Lending the SBA Way.ppt - saipanchamber.com · Pyramid sales distribution (Amway,

Guam Branch OfficeGuam Branch Office

Lending the SBA Way


SOP 50-10(5)

Lender and Development CompanyLoan Programs


7(a) Loan Program Authorized by section 7(a) of the Small Business

Act;

Governed by the regulations outlined in Part 120of Title 13 of the Code of Federal Regulations(CFR)

Multi-purpose business loan programadministered as a deferred participation whereSBA guarantees a portion of the loan made by aLender.


Basic Steps of an SBA Loan

1. Lender initiates the loan to a smallbusiness; and

2. If SBA agrees to guaranty the loan;

3. Lender funds and services the loan.


SBA Financing: How it works

SBA(guarantor)

Banker

(coordination point)Applicant


Responsibilities of 7(a) Lender Submit guaranty application with all required

forms, docs, & credit analysis to SBA processingcenter.

Execute the Authorization prepared by SBA

Close the loan in accordance with Authorization

Maintain complete loan files

Service the loan in accordance with SOP 50 50

Liquidate the loan in accordance with SOP 50 51

Comply with SBA Loan Program Requirements


Types of 7(a) Lenders

Standard 7(a) Lenders Program (GP) –lenders with limited experience in theprocessing, closing, servicing, andliquidating of SBA loans which requireSBA’s prior review.

Certified Lender Program (CLP) – moreexperienced lenders granted a higher levelof authority and receive expedited processof loan applications


Types of 7(a) Lenders

Preferred Lenders Program (PLP) – themost experienced lenders delegatedauthority to process, close, service, andliquidate most SBA loans without priorSBA review.


SBA Participants in Guam

Bank of Guam

Bank of Hawai‘i

BankPacific

Citibank

Citizens Security Bank

Community First FCU

GovGuam Employee FCU

First Hawaiian Bank


Established under P.L. 108-447 and signed into law onDecember 8, 2004.

Reduces mandated forms and procedures, streamlinesprocessing and reduces cost of smaller, less complexSBA loans.

Allows lenders to use their loan analyses, proceduresand documentation.

In return for expanded authority and autonomy by theprogram, lenders agree to accept a maximum SBAGuaranty of 50%.

SBA Express Program


Lenders with good track record and experience with SBA Use own forms, underwriting standards and procedures to make

SBA loans

Have credit approval authority

Shortened processing/approval time Fewer SBA mandated forms

Centralized SBA processing – 24 hours

50% maximum guaranty

Maximum loan size: $350,000

Collateral not required for loans $25,000 and less

Revolving lines of credit available Maximum term 7 years, including renewals

SBA Express Program


Interest Rate Maximums

$50,000 or less – 6.5% over prime rate

Over $50,000 up to $350,000 – 4.5% overprime rate

SBA Express Program


Similar to SBAExpress (forms, credit approval,processing procedures)

Higher guaranty 85% on loans up to $150,000

75% on loans over $150,000

Maximum loan size: $250,000

Collateral not required for loans $25,000 and less

Requires borrower receive technical and managementassistance arranged for, and if necessary, paid for bylender

Community Express Program



Maximum Loan Amount$500,000.00

Maximum Guaranty Percentage75 percent to 85 percent depending on the

amount of the loan

SBA guaranty on a Patriot Express loan maynot exceed 85 percent for loans of $150,000or less

Or, may not exceed 75 percent for loans over$150,000

SBA’s Patriot Express Loan


Eligibility Criteria

Must meet standard SBA eligibility

Must be 51 percent owned/controlled by:

Veteran (other than dishonorably discharged)

Service-disabled veteran

Active Duty Military potential retiree within 24 months of separation

and discharging Active Duty member within 12 months of discharge

(TAP eligible)

Reservist & National Guard (limited to current members & spouses)

Current spouse of above or spouse of service member or veteran

who died of a service-connected disability 75 percent for loans over

$150,000



Limited Same Lender Debt Refinance


Collateral RequirementsLenders are not required to take collateral

for loans up to $25,000Lenders may use their existing collateral

policy for loans over $25,000 up to$350,000

Lenders must take available collateral forloans greater than $350,000



Revolving Lines of CreditRevolving loans are allowed up to 7 years

with maturity extensions permitted at theoutset

In offering revolving lines of credit and theirenhancements, SBA must ensure thatborrowers, particularly those accessing SBAguaranteed loans through credit cards,understand that these funds must be usedfor business-related purposes



Interest RatesFor Patriot Express Loans, the standard 7(a)

interest rate restrictions apply:A lender may charge up to 2.25 percent over the

Prime rate for maturities under seven yearsA lender may charge up to 2.75 percent over the

Prime rate for maturities over seven years The rates can be 2 percent higher for loans of

$25,000 or lessOr, 1 percent higher for loans between $25,000 or

$50,000.



VeteranVeteran——DD form 214DD form 214 Service MemberService Member——DOD photo card and DD Form 2648 orDOD photo card and DD Form 2648 or

Form 2648Form 2648--1 (reserve)1 (reserve) TAPTAP——DD Form 2 US Armed Forces ID card and DD FormDD Form 2 US Armed Forces ID card and DD Form

2648 and Form 26482648 and Form 2648--1(reserve)1(reserve) Reservists & NatReservists & Nat’’l Guardl Guard–– DD Form 2 Armed Forces ID cardDD Form 2 Armed Forces ID card Spouse of VeteranSpouse of Veteran——DD Form 214 & evidence of status ofDD Form 214 & evidence of status of

spousespouse Spouse of TAP or Reservist/National GuardSpouse of TAP or Reservist/National Guard——DD Form 1173DD Form 1173

(Family member ID) and evidence of status as current spouse(Family member ID) and evidence of status as current spouse Widow of active duty service member who died in service orWidow of active duty service member who died in service or

Widowed spouse of veteran who died of service connectedWidowed spouse of veteran who died of service connecteddisabilitydisability——documentation from DOD or from DVA clearlydocumentation from DOD or from DVA clearlyshowing this to be the caseshowing this to be the case

Certifications


Economic development program offering a financingpackage that stimulates private sector investment in long-term fixed assets to increase productivity, create newjobs, and increase the local tax base. Real estate acquisition, renovation, construction – owner

occupant Major machinery and equipment

Useful life of at least 10 years

Facilitated by Certified Development Companies (CDCs)certified and regulated by SBA HEDCO Local Development Corporation Lokahi Rural Development Corporation

504 Loan Program


Facts About SBA loans

SBA loans are flexible and can be used for avariety of purposes

SBA loans underwritten just like any othercommercial loan

Intended for credit worthy borrowers who havedifficulty getting financing at reasonable terms Good credit is a must

SBA guarantee helps bridge a gap Makes qualifying easier

Relationship with lender experienced in SBAlending can make the process easier and faster



Establishing eligibility Organized for Profit

Open to public on a non-discriminatory basis

Located in the U.S. or its territories and possessions

Demonstrate a need for the desired credit. (CreditElsewhere Test)

Lender must certify that credit is not availableelsewhere on reasonable terms.

Applicant must show that the funds are unavailablefrom alternative sources, including personalresources of the principles.

Must be a small business under SBA size standards


What is a Small Business?

General size guidelines: www.sba.gov/size

Industry Max. Size Standard

Agriculture $.75 to $10.5 million inaverage annual sales

Construction $12.0 to $28.5 million inaverage annual revenues(varies for specialtycontractors)


What is a small business?

Industry Max. Size Standard

Manufacturing 500 to 1,500 employees

Wholesaling No more than 100 employees

Retail & Service $1.5 to $24.0 million averageannual sales

(continued)


Business Owned by Non-US Citizens

At least 51% owned and controlled by persons whoare not citizens of the US provided the persons arelawfully in the US.

Depending upon the status of the owners as assignedby the United States Citizenship and ImmigrationServices (USCIS).

Non-immigrant (documented) aliens residing in theUS are persons who are admitted to the US for aspecific purpose(s) and for a temporary period of timewith a current/valid USCIS document, such as a visa.

Management must have operated the business for atleast 1 year prior to the application date.


Ineligible types of applicants Non-profit businesses

Businesses Primarily Engaged in Lending

Passive Holder of Real/Personal Property(apartments)

Life Insurance Companies (independent contractorsok - no affiliation w/company)

Pyramid sales distribution (Amway, Avon)

Businesses which restrict patronage

Businesses w/ associate who is incarcerated, parole,probation/indicted for felony

Businesses which present live performances of aprurient sexual nature


Debt Refinancing Ineligibilities

May not be used to refinance a loan purpose thatwould have been ineligible for SBA financing at thetime it was originally made.

May not be used to refinance debt that is onreasonable terms.

debt structured with a demand note or balloon pymt.

Credit Card debt

Interest Only Debt

Debt with interest rate above the market rate.

Debt where the loan payment exceeds the applicant’sability to pay


Debt Refinancing Exemptions

When long term debt is refinanced, the newinstallment amount must be at least 20% less than theexisting installment amount.

Refinancing Same Institution Debt – transcript in fileand debt has been current for the last 36 months.

Refinancing an SBA-Guaranteed Loan – certainconditions apply and required documents arewarranted based on such conditions.

SBA Loan proceeds may be used to reimburseinterim advances made by a lender as long as theinterim advances reasonably comply with SBA. Nonotification of interim loan is given to SBA.


SBA Loan Amount

The maximum loan amount allowed under SBA’s loanprogram varies by product but generally cannot exceed$2 million.

SBA Express - $350,000.00

Export Express - $250,000.00

Community Express - $250,000.00

Patriot Express - $500,000.00

The maximum SBA guaranty amount outstanding of allloans to any one business (including affiliates)regardless of when the loans were approved cannotexceed $1,500,000.00.


SBA’s Guaranty percentages

SBA Loan Terms

50% for SBA Express Loans

75% for loans over $150,000;

85% for loans less than $150,000;

SBA’s guaranty not to exceed $1,500,000;

Gross loan amount limited to $2,000,000.


SBA Loan Terms

Loan Purpose Max. Term

Long-term working capital 7 years, 10 years w/justification

Machinery, FF&E 10 years, 25 yearsw/justification

Construction, R/E purchase 25 years + pd. ofconst./renovation

Franchises Terms no longer than the termof the franchise agreement

Permissible SBA loan maturities:


SBA Financing: Loan Rates

Based on prime rate in the Wall Street Journal

Prime Rate plus...

Int. Rate Maximum Term

2.25% Loan of $50,000 +; maturity less 7 yrs

2.75% Loan of $50,000 +; maturity 7 yrs or more

3.25% Loan of $25,001 - $50,000 +; maturity less 7 yrs

3.75% Loan of $25,001 - $50,000; maturity 7 yrs or more

4.25% Loan of less than $25,000; maturity less 7 yrs

4.75% Loan of less than $25,000; maturity 7 yrs or more4.50% Loan of $50,000 or less (SBA Express)6.50% Loan of $50,000 to $350,000 (SBA Express)


Equity Injection

Eligible Equity Injection: Cash that is borrowed (there are exemptions)

Assets other than cash

Stand-by debt

Ineligible Equity Injection: Value or Cost of education; and

Funds that are borrowed (meets the requirements)


Collateral Requirements

Loan request is not to be declined solely on thebasis of inadequate collateral.

SBA’s guaranty is not to be used as a substitutefor available collateral.

Collateralize the loan to the maximum extentpossible up to the loan amount.

A “fully secured” loan is when the lender hastaken security interest in all available assets witha combined liquidation value up to the loanamount.


Personal Guaranties

Individuals who own 20% or more of a smallbusiness must provide an unlimited full personalguaranty.

Other individuals may be required to guaranteethe loan as well.

If no one individual or entity owns 20% or more ofthe small business, at least one of the ownersmust provide a full unconditional guaranty.


Lender’s Resources


http://www.irs.gov/businesses/small/index.html


http://www.irs.gov/businesses/small/page/0,,id=154342,00.htmlhttp://www.irs.gov/businesses/small/page/0,,id=154342,00.html


http://www.irs.gov/businesses/small/article/0,,id=155439,00.htmlhttp://www.irs.gov/businesses/small/article/0,,id=155439,00.html


www.sba.gov/banking




If you have questions on PLP and any form of ExpressIf you have questions on PLP and any form of Express



Looking for a form?Looking for a form?





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Business Plan



Marketing 101



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Excellent Test for Your Customers Interested in 8(a)Excellent Test for Your Customers Interested in 8(a)


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CNMI HistoricalFederal Procurement Data

$$ peaked at FY’03 @ $10.2 Million

Last 4 yrs, declined

www.sba.gov/starting





www.sba.gov/training





www.pacificsbdc.com





www.score.org





www.onlinewbc.gov


SBA Web Site – www.sba.govwww.sba.gov/financing - Guaranty Loan

Program

www.sba.gov/training - On-line trainingcourses

Guam Branch Office – Kenneth Lujan

400 Route 8, Ste. 302

MongMong, Guam 96927 (671) 472-7419 or fax (671) 472-7365

SBA Resources


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Lending the SBA Way.ppt - saipanchamber.com · Pyramid sales distribution (Amway,