The SBA 504 lending program provides long-term, fixed rate financing for small businesses to purchase equipment, real estate, or make renovations. It requires 10% equity from the business owner. The remaining financing includes a 50% conventional bank loan secured by a first lien, and a 40% SBA-backed loan secured by a second lien. The program offers low interest rates of 5.36% for 20-year real estate loans and 4.38% for 10-year equipment loans. The 504 program can finance between $400,000 to $20 million and is ideal for acquisition or renovation projects.

1. SBA 504 Lending Program Forging Industry AssociationMidwest Area MeetingThursday, July 21, 2011

2. Founded in 1969 in Joliet, Illinois. Niche commercial lender specializing in financing privately-held manufacturers and distributors throughout Chicago MSA including Northwest Indiana and SE Wisconsin. Profitable for over 15 years and still making loans. More information at www.m-mbank.com. Merchants and Manufacturers Bank

4. 10% Equity requirement for most projects. 20 year fixed rate financing for 40% of the project. July rates (SBA Portion): 5.36% for 20 year deals (real estate) 4.38% for 10 year deals (equipment) Why should we be interested?

6. First Mortgage/Lien

7. 40% - SBA 504 Loan

8. Second Mortgage/Lien

9. 10% - Owner’s Equity ** Higher equity requirements exist for start-up or leveraged companies and single-purpose buildings

10. What’s Eligible Land or Building Acquisition Building Construction or Renovation Site Work Machinery and Equipment Furniture & Fixtures (depends on % of project) Soft costs involved in above projects What’s Not Eligible Working Capital Franchise Fees Inventory Short-term Equipment Supplies Furniture & Fixtures (depends on % of project) 504 Use of Proceeds

12. 51% existing structure / 60% new property

13. Personal guarantees for any 20% or more owner

14. Personal Resource Test

15. 20% or more owner must have liquid assets less than 1x total project cost in most cases

16. Must be a for-profit business

17. Size standards

18. $15,000,000 max tangible net worth of company and affiliates

20. REFINANCE of existing mortgages on owner-occupied commercial real estate

21. Permanently increase max SBA 504 loan

22. $5,000,000 for most projects/borrowers ($12.5 MM project)

24. $15,000,000 max tangible net worth of company and affiliates

25. $5,000,000 max two-year average net income Small Business Jobs Act of 2010

27. Term of Loan (commitment) must be ½ SBGC’s bond but no less than 7-years

28. Usually 10-year commitment on Real Estate

29. Likely 5-year adjustment (but can be floating or fixed)

30. Amortization of bank debt is usually 20-25 years on RE or 7-10 years on equipment.

31. Bank gets first lien on all project assets

32. Total advance rate is 90% of real estate/equipment’s attributed costs if appraisal falls within 10% OR 100% of appraised value (whichever is less)First Lien Loan – The Bank

33. Project - $900M Appraised Value

35. 90% Interim – subject to 504 pay downCDC underwrites project; receives internal approval Meet with Borrower to Sign Application docs Submit Application to SBA for Approval- 2 to 6 days Loan Authorization Received Appraisal/Environmental Phase (must be approved by SBA) Closing on interim loan by bank

37. One-time fees of 2.15% are rolled into the bond

38. Participating lender fee (0.5% x first mortgage)

39. On-going servicing fees included in effective rate of 5.36%

40. Offset by long-term interest rate savings

41. Prepayment penalty

42. In the first half of the term, decrease each year by 10%

43. Borrower should occupy property for at least 5 years

44. Strategy: pay off bank’s mortgage first

45. Interest rate fixed at the time of funding

47. All loans must be approved by September 27, 2012

48. Mortgages can expire at any time

49. Previously they were required to be ballooning before 12/31/12

50. Loans must be funded within 6 months of approval

51. There will be a higher effective rate due to higher servicing fee

52. 30 bps over existing rate – 5.36% vs. 5.66%

53. May increase upon review for next year

54. Project structure 90% of appraised value of assets or existing principal balance (whichever is less)NEW Refinance Program

56. Small business must have been in operation for 2 years

57. Debt incurred for purchase of eligible assets

58. Must be current on payments for last year

59. If lender is refinancing existing debt held then proof of payment will be need for the ENTIRE HISTORY of loan

60. Seller financing or contracts for deed are eligible

61. 85% of the loan must have been to acquire, construct or improve long-term fixed assets

62. 15% or less must have been used for business purposes example -working capital or inventory purchasesREFINANCE – Qualifying

63. Current Appraised Value of Property $1,000,000 Outstanding Balance of Debt $ 800,000 Required Structure Based upon Policy Bank Loan $ 500,000 50% of appraised value SBA 504 Loan $ 300,000 30% -balance of debt Appraisal Equity $ 200,000 20% -equity in property Total Project $1,000,000 100% To be eligible for structure the company must have either 5 full time employees or satisfy a Community Development or Public Policy Goal Refinance – With Equity Structure

64. Current Appraised Value of Property $ 800,000 Outstanding Balance of Debt $ 800,000 Required Structure Based upon Policy Bank Loan $ 400,000 50% of appraised value SBA 504 Loan $ 320,000 40% of appraised value Equity $ 80,000 10% of appraised value Total Project $ 800,000 100% Total Current Lien Outstanding is $800,000 Total Proceeds from the Loans $720,000 Excess Debt remaining $ 80,000 * * Can be dealt with in three ways (forgiveness, third lien or payoff) Refinance – No Equity Structure

66. Purchase/renovation of a building or construction of a new facility

67. Purchase machinery or large equipment

68. Lower equity injection

69. Increased working capital

70. Roll in other costs (i.e. FF&E, soft costs, interest reserve)

71. Fixed long-term financing

72. 20 year loan at 5.36% for real estate (as of July 2011)

73. 10 year loan at 4.38% for equipment (as of July 2011)