morales sba deck 2-10-15
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SBA Loan Programs
for Small Businesses
Mark Morales
Vice President – SBA Division
Pacific Mercantile Bank
www.pmbank.com
Small Business Administration (SBA)
Loan Programs
Designed to help small businesses meet
their short term and cyclical working capital
needs, export financing, long term capital
needs and fixed asset purchases.
SBA Loan Benefits
An SBA Loan is simply a commercial loan to a
business that is unable to obtain financing on a
reasonable term through conventional channels.
The SBA allows commercial lenders the
flexibility and ability to be a little more creative or
put another way approve a loan they would
normally decline without the SBA guaranty.
SBA Loan Program Targets
• Exporters
• Professionals (Doctor's,
Dentist’s, CPA's,
Lawyers, Engineers)
• Manufacturers
• Wholesalers
• Retailers
SBA CAPLines
SBA CAPlines Program
Working Capital CAPlines
Revolving lines of credit based on eligible accounts receivable to
finance short-term working capital needs
Contract CAPlines
Contract financing that will finance all costs associated with specific
eligible contracts (excluding profit). May be revolving.
SBA CAPlines Program
Seasonal CAPlines
Finance seasonal working capital needs. May be revolving.
A 30-day zero balance is required annually.
Builders Line
Provides financing for small contractors or developers to construct or
rehabilitate residential or commercial property that will be sold to a third
party that is not known at the time construction/rehabilitation begins.
Contract CAPLines
• Eligibility – An SBA “small business” is one that:• Operates “for profit”
• Has a net worth of less than $15 million and
• Has annual average 2 year net profit of less than $5 million
• Meets other criteria per SBA regulations
• Maximum SBA loan amount is $5 million at one time (can have multiple loans)
• Maximum interest rate – P+2.25% to 12 months; P+2.75% over 12 months (5.5% and 6% respectively)
• SBA Guaranty fee is .25% of guaranteed loan amount for loans up to 12 months; per SBA schedule for loans longer than 12 months
• Interest only due during contract period unless progress payments outlined
Contract CAPLines – Use of
Proceeds
Proceeds can be used to finance all costs related to the specific contract, excluding profit).
Contract CAPLine proceeds may NOT be used for: permanent working capital
to acquire fixed assets
to pay delinquent taxes
to refinance existing debt
to finance a contract in which significant performance has already begun
for change of ownership
floor plan financing
to cover any mark-up or profit
to finance the performance of another contract or sub-contract
PURCHASE ORDER FINANCING
Purchase Orders may be substituted for a formal contract, provided the following conditions exist:
The purchase order is issued to the borrower under a Master Agreement; AND
The combination of the PO and the Master Agreement constitute a binding agreement
SBA CAPlines Program
SBA International Trade Loan
Program
The International Trade Loan offers loans up to $5 million for fixed assets and
working capital for businesses that plan to start or continue exporting.
Eligibility
• International Trade Loans are available if your small business is in a position to
expand existing export markets or develop new export markets. These loans are
also available if your small business has been adversely affected by import
competition and can demonstrate that the loan proceeds will improve your
competitive position.
Use of Proceeds
• The borrower may use loan proceeds to acquire, construct, renovate,
modernize, improve, or expand facilities and equipment to be used in the United
States to produce goods or service involved in international trade and to develop
and penetrate foreign markets. Funds also may be used to refinance an existing
loan.
General Small Business Loans: 7(a)
In FY 2014, the SBA’s flagship loan program, the 7(a) loan program achieved another lending record.
By the end of the fiscal year (Sept. 30), SBA had approved 52,044 7(a) loans for nearly $20 billion, an increase of 12 percent in the number of loans and 7.4 percent in dollar amount over the previous year.
SBA 7(a) Loan Program
Eligible Use of 7(a) Loan Proceeds Include (Non-Exclusive):
• The purchase of land or buildings, to cover new construction as well as expansion or conversion of existing facilities
• The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
• Long-term working capital, including the payment of accounts payable and/or the purchase of inventory
• Short-term working capital needs, including seasonal financing, contract performance, construction financing and export production
• Financing against existing inventory and receivables.
• The refinancing of existing business indebtedness that is not already structured with reasonable terms and conditions
• To purchase an existing business
Typical SBA Loan Program Criteria
Conditions of the Applicant:
• Nominal profitability past 3 years
• May have had a loss 1 of the 3 years but the most recent 12 months plus
• interim shows an upturn
• Future repayment via projections
• Business needs to diversify operations to grow or to improve conditions
• caused by recessionary times
• Personal credit may have received a few dings in the past due to
• unavoidable circumstances (medical, divorce, etc) but is now on the mend
• and explanation makes sense
• Nominal collateral - secondary source of repayment modest
Typical SBA Loan Program Criteria
SBA Loans Cannot Be Used for These Purposes:
• To refinance existing debt where the lender is in a position to sustain a loss
and SBA would take over that loss through refinancing
• To effect a partial change of business ownership or a change that will not
benefit the business
• To permit the reimbursement of funds owed to any owner, including
any equity injection or injection of capital for the business's continuance
until the loan supported by SBA is disbursed
• To repay delinquent state or federal withholding taxes or other funds that
should be held in trust or escrow
• For a non-sound business purpose
SBA 7(a) Term Loan Program
The SBA 504 Loan Program – Fixed
Assets
Loan limits have been increased to $5 million
In addition to traditional real estate lending, including purchase,
construction, improving or expanding owner-occupied commercial
real estate, the program also provides for the financing of the
purchase of major business assets
90% loan availability (as low as 10% down for multi-purpose commercial property)
Repayment terms on real estate up to 25 years amortization with a 10 - 25 year
maturity on a first trust deed, up to 20 years fully amortized on the SBA portion
Repayment terms on equipment fully amortized up to 10 years
What is the SBA 504 Program?
• Partnership between a private lender and
CDC/SBA
• Provides up to 90% financing for owner occupied
commercial real estate and eligible equipment
• Fully amortizing 20/20 or 10/10 year term loans
• Below market fixed interest rate
• Bank interest rate on the first have a tendency to
be issued at a lower than conventional offering
SBA 504 Loan: Use of Proceeds
A 504 loan can be used for:
• The purchase of land, including existing buildings
• The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
• The construction of new facilities or modernizing, renovating or converting existing facilities
• The purchase of long-term machinery and equipment
A 504 loan cannot be used for:
• Working capital or inventory
• Consolidating, repaying or refinancing debt
• Speculation or investment in rental real estate
504 Loan Structure
50% Bank 1st Trust Deed
40% CDC/SBA 2nd Trust Deed
10% Borrower down
SBA 504 Owner Occupied
Projects
Purchase of existing building
• Business must occupy 51%
Purchase of existing building and improvements
• Business must occupy 51%
Construction of new building
• Business must occupy 60% initially and 80% in 10
years
Purchase of machinery & equipment
• Useful life greater than 10 years
Maximum Loan Amounts-SBA
504
• $5.0 million for standard projects
• $5.5 million for Manufacturers or Production/Conservation Energy usage (must have all production facilities in the US)
• The private sector participant (bank) in most cases does not have a loan ceiling in a 504 project. Their requirement typically ties to a maximum Loan to Value requirement not to exceed 70% for their portion of the debt package in a 504.
• Projects can typically range from $250,000 to $15,000,000 to keep borrower injection at 10% of purchase
Contact information
Mark Morales
Vice President – SBA Division
Pacific Mercantile Bank
9720 Wilshire Boulevard
Beverly Hills, CA 90212
310-766-0399 mobile