SBA Financing Options SBA Financing Options for Your Small Businessfor Your Small Business

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U.S. Small Business U.S. Small Business AdministrationAdministration

Colorado District OfficeColorado District Office

SBA Financing-Understanding How SBA Financing-Understanding How It WorksIt Works

SBA does not provide:SBA does not provide: GrantsGrants Low interest loansLow interest loans Minority, women & veteran Minority, women & veteran

specific loansspecific loans 100% financing 100% financing Direct business loansDirect business loans

7(a) Loan Guaranty Program7(a) Loan Guaranty Program

Applicant applies for commercial loan Applicant applies for commercial loan at bankat bank

If commercial loan declined, applicant If commercial loan declined, applicant may ask SBA participating lender to may ask SBA participating lender to consider an SBA guaranteed loan.consider an SBA guaranteed loan.

The lender submits an SBA guaranty The lender submits an SBA guaranty application for SBA’s review and application for SBA’s review and approval.approval.

After SBA guaranty is approved, After SBA guaranty is approved, lender disburses funds.lender disburses funds.

SBA guarantee ranges from 50-90%.SBA guarantee ranges from 50-90%.

SBA Eligibility RequirementsSBA Eligibility Requirements

Be independently owned and operated for profitBe independently owned and operated for profit Not dominant in its field of operation or industryNot dominant in its field of operation or industry May not exceed SBA size standards (based on May not exceed SBA size standards (based on

average annual receipts for past 3 fiscal years or average annual receipts for past 3 fiscal years or average number of employees over last 12 average number of employees over last 12 months)months)

Businesses must:Businesses must:

SBA Basic RequirementsSBA Basic Requirements

Applicant of good characterApplicant of good character

Management expertise & commitment to succeedManagement expertise & commitment to succeed

Reasonable personal contribution or business equityReasonable personal contribution or business equity

Feasibility of business successFeasibility of business success

Ability to repay loan from projected cash flowAbility to repay loan from projected cash flow

Secondary source of repayment ability −collateral to secure the loanSecondary source of repayment ability −collateral to secure the loan

SBA Requirements SBA Requirements (Con’t)(Con’t)

Cash/Equity injection required: Cash/Equity injection required: generally 20-25%generally 20-25%

SBA considers type of business & its SBA considers type of business & its industryindustry

Availability of funds from other Availability of funds from other sourcessources

Personal guarantees required of all Personal guarantees required of all owners of 20% or more of business owners of 20% or more of business

SBA Requirements SBA Requirements (Con’t)(Con’t)

Collateral is generally requiredCollateral is generally required

Valuation of collateral (Based on Valuation of collateral (Based on quick sale of collateral)quick sale of collateral)

SBA Requirements SBA Requirements (Con’t)(Con’t)

Businesses Ineligible for SBA Businesses Ineligible for SBA Guaranty:Guaranty:• Non-profitsNon-profits• Businesses engaged in lending activitiesBusinesses engaged in lending activities• Speculative or investment type Speculative or investment type

businessesbusinesses• Businesses engaged in gamblingBusinesses engaged in gambling• Illegal businessesIllegal businesses• Businesses providing prurient sexual Businesses providing prurient sexual

materialmaterial• Businesses promoting religionBusinesses promoting religion

Use of ProceedsUse of Proceeds

7(a) loans may be used to:7(a) loans may be used to: Expand & renovate facilities;Expand & renovate facilities; Buy machinery, equipment, fixtures, Buy machinery, equipment, fixtures,

buildings and land for business;buildings and land for business; Finance receivables & augment Finance receivables & augment

working capital;working capital; Refinance existing debt (with Refinance existing debt (with

compelling reason);compelling reason); Finance seasonal lines of credit; Finance seasonal lines of credit;

and/orand/or Construct commercial buildings.Construct commercial buildings.

TermsTerms Flexible maturities:Flexible maturities:

Up to 7 years for working capitalUp to 7 years for working capital Up to 10 years for equipmentUp to 10 years for equipment Up to 25 years for fixed assets:Up to 25 years for fixed assets:

• Real estateReal estate• ConstructionConstruction• Capital EquipmentCapital Equipment

Interest rates:Interest rates: Negotiated between borrower & lenderNegotiated between borrower & lender Under 7 year term cannot exceed prime rate plusUnder 7 year term cannot exceed prime rate plus 2.25%2.25% Over 7 year term cannot exceed prime rateOver 7 year term cannot exceed prime rate plus 2.75%plus 2.75%

May be higher for SBAExpress program or smaller May be higher for SBAExpress program or smaller loansloans

Guarantee FeesGuarantee Fees

MaturityMaturity SBA Loan PortionSBA Loan Portion Guaranty FeeGuaranty Fee**

1 year or less1 year or less Any amount up to maximumAny amount up to maximum 0.25%0.25%

loan of $2.0 millionloan of $2.0 million

Over 1 yearOver 1 year $150,000 or less$150,000 or less 1.0%1.0%

Over 1 yearOver 1 year $150,000 to $700,000$150,000 to $700,000 2.5%2.5%

Over 1 yearOver 1 year $700,000-1,000,000$700,000-1,000,000 3.5%3.5%

Over 1 yearOver 1 year Over $1,000,000Over $1,000,000 3.75%3.75%

Subject to change Subject to change

SBA Loan ProgramsSBA Loan Programs 7(a) loan guarantees7(a) loan guarantees

Expedited ProgramsExpedited Programs SBASBALowDocLowDoc SBASBAExpressExpress Community Community ExpressExpress Export Export ExpressExpress

CAPLinesCAPLines Export Working Capital ProgramExport Working Capital Program International Trade Term loansInternational Trade Term loans

504 fixed asset financing504 fixed asset financing Microloan programMicroloan program

SBASBALowDocLowDoc (Low Documentation Loan Program)(Low Documentation Loan Program)

Appropriate for applicants with “clean” Appropriate for applicants with “clean” credit historiescredit histories

For loans up to $150,000For loans up to $150,000 Up to 7 years for working capital; 10 years Up to 7 years for working capital; 10 years

for equipment and 25 years for fixed assetsfor equipment and 25 years for fixed assets

Up to 85% guaranty to bankUp to 85% guaranty to bank

One-page SBA applicationOne-page SBA application

36-hour response from the SBA36-hour response from the SBA

SBASBAExpressExpress

Lender uses its own formsLender uses its own forms Loans or revolving lines of credit up to Loans or revolving lines of credit up to

$250,000$250,000 SBA guaranty of 50%SBA guaranty of 50% Interest rates: 4.5% over prime for loans Interest rates: 4.5% over prime for loans

over $50,000; 6.5% over prime for loans over $50,000; 6.5% over prime for loans under $50,000under $50,000

36-hour response from the SBA36-hour response from the SBA

Spurs job creationSpurs job creation

For under-represented minorities, For under-represented minorities, veterans & women business ownersveterans & women business owners

Businesses located in low-moderate Businesses located in low-moderate income urban and in rural areasincome urban and in rural areas

Maximum loan amount of $250,000Maximum loan amount of $250,000

Technical assistance support includedTechnical assistance support included

CommunityCommunityExpressExpress

SBA ExportSBA ExportExpressExpress

Only lenders approved for Only lenders approved for SBASBAExpressExpress may participate in may participate in programprogram

Uses expedited SBA review & Uses expedited SBA review & approval process approval process

Maximum loan amount of $250,000Maximum loan amount of $250,000

Proceeds to be used for most export-Proceeds to be used for most export-related purposesrelated purposes

CAPCAPLinesLines(Working Capital Program)(Working Capital Program)

For short-term & cyclical For short-term & cyclical working capital needsworking capital needs

Maximum loan of $2.0 millionMaximum loan of $2.0 million Proceeds advanced against Proceeds advanced against

inventory or receivablesinventory or receivables Maximum maturity of five Maximum maturity of five

yearsyears Types of CAPLines:Types of CAPLines:

Seasonal LineSeasonal Line Standard Asset-based Line Standard Asset-based Line Contract LineContract Line Small Asset-based LineSmall Asset-based LineBuilders LineBuilders Line

EWCPEWCP(Export Working Capital Program)(Export Working Capital Program)

Short-term financing for exportersShort-term financing for exporters 90% SBA guaranty — up to $2.0 million 90% SBA guaranty — up to $2.0 million

loanloan One-page application; turnaround — less One-page application; turnaround — less

than 10 daysthan 10 days Maturity —Maturity —

• A single transaction cycle orA single transaction cycle or• Revolving line of credit for 12 monthsRevolving line of credit for 12 months

Repaid from the proceeds of the export Repaid from the proceeds of the export salesale

May be used for both —May be used for both —• Pre-shipment working capitalPre-shipment working capital• Post-shipment exposurePost-shipment exposure

International Trade Term LoanInternational Trade Term Loan

Long- & short-term financing —Long- & short-term financing — Maximum loan amount — $2.0 millionMaximum loan amount — $2.0 million For businesses —For businesses —

• Exporting or preparing to exportExporting or preparing to export• Adversely affected by import competitionAdversely affected by import competition

May be used for —May be used for —• Working capital and/orWorking capital and/or• To purchase facilities or equipment that will be To purchase facilities or equipment that will be

used within the U.S. for producing goods or used within the U.S. for producing goods or services for exportservices for export

MicroLoansMicroLoans

Direct loans through non-profit intermediariesDirect loans through non-profit intermediaries Loans of up to $50,000Loans of up to $50,000 Term of up to six yearsTerm of up to six years Used for —Used for —

• Machinery, equipment & fixturesMachinery, equipment & fixtures• Leasehold improvementsLeasehold improvements• InventoryInventory• Working capitalWorking capital

Technical assistance availableTechnical assistance available

Fixed Assets FinancingFixed Assets Financing 504 Certified Development Company 504 Certified Development Company

ProgramProgram

Long-term, fixed-rate financing (10 & 20 year Long-term, fixed-rate financing (10 & 20 year terms)terms)

Up to $1 million in SBA-backed debenture; Up to $1 million in SBA-backed debenture; $1.3 million under public policy goals$1.3 million under public policy goals

Must create or retain one job for every Must create or retain one job for every $50,000$50,000of SBA debenture proceeds or meet public of SBA debenture proceeds or meet public policy goalspolicy goals

To Qualify for a 504 LoanTo Qualify for a 504 Loan**

Business must be operated for a profitBusiness must be operated for a profit

Tangible net worth of less than $7 millionTangible net worth of less than $7 million

Average net income of less than $2.5 Average net income of less than $2.5 million for the preceding two fiscal yearsmillion for the preceding two fiscal years

* Business may not be involved in speculation, * Business may not be involved in speculation, real estate rentals or investmentreal estate rentals or investment

A Typical 504 Project —A Typical 504 Project —

A third party lender (bank) provides A third party lender (bank) provides

50% of project financing50% of project financing A 504 loan through a CDC provides up A 504 loan through a CDC provides up

to 40% of project financing backed to 40% of project financing backed

100% by SBA Debenture100% by SBA Debenture At least 10% of project financing At least 10% of project financing

provided by applicant (additional 5% provided by applicant (additional 5%

for special purpose building & for special purpose building &

additional 5% for startup business)additional 5% for startup business)

What to take with you to the bankWhat to take with you to the bankCommon documentation includes:Common documentation includes:

Purpose of loanPurpose of loan Business history*Business history* 3 years of business financial statements*3 years of business financial statements* Schedule of term debts*Schedule of term debts* Aging of accounts receivable and payable*Aging of accounts receivable and payable* Projected opening-day balance sheet**Projected opening-day balance sheet** Copy of LeaseCopy of Lease Amount of owner investment in businessAmount of owner investment in business Projections of income, expenses & cash flowProjections of income, expenses & cash flow Signed personal financial statementsSigned personal financial statements Personal résumésPersonal résumés

* for existing businesses **for new businesses* for existing businesses **for new businesses

Questions Banker May Questions Banker May AskAsk

Why do you want this money?Why do you want this money? What exactly does your business do?What exactly does your business do? How long have you been in business?How long have you been in business? How will you repay your loan?How will you repay your loan? If your initial repayment plan fails, If your initial repayment plan fails,

how will you repay the loan?how will you repay the loan? Why did you pick this bank?Why did you pick this bank? How will you pay the fees involved How will you pay the fees involved

with an SBA guarantee?with an SBA guarantee?

Other Banker ConcernsOther Banker Concerns

Continuity of your businessContinuity of your business What other services the bank What other services the bank

may offer your companymay offer your company How long you can wait for your How long you can wait for your

loan fundsloan funds

Additional Additional ConsiderationsConsiderations

Applicant’s cash or equity Applicant’s cash or equity injection into businessinjection into business

Financial ratios & leverageFinancial ratios & leverage Payment history on government Payment history on government

obligationsobligations RepaymentRepayment

Questions & AnswersQuestions & Answers