Growing Your Loan Portfolio Through SBA Lending

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1 Growing Your Loan Portfolio Through SBA Lending Presented By: U.S. Small Business Administration Tennessee District Office 2 International Plaza, Suite 500 Nashville, TN Today s SBA: Smart, Bold, Accessible

2 How SBA Can Help Market Conditions Risk mitigation if the customer does not meet the bank s conventional underwriting criteria SBA s goal is to help you reach new customers & transition them to a conventional bank customer over time SBA lending is usually counter-cyclical with more bank s coming to SBA when the economy is tough New Business Development Opportunities Borrowers have limited collateral Borrowers need a longer maturity Lack sufficient equity to qualify conventionally

3 How SBA Can Help Profitability Interest income from loans that bank might not have otherwise made Guaranteed & unguaranteed portion can be sold on the secondary market (sales generate fees ranging from 4% to 5% of the loan depending on rate, maturity, market conditions, etc) Banks retain the servicing on sold loans so typically a 1% annual servicing fee on the guaranteed portion is retained by the lender Banks earn interest income on the unguaranteed portion

4 How SBA Can Help Mitigating Risk 7(a) programs provide between a 50% to 85% guarantee on the SBA loan The Community Reinvestment Act The bank may receive positive CRA credit for all SBA loans Liquidity Management By selling the loans, banks help manage liquidity which enables them to recycle funds for new loans or other purposes

5 SBA LINC Leveraging Information & Networks to Access Capital Connects borrowers with SBA approved lenders a Referral System Borrower completes on-line form with business information System sends it to participating SBA lenders who will contact the customer within 2 business days if there s a match Client is also sent information regarding SBA Resource Partners in their area that provide free business consulting & low-cost training Borrowers sign up at Lenders sign up electronically at Lenders set-up their profile for specific counties or types of loans. Lenders can opt out of receiving referrals that do not fit the bank s business model help is available at LINC@sba.gov

6 SBA One A Lending Platform that will simplify the lending process & increase lender participation SBAOne will use one set of forms for all 7a loans and incorporate Doc-u-sign for electronic signatures Serve as a one-stop-shop for all steps of the loan process to determine eligibility through liquidation Provide one data management system to measure & evaluate loan trends and performance roll in Risk Ratings Has been referred to as the turbo tax for business SBA is rolling it out now by Region Lenders can sign up at and the bank is required to have an authorizing official who will approve the lender s access Questions can be directed to CAFS@sba.gov

7 Fee Waivers For loans of $150,000 or less BOTH the upfront guaranty fee AND the on-going servicing fee (normally 47.3 basis points effective 10/1/15) will be zero for FY 2016 regardless of the term (lines of credit included) Since SBA will not charge the fees, lenders must not charge the fee to the borrower If the initial loan maturity is 12 months or less and the lender renews the loan after 1 year, the fees will be charged. Lenders may approve multiple loans up to and equaling $150,000 and will be charged a zero guaranty & servicing fee on each loan. However, any loan approved within 90 days of a zero fee that results in an aggregate loan amount greater than $150,000 will be charged the guaranty fee on the combined loans. The yearly servicing fee will not apply until the aggregate loan amounts exceed $150,000 & then the normal yearly fee is applied to the loan which caused the aggregate to exceed $150,000

8 Fee Waivers for Vets under 7(a) Effective October 1, 2015 through September 30, 2016, under the 7a Small Loan & Regular 7a Programs, the upfront guaranty fee for Vets is 50% of the regular guaranty fee as follows: Loan amounts of $150,000 or less -0- guaranty fee for term loans or LOC Term loans of $150,001 to $700,000, 1.5% of the guaranteed portion Term loans of $700,001 to $1,000,000, 1.75% of guaranteed portion If guaranteed portion of a term loan is over $1,000,000, the first $1,000,000 of the guaranteed portion is at 1.75% PLUS 1.875% of the guaranteed portion over $1,000,000 up to and including $5,000,000 Regular 7a to Vets with a maturity of 12 months or less (LOC) is 0.125% of the guaranteed portion for loans of $150,001 up to & including $5,000,000 Effective October 1, 2015 through September 30, 2016, under SBA Express Program, the upfront guaranty fee for Vets is -0- up to the maximum loan amount of $350,000.

9 7(a) Program Overview Maximum loan amount is $5,000,000 SBA can guarantee up to $3,750,000 to any one borrower Loans of $150,000 or less receive an 85% guaranty Loans over $150,000 receive a 75% guaranty SBA loans can be used for: Expansion or renovation Purchase land & buildings Purchase machinery/equipment or furniture/fixtures Complete leasehold improvements Working capital Inventory Refinance debt Provide lines of credit

10 7(a) Program Overview Eligible businesses for the 7(a) Program must be: For profit Meet the small business size standard (based on NAICS code or alternative size standard) Good character of owners Good credit Experienced management Evidence repayment ability from the cash flow of the business. The 7(a) Program has a minimum debt service coverage ratio of 1.15 Inability to receive credit elsewhere (no excess personal resource test effective 4/21/14) Willing to offer all available collateral if SBA/bank are in a short position Must not have a previous loss to the government

11 7(a) Program Basics Startups typically require 20% equity injection (non-borrowed funds) All owners of 20% or more must personally guarantee the loan Business tax returns must be verified through the IRS (Form 4506-T) Alien ownership must be verified through the INS (Form G-845) All owners, directors, and holders of 20% or more of the company must complete the Statement of Personal History (Form 912) concerning past charges or convictions of a crime Affiliate businesses count toward the size standards and their financial condition must be analyzed to ensure they are not a drain to the applicant business The 7(a) package typically takes 7 to 10 business days to process

12 Help with Maturities & Terms Terms, rates, collateral, etc are negotiated between the bank & borrower (subject to SBA s maximums) The maturity is based on the asset being financed: Working capital is typically 7 years and up to 10 years with sufficient justification Machinery & equipment or furniture & fixtures is typically 10 years (not to exceed the useful life of the equipment) Real estate can be up to a 25 year term When several items are financed, a weighted average maturity is acceptable No balloons or demand notes are allowed

13 7(a) Interest Rates Maximum rates are determined by the amount of the loan & the term of the loan Variable Rates: Loan Amount Term less than 7 years Term of 7 years or longer 0 - $24,999 P + 4 ¼ P + 4 ¾ $25,000 - $50,000 P + 3 ¼ P + 3 ¾ Over $50,000 P + 2 ¼ P + 2 ¾ ** Lender has option to use 30 day Libor Plus 3 percentage points as base rate instead of WSJ Prime

14 7(a) Interest Rates Maximum rates are determined by the amount of the loan & the term of the loan Fixed Rates: Lender also has the option to use SBA s Fixed Base Rate instead of WSJ Prime when a fixed pricing structure is preferred Lender can then add the allowable spreads Loan Amount Term less than 7 years Term of 7 years or longer 0 - $24,999 SBA Fixed Base Rate SBA Fixed Base Rate $25,000 - $50,000 SBA Fixed Base Rate SBA Fixed Base Rate Over $50,000 SBA Fixed Base Rate SBA Fixed Base Rate SBA s Fixed Base Rate is calculated as follows: (Average of 5 & 10 year Libor) PLUS (30 day Libor plus 3.0 which is referred to as SBA Libor Base Rate) Colson Services posts this rate once per month on it s web-site. Go to Once there, click on News & Rates on the left side of the page. Then, you will see New Maximum Allowable Fixed Rate for 7(a) Loans

15 Lender Training Lender Relations Specialists are located in every District Office of each state The LRS s are ready to train your staff on SBA s Programs They can structure an in-house training session customized to target the programs that are of most interest to your bank Here in Tennessee, we have two Lender Relations Specialist: Lisa Denson Covering Middle and West, Tennessee Maria Lloyd Covering Middle and East, Tennessee

16 A Wide Variety of SBA Success Stories in Nashville Various Industries & Amounts The Turnip Truck (Organic Grocery) $4,805,800 Sai Hotel, LLC $3,870,000 TWS Cullman, LLC (Restaurant) $2,330,300 Elite Multimedia Productions, Inc. $2,301,700 Robert Sims, DMD (Dentist) $1,990,000 Stone World TN, Inc. $1,360,000 New Heights Brewing Co. LLC $ 614,000 Legion Fitness, LLC $ 540,000 Community Quick Care, LLC $ 350,000 Liberty Electrical Contracting Group $ 138,000 Thompson Law Group, PLLC $ 75,000 American Eyewear, LLC $ 20,000 Grease Monkey Garage, Inc. $ 15,000 Stanley Wisner Home Maintenance $ 10,000

17 Thank You & Questions Would your bank like to start a SBA lending program? Would your bank like to expand it s SBA lending program? If so, please let us know as we are happy to help! Tennessee District Office Lisa Denson (615) Maria Lloyd (615)