Business Financing Options for Veterans Webinar


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  • Ex: student loan, FHA, FSA Bank gets an extra insurance policy.
  • SBA goal is to provide a response in 14 working days (somewhat slower due to processing of Katrina disaster loans and N.O. office work) Paperwork is streamlined. Same as a bank requires. No low interest loans, but caps interest rates. It is not a government loan, it is a bank loan. Several years ago, minority low-interest loans existed, but no longer. Maximum interest rate is 2.75% over prime (WSJ). Rates are variable, but no balloon features. No free money from the government! Unless SBIR: Small business innovative research grant provides free funding for pre-commercialization market testing.
  • Borrower must secure the lender (not done by SBDC). Typically commercial loans for less than $25,000 are courtesy loans. Bank can require 3 rd party to co-sign loan, but SBA cannot.
  • Lender must be preferred lender (application/approval process). It is an instant loan with a 50% guaranty to lender. Application faxed to Sacramento which issues a guaranty #. In ASU territory: Simmons First Bank, 1 st National Banking Company of Ash Flat, Bank of America, Regions Bank Corporate, and Liberty Bank.
  • Most borrowers only required to inject 10% equity. Loans are provided through CDC.
  • Repayment: Must prove you can repay the loan out of the profits of the business. Usually easier to demonstrate for existing rather than start-up business. Develop projections on month by month basis for 24 month period. Utilize resources: RMA, Consumer expenditure surveys. Management: Lender wants to see some experience in the industry. Equity: No 100% loans. Borrower must invest something. Rule of thumb is 20% of total project costs. But % is set by lender and must be reasonable based on risk of the business. Ex: restaurants & clothing stores = 20%; professional offices = 15% Existing business must have + position on balance sheet. Source of equity must be legal. Collateral: Must pledge all business collateral, if personal collateral available, bank must take it. If you own < 20% of home, SBA won’t mess with it.
  • Debt must be repaid with cash. Must have cash at the right place a the right time in the right amount.
  • Must know start-up expenses (operating capital). When projecting, must do homework in order to make educated guesses. Get actual expense figures. Working capital must be liquid in order to pay liabilities/obligations due within one year.
  • Lender and SBA will want to see some experience.
  • Start-up: Reasonable equity injection considered to be: 20% retail and service 15% professional 15% buyout if cash flow is strong Existing: Businesses must have positive equity position on Balance Sheet which can be used to leverage expansion loan.
  • SBA is not a collateral based lender.
  • Longer repayment terms = more cash in business (refer to schedule on the board). Translates into lower debt service and improved cash flow.
  • Lowered debt service improves cash flow (increase years for repayment). Patient partners: banking holiday for unexpected events.
  • SBA encourages longer terms but maturities are based on the ability to repay, purpose of loan proceeds, and useful life of the assets
  • Interest rates are negotiable between lender and borrower, subject to SBA maximum Can be fixed or variable or combination Base rate is WSJ prime Variable rate can be adjusted monthly, quarterly, annually, or multiple years (Express can be daily) Balloon payments, demand and renewal features are not permitted
  • No Flipping houses, no rentals. No wildcatting for oil and dealing in commodities futures. No coins and stamps. No gambling. Must be for-profit venture (no 501c3 status). No pyramids: Avon, Mary Kay, Amway (where focus is on signing up and recruiting others). No illegal stuff, obviously. Christian bookstore ok if no classes or indoctrination on site. No brothels, adult bookstores, etc. Fitness Centers, such as Curves for Women, must have male restroom and open membership.
  • Cannot buy into a business (part ownership) No speculative businesses (i.e. flipping houses, mini storage) Cannot get your money back to put into your pocket. No payments for fiduciary accounts (not your money to begin with). Must be less than 30 days on payment or must go to another bank (no bank bailout). Cannot buy a piece of the business—all partners must sign the loan.
  • Catch up on federal loan before applying. If you defaulted on a federal loan, don’t waste your time. Cannot have tax liens. Bankruptcy with restitution is ok. If child support is delinquent, forget it.
  • Complete evaluations before leaving.
  • Business Financing Options for Veterans Webinar

    1. 1. Herb Lawrence, ASU Center Director Arkansas Small Business and Technology Development Center – Little Rock [email_address]
    2. 2. <ul><li>The Economy and the Current Recession </li></ul><ul><li>Lender Concerns for Start Ups </li></ul><ul><ul><li>Businesses with no track record for historical cash flow </li></ul></ul><ul><li>Lender Concerns for Collateral </li></ul><ul><ul><ul><li>Especially small businesses where bulk of business collateral is FFE and Inventory </li></ul></ul></ul><ul><ul><ul><li>Lenders use a Liquidated Discount Rate on Collateral </li></ul></ul></ul><ul><ul><ul><li>Limited Personal Collateral to pledge </li></ul></ul></ul><ul><li>Lender Terms not always Favorable </li></ul><ul><li>Lender Balloon Features </li></ul>
    3. 3. <ul><li>An SBA loan is a commercial loan from a lender that is guaranteed by the </li></ul><ul><li>U.S. Small Business Administration. </li></ul>
    4. 4. <ul><li>Takes forever to get money </li></ul><ul><li>Requires a “ton” of paperwork </li></ul><ul><li>Offers low interest rates </li></ul><ul><li>Provides grants NO GRANTS! </li></ul>
    5. 5. <ul><li>7(a) Loan Guaranty Program </li></ul><ul><ul><li>SBA Express </li></ul></ul><ul><ul><li>Patriot Express </li></ul></ul><ul><ul><li>Micro Loan Program </li></ul></ul><ul><li>504 Loan Program for Fixed Assets </li></ul>
    6. 6. <ul><li>SBA guarantees (insures) the loan, reducing the risk to the lender. </li></ul><ul><li>Borrower must secure a participating lender. No minimum loan size. Maximum loan size is $2 million. </li></ul>NOTE: SBTDCs cannot “RECOMMEND” specific lenders, however Your nearest SBTDC office can give you information about banks And other lenders in your area who are “SBA Friendly”
    7. 7. <ul><li>Lender must be PLP </li></ul><ul><li>Maximum loan $350,000 </li></ul><ul><li>Lender applies for 50% loan guaranty </li></ul><ul><li>Can Include Revolving Lines of Credit </li></ul><ul><li>Lender handles approval and issuance </li></ul><ul><li>NOTE: For list of SBA Express Lenders operating in Arkansas contact your nearest SBTDC office or the Little Rock District Office of the SBA. </li></ul>
    8. 8. <ul><li>Loans up to $500,000 by lender approved for SBA Express (PLP) </li></ul><ul><li>Lender applies for 85% guaranty for loans of $150,000 or less </li></ul><ul><li>Lender applies for 75% guaranty for loans over $150,000 up to $500,000 </li></ul><ul><li>Can Include Revolving Lines of Credit </li></ul><ul><li>Interest rates same as 7(a) loans </li></ul><ul><li>Lender handles approval and issuance </li></ul>NOTE: With ARRA PatriotExpress Loans now have 90% Guaranty for Lenders
    9. 9. <ul><li>Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital) </li></ul><ul><li>Loan backed by a debenture sold to investors </li></ul><ul><li>Maximum debenture: </li></ul><ul><ul><li>$1.5 million for business that create certain number of jobs or improve the economy of the locality </li></ul></ul><ul><ul><li>$2 million for businesses meeting a specific public policy goal </li></ul></ul><ul><ul><li>$4 million for manufacturers </li></ul></ul>
    10. 10. <ul><li>Repayment Ability </li></ul><ul><li>Management Ability </li></ul><ul><li>Equity Position </li></ul><ul><li>Collateral </li></ul>
    11. 11. <ul><li>SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations. </li></ul><ul><ul><li>Cash Flow </li></ul></ul><ul><ul><li>Working Capital </li></ul></ul>
    12. 12. <ul><li>Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt. </li></ul><ul><li>Projections will be compared to industry standards and demographics will be considered. </li></ul>
    13. 13. <ul><li>Start-up Expenses </li></ul><ul><li>Accounts Receivable </li></ul><ul><li>Contingencies & Emergencies </li></ul><ul><ul><li>Rule of Thumb: 3 months fixed expenses </li></ul></ul>
    14. 14. <ul><li>Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management. </li></ul>
    15. 15. <ul><li>SBA does not approve 100% funding requests. </li></ul><ul><li>Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk. </li></ul>
    16. 16. <ul><li>SBA will not decline a loan ONLY due to a lack of collateral. </li></ul><ul><li>To protect taxpayer dollars, loans must be secured as fully as possible. </li></ul>
    17. 17. <ul><li>TERMS </li></ul><ul><li>TERMS </li></ul><ul><li>TERMS </li></ul>EXAMPLE: $100,000 Working Capital Loan Non-SBA 3 years at 6% interest $3,043 per month $100,000 Working Capital Loan SBA 7 years (no penalty for early repayment At 7% interest: $1,510 per month For small businesses, especially those in start up mode, minimize monthly Cash outflow to bank the SBA option even at higher interest rate puts Nearly $1,500 per month back into the business to use for inventory, Promotion, wages, etc. those expenses that will make you money
    18. 18. <ul><li>No pre-payment penalty on loans with maturity of less than 15 years </li></ul><ul><li>No balloons </li></ul><ul><li>Patient partners </li></ul><ul><li>Relaxed credit requirements </li></ul><ul><li>Flexible loan terms </li></ul>
    19. 19. <ul><li>25 years Real Estate </li></ul><ul><li>10 years Equipment </li></ul><ul><li>7 years Inventory, Accounts Receivable, Working Capital </li></ul>
    20. 20. <ul><li>Fixed or variable </li></ul><ul><li>Maximum: Prime + 2.75% for terms of 7yrs or more </li></ul>
    21. 21. <ul><li>Businesses must meet SBA size standards to qualify: </li></ul><ul><ul><li>Manufacturing: 500 to 1,500 employees </li></ul></ul><ul><ul><li>Wholesaling: 100 employees </li></ul></ul><ul><ul><li>Services: $4.5 to $32.5 million in average annual receipts </li></ul></ul><ul><ul><li>Retailing: $6.5 to $26.5 million average annual receipts </li></ul></ul>
    22. 22. <ul><ul><li>General Construction: $6.5 to $32 million average annual receipts </li></ul></ul><ul><ul><li>Agriculture: $750,000 to $16.5 million in average annual receipts </li></ul></ul><ul><ul><li>NOTE: In certain industries maximum size has been increased as part of stimulus packet to accommodate more businesses needing financing assistance </li></ul></ul>
    23. 23. <ul><li>Real estate investments </li></ul><ul><li>Other speculative activities </li></ul><ul><li>Lending activities </li></ul><ul><li>Not-for-profit ventures </li></ul><ul><li>Pyramid sales or distribution businesses </li></ul><ul><li>Illegal activities </li></ul><ul><li>Religious indoctrination </li></ul><ul><li>Activities of a sexual nature </li></ul><ul><li>Businesses not open to the general public </li></ul>
    24. 24. <ul><li>SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements </li></ul>
    25. 25. <ul><li>Finance floor plan needs NOTE: Stimulus packet now allows SBA guaranty floor planning for certain businesses </li></ul><ul><li>Purchase real estate for investment purposes </li></ul><ul><li>Disbursements to owners or principals </li></ul><ul><li>Pay delinquent trust accounts (withholding or sales tax) </li></ul><ul><li>Refinance delinquent debt within a bank </li></ul><ul><li>Acquisition of less than 100% of a business </li></ul>
    26. 26. <ul><li>Borrowers on probation or parole </li></ul><ul><li>Borrowers with serious criminal histories </li></ul><ul><li>Borrowers that are 90 days or more delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.) </li></ul><ul><li>Borrowers of poor character </li></ul>
    27. 27. <ul><li>Arkansas Capital Corporation </li></ul><ul><ul><li>Certified Development Corporation (800) 216-7237 </li></ul></ul><ul><li>Enterprise Corporation of the Delta – </li></ul><ul><ul><li>(870) 673-4470 SBA Lenders </li></ul></ul><ul><ul><li>Hope Community Credit Union – Micro Lender </li></ul></ul><ul><li>Southern Financial Partners </li></ul><ul><li>Planning and Development Districts </li></ul><ul><ul><li>8 PDDs around the state covering specific counties </li></ul></ul><ul><ul><li> for a complete list </li></ul></ul>&quot;Fostering a More Small-Business-Friendly Regulatory Enforcement Environment&quot;
    28. 28. <ul><li>PDDs, cont. </li></ul><ul><ul><li>Some are more involved in lending than others Most have some type of Revolving Loan Fund </li></ul></ul><ul><ul><li>West Central PDD can do SBA loan assistance statewide others cannot. </li></ul></ul><ul><li>FORGE (Financing Ozarks Rural Growth & Economy) (479) 738-1585 Micro Lender </li></ul><ul><ul><ul><li>Baxter, Benton, Boone, Carroll, Conway, Crawford, Franklin, Johnson, Logan, Madison, Marion, Newton, Perry, Pope, Scott, Searcy, Sebastian, Washington, Yell </li></ul></ul></ul><ul><ul><li>Alt Consulting (870) 335-8535 In process of being approved as Micro Lender </li></ul></ul>
    29. 29. <ul><li>Some counties or communities in Arkansas have developed Economic Incentive Funds through sales or other local taxes </li></ul><ul><li>These programs can provide “supplemental” funding for start ups or expansions especially where jobs are involved </li></ul><ul><li>Check with your local Chamber of Commerce or County Economic Development Office to see if your community has passed such an ordinance and whether you can take advantage of it </li></ul>
    30. 30. <ul><li>Recent scam </li></ul><ul><li>Fake SBA letterhead </li></ul><ul><li>Stimulus tax rebate </li></ul><ul><li>SBA determines eligibility </li></ul><ul><li>Need bank account information </li></ul><ul><li>DON’T DO IT! </li></ul>&quot;Fostering a More Small-Business-Friendly Regulatory Enforcement Environment&quot;
    31. 31. <ul><li> 7(a) Guaranty, Patriot Express MEIDL Loans </li></ul><ul><li> </li></ul><ul><li>Little Rock District SBA Office Veterans Business Development Officer </li></ul><ul><li> Arkansas Stimulus Packet </li></ul><ul><li> Federal Stimulus Packet </li></ul><ul><li> Actual Government Grants </li></ul><ul><li> Arkansas Procurement Assistance Center – Vet specific info </li></ul><ul><li> Arkansas SBTDC Website </li></ul><ul><li> Arkansas Veteran Web Portal </li></ul><ul><li> National Vet-Owned Business Association </li></ul><ul><li> Veterans Transition Franchise Initiative </li></ul>Contact Rudy Ortiz ASBTDC [email_address] or (501) 683-7721 for a copy of this presentation
    32. 32. <ul><li>Contact your local Small Business Administration Office for Arkansas Residents the Little Rock District Office (501) 324-7394 </li></ul><ul><li>Or Contact your local Small Business and Technology Development Center for Assistance – state website to locate office nearest you or contact Herb Lawrence ASU SBTDC </li></ul><ul><li>For Procurement Assistance Information contact either your local SBTDC or the Arkansas Procurement Assistance Center </li></ul><ul><li>Log on to Arkansas Veteran Webportal to stay updated on changes to financing programs </li></ul>For a copy of this presentation contact Herb Lawrence, ASU SBTDC Center Director at (870) 972-3517 or e-mail at [email_address]