How Do You Get Started in SBA Lending? A Primer for ... · How Do You Get Started in SBA Lending?...
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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.)
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:
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