SBA Update

SCORE Fall Training

October 2007

Something Old…

SBA Loans (A Refresher)

SBA’s Primary Lending Programs

• 7(a) Program - guarantied loans made through participating Lender’s (the SBA no longer has direct loans)
  
• 504 Program – economic development loans tied to job creation/retention where SBA provides subordinate financing through Certified Development Company’s (CDC)

Use of proceeds- SBA Guaranty Loans

            Expansion or renovation of real estate

            Construction of new building

            The purchase of land or buildings, machinery & equipment, furniture and fixtures, leasehold improvements, inventory

            Working capital

            Refinance existing debt from another Lender or refinance your own debt

Loan Amounts

            Maximum individual Loan Amount of $2,000,000

            Maximum cumulative SBA exposure up to $1,500,000 for all Guaranteed loans

SBA Express Loans have a maximum cumulative SBA Express loan amount of $350,000

7(a) Loan Program - Terms

Interest Rates

Negotiated between Borrower and Lender

• Cannot exceed prime rate plus 2.25% for loans less than 7 years and prime plus 2.75% for loan 7 years or greater

• Certain loan programs and smaller loans permit higher interest rates

Guaranty Fees          

MATURITY            LOAN $                SBA FEE

• <12 mos                 all                          .25%
• >12 mos          <=$150                         2.0%
• >12 mos      $150 to $700                    3.0%
• >12 mos        $701 and up                   3.5%

(plus an additional up-front fee equal to 0.25% of amount by which SBA guarantee >$1,000,000)

• The Lender must then pay an on-going fee of .545% annually on the outstanding principal balance of the loan.

Why do lenders use SBA Guaranteed Loans?

            Collateral inadequate.

            Start-ups or certain types of businesses

            Longer maturity needed.

            Leverage

            Lender’s legal or policy limit.

What the Lender and SBA look for when underwriting a loan

            Ability to repay the loan through historical performance and/or projections

            Good Credit

            Equity

            Management Experience

            Collateral

504 Program Structure

In general:

A Lender (Third Party Lender) finances 50% of the project and takes a 1st lien

            The SBA finances 40% of the project through the sale of a Debenture and takes a 2nd lien

            The Borrower injects 10% equity (the equity may be borrowed)

Types of 504 Loans

            Real Estate 504 – purchase, construction or renovation of commercial real estate

            Equipment 504 – purchase of machinery or equipment

            Note: Working Capital is not eligible

Something New…

Patriot Express

            “New Guaranty Loan Initiative”

            Targeted to “Military Community”

            “All In” Approach for SBA Assistance

Something Borrowed

            Paul Hoffman, Lender Relations Specialist

            Richard Keffer, Business Development Specialist & Veteran’s Affairs Officer

            Laura McCabe, Business Development Specialist & 8(a) Program Manager

            (716) 551-4301

 

For more information about SBA loan programs click here