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SBA Financing Options for Your Small Business

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: Grants Low interest loans Minority, women & veteran specific loans 100% financing Direct business loans.

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SBA Financing Options for Your Small Business

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  1. SBA Financing Options for Your Small Business Hosted by U.S. Small Business Administration Colorado District Office

  2. SBA Financing-Understanding How It Works SBA does not provide: • Grants • Low interest loans • Minority, women & veteran specific loans • 100% financing • Direct business loans

  3. 7(a) Loan Guaranty Program • 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%.

  4. SBA Eligibility Requirements Businesses must: • 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)

  5. SBA Basic Requirements • Applicant of good character • Management expertise & commitment to succeed • Reasonable personal contribution or business equity • Feasibility of business success • Ability to repay loan from projected cash flow • Secondary source of repayment ability −collateral to secure the loan

  6. SBA Requirements (Con’t) • 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

  7. SBA Requirements (Con’t) • Collateral is generally required • Valuation of collateral (Based on quick sale of collateral)

  8. SBA Requirements (Con’t) • 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

  9. Use of Proceeds 7(a) loans may be used to: • Expand & renovate facilities; • Buy machinery, equipment, fixtures, buildings and land for business; • Finance receivables & augment working capital; • Refinance existing debt (with compelling reason); • Finance seasonal lines of credit; and/or • Construct commercial buildings.

  10. Terms Flexible maturities: 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 Under 7 year term cannot exceed prime rate plus 2.25% Over 7 year term cannot exceed prime rate plus 2.75%  May be higher for SBAExpress program or smaller loans

  11. Guarantee Fees MaturitySBA Loan PortionGuaranty Fee* 1 year or less Any amount up to maximum 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 $700,000-1,000,000 3.5% Over 1 year Over $1,000,000 3.75%  Subject to change

  12. SBA Loan Programs • 7(a) loan guarantees • Expedited Programs • SBALowDoc • SBAExpress • Community Express • Export Express • CAPLines • Export Working Capital Program • International Trade Term loans • 504 fixed asset financing • Microloan program

  13. SBALowDoc(Low Documentation Loan Program) • Appropriate for applicants with “clean” credit histories • For loans up to $150,000 • Up to 7 years for working capital; 10 years for equipment and 25 years for fixed assets • Up to 85% guaranty to bank • One-page SBA application • 36-hour response from the SBA

  14. SBAExpress • 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

  15. CommunityExpress • Spurs job creation • For under-represented minorities, veterans & women business owners • Businesses located in low-moderate income urban and in rural areas • Maximum loan amount of $250,000 • Technical assistance support included

  16. SBA ExportExpress • Only lenders approved for SBAExpress may participate in program • Uses expedited SBA review & approval process • Maximum loan amount of $250,000 • Proceeds to be used for most export-related purposes

  17. CAPLines(Working Capital Program) • 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 Standard Asset-based Line • Contract Line Small Asset-based Line • Builders Line

  18. EWCP(Export Working Capital Program) • Short-term financing for exporters • 90% SBA guaranty — up to $2.0 million loan • One-page application; turnaround — less than 10 days • Maturity — • 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

  19. International Trade Term Loan • Long- & short-term financing — • Maximum loan amount — $2.0 million • For businesses — • 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

  20. MicroLoans • 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

  21. Fixed Assets Financing504 Certified Development Company Program • Long-term, fixed-rate financing (10 & 20 year terms) • Up to $1 million in SBA-backed debenture; $1.3 million under public policy goals • Must create or retain one job for every $50,000of SBA debenture proceeds or meet public policy goals

  22. To Qualify for a 504 Loan* • Business must be operated for a profit • Tangible net worth of less than $7 million • 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

  23. A Typical 504 Project — • A third party lender (bank) provides 50% of project financing • A 504 loan through a CDC provides up to 40% of project financing backed 100% by SBA Debenture • At least 10% of project financing provided by applicant (additional 5% for special purpose building & additional 5% for startup business)

  24. What to take with you to the bank Common documentation includes: • 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

  25. Questions Banker May Ask • 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?

  26. Other Banker Concerns • Continuity of your business • What other services the bank may offer your company • How long you can wait for your loan funds

  27. Additional Considerations • Applicant’s cash or equity injection into business • Financial ratios & leverage • Payment history on government obligations • Repayment

  28. Questions & Answers

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