SBA 504 Financing. Long Term Asset Financing Made Possible. Glen Heller, Relationship Manager Nancy Sheridan, Specialty Finance Officer

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1 SBA 504 Financing Lng Term Asset Financing Made Pssible Glen Heller, Relatinship Manager Nancy Sheridan, Specialty Finance Officer These prpsals are cntingent upn final Chase Bank review and apprval frm the SBA. This prpsal is nt meant t be, nr shall it be cnstrued as an attempt t define all f the terms and cnditins f the transactins invlved in the financing. Rather, it is intended nly t utline certain basic pints f understanding arund which the legal dcumentatin is t be structured. Further negtiatin within the general scpe f these majr terms shall nt be precluded by the issuance f this prpsal.

2 Pricing Optins Flywheel Industries, LLC SBA 504 Lan Land Purchase : $1,450,000 Cst f Building Cnstructin, Cre & Shell : $4,800,000 Tenant Imprvements : $2,000,000 Ttal Prject Cst : $8,250,000 Bank Permanent Lan : $4,125,000 SBA Lan Amunt : $3,300,000 Brrwer Injectin : $825,000 Guarantrs : All individuals r entities that have mre than 20% wnership in either the Real Estate Hlding Cmpany r the Operating Cmpany ccupying the building. Bank Permanent Lan * Lan Amunt : $4,125,000 $4,125,000 $4,125,000 Amrtizatin : 20/10 yr fix 20/10/7 yr rate adj. 20/10/5 yr rate adj. 20yr Interest Rate : 4.59% 3.97% 3.80% Mnthly Payment : $26,440 $25,051 $24,678 Spread vertcm : 2.96% 2.90% 3.16% 5 yr index = year index = year index = 1.63 Cllateral Requirements: 1 st lien n land and building TCM is the Treasury Cnstant Maturity Index *Assumes cnstructin perid f 12 mnths, interest 3.75% flating SBA Lan: Lan Amunt: $3,300,000 + estimated SBA prcessing fees summarized belw Interest Rate: Mst recent bnd sale f September 2012 experienced an interest rate f 4.279%. * Please nte actual interest rate will be determined when all mnies have been disbursed, and prject is placed in bnd sale. Repayment Terms : mnthly principal and interest payments amrtized ver 20 years Mnthly Payment : estimated t be $20,486 ** Maturity : 20 years Cllateral Requirements : 2 nd lien n land and building ** This assumes an interim lan fr 15 mnths, interest nly until SBA funds their prtin f the lan. This interim perid will be interest 3.75% flating. Estimated SBA fees f $89,450 ($3.3MM X 2.65% + attrney fee f $2,000 )and clsing csts t be rlled int debenture. 2

3 Why use the SBA 504? Benefits t Business Custmers Give custmers cmpetitive rates and flexible lan terms Lw dwn payments (ften nly 10% dwn), 15% n special use prperties Lw expsure t the Bank (usually 50% LTV) Business is able t cnserve capital Certain fees may be financed as part f the prject cst Attractive fixed rate n junir lien - September Debenture rate is 4.279% Bank prtin can be extended t a 30 year amrtizatin if necessary. When SBA prtin is a 20 year debenture, bank s lan term must be at least 10 years. When SBA prtin is a 10 year debenture, bank s lan term must be at least 7 years. Fixed rate fr 10 r 20 years n the SBA prtin 3

4 What is the SBA 504 Prgram? An ecnmic develpment prgram in which the Bank partners with the SBA t prvide funds fr: Acquisitin f real estate Cnstructin and/r expansin Acquisitin f lng-term fixed assets Leasehld imprvements 4

5 Maximum 504 Lan - SBA guaranty The SBA 504 lan is available fr up t 40% f the ttal prject cst with a maximum f $5MM and a minimum f $25K. This maximum can be increased t $5.5MM fr manufacturers and businesses meeting the SBA s green (energy efficiency) public plicy gal. The 504 lan will take the Secnd Mrtgage psitin. * Fr certain NAICS cdes 5

6 Eligibility Requirements Fr-prfit business, lcated in the US Must meet ne f the fllwing size standards (with affiliates) Maximum $5MM average pre-tax net prfit (ver the last three years) AND maximum $15MM tangible net wrth Meet the size standard fr the industry in which it is primarily engaged Business must demnstrate sund repayment capabilities Owner ccupancy 51% fr existing prperty 60% fr new cnstructin Must meet an eligible lan purpse Acquisitin f vacant land and cnstructin Acquisitin f land and building Cnstructin/Renvatin/Additin t a building Acquisitin f heavy-duty machinery & equipment Leasehld imprvements 6

7 Owner s Equity Tw frms f the brrwer s injectin are acceptable under the 504 prgram Cash Land Equity The injectin will be increased an additinal 5% ver the standard 10% fr each f the fllwing types f prjects: Start-ups (less than 2 years) Special purpse assets and/r Limited use assets 7

8 Prject Csts Eligible Prject Csts included in ttal prject Sft csts assciated with the real estate Title searches and insurance Attrneys fees Appraisals and envirnmental reprts Architect fees Permits and surveys CDC fees Interim cnstructin interest Machinery installatin expenses Real Estate brker fees Refinancing existing debt may be eligible under very limited instances Ineligible Prject Csts nt included in the ttal prject Mrtgage brker fees Pints n permanent financing Mving expenses Csts assciated with generating crprate dcuments Nte: Eligible prject csts can be financed int the ttal prject but must be included in cnstructin budget & cntract. Any eligible csts that are paid by the brrwer befre clsing and are part f the cnstructin cntract can be applied tward brrwer equity. 8

9 Hw des the 504 Prgram Wrk? The custmer is apprved fr tw separate lans A cnventinal Chase lan, secured by a first lien n the asset being financed. An SBA lan, secured by a secnd lien n the asset being financed. This facility is apprved by a nn-prfit agency, licensed by the SBA, knwn as a Certified Develpment Cmpany (CDC) Bank Lan Interest rate is negtiated Term is negtiated Minimum 7 years fr equipment (up t 10-year amrtizatin) r leasehld imprvements Minimum 10 years fr real estate (up t 30-year amrtizatin) r cnstructin First lien n financed assets Up t 30 year term CDC Lan Attractive interest rate, fixed at time f bnd sale (histrically priced apprximately 250 basis pints ver 10-year treasury securities) Term is set by the CDC 10 years fr equipment r leasehld imprvements 20 years fr real estate r cnstructin Secnd lien n financed assets Fees are set by the CDC at apprximately 3% f the SBA lan and are rlled int the lan 9

10 SBA 504 Lan Structures 50/40/10 Structure Bank cnventinal lan fr 50% f prject cst CDC lan fr 40% f prject cst Brrwer equity injectin fr 10% f prject cst Type f Business= existing businesses and general purpse prperty 50/35/15 Structure Bank cnventinal lan fr 50% f prject cst CDC lan fr 35% f prject cst Brrwer equity injectin fr 15% f prject cst Type f Business= Specialty prperties r startups 10

11 Target Custmers Custmers seeking t achieve a capital investment in real estate r ther fixed assets including leasehld imprvements Custmers wh want t expand r renvate prperty. Custmers seeking t preserve capital and inject a limited amunt f equity int a real estate prject. Custmers seeking t reduce P&I payments by using a lnger amrtizatin perid (20 year) and taking advantage f a lwer interest rate. Desirable Business Fr prfit cmpanies Satisfactry histrical cash flw and credit Strng management r industry experience 11

12 Cmmn Objectins & Questins Cncerned with bringing a third party int the transactin The bank and the lcal CDC partner tgether t ffer the SBA 504 prgram as an ptin t ur brrwers. The Specialty Finance grup is there t help wrk thrugh any issues that may arise during the prcess. Pssible delays in prcessing If everyne wrks tgether, the SBA 504 prcess shuld be a very smth experience. Additinal SBA fees SBA fees are financed right int the SBA s debenture, s there is little if any ut f pcket expense. Mst ther fees related t the prject can be made a part f the actual prject and thus financed. Pssibility f additinal requirements beynd bank requirements Under mst circumstances, the same financial package that is prvided t the bank is what is required by the CDC. There may be sme additinal requirements that the CDC requires. Cncern with multiple clsings There will indeed be tw clsings, the SBA clsing will be in additin t the Bank clsing as it invlves preparatin fr the bnd sale. 12

13 FAQ When shuld the CDC be cntacted and when shuld they be brught n bard? In mst cases, the CDC can be brught int the prcess early s that they can get familiar with the deal and give their initial take n the prject. What is the interest rate n the 504 piece? If it is nt established until the bnd sale, hw d I knw what it will be? The interest rate n the 504 prtin f the lan will be established at the time f the bnd sale. The exact rate will has histrically been priced apprximately 250 basis pints ver the 10-year treasury securities Can existing equity be used as a dwn payment? Yes, if the prject is a cnstructin r renvatin, equity can be pledged by way f land equity, r existing equity in the building. When des SBA pay ff the interim lan? The SBA will payff the interim lan after the bnd sale ccurs, which n a nncnstructin prject is typically within a 90 day perid. If there is cnstructin, the SBA lan will nt be paid ff until the cnstructin is cmpleted and ccupancy permits given. What is the time frame fr apprval? It varies by CDC, but the typical turn arund time fr apprval is within days. Sme CDCs may be able t get an apprval within a 30 day perid. Des the custmer make 2 lan payments? Yes, the custmer will make a lan payment t the bank and als a payment will be made t the CDC (by way f a direct withdrawal t Clsn Services) 13