georgia department of community affairs _______________________________ state small business credit...
TRANSCRIPT
Georgia Department of Community Affairs
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State Small Business Credit Initiative
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History & Background of State Small Business Credit Initiative (SSBCI)
• Component of Small Business Jobs Act, bi-partisan legislation signed into law on Sep. 27, 2010
• $1.5 billion set aside for SSBCI to strengthen state-run lending programs that support small businesses
• Georgia’s allocation is $47,808,507 (top 10 among states in $ amount).
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Advantages and Opportunities for Georgia Lenders
• Credit enhancements to strengthen marginal loans
• Delegated lending - Lenders manage underwriting process
• SSBCI program - quick turnaround and streamlined format
• Opportunity for CRA credit
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Georgia SSBCI ProgramsGCAP (Georgia Capital Access Program) Provides portfolio insurance with borrower and/or
lender fees that are placed in a loan loss reserve fund
SBCG (Small Business Credit Guarantee) 50% loan guarantee with a conversion option into a
risk reserve pool offering up to 80% reimbursement
Georgia Funding for Community DevelopmentFinancial Institutions (CDFIs) Loan participation program specifically designed to
increase capital to underserved small businesses
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SSBCI – General Eligibility Criteria
• Loan proceeds can be used for eligible “business purposes”, including:Start-up costsWorking capitalBusiness procurement, franchise feesEquipment & inventoryPurchase, construction, renovation, or tenant
improvements of eligible place of business
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SSBCI – Eligibility Criteria (cont.)
• Eligible small businesses include corporations, partnerships, joint ventures, cooperatives, sole proprietorships, state-designated charitable & other
non-profit institutions.
• Participating lenders and borrowers will be required to provide certain assurances and certifications as required by US Treasury SSBCI guidelines.
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GCAP (Georgia Capital Access Program) – Description
• GCAP provides portfolio insurance to lenders by requiring insurance premiums to be paid, by the borrower and lender, into a loan loss reserve fund for each loan enrolled.
• Eligible lenders include banks, credit unions, and CDFIs, as defined by SSBCI Act.
• Each financial institution has a separate loan loss reserve fund managed by GCAP.
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GCAP - Program Terms & Conditions
• Borrower & lender make contributions to loan loss reserve account, from 2% to 7%. (Borrower may pay lender’s contribution & vice versa; contributions may be financed.)
• Federal SSBCI funds (GCAP) will match borrower & lender contributions to loan loss reserve account at 1:1 ratio, but cannot exceed 7% match (SSBCI statutory limitation).
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GCAP - Terms & Conditions (cont.)
• Lender must have meaningful amount of its own capital at risk (generally defined as 20%).
• Qualified small business borrowers will have
< 500 employees.
• Loans will not exceed $500,000, with exceptions.
• GCAP lenders must submit plan for reaching underserved communities. (Existing CRA plan generally will suffice.)
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GCAP CASE SAMPLE – Bldg Expansion & Inventory for Small Business
Total Project Cost $1,500,000
- Private Bank Financing $1,350,000
- Borrower Equity $ 150,000
- GCAP enrolled loan amt $ 500,000 (amts > $500k require exception)
Lender/Borrower Fee $ 20,000 (assuming 4% fee)
GCAP Match $ 20,000
Total $ Placed in Reserve $ 40,000
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Small Business Credit Guarantee (SBCG) – Description
• The (“SBCG”) Program will provide a 50% loan guarantee with a conversion option.
• The conversion option under the loan guarantee enables financial institutions to build a Risk Reserve Pool (RRP) held by the State in a centralized fund.
• Enrolled loans are covered with a 50% loan guarantee; loans converted to the RRP can be covered up to 80%.
• SSBCI funds are leveraged with private capital from eligible lenders (banks, credit unions, qualified private lenders, and CDFIs).
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SBCG – Description (cont.) • Financial institutions will be incentivized to leverage private
lending at 10:1 through the conversion option. Financial institutions decide when to convert their 50% loan guarantee to the RRP.
10% of the balance on a converted loan will be transferred to the RRP.
Under the RRP, the lender may receive up to 80% reimbursement for losses on individual credits.
Reserves can cover losses on any enrolled loans.
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SBCG - Program Terms & Conditions • Borrower fees – 2% first 12 months, 0.5% annually
thereafter (paid at closing and beginning of year for term loans, deducted pro-rata as advances are made on LOCs)
• Maximum loan amount will generally be $500,000. (Higher amounts may be approved by DCA on an exception basis.)
• Concentration limit - The 50% guarantee on the SBCG Pool will be limited to $4 million.
• Lender concentration limit – Max combined guarantees under 50% loan guarantee pool & 10% RRP outstanding at any time to a single lender generally will be $5 million.
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SBCG - Terms & Conditions (cont.)
• Max terms for SBCG guarantee: Lines of credit - 24 months Amortizing loans – 48 months
• Deficiency guarantee – Lender must diligently pursue collection of amounts owed by the borrower prior to filing claim
• RRP will be held by State, not lenders
• 80% limit on reimbursement of losses (to preserve 20% lender capital-at-risk)
• Targeted to borrowers with 500 or fewer employees
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SBCG Case Sample – Accounts Receivable for Software Small Business
50% Guarantee Pool
Risk Reserve Pool
Total Project Cost $250,000
- Conventional Bank $200,000
- Borrower Equity $ 50,000 - SBCG Guaranteed Amt $100,000
Initial Fee – 2% $2,000 NA
Annual Fee ½ of 1% of guarantee balance
$0
Contribution to RRP assuming loan balance of $180,000 at the end of Yr 1
$20,000 (10% of loan balance plus initial fee)
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GA Funding for Community Development Financial Institutions (CDFIs) - Description
• GA Funding for CDFIs is a loan participation program specifically designed to increase access to capital for Georgia’s underserved small businesses (minority- and women-owned small businesses, and small businesses located in low- and moderate-income, minority, and other underserved communities).
• CDFIs are private financial institutions certified by the U.S. Treasury to provide credit and financial services to underserved markets and populations.
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GA Funding for CDFIs - Program Terms & Conditions
• Target loan amount of $100,000 to $250,000.
• Targeted to borrowers with 500 or fewer employees
• State will accept subordinated collateral position behind other project lenders.
• State expects CDFIs to offer interest rates on SSBCI loans that are lower than participating private lenders, for lower blended rate to borrower.
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GA Funding for CDFIs - Thresholds
• To meet US Treasury SSBCI threshold of $1:$1 for private to public funding, banks and other investors participating with CDFIs must have 50% capital-at-risk (including borrower equity).
• CDFIs are encouraged to leverage SSBCI funds to greatest extent possible to meet $10:$1 ratio of private financing to public financing.
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GA Funding for CDFIs – Program Terms and Conditions• State will enter into performance-driven, contractual relationship with CDFIs.
Participating CDFIs will earn fees for underwriting, closing, and servicing SSBCI loans, and may participate in one of two capacities:
Loan originator/servicer – State forwards SSBCI funds directly to borrower. Contracting entity – State forwards SSBCI funds to CDFI; CDFI loans SSBCI funds to
borrower. CDFI may retain SSBCI loan payments and revolve these funds into future SSBCI projects, subject to State SSBCI regulations and approval by US Treasury.
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GA Funding for CDFIs Case Sample – Bldg renovation & equipment for restaurant
Total Project Cost $600,000
- Private Bank Financing $440,000
- Borrower Equity $ 60,000
- CDFI (with SSBCI funds) $100,000
Terms Private bank – 1st lien on bldg & equip; State: second lien
Bank interest rate: 6%; CDFI interest rate: 5%
Contracting entity CDFIs retain and revolve interest and principal payments into new SSBCI projects.
Originator/servicer CDFIs receive principal & interest payments and remit them to state CDFI fund.
Both contracting entity & originator/servicer CDFIs earn fees for loan underwriting, closing and servicing.
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Getting Started – What You Need to Know
• Vetting Process for Participating Lenders
• Program Participation Agreements
• Loan Enrollment Procedures
• Transaction Documents
• Reporting Requirements & Compliance
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Step 1 - Georgia SSBCI Vetting Process
• Eligible Lenders for GCAP (banks, CDFIs, and credit unions) and SBCG (banks, CDFIs, credit unions, qualified private lenders) will be evaluated on following criteria:
Adequate management & lending experience Financial capacity and ability Additional lender criteria for SBCG private lenders
• DCA will partner with GA. Department of Banking & Finance to ensure participating financial institutions are sound.
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Step 1 - Vetting Process (cont.)
• CDFIs seeking participation in GA Funding for CDFIs will be evaluated on the following criteria: Legal structure (min two yrs as Georgia-based corporation,
CDFI Treasury certification) CARS Rating or equivalent info (management capacity,
business history/service area, underwriting)
• Participation as a contracting entity has additional requirements Qualified non-profit, non-depository CDFIs Respond to RFQ
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Step 2 – Program Participation Agreement
• Each lender approved for participation in the Georgia SSBCI program (GCAP, SBCG, and GA Funding for CDFIs) must sign a Program Participation Agreement with DCA’s Georgia Housing & Finance Authority Economic Development Financing, Inc. (GHFA EDFI)
• The Agreement contains terms and limitations of state and federal SSBCI regulations.
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Step 3 – Enrolling Loans
• Lender determines if borrower is good candidate for SSBCI funding (meets basic eligibility requirements and just outside of conventional lending parameters).
• Lender reviews Borrower Certification Form and SSBCI requirements with borrower.
• Lender performs underwriting.
• Lender submits required loan documentation to State.
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Transaction Documents
General Forms Applicable to All GA SSBCI Lenders
• Borrower Certification and Enrollment Form
• Loan Filing Form and Lender Certification
• Sex Offender Certification
• Loan Renewal Form
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Additional Transaction Documents
• GCAP: Notice of Material Change or Extension, Claim Form, Follow-up Claim Form
• SBCG: Loan Enrollment Acknowledgement Form, Notice of Transfer from Loan Guarantee Pool to RRP, Claim Form
• GA Funding for CDFIs: Loan Enrollment Acknowledgement Form
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SSBCI Reporting Requirements
• Lenders will supply required information to the State; State will forward required reports to US Treasury.
• Quarterly Reports Total amount and use of allocated funds, program income
generated, and charge-offs SBCG lenders also required to file monthly reports
• Annual Reports Transaction-level data for each SSBCI-backed loan, plus
subsequent private financing for OCSP loans
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Contact InformationHolly Hunt, SSBCI Program Manager
(404) 679-3144; [email protected]
Joanie Perry, Director – Office of Economic Development
(404) 679-3173; [email protected]
Brian Williamson, Assistant Commissioner
(404) 679-1587; [email protected]
John Kingery, Credit Manager
(404) 679-1486; [email protected]
www.georgia-ssbci.org