Commercial Real Estate. Financing Programs. The SBA Adv. Programs and services to help you start, grow and succeed

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1 Commercial Real Estate Programs and services to help you start, grow and succeed Financing Programs The SBA Adv /ma

2 Programs and services to help you start, grow and succeed We are the SBA History: Part of the Federal Government. Created by Congress in1953. Our Mission: Maintain and strengthen the U.S. economy by: ❶ counseling, assisting and protecting the interests of small businesses ❷ helping families and businesses recover from national disasters

3 Did Programs and you services to know? help you start, grow and succeed These Companies Got Started with SBA Help!

4 Programs and services to help you start, grow and succeed Did you know? These Companies Got Started with SBA Help!

5 SBA s Programs and services Toolbox to help you start, grow and Includes: succeed C x 3 Counseling Capital Business Education & Training Access to Financing Contracting Selling to the U.S. Government + Advocacy and Disaster Assistance

6 Programs and services to help you start, grow and succeed Visit Our Local Website: /ma Our contact information Find local events!

7 Programs and services to help you start, grow and succeed Entrepreneurial Financing 1. SELF- FINANCED 2. ECO-SYSTEM 3. COMMERCIAL 4. EQUITY/VC

8 Financing Programs and services to help Your you start, grow Business and succeed What Banks Look For: Owners and operators w/ good credit & character Feasible business plan Does it make sense and is it sufficiently thorough? Management expertise and commitment necessary for success Sufficient funds, including SBA guaranteed loan, to operate the business on a sound financial basis Adequate equity investment in the business borrower s stake in the business Sufficient collateral does it provide sufficient protection to the lender? Repayment Will the loan repay from earning of the business To be eligible for an SBA Loan, Businesses must: Be operated for profit Not exceed SBA size standards Not engage in lending, real-estate development, investments or speculation

9 Programs and services to help you start, grow and succeed Why Do Lenders Use the SBA Guaranty? Longer maturities are needed Collateral may be inadequate to meet normal underwriting Start-up or certain types of businesses Business leverage Lender s legal or policy limit Minimize risk Think Like a Lender! Terms: Flexible Maturities: Up to 10 years for working capital Up to 25 years for fixed assets Interest Rates: Negotiated between borrower and lender Typically, can not exceed Prime plus 2.75%

10 Programs and services to help you start, grow and succeed 7a Guaranteed Loan Made by private lenders, with SBA guarantee. SBA helps the bank get to the YES decision. Maximum loan size $5 million 85% guaranty on loans below $150, % guaranty on loans above $150,000. 7(a) loans may be used to: Purchase machinery, equipment, fixtures, buildings, land; Finance receivables and augment working capital; Refinance existing debt (with compelling reason); Finance seasonal lines of credit; and/or Expand, renovate facilities; Construct commercial buildings.

11 504 Programs and services to help you start, grow and succeed Loans in a Nutshell: Think BIG! What? How? - Great for capital assets. Long-term financing for major fixed assets - think BIG! - Obtain up to 90% financing and a low fixed rate on the CDC/SBA portion. - Below market pricing with minimum cash injection. - Owner occupancy = 51% for existing building; 60% for new construction (plan to occupy additional 20%). - Up to $5.5 million in SBA-backed debentures Apply through SBA approved certified development company. They take care of all SBA paperwork!

12 504 Certified Development Partners Programs and services to help you start, grow and succeed Bay Colony Development Corp. (781) State-wide Coastal Community Capital (508) State-wide Granite State Development Corp (508) State-wide New England Certified Dev. Corp. (781) State-wide

13 Programs 504 and Certified services to help you start, Development grow and succeed Partners Ocean State Business Development Providence, RI (401) Bristol, Norfolk & Worcester Counties South Eastern EDC (SEED CORP) Taunton, MA (508) State-wide South Shore Economic Dev. Corp Quincy, MA (617) State-wide Worcester Business Development Corp. Worcester, MA (508) State-wide For more information, read our 2013 Resource Guide!

14 What is the SBA 504 Loan Program? Programs and services to help you start, grow and succeed It is the Small Business Administration s economic development financing program Loans are provided to expanding small businesses to aid in job creation SBA loans are guaranteed by the Federal Government

15 Programs and services Benefits to help you start, grow to and succeed the Borrower Financing for a fixed asset project with as little as a 10% injection. Long-term, fixed rate funds enhancing cash flow for business. Interest rate on a 20-year debenture changes monthly; Interest rate on a 10-year debenture changes bi-monthly; Ability to include soft costs, equipment and furniture and fixtures in a real estate project enabling businesses to minimize out of pocket expenses and preserve cash. Lower down payment conserves working capital.

16 SBA is a Cash Flow Lender Programs and services to help you start, grow and succeed Certified Development Companies (CDCs) must analyze each application in a commercially reasonable manner, consistent with prudent lending standards. On 504 loans, the cash flow of the Small Business Applicant is the primary source of repayment, not the liquidation of collateral. Thus, if the lender s financial analysis demonstrates that the Small Business Applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available.

17 Programs Structure and services to help of you start, a grow Typical and succeed $1 Million Project Loan % of Entity Amount Project Security Lender $500,000 50% 1 st Mortgage CDC/SBA $400,000 40% 2 nd Mortgage Borrower $100,000 10%* TOTAL: $1,000, % Total Debenture: $411,000 (rounded up) (Up front fees include 2.65% on $400,000) Projects that involve a new business and/or special purpose building will require an additional 5-10% from the borrower (reduces the CDC/SBA portion).

18 Programs and services to help you start, grow and succeed What s needed to approve a 504 request? Purchase & sales agreement for project property and cost parameters for construction/renovation projects. Three years of tax returns and/or financial statements for the business. Information on the borrower s existing debt. Personal financial statement and two years of personal tax returns for each principal of the business (20% or more ownership). Property appraisal and environmental assessment can be submitted after approval. NO APPLICATION FORM IS REQUIRED!!! WE USE ESSENTIALLY THE SAME UNDERWRITING DOCUMENTATION AS THE BANK!!!

19 Programs and services to help you start, Use grow and of succeed Funds Fixed-Asset Acquisition or Expansion Including: Purchase land & construction of new buildings Purchase and/or renovate existing buildings Acquire/Install machinery & equipment Refinance existing fixed asset debt up to 50% of new SBA 504 Project Soft costs related to the project (appraisal, environmental, interim interest, other) Ineligible uses of funds: Purchase of trucks and autos Working Capital Franchise fees

20 Programs and services Occupancy to help you start, grow and Requirements succeed Existing Building: Business must occupy at least 51% - may lease out up to 49% Newly Constructed Building: Business must initially occupy at least 60% - must occupy up to 80% within 10 years - can sublease 20% indefinitely

21 Job Requirements Programs and services to help you start, grow and succeed Create/Retain one job for each $65,000 borrowed through the 504 Program unless the project meets a Public Policy Goal. Public Policy Goals: Rural Development Expansion of Minority, Women or Veteran-Owned Businesses (51% + owned) Expansion of Exports Business District Revitalization Enhanced Economic Competition Restructuring Due to Federally Mandated Standards and/or Policies Changes Necessitated by Federal Budget Cutbacks Manufacturing businesses one job per $100,000 Energy-consumption reduction of at least 10% or sustainable design or equipment and process upgrades

22 Programs and services to help you start, Summary grow and succeed Up to 90% financing for a project Lower down payment for client; improved liquidity for bank Quick & efficient turn around by your CDC (Many are SBA approved for the Abridged Submission Method) Note is assumable by another borrower Low long-term fixed rate on 504 / SBA loan CDC is responsible for all the paperwork; No application form to fill out

23 Programs and services to help you start, grow and succeed QUESTIONS Norman Eng Economic Development Specialist (617) /ma 11/08/2013