The SBA Loan Program

US Small Business Administration started in 1953 by an Act of Congress to create a government-owned corporation to help Small Businesses gain access to loan funds, guaranteed by the government, so banks are more likely to lend.

SBA guarantees loans (50-85%) made by partner banks after approval from the SBA, or the bank if a partner in the Preferred Lender Program by the bank.

SBA assists small businesses by funding other business assistance programs.

SBA backed loans protect small businesses if banks sell or close.

SBA provides disaster loans.

History of SBA

Current Services

1. SBA Loan Programs – SBA Advantage 7(a), 504, Micro Loans, Disaster Loans, Veterans Advantage and Express Loans

2. Assistance with government contracting for small businesses3. Small Business Development Centers in US and territories

(900+)4. SCORE volunteer mentor program5. Women’s Business Centers6. US Export Assistance Centers and Loans for Exporting7. Veteran’s Business Outreach Centers8. Certified Development Companies9. Procurement Technical Assistance Centers

History of SBA

Visit sba.gov for a WEALTH of knowledge about the loans, starting a business, running a business, small business trends and statistics, and for free tools and documents.

SBA Website Resource

Local SBA Assistance

479-575-5148Bill Fox, Director

Free Small Business Counseling, Market Research and Financials Preparations

Low cost , high quality small business trainings and seminars to start or grow a small business

http://asbtdc.org/

UA Walton College ASBTDC

479-385-9778Jeff or Brett Amerine

Free Small Business Consulting for startups and existing businesses, free networking events to meet other business owners, assistance with Wal-Mart/Big Box sales plans, and local public schools programs.

www.startupjunkieconsulting.com

Startup Junkie Consulting (Fayetteville)

2016 – SBA approved 67,914 loans totaling $27.8 billion.

2016 – 4,000 microloans for $54 million 2016 – $26 billion in SBIC investments 2016 - $90.7 billion in government contract

for small businesses. 2016 – Over 13,000 business advisors

through SCORE and SBDC’s in all states SBDC’s serve hundreds of thousands of

clients each year across the country

SBA Performance US 2016

363 Loans for $221,506,364 3- 504 Loans for $3,077,000 40 Micro Loans for $868,623

Primary Micro Lender is FORGE (Financing Ozarks Rural Growth and Economy) in Huntsville, Arkansas. Started by group of organic farmers in 1989 with USDA funding. Now makes any SBA-type loan, not just agriculture.

SBA Performance in Arkansas 2016

36 SBA Loans for a total of $17,512,800 in Arkansas.

9 SBA Loans totaling $3,225,400 in Oklahoma. 1 SBA Loan totaling $325,000 in Texas. 1 SBA Loan totaling $1,925,000 in Louisiana.

Total SBA Loans 47 for $22,988,200. #1 SBA Lender in Washington county #1 SBA Lender in Benton County

SBA Performance by Legacy National Bank 2016

Preferred Lenders Program (PLP) Lender Express Program Lender Regular SBA General Purpose Lender (loan

reviewed by the SBA in Washington, DC before approval)

Legacy National Bank SBA Lender

What is the SBA’s Preferred Lenders Program? The most experienced lenders are

designated as PLP Lenders, and thus delegated the authority to process, close, service, and liquidate most SBA guaranteed loans without prior SBA review.

Legacy National Bank applied for PLP status on 9-16-15 and was notified of approval as a SBA PLP Lender on 12-18-15.

What type of bank can become a PLP Lender? Active in SBA Lending. High level of competence in their personnel to

process, close, service, and liquidate SBA loans. Quality processes in place for considering PLP

loan applications. Current in all SBA reporting. Good standing status with their regulators. Not be subject to any SBA enforcement actions. Good relationship with their lead SBA field office.

Only the most seasoned SBA lending banks can become Express Program lenders (loans under $350,000.00).

Lines of Credit can be up to 7 years, whereas non-SBA banks offers1 year LOC terms. So new fee, new application each year, can be cancelled and rolled into a note payment, and then no more credit.

Express Program lending makes getting an SBA loan approved faster for small business.

Express Lending Program

SBA Loan Term and StructureLoan program Maximum Loan

AmountGuaranty Percentage

SBA Express including LOCs

$350,000 - Gross 50%

Export Express $500,000 - Gross 90% under $150K75% more than $150K

Veteran’s Advantage Express

$350,000 50%

PLP Loans $5,000,000 85% under $150K75% over $150K

GP Loans $5,000,000 85% under $150K75% over $150K

Use of Loan Proceeds

SBA Loan Max Maturity

Non-SBA Bank Loans Max Maturity

7A – Inventory/Working Capital

Up to 10 years 1-3 years

7A – Equipment, Fixtures, Furniture (FFE)

Up to10 years or the useful life of the asset, can be longer

1-5 years

7A – Commercial Real Estate

Up to 25 years 15 -20 years

7A – Mixed Purpose Use a Blended maturity; asset class majority use determines maturity

Same terms in this column

Export Working Capital

3 years 1-3 years

Express (350k and under)

Same as 7A with the exception of LOC’s (Lines of Credit-7 years max)

1 year, possibly renewable with fee for LOC to continue

Interest Rates Maximums(Negotiated with SBA Loan Officer)

Product Interest Rate7A- $25K or less, less than 7 year maturity

WSJ Prime plus 4.25%

7A - $25K or less more than 7 year maturity

WSJ Prime plus 4.75%

7A - $25K - $50K, Less than 7 year maturity

WSJ Prime plus 3.25%

7A - $25K - $50k, More than 7 year maturity

WSJ prime plus 3.75%

7A – More than $50K, less than 7 year maturity

WSJ Prime plus 2.25%

7A – More than $50K, more than 7 year maturity

WSJ Prime plus 2.75%

SBA Express- $50K or less , All Maturities

WSJ Prime plus 6.5%

SBA Express- More than $50K, All maturities

WSJ Prime plus 4.5%

SBA Loan Guaranty Fees

Special fee considerations for Veterans Advantage Currently all SBA loans under $150,000 do

not have a guaranty fee. Veterans Advantage Program has no

guaranty fee on all Express loans up to $350,000 with appropriate proof of veterans status for the veteran OR the veteran’s legal spouse.

Basic SBA Program Eligibility Requirements Small Business1. Operated for profit.2. “Small” as defined by SBA.3. Engaged in, or propose to do business in the United

States or its possessions.4. Reasonable invested equity ($ or property).5. Use alternative financial resources, including personal

assets, before seeking financial assistance.6. Must demonstrate a need for the loan proceeds and that

credit offered elsewhere is unreasonable.7. Loan funds used for a sound business purpose.8. Not delinquent on any existing debt obligations to the

U.S. government or those ever backed by the government or a government program.

Borrower to own the business must be a US citizen or lawful, permanent resident alien.

Borrower cannot have defaulted on any government backed loans.

A considered business for the SBA loan cannot: have caused the government to have incurred a loss

related to a prior business debt. be owned 20 percent or more by a person associated

with a different business that caused the government to have incurred a loss related to a prior business debt.

be owned 20 percent or more by a person who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral depravity.

Borrower Approval Basics

Size Standards For most retail businesses, the applicant and

its affiliates cannot exceed $7 million in gross sales each year, averaged over the last 3 fiscal years nor have more than 500 employees.

For most wholesale businesses, the applicant and its affiliates cannot have more than 100 employees.

For most manufacturing businesses, the applicant and its affiliates cannot have

more than 500 employees.

Ineligible Business1. Financial businesses primarily engaged in the business of lending, such as

banks, finance companies, payday lenders, some leasing companies and factors (pawn shops, although engaged in lending, may qualify in some circumstances based on retail sales)

2. Businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except when the property is leased to the business at zero profit for the property’s owners)

3. Life insurance companies4. Businesses located in a foreign country (businesses in the U.S. owned by

aliens may qualify)5. Businesses engaged in pyramid sale distribution plans, where a participant's

primary incentive is based on the sales made by an ever-increasing number of participants

6. Businesses deriving more than one-third of gross annual revenue from legal gambling activities

7. Businesses engaged in any illegal activity8. Private clubs and businesses that limit the number of memberships for

reasons other than capacity

Ineligible Business9. Government-owned entities10. Businesses principally engaged in teaching, instructing, counseling or

indoctrinating religion or religious beliefs, whether in a religious or secular setting

11. Consumer and marketing cooperatives (producer cooperatives are eligible)

12. Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans

13. Businesses in which the lender or Certified Development Company, or any of its associates owns an equity interest

14. Businesses that present live performances of an indecent sexual nature or derive directly or indirectly more 2.5 percent of gross revenue through the sale of products or services, or the presentation of any depictions or displays, of an indecent sexual nature

15. Businesses primarily engaged in political or lobbying activities16. Speculative businesses (such as oil exploration companies and real

estate investment companies)

Eligible Use of ProceedsSBA Guaranteed Loan Proceeds May Be Used To:

1. Acquire Land and/or purchase, construct or renovate buildings. 2. Improve a site (e.g. grading, streets, parking lots, landscaping), including up to 5 percent of the loan amount for community improvements such as curbs and sidewalks. 3. Acquire and install fixed assets. 4. Buy Inventory.5. Buy Supplies. 6. Buy Raw Materials. 7. Provide Working Capital. 8. Provide Energy Conservation loans.9. Refinance Existing Business Debts on Better Terms.

Ineligible Use of Proceeds1. Payments, distributions or loans to an Associate of the applicant except for compensation for services actually rendered at a fair and reasonable rate; 2. Refinancing debt owed to an SBIC 3. Floor-plan financing4. Investments in real or personal property acquired and held primarily for sale, lease or investment.

5. Payment of Delinquent Taxes. a) Loan proceeds must not be used to pay delinquent IRS withholding (payroll) taxes, sales taxes or other funds payable for the benefit of others. b) Payment of delinquent income taxes may be permitted if the applicant has an approved payment arrangement with the IRS. 6. To finance the relocation of the applicant business out of a community, if there will be a net reduction of one-third of its jobs or a substantial increase in unemployment in any area of the country. An exception may be allowed if the lender can justify the relocation because: a) The relocation is for key economic reasons and crucial to the continued existence, economic wellbeing, and/or competitiveness of the applicant; and b) The economic development benefits to the applicant and the receiving community outweigh the negative impact on the community from which the applicant is moving.

Debt Refinancing Eligibility1. SBA guaranteed loan proceeds may not be used to

refinance debt originally used to finance a loan purpose that would have been ineligible for SBA financing.

2. SBA guaranteed loan proceeds may be used to refinance debt in the personal name of the owners, such as a Home Equity Line of Credit (HELOC) or credit card debt that was used for business purposes.

3. When refinancing debt, the new installment amount must be at least 10 percent less than the existing installment amount(s).

4. The exception to this is when debt is considered to be on unreasonable terms such as a very short term maturity that is not consistent with the assets being financed.

Debt Refinancing Eligibility- SID (Same Institution Debt)When refinancing same institution debt at which the business already has a loan: You have to meet the unreasonable debt or

cash flow savings requirement. You must provide a 36 month transcript or

a life of the loan transcript whichever is shorter that shows on-time payments every month.

Refinancing Using SBA Programs1. You can refinance as long as the loan does

not meet the small business’s needs, the refinance provide a 10% cash flow improvement, or the loan is on unreasonable terms.

2. If you refinance SID, you must be able to show no late payments on the debt to be refinance for the past 3 years.

3. You cannot refinance a SBA Loan with a Express loan.

Refinancing Business Credit Cards and High Interest Debt If the debt is in the form of an outstanding

balance on a credit card issued to the small business, the lender may refinance the credit card debt after confirming that the credit card is in the name of the business and obtaining the applicant’s certification that the credit card debt being refinanced was incurred exclusively for business related purposes.

Refinancing with SBA Debt in the personal name of the applicant owners such as a Home Equity Line of Credit (HELOC) or credit card debt that was used for business purposes may be eligible for refinancing. a. For HELOC debt, the applicant must certify that the amount being refinanced was used exclusively for business purposes and provide appropriate documentation. b. If the debt is in the form of an outstanding balance on a credit card issued to an individual personally, the lender must confirm which of the credit card obligations were used for business purposes.

Refinancing with SBAWhat can be refinanced??

1. Debt (short or long term) structured with a demand note or balloon payment.

2. Debt with an interest rate that exceeds the SBA maximum interest rate based on size, term and 7(a) processing method being used.

3. Credit card obligations used for business-related purposes.4. Debt that is over collateralized based on SBA’s collateral requirements. 5. Revolving lines of credit (short term or long term) where the original

lender is unwilling to renew the line or the applicant is restructuring its financing in order to obtain a lower interest rate or longer term.

6. Debt with a maturity that was not appropriate for the purpose of the financing (e.g. a 3 year term loan to finance a piece of equipment with a useful life of 15 years).

7. Debt used to finance a change of ownership.8. Debt that is not identified above but the Lender believes no longer

meets the needs of the Small Business Applicant.

Refinancing Recap1. New loan must provide a 10% cash flow

improvement.2. Old loan must be on unreasonable terms.3. Old loan must not meet the needs of the

small business applicant.

Other Eligibility Issues 1. Every SBA Loan requires a CAIVRS report

(Credit Alert Verification Reporting System) clearance on the guarantors, business entity, and affiliates.

2. 4506 T forms must be completed early in the process and transcripts from the IRS directly must be received and reconciled with produced returns before closing a GP loan and before disbursing a delegated SBA loan by the Preferred Lender.

Visit sba.gov for a WEALTH of knowledge about the loans, starting a business, running a business, small business trends and statistics, and for free tools and documents.

SBA Website Resource

Thank you for your interest!

Contact us: www.legacyar.com/sba-loans

5 locations: Benton and Washington Counties