-up business or rapidly growing business) – Example of how we calculate cash flow coverage
    • SBA 504 Recap• SAVE MONEY – Up to 90% financing – Financing includes hard and soft costs• IMPROVE CASH FLOW – Below market, fixed interest rate – Fully amortizing, 20 year loan on 504 portion• TAP INTO EQUITY FOR WORKING CAPITAL – Refinance up to 90% loan-to-value (LTV) with cash out for working capital• GROW BUSINESS• QUICK AND EASY LOAN APPROVAL PROCESS
    • Business Finance Group OverviewPROVEN HISTORY•Nonprofit organization, over 25 years in business•Largest Certified Development Company (CDC) in the Mid-Atlanticregion, top 5% in the country based on loan volumeSUPERIOR SERVICE•Dedicated and responsive application processing staff•Designated attorneys and experienced closing team•Knowledgeable servicing staff dedicated to post-closing assistanceCOMMUNITY IMPACT•Helped over 2,128 small businesses finance $3 Billion in projects•Leveraged $1 Billion in 504 funds with $1.6 Billion in private funds
    • For More InformationD. Wayne Williams, Senior Vice Presidento. 202.675.4912c. 703.608.0050wwilliams@businessfinancegroup.orgBusinessFinanceGroup.org1001 5th Street SEWashington, DC 20003