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Key Features of the Small Rural Lender Advantage Program


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Key Features of the Small Rural Lender Advantage Program

  1. 1. <ul><li>Small/Rural Lender Advantage (S/RLA) </li></ul><ul><li>7(a) Loan Guaranty Processing Center </li></ul>SMALL/RURAL LENDER ADVANTAGE
  2. 2. S/RLA Key Features <ul><li>Designed for small SBA loan volume lenders. </li></ul><ul><li>Support and assistance for S/RLA provided by SBA field offices. </li></ul><ul><li>Streamlined loan application and process for SBA loans of $150,000 or less; with limited additional information and analysis required for loans above $150,000 </li></ul>
  3. 3. S/RLA Key Features <ul><li>Maximum loan amount of $350,000 </li></ul><ul><li>SBA’s normal 75/85 percent guaranty applies* </li></ul><ul><li>Centralized and expedited SBA processing with routine loans processed within 3-5 days </li></ul><ul><li>Lenders may transmit applications via fax or as attachments to e-mails** </li></ul><ul><li>* 90% if applicable under ARRA </li></ul><ul><li>** As long as attachments are under 5 megs </li></ul>
  4. 4. S/RLA Key Features <ul><li>Simplified SBA loan eligibility questionnaire </li></ul><ul><li>Eligibility assistance through the Customer Service Desk at the 7(a) Loan Guaranty Processing Center </li></ul>
  5. 5. Borrower’s Application <ul><li>Documentation to be submitted by Applicant to the Lender: </li></ul><ul><li>Complete, signed and dated SBA Form 2301, Part A, Small Business Application for Guaranty </li></ul><ul><li>Separate, completed forms identified in SBA Form 2301, Part A </li></ul>
  6. 6. Borrower’s Application <ul><li>Business Financial Statements: </li></ul><ul><ul><li>Existing business or for a change of ownership, three years financial statements (Three years of financial statements for any affiliates also required) </li></ul></ul><ul><ul><li>If the most recent statement is over 3 months old, an interim statement is required with date not more than 90 days from application </li></ul></ul>
  7. 7. Borrower’s Application <ul><li>Business Financial Statements cont. </li></ul><ul><ul><li>Projection of earnings for at least one year including assumptions. </li></ul></ul>
  8. 8. Borrower’s Application <ul><li>An itemized list of collateral including the serial/ID numbers for any valued >$5,000. Real estate requires legal description </li></ul><ul><li>Other information lender may require to make an informed credit and eligibility determination </li></ul>
  9. 9. SBA Form 2301, Part A – Page 1 <ul><li>Borrower’s Application </li></ul><ul><li>Section A: general information </li></ul><ul><li>Section B: the loan request from the Applicant, including Form 159 (7a) if Applicant hired an agent to assist in completing the application </li></ul><ul><li>Section C: listing of any existing business indebtedness </li></ul>
  10. 10. SBA Form 2301, Part A – Page 1 <ul><li>Section D: listing of those that have completed individual Section Ds (page 2 of the form) </li></ul><ul><li>Section E: signature block </li></ul>Borrower’s Application
  11. 11. SBA Form 2301, Part A – Page 2, Section D <ul><li>Page 2 of SBA Form 2301, Part A is the individual Section D </li></ul><ul><li>This must be completed by EACH principal and guarantor. For example, if there are 3 principals and 2 additional guarantors, then each must complete and sign a Section D </li></ul>Borrower’s Application
  12. 12. <ul><li>D1: General information including citizenship. If the individual is not a US citizen, then individual must complete USCIS G-845 which lender must submit to the USCIS to verify. </li></ul><ul><li>D2: Voluntary information - Not required </li></ul>SBA Form 2301, Part A – Page 2 Section D Borrower’s Application
  13. 13. SBA Form 2301, Part A – Page 2 Section D <ul><li>D3: A summary of personal financial information </li></ul><ul><li>D4: Identification of any current or previous government financing that may have resulted in a loss to the federal government </li></ul>Borrower’s Application
  14. 14. SBA Form 2301, Part A – Page 2 Section D <ul><li>D5: Disclosures including: </li></ul><ul><ul><li>Lawsuits </li></ul></ul><ul><ul><li>Affiliates </li></ul></ul><ul><ul><li>Arrest information </li></ul></ul><ul><ul><li>Acknowledgement that applicant has received/read “statements required by law and executive orders” </li></ul></ul><ul><ul><li>Acknowledgement of liability for providing false information </li></ul></ul>Borrower’s Application
  15. 15. SBA Form 2301, Part A – Page 2 Section D <ul><li>Statements Required by Law and Executive Orders. SBA is required to provide this information to all applicants. </li></ul><ul><li>Signature and date </li></ul>Borrower’s Application
  16. 16. SBA Form 2301, Part B <ul><li>Lender’s Application </li></ul><ul><li>Section A: Lender information as well as Applicant’s name and NAICS code </li></ul><ul><li>Section B: Loan Terms. Any required life insurance, standby agreement, or equity injection </li></ul><ul><li>Section C: Use of Proceeds and breakdown of collateral </li></ul>
  17. 17. SBA Form 2301, Part B <ul><li>Section D: Attach the Eligibility Questionnaire (SBA Form 2301, Part C) </li></ul><ul><li>Section E: If Applicant submits historical business financial statements to demonstrate business’s ability to repay in a timely manner, then IRS Form 4506-T must be completed and submitted by lender to the IRS to verify accuracy </li></ul>Lender’s Application
  18. 18. SBA Form 2301, Part B <ul><li>Section F: Attach copy of Lender’s Credit Memorandum. The requirements for what the Credit Memorandum must contain are described in the instructions that follow </li></ul><ul><li>Section G: The Lender’s certification to certain statements. (For example, lender has an executed SBA Form 750, Loan Guaranty Agreement) </li></ul>Lender’s Application
  19. 19. SBA Form 2301, Part C <ul><li>Eligibility Questionnaire </li></ul><ul><li>Questionnaire (Part C of Form 2301) designed to simplify and expedite eligibility determinations by distinguishing between: </li></ul><ul><ul><li>Applicants that are clearly eligible without any additional documentation; </li></ul></ul><ul><ul><li>Applicants that are not eligible; and </li></ul></ul><ul><ul><li>Applicants where additional information/documentation must be obtained to determine eligibility. </li></ul></ul>
  20. 20. SBA Form 2301, Part C <ul><li>Responses are “true” or “false” - Only “true” is available in some cases, which means applicant must meet requirement or is not eligible. </li></ul><ul><li>Where “false” is a choice, this means that additional documentation will be required for SBA to determine eligibility. </li></ul>Eligibility Questionnaire
  21. 21. SBA Form 2301, Part C <ul><li>Example </li></ul><ul><li>Under the section entitled “The Small Business Applicant,” there is the following statement: </li></ul><ul><li>Applicant is not a franchisee or, if the Applicant is a franchisee, </li></ul><ul><li>the franchise is on SBA ’ s franchise registry. The franchise </li></ul><ul><li>registry is available at </li></ul><ul><li>If the answer is “ false, ” then the Lender needs to obtain a copy of the franchise agreement for SBA ’ s determination if franchise is eligible. </li></ul>
  22. 22. SBA Form 2301, Part C <ul><li>A Lender may get help to eligibility questions from: </li></ul><ul><ul><li>SBA’s SOPs, regulations, and notices, which are available at </li></ul></ul><ul><ul><li>Local SBA District Office </li></ul></ul><ul><ul><li>Standard 7(a) Loan Guaranty Processing Center at 916.735.1986 or </li></ul></ul>Eligibility Questionnaire
  23. 23. Lender’s Credit Memorandum <ul><li>SBA will accept lender’s credit memorandum in lieu of traditional SBA documentation assuming the following: </li></ul><ul><li>Credit Memorandum must meet reasonable and prudent standards for the commercial lending industry </li></ul><ul><li>To simplify loan documentation and analysis, SBA defines the following two loan tiers, which depend on size, complexity, and/or risk of loan: </li></ul>
  24. 24. Lender’s Credit Memorandum <ul><li>Tier 1 – defined as loans up to $150,000 EXCEPT for loans to the following: </li></ul><ul><ul><li>New businesses (in business for two years or less – includes change of ownership) </li></ul></ul><ul><ul><li>Businesses that have had judgments or bankruptcy filings. </li></ul></ul><ul><ul><li>Businesses with a debt service coverage ratio of less than 1.2:1 </li></ul></ul>
  25. 25. Lender’s Credit Memorandum <ul><li>For Tier 1 loans, the Credit Memorandum must include, at a minimum: </li></ul><ul><ul><li>Description of history and nature of the business </li></ul></ul><ul><ul><li>Description of and comments on the business plan, including: 1) management experience of principal(s), particularly in the industry; 2) financial condition of the business; and, 3) nature of any competition </li></ul></ul>
  26. 26. Lender’s Credit Memorandum <ul><ul><li>Spread of Business Balance Sheet to include requested loan funds and any required equity injection (as of date of loan disbursement) </li></ul></ul><ul><ul><li>Current Ratio </li></ul></ul><ul><ul><li>Debt/Tangible Net Worth </li></ul></ul><ul><ul><li>Debt Service Coverage </li></ul></ul><ul><ul><li>Any other ratios the lender considers significant for the business/industry </li></ul></ul>
  27. 27. Lender’s Credit Memorandum <ul><ul><li>Analysis/calculation relative to debt service: Show how historical cash flow would cover total debt service after the SBA loan. </li></ul></ul><ul><ul><li>Collateral Adequacy Assessment (using liquidation values) to offset risk of default </li></ul></ul>
  28. 28. Lender’s Credit Memorandum <ul><ul><li>Explanation/justification for refinancing of any debt as part of the loan request, particularly Same Institution Debt </li></ul></ul><ul><ul><li>Discussion of credit analysis and recommendation by lender of credit decision </li></ul></ul><ul><ul><li>Any additional information the lender considers relevant to the credit decision </li></ul></ul>
  29. 29. Lender’s Credit Memorandum <ul><li>Tier 2 – defined as loans between $150,001 and $350,000 PLUS loans to the following: </li></ul><ul><ul><li>New businesses (in business for two years or less – includes change of ownership) or </li></ul></ul><ul><ul><li>Businesses that have had judgments or bankruptcy filings. </li></ul></ul><ul><ul><li>Businesses with a debt service coverage ratio of less than 1.2:1 </li></ul></ul>
  30. 30. Lender’s Credit Memorandum <ul><li>For Tier 2 loans, Credit Memorandum must include items described for Tier 1 PLUS: </li></ul><ul><ul><li>Analysis/calculation of cash flow relative to debt service: </li></ul></ul><ul><ul><ul><li>Show how historical cash flow covers new debt service </li></ul></ul></ul><ul><ul><ul><li>Show how projected cash flow covers debt service </li></ul></ul></ul><ul><ul><ul><li>If historical cash flow does not cover all existing and new debt service at least 1:1, provide analysis of reasonableness of assumptions supporting the projected cash flow </li></ul></ul></ul><ul><ul><li>Discussion of any: 1) seller financing; 2) stand-by agreements; 3) 90+ day delinquencies; and 4) trade disputes </li></ul></ul>
  31. 31. Lender’s Credit Memorandum <ul><li>Tier 2 loans, continued: </li></ul><ul><ul><li>Analysis of working capital adequacy to support projected sales growth in next 12 months </li></ul></ul><ul><ul><li>For change of ownership, discussion/analysis of business valuation (based on generally accepted valuation methods used for the pertinent industry) used to support the purchase price. </li></ul></ul><ul><ul><li>Discussion of any bankruptcy filings or judgments </li></ul></ul>