- Welcome to AdvisorLoans AdvsorLoans provides turnkey financing solu6ons in every facet of lending, including SBA. Our expert team is well versed in SBA programs and works in this specialty daily to insure real 6me, accurate and consistent data for SBA decision making. Not only does AdvisorLoans provide leading industry exper6se, it is our top priority that you receive the utmost care and considera6on throughout your experience with AdvisorLoans. As with star6ng any project, laying out the plan of ac6on is cri6cal to the project s success. At AdvisorLoans we could not believe that to be more true. We are here to help you set appropriate expecta6ons and navigate the SBA process every step of the way. We invite you to use this SBA guide as your road map to follow along as we progress through your transac6on. Our 10- step process can be summarized in the following 4 major stages: (1) Applica6on, (2) Lender Decision, (3) Loan Approvals and (4) Closing and Funding. We look forward to the opportunity to build a rela6onship with you and delivering an un- paralleled experience.
- SBA Programs Overview The United States Small Business Administra6on provides a government guarantee on loans that meet a minimum compliance requirement in accordance with ac6ve standard opera6ng procedures manuals. As the name suggests the program is available to businesses that are for profit, open to the public and non- discriminatory in any way. The SBA offers three primary loan programs: 7a Small Loans, 7a and 504(REAL) programs. The 7a program is the Small Business Administra6on s main method to support startups, as well as to facilitate other capital needs for exis6ng businesses. Included under the umbrella of 7a government guaranteed loans are a host of other programs for veterans, expor6ng, working capital, and other special ini6a6ves. Each ini6a6ve has its own set of qualifying criterion while the basic overall eligibility remains constant throughout the SBA. The 7a loan program is funded and administered directly by lenders. A\er mee6ng certain criterion lenders can qualify to become a Preferred Lending Partner (PLP), which allows lenders to provide quicker approval 6mes for borrowers.
-Basic Qualifications for a SBA loan: New or exis6ng for- profit businesses Owner occupied commercial real estate Proceeds are for business needs only Tangible net worth not to exceed $15million Net income (2 year average) not to exceed $5million U.S. Ci6zen or Legal Permanent Resident, or Visa (to match term of loan) Proceeds used in U.S. only -Eligible Use of Proceeds: Working capital Inventory Tradi6onal debt refinancing Payment of taxes Legal fees due to forma6on of en66es Revolving lines of credit Equipment Real estate acquisi6on Leasehold improvements Furniture & fixtures Any business need Different types of 7a loan programs and their maximum loan amount: Small loan : up to $350,000 7a : loans over $350,000 to $5,000,000 SBAExpress : up to $350,000 CapLines : up to $5,000,000 Community Advantage : up to $250,000 Export Working Capital Program : up to $5,000,000 Export Express : up to $500,000 Veterans Loan Advantage : Pilot program extended through FY15 (9/30/15) allows for Veterans to receive a fee waiver on the SBA guaranty fee on loans up to $350,000 and a reduc6on in the guaranty fee to 50% for loans over $350,000.
Delivery of the 7a loan program(s): Lenders apply with the SBA to be eligible to provide SBA loans to their clients. The lender provides the funds that the SBA guarantees. Therefore the lenders use of the SBA guarantee is truly to enhance their exis6ng credit policy and mi6gate any inherent risks with the guarantee from SBA. Standard Rates, Terms & Structures: All 7a loans rates, terms and structures will be set by the lender, with SBA guidelines in mind. The SBA sets a cap on the allowable maximum interest rate, for example, that a lender can charge. See table below for SBA maximums. SBA does also publish a monthly maximum fixed rate schedule, however most lenders tend to offer variable rates. SBA Fees: SBA automa6cally levies a guarantee fee on all SBA loans. However, SBA will run pilot programs from 6me to 6me waiving fees temporarily. At present the SBA has issued a fee waiver for loans less that $150,000 through Fiscal Year End 2015 (9/30/15). Addi6onally, the Veterans Advantage fee waiver remains through FY15 as referenced above. SBA fees are charged on the guaranteed por6on of the loan only. For all other loans: 3.0% = $150,001-700,000 3.5% = $700,001-1,000,000 Plus 3.75% amount over $1,000,000 Loan Size < $150,000 Small Loan Program $0-25,000 Percent of Guaranty Maximum Interest Rates Guaranty Fees 85% See below Waived FY 2015 (through 9/30/15) 85% <7 years: Prime + 4.25% >7 years: Prime +4.75% 25,001-50,000 50,001 + 7(a) Loans >$150,000 85% 85% 75% Maximum = $3.75million <7 years: Prime + 3.25% >7 years: Prime +3.75% <7 years: Prime + 2.25% >7 years: Prime +2.75% <7 years: Prime + 2.25% >7 years: Prime +2.75% $150,001- $700,000 = 3.0%; $700,000- $1,000,000 = 3.5%; plus 3.75% on guaranty poraon over $1 million, Pre- payment penalaes: There are no pre- payment penal6es set by the SBA on the 7a loans except for loans over 15 years. In that instance, there is a declining pre- payment penalty of 5% (year 1), 3% (year 2), 1% (year 3). It is not uncommon for a lender to include a 20% per year pre- payment clause.
The 504(REAL) program is SBA s economic development financing tool designed to provide co- lender financing for the acquisi6on of capital equipment and owner- occupied commercial real estate. The program s purpose is to support new and exis6ng businesses that are crea6ng jobs and contribu6ng to the economic vitality of the community. How to qualify for a SBA 504 loan: New or exis6ng for- profit businesses Owner occupied commercial real estate - minimum 51% - exis6ng building - minimum 60% - ground up construc6on Proceeds are for business needs only Tangible net worth not to exceed $15million Net income (2 year average) not to exceed $5million Eligible Use of Proceeds: Real estate acquisi6on Purchase land & construc6on Purchase building with improvements Leasehold improvements Furniture & fixtures Capital equipment & fixed assets Professional fees associated with loan Interim interest and closing costs Limited refinancing of commercial real estate - 50% expansion rule The 504 loan program is delivered via a tri- party agreement. A lender provides loan approval for permanent financing on a 1 st lien posi6on at 50% of total project costs. The SBA via a CDC (Cer6fied Development Company) provides permanent financing for up to 40% in a 2 nd lien posi6on. The borrower commits a minimum of 10% equity contribu6on. This means that there are 2 loans and 2 loan payments at the end of the day. In the event that the business is new or there is a change of ownership, the SBA requires an addi6onal 5% equity injec6on. When financing specialty purpose real estate SBA requires an addi6onal 5% equity injec6on. Therefore the maximum SBA required equity injec6on is 20%.
504 Traditional Financing Structure
Fees: The SBA fees related to the 504 loan are financed into the permanent debenture (SBA s por6on of the loan). There is not a guarantee fee like on the 7a, but there is a processing fee, which equates to 1.5% of debenture por6on of the loan. All the fees total to approximately 3.25% on the SBA por6on only. The lender is allowed to charge an origina6on fee on the 504 first and second lien por6ons as well as construc6on management fees, interest on the interim por6on, in addi6on to any other miscellaneous fees. Not all lender charged fees, however, are eligible to be rolled into the loan. Terms: The 504 program is always a fully amor6zing loan, which means there is no balloon payment due at any point in 6me. Typically the 504 will be a 20 year term with a 20 year amor6za6on. There is a 10 year program for fixed asset financing that can be used on real estate when appropriate. The lender por6on will typically be a 10 year term with a 20 year amor6za6on and therefore have a balloon payment, which is allowable. Rates: The interest rate on a 504 loan is always fixed for the life of the loan. The rate is locked in once the loan is funded. In normal rate environments the 504 rate will commonly be between.5%- 1% lower than the bank rate. Funding: Because this is a tri- party loan, the borrower never has to fear that they will have to wait for SBA funding to take the seller out of the equa6on. In a typical real estate contract, the closing date is set and the bank funds the up front loans including closing on the real estate to remove the seller from the equa6on. The SBA por6on, however, is funded by investors in a secondary market, which means they fund within 45-60 days of actually signing the closing documents. This is also when the premiums are nego6ated to the investors and the final interest rate is set.
SBA 504(REAL) Closing and Funding process highlight: 1st Close Disbursement Period 2nd Close Funding Close on Real Estate (take out seller) Close on Construction proceeds Close into 2 loans/2 title policies Lender disburse proceeds: (also known as the interim loan) Construction FFE Professional Fees Take out the 2nd lien interim loan Close 504 permanent financing documents Servicing Agent funds CDC portion of the loan Interim loan is taken out - lender left with permanent loan Borrower refunded CDC processing fees
Quick Loan Reference Comparison These rates and terms are most typical of these loan products. Conventional 504 7a LTV/LTC 60-80% 80-90% 70-90% Bank Term SBA Term 5yr 10yr 3+ 20yr 3+ ** Bank Amortization SBA Amortization 20 (avg) 20yr 20yr 3+ ** Rates floating fixed variable Injection Bank Fees SBA Fees 20-40% 10-20% 1-2% 1-2% 3.25% 10-30% <3 % 3+%
Step by Step Process At A Glance: 1. Qualify 10. Funding & Post Close 2. Document Gathering 9. Closing 3. Preliminary Analysis 8. Third Party Reports & Approvals 4. Present Executive Loan Summary 7. Lender & SBA Approvals 5. Present Loan Offers 6. Select Lender U/W
Step-by-Step Expectations of Loan Process: AdvisorLoans Loan Advisor Specialists (LAS) are commihed to moving your file through the process as quickly as possible. Our goal is to have every file to LOI within 2 weeks. Once new informa6on is received by LAS, they review within 48 hours and respond with any ques6ons or clarifica6ons and next steps. We ask that advisor/client be responsive so that we may insure the most efficient and prompt lending experience that is available. Step 1. Initial Lending Goal, Qualification and Process Review: In an ini6al call with an AdvisorLoans Loan Advisor, advisor/client will be asked to provide some basic informa6on to determine if the SBA has a loan product to fit the lending goal. Such informa6on can include use of proceeds, purpose of transac6on (partner buy- out, real estate acquisi6on, etc), length of 6me in business, whether or not a franchise is involved, management experience, if real estate, occupancy percentage, and so on. Step 2. Application Review and Completion a.k.a. Document Gathering (phase 1): Once the Loan Advisor has determined that the request is preliminarily eligible for SBA, an introduc6on to our Senior Vice President of SBA Lending Division is made. At this stage, the SVP will take a deeper dive into SBA eligibility and provide a Qualifica6on Leher. Our SVP will review this guide, engage and then assign the file to a Loan Advisor SBA Specialist (LAS). SVP will also set up our client portal for document upload and send an ini6al checklist to allow advisor/client to begin uploading documents into our secure portal. Once the portal is set- up the file is assigned to a Loan Advisor Specialist and an introduc6on is made via email. As you can imagine, there is a lot of informa6on to provide for a loan transac6on, especially one with a government guarantee behind it. Not to worry. We are here to reduce the amount of work for you to complete. We also maintain your documents in a secure environment that is easy for you to upload into and maintain a live, dynamic checklist so you always know where we stand. This is also a crucial part of building the loan package. LoanAdvisor Specialistc Build checklist specific to client Provide a 5 minute orientation on how to use CirrusLS Client Provide documents requested in checklist Sign assistance agreement & provide engagement fee
Step 3. Preliminary Analysis: In step 2 advisor/client is introduced to their designated LoanAdvisor Specialist (LAS) who takes over as tour guide and loan processor. LAS checks client portal daily for any updates to the file and will check in with advisor/ client every Monday a\ernoon if advisor/client has not made progress in the previous week. AdvisorLoans LAS reviews the informa6on provided by client and runs a debt service simula6on to determine if the lending goal is financially feasible and which lending partners are most appropriate to present the loan request to. In this step, LAS will look for any poten6al ques6ons that an underwriter might ask and collect all necessary documents to complete the underwri6ng and credit analysis for the lender. LAS tries to an6cipate any items that may not be standard based on the unique circumstances of each loan. This will aid in keeping Step 6 moving smoothly. Step 4. Present Executive Loan Summary: AdvisorLoans LAS completes the execu6ve loan summary and submits to mul6ple lenders. Lenders provide Leher of Intent to advisor/client to make selec6on. Step 5. Present LOI s and Make Decision: AdvisorLoans LAS present LOI s to advisor/client to review, compare and make decision on which lender to proceed to underwri6ng. LAS provides facts and support to advisor/client to aid advisor/client in making a prudent decision to proceed to underwri6ng. Once the decision is made the lender selected is the only lender that will be underwri6ng the file for final loan decision. Upon receipt of executed LOI, LAS will release the en6re file in client portal to lender selected. Step 6. Lender Underwriting & Staging for Closing Lender proceeds to underwri6ng and provides any and all ques6ons and feedback to LAS. LAS will be the first line of defense in answering any ques6ons before engaging advisor/client in any dialogue with underwriter. LAS will coordinate addi6onal items requested and if necessary facilitate a call between advisor/client and underwriter. At this 6me, LAS will also release a closing checklist through our client portal in an6cipa6on of closing and to streamline the 6meline.
Step 7. Lender & SBA Approvals: All LoanAdvisors preferred lenders are Preferred Lending Partners (PLP) with the SBA and therefore have internal approval authority to issue SBA approvals. There is s6ll a formal process in approving and issuing a SBA loan number, however it is much more brief. Upon receipt of final lender and SBA approvals and final commitment leher is issued to advisor/client to review final terms and condi6ons, accept them and move into the closing stage. Step 8. Third Party Reports & Approvals: In the event the transac6on warrants a third party report such as a real estate appraisal, business valua6on or environmental report, the lender will order those reports upon receipt of executed commitment leher. These reports must be ordered by the lender in order to maintain third party compliance with the SBA. Addi6onally, in the event the loan is not approved, advisor/client is not out of pocket the expense of these reports. Upon receipt of the necessary reports, they are reviewed and analyzed to the loan approval and any amendments that are required are made at this 6me. An amendment would be required if the appraisal came in lower than the purchase price for example. Step 9. Closing: In step 6 we began preparing for closing, now it is here. There are final items to complete in this stage that advisor/client would not have been able to complete without the bank and SBA approvals like life insurance assignments. The bank has their ahorney draw up closing documents in some cases and a complete file review is done at this 6me to make sure there are no missing components should the lender receive an audit soon a\er. LAS will once again be the first line of defense with the lender insuring that advisor/client is not given a checklist of items that have already been collected. The LAS has been building the file with the end in mind, so there are quite a few closing items that are collected in the ini6al document gathering stage to enable this step to move as swi\ly as possible. Step 10. Funding & Post-Close: Now that the really fun part is here, AdvisorLoans confirms that not only the en6re file is wrapped up with the lender but that our advisor/client had a great experience. The rela6onship is moved back to our ini6al Loan Advisor for a brief survey and ongoing rela6onship.