SBA - Greater Springfield Chamber 12-3-2010


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Will Bowdish, Lending Relations with the x, presents to the Economic Development Roundtable (investors in the CIC) and its board on 12/3/2010.

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  • As we saw in 2009 and 2010, the SBA range shifted a little left and was broader due to the economy. This slide may have been stolen from James Rivera and the OFA people in the early 2000’s. It’s still useful, and provides a nice visual depiction of what the SBA guaranty can do for a lender. There are certainly some financing proposals that are so strong that the SBA guaranty would never be required. At the same time, there are those proposals that are so weak, no lender should ever consider providing financing, even with the SBA guaranty. Then there are those transactions that lie somewhere in the middle. The SBA guaranty allows lenders to consider deals that are found somewhere in that (middle) range. The current situation in terms of the economy and the regulatory environment has certainly resulted in a contraction of the “lender range”, and as lenders are looking for ways to overcome those obstacles to conventional lending, moving into the SBA range has a lot more appeal than it might have had 3 or 4 years ago. (JW) As seen from the graphic, when lenders contract their own credit box, and less viable businesses experience additional vulnerability from a weak economy, the “gap lending” opportunity that SBA loans serve becomes more apparent.
  • Character Stress importance of a good credit history. Capital Expect owner to inject 20% to 50% in start ups. Capacity A. Measure debt service Coverage. Need 1.3x & up. Measure Debt to Net Worth “leverage” No more than 5/1 in most industries. Measure current assets to current Liabilities “working capital” 2/1. COLLATERAL only considered after comfortable with other areas of request. Condition Current economic conditions.
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  • SBA - Greater Springfield Chamber 12-3-2010

    1. 1. Greater Springfield Chamber of Commerce SBA Loan Programs & Jobs Act 2010 By Will Bowdish, Lender Relations Specialist . U.S. Small Business Administration
    2. 2. SBA Districts In Ohio Columbus District Office Cincinnati Branch Cleveland District Office
    4. 4. District Volume FY 2010 <ul><li>10/1/2009 thru 9/30/2010 </li></ul><ul><li>Total 7(a) volume: 1240 loans $213 Million </li></ul><ul><li>Total 504 volume: 146 loans $ 52 Million </li></ul><ul><li>Total Volume: 1386 loans $270 Million </li></ul>
    5. 5. U.S. Small Business Administration (SBA) <ul><li>Established in 1953 to aid and protect the interests of small business. </li></ul><ul><li>Disaster Assistance (Sm. Bus. Jobs Act 2010 expanded coverage) </li></ul><ul><li>Loan programs (Details on following slides.) </li></ul><ul><li>Microloan program (Sm. Bus. Jobs Act 2010 raised maximum from $35,000 to $50,000. Also created a new pilot program for underserved communities with loans to $200,000) </li></ul><ul><li>Office of Advocacy </li></ul><ul><li>Procurement Programs: 8(a) Contracting, HubZone. (chg’s here too.) </li></ul><ul><li>Small Bus. Development Centers-S.C.O.R.E. (Jobs Act Allocated $50 million additional funding to support SBDC’s) </li></ul><ul><li>Small Business Investment Co. program </li></ul><ul><li>Surety Bond program </li></ul>
    6. 6. Popular loan programs: <ul><li>7a Guarantee programs : </li></ul><ul><li>“ Standard” 7a Normally 75% to 85% guarantees. ( 90% & fees waived to 12/31/2010 per Sm. Bus. Jobs Act 2010 . Maximum loan size permanently increased from $2 Million to $5 Million.) </li></ul><ul><li>Preferred Lenders Program </li></ul><ul><li>SBA Express/Community & Patriot Express Export Programs - Export Working Capital & Export Express (Sm. Bus. Jobs Act 2010 increased SBAExpress maximum from $350,000 to $1 Million for 1 year. Export Express made a permanent program with 90% guarantees & $500,000 max. </li></ul><ul><li>504 Program: (Sm. Bus. Jobs Act 2010 increased SBA share from $1.5 to $5 Million, $5.5 for Mfg. Some fees waived to 12/31/2010. Permits refinancing. </li></ul>
    7. 7. To be Eligible <ul><li>BUSINESS MUST: </li></ul><ul><li>Be organized for profit. </li></ul><ul><li>Meet SBA size standards. (Sm. Bus Jobs Act 2010 increase alternative size to $15 Million tangible net worth & $5 Million net profit last 2 years average.) </li></ul><ul><li>Demonstrate a need of the financing. </li></ul><ul><li>Establish that the financing is not available elsewhere under conventional loan structures. </li></ul>
    8. 8. Ineligible Businesses <ul><li>Non-Profits </li></ul><ul><li>Passive Holder of Real Estate (Landlords) </li></ul><ul><li>Businesses Owned by Aliens </li></ul><ul><ul><ul><li>Applicants must have resident alien status </li></ul></ul></ul><ul><ul><ul><li>Application must include copy of alien registration card </li></ul></ul></ul><ul><li>Businesses Engaged in Gambling </li></ul><ul><ul><ul><li>< 1/3 of annual gross sales from legal gambling eligible </li></ul></ul></ul><ul><ul><ul><li>Criteria for lottery income is based on commission </li></ul></ul></ul><ul><li>Businesses Which Restrict Patronage </li></ul><ul><li>Businesses Engaged in Promoting Religion </li></ul><ul><li>Cooperatives </li></ul><ul><li>Equity Interest by Lender </li></ul><ul><li>Businesses Providing Prurient Sexual Material </li></ul>
    9. 9. Ineligible Businesses (Cont.) <ul><li>Businesses Owned by Persons of Poor Character </li></ul><ul><ul><li>SBA Form 912 - Personal History Statement </li></ul></ul><ul><ul><li>Prior Felony Convictions Must be Researched </li></ul></ul><ul><ul><ul><li>Background Check </li></ul></ul></ul><ul><ul><ul><li>Fingerprint Check </li></ul></ul></ul><ul><li>Prior Loss to Government </li></ul><ul><ul><li>Defaults on Government or Government Guaranteed Loans - Student Loans </li></ul></ul><ul><ul><li>Compromises Are Considered to be a Loss </li></ul></ul><ul><ul><li>Unpaid/Delinquent Income Taxes are not Included Under this Rule </li></ul></ul>
    10. 10. 504 Loan Program <ul><li>Maximum debenture is $5 million. (Sm. Bus Jobs Act 2010) </li></ul><ul><li>Maximum debenture for manufacturing firm $5.5 million. </li></ul><ul><li>There is a job creation component. One per $65k of debenture unless manufacturing then one per $100K. </li></ul><ul><li>Administered through a certified development co (CDC). </li></ul><ul><li>Strictly for fixed asset financing construction or acquisition. (Sm. Bus Jobs Act 2010 permits debt refinancing) </li></ul><ul><li>Allows for lower equity injection than conventional financing. </li></ul><ul><li>SBA debenture is a fixed interest rate with a 10 or 20 year maturity. </li></ul><ul><li>Lender is in first lien position on the project asset. </li></ul><ul><li>Business must have under $15 million net worth & less than $5.0 million average in net profit after tax over last two years. </li></ul>
    11. 11. When to Use the SBA 7(a) Loan <ul><li>Many situations may apply but most common are: </li></ul><ul><li>Collateral is insufficient. </li></ul><ul><li>Historical cash flow does not support repayment. Projections do. </li></ul><ul><li>New, Rapidly Expanding Business </li></ul><ul><li>Start Up Businesses. </li></ul>
    12. 12. Advantage of SBA’s Guaranty Lender Range SBA Range Lenders are comfortable making loans without SBA’s guaranty “ No” Range <ul><li>No management experience </li></ul><ul><li>No potential chance of repayment </li></ul><ul><li>Impractical business idea </li></ul><ul><li>No financial reserves </li></ul><ul><li>No equity investment </li></ul><ul><li>Experienced management </li></ul><ul><li>High Debt Service Cash flow </li></ul><ul><li>Sterling credit </li></ul><ul><li>Generous collateral </li></ul><ul><li>Sound business idea </li></ul><ul><li>Financial reserve </li></ul>Most Viable Business Profile Least Viable Business Profile <ul><li>Factors that determine this range: </li></ul><ul><li>Overall economy </li></ul><ul><li>Lenders’ regulatory environment </li></ul><ul><li>Lenders’ liquidity (or lack thereof) </li></ul><ul><li>Lenders’ competitive environment </li></ul><ul><li>Lender limits on terms and </li></ul><ul><li>types of businesses </li></ul>
    13. 13. The C’s of Credit <ul><li>Character </li></ul><ul><li>Capital </li></ul><ul><li>Capacity </li></ul><ul><li>Collateral </li></ul><ul><li>Conditions </li></ul>
    14. 14. SBA Requirements <ul><li>Good Character </li></ul><ul><li>Management expertise and commitment to succeed </li></ul><ul><li>Reasonable Equity Injection </li></ul><ul><li>Feasible Business Plan </li></ul><ul><li>Ability to repay from cash flow. </li></ul><ul><li>Sufficient Collateral ( SBA does not decline due to inadequate collateral.) </li></ul>
    15. 15. APPLICATION PROCESS <ul><li>Borrower applies for a loan with a private lender. </li></ul><ul><li>Lender approves the loan contingent on an SBA guarantee. </li></ul><ul><li>Borrower & Lender complete an SBA application. </li></ul><ul><li>Lender submits the SBA application. </li></ul><ul><li>Lender funds & services the loan. </li></ul>
    16. 16. Use of Proceeds <ul><li>7(a) loans may be used to: </li></ul><ul><li>1. Expand, renovate facilities; </li></ul><ul><li>2. Buy machinery, equipment, Fixtures, Land & Buildings </li></ul><ul><li>3. Finance A/R & augment Working Capital; </li></ul><ul><li>4. Refinance existing debt (special rules apply) </li></ul><ul><li>5. Provide Lines of Credit. </li></ul>
    17. 17. Guarantee Fee 2011 <ul><li>Guarantee Fees Waived thru 12/31/2010 (Sm. Bus. Jobs Act 2010) </li></ul><ul><li>Loans to $150,000= 2% of the guaranteed amount. </li></ul><ul><li>Loans to $700,000 = 3% of the guaranteed amount. </li></ul><ul><li>Loans above $700,000 = 3.5% of the guaranteed amount. (Additional ¼% on amount over $1 million.) </li></ul><ul><li>Example: Loan amount $100,000. X 85%=$85,000 x.02=$1700. fee. </li></ul>
    18. 18. Interest Rates <ul><li>Bank sets the Interest Rate. </li></ul><ul><li>Wall Street Journal Prime, Libor Swap or Libor Based Fixed are the base rates for SBA loans. </li></ul><ul><li>Loans may be fixed or variable rate </li></ul>
    19. 19. TERMS <ul><li>Flexible maturity: </li></ul><ul><li>Up to 10 years for Working Capital Up to 25 years for fixed assets: </li></ul><ul><ul><li>Real Estate </li></ul></ul><ul><ul><li>Construction </li></ul></ul><ul><ul><li>Equipment </li></ul></ul><ul><li>Term may be blended for multi-purpose loans. </li></ul><ul><li>Term must fully amortize the loan. </li></ul>
    20. 20. Collateral <ul><li>Personal guaranties from principals owning 20% or more are required. </li></ul><ul><li>Liens on personal assets are usually required. </li></ul><ul><li>Borrower is expected to pledge all available collateral. </li></ul>
    21. 21. Springfield Area Chamber “SBA Loan Programs & Small Business Jobs Act 2010” <ul><li>THANK YOU! </li></ul><ul><li>Contact: U.S Small Business Administration Will Bowdish, Loan Officer Phone 614 469 6860 ext 232 E-Mail: [email_address] </li></ul>