Lending the SBA Way

Robert Chavarria

U.S. Small Business Administration

Jacksonville North Florida District

Business Plan

• The business plan is perhaps one of the most important documents you can have for your small business; it is a roadmap for your business venture; one which can assist you greatly.

• If you don’t know where you are going, and you don’t have a road map, any road will get you there...

Eligible Uses of Loan Proceeds

Eligible Uses of Loan Proceeds

Working Capital Inventory Equipment Real Estate Debt Refinancing Existing Business

Ineligible Uses of Loan Proceeds

• Floorplan• Speculation• Partial Change of

Ownership• Payment to

Principals• Delinquent

Payroll/Sales Taxes

SBA Loan

The 6 C’s of CreditThe 6 C’s of Credit

Character

Capacity

Capital

Cash Flow

Credit

Collateral

Ineligible Businesses

• Gambling

• Real Estate Investment

• Speculation

• Lending Activities & life insurance companies

• Businesses selling through a pyramid plan

• Illegal Businesses

• Non-Profit Organizations

• Businesses providing prurient sexual material

• Businesses which restrict patronage

• Businesses owned by individual(s) on probation, parole and with pending criminal charges

Sales in Millions

• Retail $5.0 to $21.0• Service $2.5 to $21.5• Construction $7.0 to $17.0• Agriculture $ .5 to $ 9.0

Number of Employees

• Wholesale < 100

• Manufacturing 500 to 1500

Note: Size Standard is SIC/NAICS Code specific. A size standard other than above may be available for certain SIC/NAICS codes

Website: www.census.gov/epcd/www/naics.html

Size Standards

Benefits of 7(a) Loans

• REDUCES LENDER’S RISK of LOSS• Broadens Bank’s Lending Activities:

Start-Ups High Risk Businesses

Longer Terms Collateral Shortfalls• Allows banks to increase its lending limits

to borrowers.• Community Reinvestment Act (CRA)• Increased Profitability to Banks

Selling loans on the Secondary Market.

SBA Loan Programs

• 7(a) Programs - Regular and Special– Microloans– LowDoc– Express– Pre-Qualification– CAPLines (Lines of Credit)– Export Working Capital– International Trade

• Certified Development Company - 504

Maximum Guarantee Percentage by Program

Std 7(a) Loan - over $150,000 75%

Std 7(a) Loan - $150,000 or less 85%

LowDoc 85%

SBA Express 50%

Export Working Capital 90%

Maximum Loan Amounts

Standard 7(a) Loan $ 2,000,000

LowDoc $ 150,000

SBA Express $ 250,000

Community Express $ 250,000

Pre-Qualification $ 250,000

Microloan $ 35,000

EWCP $ 1,000,000

International Trade $ 1,250,000

504 $ 1,000,000 to 1,300,000

SBA Fee Policy

• For loans of $150,000 or less: Fee is 2% of SBA guaranteed portion

• For loans between $150m and $700M: Fee is 3% of SBA guaranteed portion

• For loans over $700M: Fee is 3.5% of SBA guaranteed portion

• Fee is due within 90 days of loan approval and may not be extended.

• Fee may be charged to borrower only after first disbursement.

Maximum Maturities

• Shortest appropriate term

- Must match ability to repay AND

- Remaining Useful life of asset• Ten years maximum except for M&E

with long useful life & real estate financing

• Twenty Five years maximum on real estate and 15 years for machinery & equipment

Maximum Interest Rates

Less than 7 years Prime + 2.25%

7 years or more Prime + 2.75%

$25,001 - $50,000 Plus 1%

$25,000 or less Plus 2%

RATES may be FIXED or VARIABLE

What SBA Looks For

• Good Character• Management Expertise and Commitment• Feasible Business Plan• Adequate Equity or Investment

(25% to 30% injection for new business)• Sufficient Collateral• Ability to Repay the Loan from Earnings

Collateral

• Sufficient assets must be pledged to adequately secure the loan to the extent available.

• Personal guarantees of all 20% or more owners of the business

• Liens on personal assets are considered if under-collateralized by business assets

• Lack of collateral, in and of itself, is not a reason for decline.

Microloan Program

• Maximum microloan amount is $35,000

• Must be processed by SBA approved microlender

• Can be leveraged up to two times by other sources of financing ($70,000) up to total combined project of $105,000

• Microlender may take subordinate position to bank or other financing

SBA Express Loans

• Loans up to $250,000• 50% guarantee• Lender has delegated authority to

approve loan requests without submitting to SBA.

• Lender not required to use SBA forms

• May be Revolving • Lender liquidates

LOWDOC LOANS

• L oans up to $150,000

• O ne Page Application for Applicant

• W ith Quick Turnaround from SBA

• D ocumentation to SBA is Simplified for

faster, quicker service!

• O ne Page Application for Lender

• C haracter, Credit & Experience

Pre-Qualification Loan Program

• Maximum Loan Amount $250,000• Guaranty percentages

Loan up to $150,000 85%

Loans more than $150,000 75%• Business must be at least 51% owned by

a woman, veteran or minority• Loans to exporters are eligible (used to

significantly increase or create new export markets)

• Loans in approved rural markets may be eligible

Pre-Qualification Loan Program

• Intermediaries assist prospective borrowers in developing viable application packages

• Intermediary submits application to SBA for consideration of a loan up to $250,000

• If application is approved SBA issues a pre-qualification letter to applicant, which they can present to a bank.

504 Loan Program

• Benefits to the Borrower– Low down payment - 10-20%– Fixed interest rate on SBA portion– Long term financing

• 20 years on real estate• 10 years on equipment

– Rate on private sector loan should be lower

– Access to larger amount of financing than on regular 7(a) loans

504 Funding Structures

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TypicalStucture

Max.Injection

Startup orSpecial Use

Both

BankCDC/SBABorrower

For More Information...

• For SBA’s programs and services, visit our web site at www.sba.gov

• North Florida District Office at (904) 443-1900

• Robert Chavarria(407) 893-9885