SBA Financing Options for Your Small Business Hosted
SBA Financing Options for Your Small Business Hosted by U. S. Small Business Administration Colorado District Office
SBA Financing-Understanding How It Works SBA does not provide: n Grants n Low interest loans n Minority, women & veteran specific loans n 100% financing n Direct business loans
7(a) Loan Guaranty Program n n n Applicant applies for commercial loan at bank If commercial loan declined, applicant may ask SBA participating lender to consider an SBA guaranteed loan. The lender submits an SBA guaranty application for SBA’s review and approval. After SBA guaranty is approved, lender disburses funds. SBA guarantee ranges from 50 -90%.
SBA Eligibility Requirements Businesses must: n n n Be independently owned and operated for profit Not dominant in its field of operation or industry May not exceed SBA size standards (based on average annual receipts for past 3 fiscal years or average number of employees over last 12 months)
SBA Basic Requirements n n n Applicant of good character Management expertise & commitment to succeed Reasonable personal contribution or business equity n Feasibility of business success n Ability to repay loan from projected cash flow n Secondary source of repayment ability −collateral to secure the loan
SBA Requirements (Con’t) n n Cash/Equity injection required: generally 20 -25% SBA considers type of business & its industry Availability of funds from other sources Personal guarantees required of all owners of 20% or more of business
SBA Requirements (Con’t) n n Collateral is generally required Valuation of collateral (Based on quick sale of collateral)
SBA Requirements (Con’t) n Businesses Ineligible for SBA Guaranty: • • Non-profits Businesses engaged in lending activities Speculative or investment type businesses Businesses engaged in gambling Illegal businesses Businesses providing prurient sexual material Businesses promoting religion
Use of Proceeds 7(a) loans may be used to: n Expand & renovate facilities; n Buy machinery, equipment, fixtures, buildings and land for business; n Finance receivables & augment working capital; n Refinance existing debt (with compelling reason); n Finance seasonal lines of credit; and/or n Construct commercial buildings.
Terms Flexible maturities: n n n Up to 7 years for working capital Up to 10 years for equipment Up to 25 years for fixed assets: Real estate • Construction • Capital Equipment • Interest rates: Negotiated between borrower & lender n Under 7 year term cannot exceed prime rate plus 2. 25% n Over 7 year term cannot exceed prime rate plus 2. 75% n May be higher for SBAExpress program or smaller loans
Guarantee Fees Maturity SBA Loan Portion 1 year or less Any amount up to maximum Guaranty Fee* 0. 25% loan of $2. 0 million Over 1 year $150, 000 or less 1. 0% Over 1 year $150, 000 to $700, 000 2. 5% Over 1 year $700, 000 -1, 000 3. 5% Over 1 year Over $1, 000 3. 75% Subject to change
SBA Loan Programs n 7(a) loan guarantees n Expedited Programs n n n n n SBALow. Doc SBAExpress Community Express Export Express CAPLines Export Working Capital Program International Trade Term loans 504 fixed asset financing Microloan program
SBALow. Doc (Low Documentation Loan Program) n n Appropriate for applicants with “clean” credit histories For loans up to $150, 000 Ø Up to 7 years for working capital; 10 years for equipment and 25 years for fixed assets n Up to 85% guaranty to bank n One-page SBA application n 36 -hour response from the SBA
SBAExpress n n n Lender uses its own forms Loans or revolving lines of credit up to $250, 000 SBA guaranty of 50% Interest rates: 4. 5% over prime for loans over $50, 000; 6. 5% over prime for loans under $50, 000 36 -hour response from the SBA
Community. Express n Spurs job creation n For under-represented minorities, veterans & women business owners n Businesses located in low-moderate income urban and in rural areas n Maximum loan amount of $250, 000 n Technical assistance support included
SBA Export. Express n Only lenders approved for SBAExpress may participate in program n Uses expedited SBA review & approval process n Maximum loan amount of $250, 000 n Proceeds to be used for most exportrelated purposes
CAPLines (Working Capital Program) n n n For short-term & cyclical working capital needs Maximum loan of $2. 0 million Proceeds advanced against inventory or receivables Maximum maturity of five years Types of CAPLines: Seasonal Line Contract Line Builders Line Standard Asset-based Line Small Asset-based Line
EWCP (Export Working Capital Program) n n Short-term financing for exporters 90% SBA guaranty — up to $2. 0 million loan One-page application; turnaround — less than 10 days Maturity — • • n n A single transaction cycle or Revolving line of credit for 12 months Repaid from the proceeds of the export sale May be used for both — • • Pre-shipment working capital Post-shipment exposure
International Trade Term Loan n Long- & short-term financing — n Maximum loan amount — $2. 0 million n For businesses — n • Exporting or preparing to export • Adversely affected by import competition May be used for — • Working capital and/or • To purchase facilities or equipment that will be used within the U. S. for producing goods or services for export
Micro. Loans n n n Direct loans through non-profit intermediaries Loans of up to $50, 000 Term of up to six years Used for — • Machinery, equipment & fixtures • Leasehold improvements • Inventory • Working capital Technical assistance available
Fixed Assets Financing 504 Certified Development Company Program n Long-term, fixed-rate financing (10 & 20 year terms) n Up to $1 million in SBA-backed debenture; $1. 3 million under public policy goals n Must create or retain one job for every $50, 000 of SBA debenture proceeds or meet public policy goals
To Qualify for a 504 Loan* n Business must be operated for a profit n Tangible net worth of less than $7 million n Average net income of less than $2. 5 million for the preceding two fiscal years * Business may not be involved in speculation, real estate rentals or investment
A Typical 504 Project — n A third party lender (bank) provides 50% of project financing n A 504 loan through a CDC provides up to 40% of project financing backed 100% by SBA Debenture n At least 10% of project financing provided by applicant (additional 5% for special purpose building & additional 5% for startup business)
What to take with you to the bank Common documentation includes: n n n Purpose of loan Business history* 3 years of business financial statements* Schedule of term debts* Aging of accounts receivable and payable* Projected opening-day balance sheet** Copy of Lease Amount of owner investment in business Projections of income, expenses & cash flow Signed personal financial statements Personal résumés * for existing businesses **for new businesses
Questions Banker May Ask n n n n Why do you want this money? What exactly does your business do? How long have you been in business? How will you repay your loan? If your initial repayment plan fails, how will you repay the loan? Why did you pick this bank? How will you pay the fees involved with an SBA guarantee?
Other Banker Concerns n n n Continuity of your business What other services the bank may offer your company How long you can wait for your loan funds
Additional Considerations n n Applicant’s cash or equity injection into business Financial ratios & leverage Payment history on government obligations Repayment
Questions & Answers
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