$BA RI$K LENDING

Linda R. NelsonArkansas SBA District Director

RI$K• Rewards

• Increased assets (loans)

• Secondary market

• Keep the relationship

RewardsPremium income from secondary market

Opportunity to sell other bank products

Communities benefit*Small businesses – healthier and wealthier

Increased AssetsIncreased liquidity Access to “free” money for SBA loan making

Spiraling loan portfolio – 25% original investment*

Loans outside of bank policy

Cowasocky

ProcessSimplified and streamlined

Same forms all stylesUp to $350,000 – provides pre-screening

Rely on bank policy for many issuesThru 9-30-2014 – no guaranty fee lender or borrower

$150,000 and belowThru 9-30-2014 – no guaranty fee borrower

Veterans $350,000 and below – via SBA ExpressSBA Express up to $350,000

50% guaranty Can be revolving line of credit

Secondary MarketSell guaranteed portionFull disbursement or laterYourself or through a brokerAnyone except your trust department

Keep servicing and get paid for it

How It WorksTransparent to borrowerLock in a price quote for 90 daysHelps in your pricing to borrowerThree sources of income:

PremiumInterest on unguaranteed portionServicing fee on guaranteed portion

Example - PremiumLoan: $234,30075% guaranty: $175,72515 year maturityPriced at prime + 2.75: 6%Monthly pay, quarterly adjustmentPrice: 110 @ prime + .75%: 4%SBA’s ongoing guaranty fee: .55%Net servicing fee to you: 1%

Premium – Year One ReturnPremium $175,725 x 10% : $17,572.50

Interest income 6% x $58,575: $3,514.50

Servicing fee 1% x $175,725: $1,757.25

Total: $22,844.25ROI of $58,575: 39%

Premium – Year Two ReturnInterest income 6%: $3,514.50Servicing fee 1%: $1,757.25ROI each year: 9%PLUS$175,725 FREE MONEY to relend in

another SBA loan – ROI expands based on initial $58,575 and expanding portfolio

Par – Returns Year 1 ROI: 9%ETC., each year

ArkansasSecondary Market in 2002: 41 of 300 7a

loans were sold, $18 million out of $102 million

2002 Market handled 11,000 plus loans for $3.4 billion

Arkansas: .4% of loans and .5% of dollarsTexas sold $318 millionOur neighbors use this

Keep the RelationshipSite visits allow you to know of problems

AND if they are growingUnplanned growth can be bad – if not

properly fundedOpportunity for more loansUse ASBTDC to support and help them plan itAbility to do things during life of the loan for

business benefitIf answer has to be “no” – you don’t have to

take all the blame

Keep the GuaranteeUse SBA Organizational Tabs

Equity injection proofUse of proceeds

Collateral positionsPreference

Verification of income (cash flow)Business valuations

Timely site visits“Evaporation before liquidation”

Win-Win For AllSmall business as a wholeIndividual borrowerProfits for youGuaranteed income for investorThe community – local, county, state, country

ANDCRA credit As investor:

“Whole” loan – may book as loan and increase loan to deposit ratio

“Pool” – higher yield investment than many and no risk to capital

Steady cash flowVariable rates eliminate interest rate risk

ANDAllow flexibility in pricing loans with price

locked inIncreasing competitivenessCan combine fixed and adjustable ratesLess work – no renewalsUse the time to develop more customersSteady fee income

AND

It’s not the fittest that survive – it’s those who can adapt

Linda NelsonLinda.nelson@sba.gov(501)324-7379 ext. 225

www.sba.gov/ar