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Linda Nelson's SBA presentation from the 2014 Lender's Meeting at Arkansas State University in Jonesboro, Arkansas.
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$BA RI$K LENDING
Linda R. NelsonArkansas SBA District Director
RI$K• Rewards
• Increased assets (loans)
• Secondary market
• Keep the relationship
RewardsPremium income from secondary market
Opportunity to sell other bank products
Communities benefit*Small businesses – healthier and wealthier
Increased AssetsIncreased liquidity Access to “free” money for SBA loan making
Spiraling loan portfolio – 25% original investment*
Loans outside of bank policy
Cowasocky
ProcessSimplified and streamlined
Same forms all stylesUp to $350,000 – provides pre-screening
Rely on bank policy for many issuesThru 9-30-2014 – no guaranty fee lender or borrower
$150,000 and belowThru 9-30-2014 – no guaranty fee borrower
Veterans $350,000 and below – via SBA ExpressSBA Express up to $350,000
50% guaranty Can be revolving line of credit
Secondary MarketSell guaranteed portionFull disbursement or laterYourself or through a brokerAnyone except your trust department
Keep servicing and get paid for it
How It WorksTransparent to borrowerLock in a price quote for 90 daysHelps in your pricing to borrowerThree sources of income:
PremiumInterest on unguaranteed portionServicing fee on guaranteed portion
Example - PremiumLoan: $234,30075% guaranty: $175,72515 year maturityPriced at prime + 2.75: 6%Monthly pay, quarterly adjustmentPrice: 110 @ prime + .75%: 4%SBA’s ongoing guaranty fee: .55%Net servicing fee to you: 1%
Premium – Year One ReturnPremium $175,725 x 10% : $17,572.50
Interest income 6% x $58,575: $3,514.50
Servicing fee 1% x $175,725: $1,757.25
Total: $22,844.25ROI of $58,575: 39%
Premium – Year Two ReturnInterest income 6%: $3,514.50Servicing fee 1%: $1,757.25ROI each year: 9%PLUS$175,725 FREE MONEY to relend in
another SBA loan – ROI expands based on initial $58,575 and expanding portfolio
Par – Returns Year 1 ROI: 9%ETC., each year
ArkansasSecondary Market in 2002: 41 of 300 7a
loans were sold, $18 million out of $102 million
2002 Market handled 11,000 plus loans for $3.4 billion
Arkansas: .4% of loans and .5% of dollarsTexas sold $318 millionOur neighbors use this
Keep the RelationshipSite visits allow you to know of problems
AND if they are growingUnplanned growth can be bad – if not
properly fundedOpportunity for more loansUse ASBTDC to support and help them plan itAbility to do things during life of the loan for
business benefitIf answer has to be “no” – you don’t have to
take all the blame
Keep the GuaranteeUse SBA Organizational Tabs
Equity injection proofUse of proceeds
Collateral positionsPreference
Verification of income (cash flow)Business valuations
Timely site visits“Evaporation before liquidation”
Win-Win For AllSmall business as a wholeIndividual borrowerProfits for youGuaranteed income for investorThe community – local, county, state, country
ANDCRA credit As investor:
“Whole” loan – may book as loan and increase loan to deposit ratio
“Pool” – higher yield investment than many and no risk to capital
Steady cash flowVariable rates eliminate interest rate risk
ANDAllow flexibility in pricing loans with price
locked inIncreasing competitivenessCan combine fixed and adjustable ratesLess work – no renewalsUse the time to develop more customersSteady fee income
AND
It’s not the fittest that survive – it’s those who can adapt
Linda NelsonLinda.nelson@sba.gov(501)324-7379 ext. 225
www.sba.gov/ar
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