How Do You Get Started in SBA Lending? –

A Primer for Community Banks

& Credit Unions

Presented to:

2013 Lender’s Quality Circle

Steve Drozda, Lender Relations Specialist, SBA

Michele Steinbugl, Penn State FCU

Mark Protch, Lender Relations Specialist, SBA

April 10, 2013

PURPOSE OF FINANCIAL

ASSISTANCE

The purpose of our financial assistance is not to encourage lenders to make bad loans;

Our purpose is to help businesses with a reasonable chance of succeeding obtain financing needed on reasonable terms.

SBA Loan Programs -

Some Universal Requirements

Must be a “For Profit” business.

Must qualify as small under SBA size standards.

Must be unable to borrow on reasonable terms from conventional lenders without government help.

Loans cannot finance speculation or investment real estate.

Eligibility Determination

Legal Form of Business

Types of Ineligible Businesses

Foreign Ownership is restricted

Other Restrictions

Use of Proceeds

Debt Refinancing Restrictions

TWO TYPES OF SBA LOANS

504 CDC Loan Program.

7(a) Loan Guaranty Program.

( SBA no longer makes direct loans, except disaster loans.)

504 CERTIFIED DEVELOPMENT

COMPANY PROGRAM

Provides long-term, fixed-rate financing for major fixed assets, such as land, buildings, and long-life equipment.

Certified Development Companies (CDCs) are certified by SBA to package, process, close and service 504 loans.

Major 7(a) Guaranty Loan

Programs

Regular 7(a) Business Loans.– SBAExpress loans, Small Loan Advantage, etc.

CAPLine Loans.– Seasonal lines of credit.

– Contract lines of credit.

– Small general contractor loans.

– Asset based loans.

Loans for exporters (EWCP) & (IT).

Use of Loan Proceeds

7(a) Guaranty Loan Program

Real Estate - Purchase or Construction.

Machinery & Equipment.

Inventory.

Working Capital.

Finance Start-Ups.

Some debt refinancing allowed.

Maximum % of SBA Guaranty

85% on loans up to $150,000.

75% on loans over $150,000.

75% & 85% on Small Loan Advantage (Max loans of $350,000)

50% on SBAExpress Loans ($350,000 Maximum Loan Amount.)

Maximum Loan Amount

7(a) Maximum loan amount is $5 Million;

SBAExpress and SLA Max is $350,000;

Maturity of Loans

5 to 7 years for working capital.

Up to 10 years for equipment.

Up to 25 years for real estate.

Maximum Interest Rates

Prime plus 2-1/4% for maturities under 7 years.

Prime plus 2-3/4% for maturities of 7 years or longer.

Exception for smaller loans: (Up to $50,000)

–May charge 1% more on loans between $25,000 and $50,000; and,

–2% more on loans under $25,000.

FEES

Guaranty Fee - Based on amount guaranteed and recoverable from borrower

2.0% fee for loans $150,000 or less. 3.0% of the guaranteed portion of total

loan between $150,001 and $700,000. 3.5% of the guaranteed portion up to

$1Million, PLUS 3.75% or the guaranteed portion over $1Million.

0.545 percent annual servicing fee on outstanding balance (remitted monthly).– Cannot be directly passed on to

borrower

SBA Loan Credit

Considerations SBA, like any prudent lender, evaluates and

analyzes each application.

Most important issues are:

– Management -Depth and Capabilities.

– Financial Health of the Business-Financial statement analysis.

– Repayment Ability-Must be demonstrated.

– Secondary Repayment-Guarantees, Collateral.

SBAExpress

Reduced number of mandated forms.

Lender mostly uses its own forms.

More streamlined submission and approval processes.

Processed centrally using ETran.

Maximum loan of $350,000

Loans guaranteed at 50%

Additional Restrictions

Existing SBA loans must be current.

No more than 90% financing.

Lines of credit are okay, but maturity maximum is 7 years.

Multiple SBAExpress loans okay under most conditions.

SBAExpress Collateral Policy

Loans up to $25,000 can be unsecured.

Up to $150,000 – Lender follows same collateral policy as other loans.

Loans over $150,000, use SBA guidelines.

Sources of Information

Loans are covered under various parts of 13 Code of Federal Regulations 13 CFR 120.

Standard Operating Procedure 50 10 5 (E) and 50 57 (Loan servicing)

SBA Procedural and Policy Notices

SBA “Lenders Homepage”

SBA district offices and emails to:

–7aquestions@sba.gov

Electronic Lender’s Home Page

Found at http://www.sba.gov/for-lenders Notices

– SOPs

– Forms

– Authorizations

– 504, SBA Express, PLP Community Express

– Lender/Loan data

– 1502 Reporting

– Secondary market

–Center Info