Conference on 2015 Housing & Economic Development
Who is Capital Matrix, Inc.?
• Certified Development Company (CDC), originally started in 1983
as Treasure Valley Certified Development Company, Inc.
• Certified by the U.S. Small Business Administration (SBA) to provide owner
occupied real estate and equipment financing to small businesses through
the SBA 504 loan program.
• Capital Matrix serves Idaho, Southeastern Oregon & Eastern Washington.
• Non profit company located in Boise.
• Grant program
• Funded almost 1,100 loans totaling almost $350 million
• 8,311 confirmed jobs have been created by those expanding small businesses
What is our role?
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Capital Matrix works with lender of choice, the Small Business
Administration and the small business borrower to process, approve, close
and service an SBA 504 loan.
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Capital Matrix promotes the SBA 504 Loan Program to Bank Lender’s,
CPA’s, Commercial Realtors/Brokers and other center of influences by
providing training, marketing materials and active participation in sales calls.
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Capital Matrix provides the expertise on the details of the SBA 504 Loan
Program. (ALP Status, one program only)
What is the SBA 504 program?
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The SBA 504 loan program was created for two reasons:
(1) To provide financing to businesses who are ready to buy or build a facility
and purchase equipment.
(2) To stimulate economic development through job creation, business growth
and increased tax revenues.
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A simple way to describe an SBA 504 loan is as a mortgage for small
business owners to "purchase homes" for their businesses.
Benefits to the Borrower
• Long term financing: 20 years, fully amortized, avoid early call
provisions
• Competitive fixed interest rates: 4.9% (20) or 4.2% (10) for
September 2015, enjoy lower monthly payments and enhance
business cash flow
• Affordable down payment: min. 10%, allows business to conserve
working capital and retain liquidity to meet operating needs
• Ownership options available: hold title personally, in the name of the
business or set up a real estate holding company
Benefits to the Bank
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Reduce Risk of Loan (50% Loan to Value)
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Demonstrate CRA compliance and involvement in community lending and
development
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Because of high quality (low loan to value), the bank loan with 504
participation can be sold in the secondary market.
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Capital Matrix prepares the loan package, which saves lender on time and
labor
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Lenders build stronger banking relationships by providing customers the
benefits of the 504 loans.
Benefits to the Community
• Job Creation
• Increases tax base
• Stimulates overall economy
• Grant opportunities
Who is eligible?
• For profit company
• Meet occupancy requirements for the building
– Occupy 51% of an existing building
– Occupy 60% of a new building (new construction)
• Defined as “small” by SBA definition:
– Tangible net worth of $15 million or less; and
– Average net income of $5.0 million or less for the prior 2 years
• Create jobs
– Economic development objective
What is Eligible?
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Businesses that currently own land and are ready to construct their building
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Ready to purchase land and construct a building
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Now leasing with an option to purchase the building
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Purchase an existing building (renovations can be included)
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Construct or remodel facility on leased land
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Purchase and install machinery and equipment, furniture & fixtures
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Expanding into new markets and want to add an additional site (may include
the refinance of existing debt)
What is not eligible?
• Stock Purchase
• Working Capital
• Franchise Fees / Intangible Assets
• Liquor License
• Titled Vehicles
• Straight refinance
How does it work?
Bank & SBA partnership - provides up to 90% financing
for Real Estate and Equipment purchases
Typical Structure:
• 50%- bank conventional R/E loan
• 40%- SBA loan/debenture (fully guaranteed by SBA)
• 10%- borrower down payment (typically)
Project Example
Acquisition of Building
Renovations
Purchase Equipment
Bank Fees/Costs
Total Project Costs
$ 800,000
$ 100,000
$ 80,000
$ 20,000
$1,000,000
Sources
Third Party Lender Loan
$ 500,000
CDC/SBA
Borrower Injection
Total
$ 400,000
$ 100,000
$1,000,000
50%
40% + fees
10%
100%
CDC/SBA Cost/Fee Structure:
1) Fixed interest rate: Effective rates for September 20 year 4.9% 10 year 4.2% (set when loan funds)
(includes guaranty and servicing fees)
2) Loan processing fee: 2.15%
SBA loan of $400,000 x 2.15% = $8,600 (financed in the SBA loan - $409,000)
3) Loan closing fee: up to $2,500
includes legal review, escrow, tax service, title insurance, recording fee, environmental report
(if financed in the SBA loan - $412,000)
4) Bank Participation Fee – 0.5% - Third Party Lender Loan $500,000 x .50% = $2,500
(collected at SBA Term Loan closing)
Borrower Injection
1. Cash
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Business
Personal Resources (401K, cash, life insurance, borrowed funds)
Gift (must provide gift letter & evidence of funds in borrower’s account)
2. Equity in land/building
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Project land/building
Equity in other land/building being refinanced in project
3. In some cases, borrowed funds
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Seller carry back financing or other commercial financing
(borrower must be able
to service the debt, seller carry note must have a reasonable interest rate, and term must match the
SBA note, if secured by project property)
What does it take to get started?
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Project information (size, location, occupancy)
Copy of purchase agreement / construction costs/Equipment bids
Short description of business or business plan
Current plus 2 full years of company financials/tax returns
Current A/R and A/P agings report
Debt schedule for company
Current personal financial statement plus current tax return
Affiliated companies: two years of tax returns
Appraisal & Environmental Report (if available)
Projections (if needed)
What does it take to get
approved?
• Evaluate for eligibility
For Profit
Occupancy
Size of small Business
Job Creation
• Evaluate for credit risk
Historic cash flow
Projected cash flow
Pro-forma working capital
Pro-forma leverage
Outside income and equities
Credit history of individuals
Experience of borrowers
Location/Industry
Does the deal make sense?
912 issues
Diamond View Assisted Living
Mc Millen LLC
Welch Music
Pearl Dentistry
Yoga in the Hood
Bardenay
Simmons Fine Jewelry
Dutch Bros
Keller CPAs
VIC’S family pharmacy
Questions?
Please visit us at www.capitalmatrix.org