7(a) Loan Program U.S. Small Business AdministrationOffice of Capital Access

Basic training

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Welcome

Michelle Genovese

Financial Analyst

Office of Economic Opportunity

United States Small Business Administration

409 3rd Street, SW

8th Floor

Washington, DC 20416

Phone: 1-202-401-8282

Fax: 1-202-292-3835

Email: michelle.genovese@sba.gov

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Lender Range SBA Range “No” Range

Factors that determine

this range:• Overall economy

• Lenders’ regulatory environment

• Lenders’ liquidity (or lack

thereof)

• Lenders’ competitive

environment

• No management experience

• No potential chance of

repayment

• Impractical business idea

• No financial reserves

• No equity investment

• Experienced management

• High Debt Service Cash flow

• Sterling credit

• Generous collateral

• Sound business idea

• Financial reserve

Most Viable Business Profile Least Viable Business Profile

Advantage of SBA’s Guaranty

Reasons to Request the SBA Guaranty

Longer maturities are needed

Collateral may be inadequate to meet normal underwriting

Start-up or certain types of businesses

Lender’s legal or policy limit

Minimize risk

7(a) Small Loans

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Term loan only -lines of credit are not eligible

Maximum loan amount $350,000

Credit Scoring Requirement with streamlined paperwork

No collateral needed for loans up to $25,000

Loans can be sold on the secondary market

Rates:

Prime + 2.25% for loans of 7 years or less

Prime + 2.75% for loans over 7 years

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7(a) Small Loan Terms and Rates

SBA 7(a) Small Loan – Scoring Requirement

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SBA’s Credit Scoring has successfully and accurately predicted risks

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140 minimum score needed for 7(a) Small Loan approval

Screening for Credit Score

Business Data Required

Business legal name

Business address

Business phone

Tax ID or EIN

DUNS # (suggested)

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For each principal owner with 20% or more equity share of the applicant small business.

Enter into ETRAN:

Principal Data Required

First name

Last name

Social Security number

Address

Enter into ETRAN:

SBAExpress Loans

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SBAExpress Terms and Rates

Maximum loan amount $350,000

Follows lenders own underwriting policies

Term, line of credit or credit card(7 years maximum term on lines of credit)

No collateral needed for loans up to $25,000 and lenders follow their own policy for loans over $25,000

Rates:

Prime + 6.5% for loans under $50,000

Prime + 4.5% for loans over $50,000

SBAExpress

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• Delegated authority to approve credit results in a fast turn around of a loan.

• Easy data entry using Etran returns a loan number in seconds.

• Ability to close a loan using lender documents.

• Opportunity for Guaranty on a true Line of Credit (LOC).

• Term loans able to be sold in the Secondary Market.

• (LOC’s are not sold in the Secondary Market)

7(a) Standard Loans

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7(a) Standard Loans

SBA’s Primary Business Loan Program

Maximum loan amount $5 million

Wide range financing options:

Exporting, lines of credit, and commercial real estate

Rates:

Prime + 2.25% for loans of 7 years or less

Prime + 2.75% for loans over 7 years

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7(a) Standard Loans

For 7(a) Standard Loans over $350K

Please see:

7a-submission-instructions-and-checklist

Contact your District Office for next training!

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Eligibility for all SBA Loans

To be eligible for an SBA business loan, a small business applicant must:

1) Be an operating business

2) Organized for profit

3) Located in the United States

4) Be small based on regulatory size requirements (13 CFR Part 121)

5) Demonstrate a need for the desired credit (Credit Elsewhere)

6) Owners must be of “good character”

7) Demonstrate repayment ability15

Eligible Uses

SBA’s primary financing program, 7(a) loans can be used for most business expenses, including:

• Purchase machinery, equipment, fixtures, buildings and land for business use

• Expand or renovate facilities

• Construct commercial buildings

• Finance receivables and augment working capital

• Refinance eligible business debt

• Finance eligible change of ownership/purchase of a business

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Refinancing

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A lender may refinance an existing non-SBA guaranteed loan or borrower debt from

another lender if: The existing loan no longer meets the needs of the applicant

Requires “substantial benefit” to applicant

Looks to 10% improvement in monthly payments (P & I)

SBA requires copies of all notes that will be refinanced

Demand, interest only, balloon notes will automatically meet substantial benefit test

Maturity

The maturity of the loan must be the shortest appropriate term consistent with the Applicant’s repayment ability AND the useful life of the asset(s) being financed.

The maximum maturities are as follows:

Working Capital or Inventory - up to 10 years (with sufficient justification)

Equipment, Fixtures or Furniture - generally not more than 10 years, but allowable up to 25 years, and not to exceed the useful economic life of the acquired asset(s)

Real Estate - 25 years, plus the additional time needed to complete construction

Refinancing - based on the use of proceeds of the loan(s) being refinanced

Mixed Purposes - the blended maturity based on the use of proceeds, or up to the maximum for the asset class comprising the largest percentage of the use of proceeds

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Maximum Guaranty

7(a) Standard and Small Loans:

85% guarantee on loans up to $150,000

75% guarantee on loans over $150,001

SBAExpress:

50% guarantee

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Size

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Manufacturing from 500 to 1,500 employees Wholesaling 100 employees Services from $4.5 million to $32.5 million in average

annual receipts Retailing from $6.5 million to $26.5 million General construction from $6.5 million to $32 million

The 2010 Jobs Bill expands the number of businesses eligible for SBA loans by increasing the alternate size standard to those small businesses with less than $15 million in net worth and $5 million in average net income

www.sba.gov/size

Must Submit IRS Form 4506-T

Request for Tax Transcripts - required & MUST be reviewed prior to submission to the Loan Guaranty Processing Center (note review in credit memo/credit analysis)

Lender fills out in entirety, borrower signs and dates, Lender faxes in (see instructions on sheet) to IRS, based on location.

If business has not filed required tax returns – not eligible

Borrower Must Submit

SBA Form 1919 – BORROWER INFORMATION FORM (Application)

Borrower Information Form - To be filled out by the customer/guarantors, 20% or more owners & anyone hired to manage day-to-day operations of the business

Application should be signed within 90 days

1919

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Optional FORMS Required

912*

Statement of Personal History

Only required to be filled out if

questions 2 or 3 of Form 1919 are answered “Yes”

G-845*

Statement of Immigration Verification

*Only required to be filled out if question on 1919 is answered “Yes”

Borrower must also Submit

Business Financials or Tax Returns dated within 180 days of submission to SBA

Personal Financial Statement dated within 90 days of submission to SBA (SBA Form 413 optional)

Business or Equipment Valuations (if necessary)

Business Plan (if necessary)

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Borrower Must Submit

Year End Balance Sheet for last 3 years including debt schedule

Year End P & L for last 3 years

Reconciliation of Net Worth

Interim Balance Sheet

Interim P & L

Borrower Must Submit

For Business Acquisition:

Business Valuation (detail dependent upon size of the transaction)

Pro-Forma (Day One) balance sheet

3 years of financials for the seller

Sources & Uses of Funds Breakdown

Copy of buy-sell agreement

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1920 Lender Must Submit

SBA Form 1920 - LENDER’S APPLICATION FOR GUARANTY FOR ALL 7(a) PROGRAMS

To be filled out by the lender

This is agreement between Lender and SBA, borrower does not sign.

1920

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Credit Elsewhere

Reason for guaranty qualification must be addressed in credit memo or ETRAN comments for example:

a) The business needs a longer maturity

b) The requested loan exceeds lender’s legal lending limit or policy limit

c) The collateral does not meet the lender’s policy requirements

d) The lender’s policy normally does not allow loans to new businesses or businesses in the applicant’s industry

e) Any other factors relating to credit

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7 (a) Small Loans -Streamlined Credit Memo

An Acceptable Credit Score PLUS:

Brief history of business.

Brief description of the management team.

Owner/guarantor analysis including obtaining personal financial statements consistent with Lender’s similarly sized non-SBA guaranteed loans.

Confirmation of Lender’s collection of business tax returns and verification and reconciliation of the applicant’s financial data (IRS Form 4506-T)

Equity injection and pro-forma debt-to-worth if required by Lender’s policies for similarly-sized non-SBA guaranteed commercial loans.

List of collateral and estimated value, if applicable.

Effect of affiliates upon repayment, if applicable.

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LENDERS MUST CHECK

Review Credit Alert Interactive Verification Reporting System (CAIVRS)https://entp.hud.gov/caivrs/public/home.html for Borrower & Guarantors to ensure no delinquent debt with or prior losses to the government.

Check www.sam.gov to ensure Agents & employees involved with the loan are not excluded from doing business with the government (employees need only be checked once).

Check http://www.sba.gov/about-sba-services/18351 to ensure Agents involved with the loan are not excluded from doing business with the government.

Franchises

SBA requires, in all cases, a determination as to whether affiliation exists when the applicant has or will have a franchise, license, dealer, jobber or similar relationship and such relationship

To facilitate the review of these agreements, SBA makes available a list of franchise agreements by date (the “Registry”) that have been approved by the SBA Franchise Committee for size/affiliation and control issues.

This information is currently available to the public at no cost at:

SBA franchise-registry-approved-brands or

www.franchiseregistry.com

Equity Injection

Lenders must verify the injection prior to disbursing loan proceeds and must maintain evidence of such verification in loan file.

Verifying a cash injection requires the following documentation:

A copy of a check or wire transfer along with evidence that the check or wire was processed showing the funds were moved into the borrower’s account or escrow;

A copy of the statements of account for the account from which the funds are being withdrawn for each of the two most recent months prior to disbursement showing that the funds were available; and

A subsequent statement of the borrower’s account showing that the funds were deposited or a copy of an escrow settlement statement showing the use of the cash.

ETRAN Submission

Submission Process – Requesting the Guaranty:

All 7a applications must be submitted via E-Tran with supporting documentation submitted using the document upload feature or send this file with the SBA application number included in the Send This File transmission and formatted in the 10-Tab or LGPC Alternative Submission format

See separate ETRAN Training located at : https://www.sba.gov/content/e-tran

ETRAN Submission

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Coming Soon!

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Closing Procedures

SBA documents or bank documents may be used, but they must include SBA specific language; Lenders must use the same closing, disbursement & documentation procedures as for similarly sized non-SBA guaranteed commercial loans. All collateral & other required conditions must be met prior to loan disbursement

Authorization and Agreement

The agreement between SBA and Lender - borrower does not sign

Borrower’s Certifications – provided at the end of the Loan Authorization must be signed by the Borrower

Note

SBA Form 147- Note

must be legally enforceable and assignable, have a stated maturity, is not payable on demand (except LOC) Contains the following language: “When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.”

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Guaranty

SBA Form 148 Unconditional Guarantee

Must Contain the following language:

“When SBA is the holder, the Note and this Guarantee will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Guarantee, Guarantor may not claim or assert any local or state law against SBA to deny any obligation, defeat any claims of SBA, or preempt federal law.”

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Additional Closing Forms

SBA Form 601 Agreement of Compliance -if more than $10,000 in loan funds is being used for construction this form must be signed.

SBA Form 1050 – Settlement Sheet (Use of Proceeds verification)

SBA Form 159 - 7a-Fee Disclosure Forms and Compensation Agreement (Must be filed if an Agent is used)

Form 160 – Resolution of Board of Directors

Additional Closing Forms

SBA Form 1846 - Statement Regarding Lobbying signed & dated by lender

SBA Form 1624 Certification of Debarment or Suspension

SBA 1059 – Security Agreement

SBA Form 1050 – Use of proceeds Certification (not for Express or 7a Small Loans)

SBA Form 155 – Standby Letter of Agreement

Guaranty Fees

Fees are based on the guaranteed portion only

2% on loans up to $150,000 *

3% on loans $150,001 - $700,000

3.5% on loans $700,001 - $ 1 million

3.75% on loans > $1 million

For example: the guaranty fee on a $5,000,000 loan ($3.75 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) PLUS 3.75% of $2,750,000 ($103,125), for a grand total of $138,125.

* Fees waived for all loans under $150K approved in FY15 –see next slide

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2015 Fee Relief for Small Loans

51.9 basis points on-going Annual Service Fee

For 7(a) loans $150,000 or less approved in FY2015:

BOTH the up-front Guaranty Fee and

the On-going Annual Service Fee are zero.

Guaranty Fees for SBA Veterans Advantage in FY2015:

1. The up-front guaranty fee on SBA Express loans of $150,001 to $350,000 approved to Veteran small businesses will continue to be 0% (no reduction in annual service fees on loans over $150K)

2. The up-front guaranty fee for non-SBA Express 7(a) loans of $150,001 up to and including $5,000,000 approved to Veteran small businesses will be reduced by 50% (no reduction in annual service fees on loans over $150K)

Guaranty fee to be paid at www.pay.gov

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After the Loan is Approved

Begin reporting via 1502 (Colson Reporting Services) each month following SBA issuance of a loan number (report as fully undisbursed if not yet closed) and pay Colson 51.9 basis points for on-going Annual Service Fee.

See Colson Reporting Instructions located at:

Colson Reporting

After a loan has been disbursed, follow SOP 50 57 for servicing:

SOP 50 57 _ Servicing

Other Resources

District Offices Lender Relationship Specialists (LRS’s) can answer questions, provide additional information, training, guidance on loan eligibility and credit issues all at no cost.

To contact your District Office

SBA District Offices

Visit our Website at

www.sba.gov

or call

800-827-5722

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SBA References

Code of Federal Regulations (CFR): CFR Title 13, Parts 120 and 121

Standard Operating Procedures (SOP) : SOP 50 10 5 (H)

SBA Lender Resources: http://www.sba.gov/for-lenders

SBA Forms, SOP, Notices, and Loan Packages:

http://www.sba.gov/lender-documentation-tool

Franchise Reviews/Questions:

DelegatedFranchiseReviews@sba.gov or franchise@sba.gov

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