Community Advantage (CA)

Pilot Loan ProgramU.S. Small Business Administration

September 2014

Program Agenda

1.SBA Community Advantage Overview

2.Program Sustainability

3.Best Use of the Program

4.Associate Program

5.Questions and Contacts

Panelists

Chuck Evans, Prudent Lenders, President and CEO

Kitty Barbee, Eastern Maine Development Corporation, Deputy Director – Business and Economic Development

Lisa Holmes, South Eastern Economic Development (SEED) Corporation, Sr. Vice President and Lending Team Leader

What is the Community Advantage (CA) Program?

A Pilot Loan Program introduced by US SBA to meet the credit, management and technical assistance needs of small businesses in underserved markets.

CA is designed to provide mission-oriented lenders, primarily nonprofit financial intermediaries focused on economic development, to access to 7(a) loan guarantees for loans of $250,000 or less.

CA will operate through March 15, 2017 and may be extended or made permanent at SBA’s discretion.

Is my organization eligible to participate as a

CA Lender?

Certain organizations making loans in underserved markets are eligible to participate in CA:

SBA Authorized Certified Development Companies (CDC’s)

SBA Authorized Microloan Intermediaries

Non-Federally Regulated Community Development Financial Institutions (CDFI’s)

What are the SBA’s goals for CA?

Increase access to credit for small businesses located in underserved areas;

Expand points of access to the SBA 7(a) loan program by allowing non-traditional, mission-oriented lenders to participate;

Provide Management and Technical Assistance (M&TA), as needed; and

Manage portfolio risk at acceptable levels.

Why and when has SEED utilized the program?

Wanted to support good 9-month results!

Support an excellent previous client during

recovery time!

Example 1:

Infancy, minority-owned retail pharmacy

Enhanced cash flow of a growing business by paying off short term payable

Collateral was limited

Example 2:

Pre-existing, ML client that was in operation five years, but was overcoming a hurdle in last FY

Relying on in-house figures after a difficult year

Limited collateral

SBA Program CA - Expanding Access

Eligible Businesses For profit

Eligible Use of Proceeds Purchase of land & buildingConstruction & renovationMachinery & equipmentBusiness acquisitions (incl. goodwill)Leasehold improvementsExisting debt refinance (incl. seller notes)Furniture & fixturesWorking capital (incl. franchise fees, liquor license)

Maximum Loan Amount $250,000

Loan Guarantee 85% / Maximum of $150,00075% / Maximum of $250,000

Interest Rates Set by lender according to SBA max. Base Rate + 6%

Equity 10% standard for fixed asset purchasesTypically higher for start-up or change in ownership

Fees Up to $150,000 = 2% of guaranteed portion Lender may retain 25% of fee for loans $150,000 and below

Above $150,000 = 3% of guaranteed portion

Available Loan Term Up to 25 years. Set by lender according to SBA maximumTerm must also agree with Lenders CA Loan Policy

Eligibility Criteria Sales And Employee Limits By Industry orTangible net worth < $15 million;NIAT < $5 million

Pre-Payment Penalty 5%, 3%, 1% on loans > 15 years

Non-Penalized Pre-Payment For 15 year terms or greater, 25% or less of principal in any one year during the first three (3) years of the loan term

SBA Program Overview – Interest Rates

Interest Rates – Loans can be fixed or variable.

SBA establishes maximum rates based on term of the loan

Two sets of maximum rates: < 7 years and > 7 years.

The maximum rate is Prime plus 6% or 9.25%,

Lender pays SBA servicing fee (52 bps) annually on guaranteed amount resulting in reduced rate margin.

Eligibility – Organized for Profit

Small Business Concern -SBA Size Standards for the industry or the Alternate Size Standard ($15MM Tangible Net Worth and $5MM Average Net Income After Tax - 2 years)

Affiliates as well as franchise, dealer, jobber and license arrangements come under scrutiny in determining size standard.

The business must need the loan as determined by the "credit elsewhere test".

SBA Program Overview - Eligibility

SBA Program Overview - Collateral

Collateral – SBA will not decline a loan request solely on the basis

of inadequate collateral.

SBA does not permit its guaranty to be used as a substitute for collateral.

“All Available Collateral” - SBA requires that the Lender collateralize the loan to the maximum extent possible up to the loan amount. If the business assets do not fully secure the loan, the Lender must take available personal assets of the principals as collateral.

First security interest in assets purchased by SBA loan proceeds is required.

SBA Program Overview – Loan Terms

Fixed asset acquisition (RE, Equipment, or Machinery), refinancing, furniture and fixtures, Line of Credit term-outs, working capital, and business acquisition are all eligible.

Loan terms are based on the use of proceeds: Working Capital: 7-10 years

Equipment: 10-25 years (depends on useful life)

Building: 25 years

Goodwill: 10 years

No balloons

SBA Program Overview – Best Use

The most common way to utilize the 7a program is in expanding the conventional credit box by:

Reducing the collateral requirement of lender;

Providing longer terms than would be required conventionally;

Reduced Equity injection in the project versus what would be required conventionally.

Start-ups

504 Companion Loans

Private non profit, established in 1967 (EDD & CDC)

Located in Bangor Me and serve the four Eastern Counties of Maine: Hancock, Penobscot, Piscataquis Counties as well as portions of Waldo County

Our service area covers almost 11,000 square miles with a population of 257,334 and is the largest economic development district in Maine

Our professional staff members are divided into three service areas - business, community and workforce development

Who Are We?

First loan approved January 26, 2012, in the amount of $225,000

Since then, a total of 42 loans have been approved

Average amount $121,000 Industries include: manufacturing,

hospitality, medical office, transportation and others

YTD 2014: 14 approved 6 in process

EMDC – CA Lender

Community Advantage Performance as of August 05, 2014

Lender / CDC lender state# loans

approved$ loans approved

CDC SMALL BUS. FINAN CORP. CA 130

16,817,500

EMPIRE ST. CERT. DEVEL CORP NY 121

15,869,900 OBDC SMALL BUSINESS FINANCE

CA 89

11,599,600

VALLEY ECONOMIC DEVEL CORP. CA 77

11,087,000

EASTERN MAINE DEVEL CORP ME 42

6,522,000

PEOPLEFUND TX 55

3,992,800

TRENTON BUS. ASSISTANCE CORP NJ 26

3,390,000

ACCION TEXAS, INC. TX 26

3,281,600

NORTHERN ECONOMIC INITIATIVE C MI 18

3,227,800

GROWTH CAPITAL CORP. OH 25

3,214,700

MONTANA COMMUN DEVEL CORP. MT 25

2,945,000

SHOREBANK ENTER. GROUP PACIFIC WA 13

2,549,500

Community Advantage 7(a) Performance

#5

Business Visitation/ Client counseling

Assistance with necessary paperwork and application

Underwriting by staff

Review by loan review committee and board

Submission to Small Business Administration

Loan funded by EMDC

Loan servicing

How the Process Works

Two Rivers Realty Refinance to remove balloon payment$150,000

Print CentralLeased buildingPurchase of existing business, equipment$250,000

Dog Not Gone2nd 7(a) loanexpansion of business, inventory & working capital$125,000

Examples

Streamlined process

ETran system, simple to utilize

Dedicated support

Quick turnaround time

Advantages

Affiliate Program: Not a Lender?

Be a CA Associate Allows for additional leverage of capital

Expands reach and impact of program

No application or paperwork required by SBA

Form 159(7a) must be completed

MOU between organization outlining agreement

Sub notes between organizations

Questions?

Michelle Genovese

Financial AnalystOffice of Economic

OpportunityUS Small Business Admin.409 3rd St, SWWashington, DC 20416202-401-8282Michelle.genovese@sba.go

v

Amy Bassett

Deputy District DirectorNew Hampshire District

OfficeUS Small Business Admin.55 Pleasant St, Suite 3101Concord, NH 03301202-481-0190Amy.bassett@sba.gov

Excellent SBA Resources for CA