SBA Lending & Better Access to Capital
MBS 6th Small Business Summit
May 5, 2015
Confidential
Agenda
1.
Welcome & Introduction
2.
The Problem & The Opportunity
3.
SBA Program Overview
4.
SBA 7a Program
5.
SBA 504 Program
6.
Prudent Lenders Value Proposition and Process
7.
Creating a Successful SBA Program
Our Foundation

CDC Small Business Finance
 $2.0 billion SBA portfolio
 Processes $300+ million of SBA loans annually
 Largest Certified Development Company in the U.S.

New York Business Development Corporation
 $1.2 billion SBA portfolio
 Processes $200+ million of SBA loans annually
 85+
staff of lenders, loan processors,
underwriters, and attorneys
3
The Problem – “Why do SBA Loans Take so Long?”

The vast majority of the lending community in the US views
SBA 7a loans as slow and cumbersome.

Roughly 10 lenders in any market possess the knowledge
base and standardized process to close loans quickly, ensure
the guaranty is intact, and generate significant fee income.

75% of current lenders are deemed inactive (less than 10
loans annually) by SBA.

Inactive lenders perpetuate “slow and cumbersome” myth:
1.
Unfamiliar with structuring and eligibility upfront;
2.
Unfamiliar with “hot spot” issues in underwriting;
3.
Unfamiliar with SBA personnel and documentation.
4
The Problem
5
Credit Unions & SBA Lending
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
CU_NAME
PROGRESSIVE
EVANGELICAL CHRISTIAN
LAKE MICHIGAN
THRIVENT
TOWN AND COUNTRY
OREGON COMMUNITY
LOMTO
DIGITAL
COASTAL
ELEVATIONS
FINANCIAL PARTNERS
NORTH ISLAND FINANCIAL
AMERICA'S CHRISTIAN
MELROSE
MONTAUK
ENT
GREAT LAKES
LOGIX
BETHPAGE
CALIFORNIA COAST
WASHINGTON STATE EMPLOYEES
STANFORD
ALASKA USA
KINECTA
MEMBERS CHOICE
WARREN
MEMBERS 1ST
GESA
ANDREWS FEDERAL CREDIT UNION
SCHOOLSFIRST
STATE
NY
CA
MI
WI
ND
OR
NY
MA
NC
CO
CA
CA
CA
NY
NY
CO
IL
CA
NY
CA
WA
CA
AK
CA
TX
WY
PA
WA
MD
CA
MBLs % of
# SBA Loans in $ SBA Loans in
Assets
$ MBLs in Portfolio
$ Total MBLs
assets
Portfolio
Portfolio
$616,780,400
$543,909,542
$543,909,542
88.19%
639
$360,459,996
$1,074,143,461
$798,069,849
$798,069,849
74.30%
60
$196,994,602
$2,943,819,293
$129,970,257
$129,970,257
4.42%
840
$111,966,739
$480,692,536
$85,409,151
$85,409,151
17.77%
425
$83,120,127
$334,806,905
$218,514,531
$229,778,062
68.63%
679
$81,564,606
$1,170,313,146
$0
3863
$75,489,907
$254,294,536
$230,056,380
$230,056,380
90.47%
137
$61,163,149
$5,109,987,504
$520,204,956
$521,183,799
10.20%
39
$50,650,355
$2,221,990,357
$238,807,200
$238,807,200
10.75%
21
$46,865,000
$1,332,394,336
$13,947,101
$14,380,356
1.08%
232
$40,044,018
$822,103,490
$89,483,942
$118,949,678
14.47%
232
$38,981,371
$1,110,580,391
$122,495,940
$159,410,777
14.35%
36
$38,827,184
$275,572,512
$161,217,254
$170,878,896
62.01%
51
$36,073,376
$1,868,541,217
$1,518,808,509 $1,519,065,009
81.30%
42
$28,264,734
$152,950,480
$136,473,253
$136,864,374
89.48%
46
$27,356,970
$3,788,364,730
$101,998,586
$102,071,254
2.69%
205
$22,420,625
$626,114,017
$19,105,551
$34,513,901
5.51%
11
$18,324,295
$3,674,273,698
$325,575,073
$332,512,993
9.05%
10
$16,734,612
$5,421,324,798
$474,815,083
$493,402,728
9.10%
9
$16,723,466
$1,774,021,594
$119,460,571
$188,962,384
10.65%
29
$12,742,422
$1,896,713,454
$21,449,035
$21,449,035
1.13%
79
$12,729,270
$1,553,837,799
$161,782,241
$205,137,433
13.20%
14
$12,258,806
$5,351,813,063
$276,415,394
$276,599,591
5.17%
4
$11,941,848
$3,260,918,310
$273,526,231
$273,526,231
8.39%
4
$10,955,000
$449,195,257
$7,508,450
$7,508,450
1.67%
26
$10,949,330
$483,709,841
$14,175,437
$33,198,836
6.86%
15
$10,704,787
$2,456,836,301
$274,290,016
$313,243,797
12.75%
17
$10,369,500
$1,275,516,085
$119,637,847
$124,511,306
9.76%
8
$10,101,453
$1,016,550,551
$31,735,671
$83,406,721
8.20%
1
$8,688,104
$9,722,610,799
$97,667,476
$157,444,131
1.62%
50
$7,552,150
6
Credit Unions & SBA Lending
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
CU_NAME
UNIVERSITY FIRST
CITY & COUNTY
GEORGIA'S OWN
CENTRIC
UNIVERSITY OF IOWA COMMUNITY
SIGNAL FINANCIAL
ARCHER COOPERATIVE
STATE EMPLOYEES
ORANGE COUNTY'S
CALIFORNIA
UNITUS COMMUNITY
BAY RIDGE
HAWAIIAN TEL
SELF-HELP
WHATCOM EDUCATIONAL
FIRST COMMUNITY
COLUMBIA COMMUNITY
AMERICAN UNITED FAMILY OF CREDIT UN
INSIGHT
PUBLIC SERVICE
KEYPOINT
LANDMARK
WCLA
MILLBURY
UNITED HERITAGE
MID-HUDSON VALLEY
RED RIVER EMPLOYEES
SINGING RIVER
ALTRA
SIERRA POINT
STATE
UT
MN
GA
LA
IA
MD
NE
NY
CA
CA
OR
NY
HI
NC
WA
ND
WA
UT
FL
MI
CA
WI
WA
MA
TX
NY
TX
MS
WI
CA
Assets
$ MBLs
$658,237,085
$397,310,089
$1,772,830,565
$108,655,225
$2,074,755,102
$318,938,738
$61,545,080
$2,684,742,132
$1,097,536,020
$1,098,245,757
$948,143,725
$182,228,352
$506,150,503
$575,890,324
$961,722,695
$459,096,422
$939,882,111
$144,910,789
$464,098,612
$137,366,792
$818,414,624
$2,316,901,958
$31,030,741
$288,196,388
$752,249,046
$768,005,095
$653,400,477
$191,803,312
$960,443,293
$27,556,746
MBLs % of
# SBA Loans
in Portfolio
$ Total MBLs
assets
Portfolio
$51,585,193
$55,583,026
8.44%
$16,765,437
$18,381,203
4.63%
$37,850,528
$105,053,628
5.93%
$7,585,396
$8,145,710
7.50%
$320,874,100
$325,024,607
15.67%
$33,785,067
$37,064,641
11.62%
$36,144,333
$36,223,058
58.86%
$185,017,334
$190,761,344
7.11%
$116,533,490
$130,000,210
11.84%
$86,550,564
$97,906,825
8.91%
$33,067,449
$47,495,694
5.01%
$93,659,867
$93,708,889
51.42%
$43,221,593
$43,221,593
8.54%
$50,943,604
$72,245,452
12.55%
$157,087,567
$157,087,567
16.33%
$281,906,411
$287,442,220
62.61%
$130,151,935
$130,151,935
13.85%
$10,203,264
$10,203,264
7.04%
$25,772,145
$50,311,746
10.84%
$12,213,515
$12,307,096
8.96%
$32,103,748
$100,303,030
12.26%
$224,097,189
$224,097,189
9.67%
$25,567,390
$25,567,390
82.39%
$31,261,353
$31,261,353
10.85%
$74,607,813
$74,607,813
9.92%
$78,845,321
$78,845,321
10.27%
$57,139,409
$60,724,428
9.29%
$13,771,556
$13,771,556
7.18%
$97,844,303
$100,679,064
10.48%
$3,217,003
$5,267,138
19.11%
in
7
4
2
1
3
17
17
3
3
9
1
48
16
2
24
11
2
2
1
2
2
2
47
5
1
5
2
1
3
2
$ SBA Loans in
Portfolio
$6,981,687
$6,196,540
$6,000,000
$5,690,000
$5,658,411
$5,343,120
$4,958,680
$4,950,000
$4,886,397
$4,602,504
$4,575,000
$4,556,633
$4,553,200
$4,327,843
$4,305,362
$4,008,639
$3,996,290
$3,718,125
$3,487,757
$3,150,000
$3,000,000
$2,920,000
$2,902,917
$2,822,167
$2,580,000
$2,569,289
$2,440,000
$2,179,929
$2,173,148
$2,030,827
7
Credit Unions & SBA Lending
61
62
63
64
65
66
67
68
69
70
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72
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89
90
CU_NAME
FORT KNOX
FREEDOM FIRST
UTAH FIRST
HORIZON UTAH
COMMUNITY
LAMOURE
COMMUNITY FINANCIAL
CENTRAL MINNESOTA
MARION AND POLK SCHOOLS
COMMUNITY CREDIT UNION OF LYNN
SUNSTATE
FINANCIAL RESOURCES
NUVISION
FOCUS
CYPRUS
SULLIVAN COUNTY
VIBE
MONEY ONE
SIERRA CENTRAL
PEOPLE'S COMMUNITY
GREENVILLE
KIRTLAND
AMERICHOICE
NEIGHBORS
LAKEVIEW
ROYAL
FAMILY FIRST OF NY
CODE
ST. MARY'S BANK
NAVIGANT
STATE
KY
VA
UT
UT
WI
ND
CO
MN
OR
MA
FL
NJ
CA
FL
UT
IN
MI
MD
CA
WA
SC
NM
PA
LA
WI
WI
NY
OH
NH
RI
Assets
$ MBLs
$1,100,592,170
$317,214,939
$251,917,111
$116,529,704
$114,049,808
$22,942,612
$141,595,745
$729,089,747
$467,128,171
$124,070,319
$300,571,204
$385,378,150
$1,310,395,605
$132,781,707
$638,703,660
$13,475,765
$416,614,789
$102,232,254
$671,962,742
$164,666,370
$167,748,615
$651,985,025
$160,006,907
$615,115,075
$107,898,234
$1,350,504,430
$135,231,990
$107,880,212
$780,354,904
$1,413,735,561
MBLs % of
# SBA Loans
in Portfolio
$ Total MBLs
assets
Portfolio
$11,425,407
$54,021,743
4.91%
$18,623,118
$22,781,349
7.18%
$27,939,294
$37,944,300
15.06%
$914,755
$3,261,942
2.80%
$23,028,400
$23,028,400
20.19%
$7,972,442
$9,717,287
42.35%
$5,891,875
$12,790,008
9.03%
$466,161,257
$467,861,257
64.17%
$49,159,800
$49,588,635
10.62%
$14,458,686
$14,458,686
11.65%
$47,968,093
$47,968,093
15.96%
$44,241,170
$44,241,170
11.48%
$61,855,051
$117,696,903
8.98%
$6,471,965
$9,485,088
7.14%
$73,217,919
$73,765,923
11.55%
$9,192,486
$9,621,928
71.40%
$4,351,592
$7,696,151
1.85%
$3,076,467
$10,356,100
10.13%
$4,780,547
$4,780,547
0.71%
$17,512,776
$18,539,501
11.26%
$7,080,365
$7,080,365
4.22%
$3,100,139
$3,100,139
0.48%
$16,491,873
$16,491,873
10.31%
$12,163,687
$13,385,603
2.18%
$9,999,436
$11,636,438
10.78%
$492,700,300
$521,907,023
38.65%
$911,995
$1,807,629
1.34%
$2,360,345
$10,859,356
10.07%
$87,359,963
$92,166,901
11.81%
$168,049,228
$168,049,228
11.89%
in
1
1
2
2
1
13
1
3
9
10
3
4
12
3
3
12
3
2
15
1
1
11
5
1
2
1
62
10
2
1
$ SBA Loans in
Portfolio
$2,010,000
$2,000,000
$1,929,682
$1,832,000
$1,800,000
$1,794,520
$1,777,600
$1,755,720
$1,686,170
$1,565,000
$1,550,000
$1,532,940
$1,528,150
$1,512,827
$1,500,000
$1,452,828
$1,422,780
$1,346,716
$1,327,706
$1,316,250
$1,251,856
$1,218,800
$1,215,897
$1,200,000
$1,121,346
$1,066,494
$1,057,602
$1,040,219
$1,026,006
$1,000,000
8
The Opportunity
9
The Solution

Prudent Lenders offers a consistent
delivery system to lending institutions.

Our business emphasizes efficiency and compliance in SBA
lending through one of the largest SBA processing and servicing
platforms in the nation; marketing & training resources;
secondary market access; and nationally-recognized partners.

By uniting these often disparate resources, Prudent Lenders is
not like other SBA service providers: It is the best outsourcing
option for lenders today.
10
Prudent Lenders Value Proposition
Origination
• Lender and branch network training
• Business development targeting local COIs
• 48 hour eligibility assessment
Loan Processing
• Full document collection and compilation
• Full underwriting (SBA-compliant CAM)
• Complete application submission to SBA
Closing
• In-house counsel for preparation of closing documents
• Reduced borrower cost
Secondary Market Sales
• Competitive bid process
• Accounting entry assistance and documentation
Post-closing
• Annual insurance, financial statement follow-up, annual
loan grading, monthly 1502 reporting, periodic loan
servicing requests, past due collections < 90 days, site
visits, SBA reporting, delinquency reports & liquidation
plans
11
SBA Program Overview – Eligibility

The following reflect major eligibility criteria:

Must be for-profit business;

Most industries are eligible;

All owners of OC and RE Holdco greater than 20% are
required personal guarantors;

Cannot finance passive CRE investment;

Maximum loan amount of $5.0 million ($5.5 exception);

Personal liquidity;

Franchise pre-screen;

SBA Form 912.
12
SBA Program Overview – Program Comparison
13
SBA Program Bottlenecks



Eligibility

Affiliation

Statement of Personal History

Franchise & Jobber Agreements
Underwriting

Global Cash Flow

Projections and Assumptions
Life Insurance
14
SBA 7a Program – Best Use

Business Acquisitions

Undercollateralized Projects with Cash Flow

Reduced Equity Requirements

Longer Loan Terms
15
SBA 7a Program – Loan Terms

Fixed asset acquisition (RE, Equipment, or Machinery),
refinancing, furniture and fixtures, Line of Credit term-outs,
working capital, and business acquisition are all eligible.

Loan terms are based on the use of proceeds:


Working Capital: 7-10 years

Equipment: 10-25 years (depends on useful life)

Building: 25 years

Goodwill: 10 years
No balloons
16
SBA 7a Program – Underwriting

The 7a program is best defined as a credit enhancement,
which as a result, expands the universe of potential
borrowers to which institutions may lend money.

It does not make bad loans good.

Standard underwriting criteria are still assessed:

Cash flow;

Fundamentals (customers, margin trends, mgmt);

Collateral;

Balance Sheet;

Global Cash Flow.
17
SBA 7a Program – Maximum Loan Amounts


Maximum Loan Amounts 
Standard 7(a) > $5,000,000

Small Loan Advantage < $350,000

SBA Express < $350,000
Guaranty Amounts 
SLA & Standard 7(a) < $150,000 = 85%

SLA & Standard 7(a) > $150,000 = 75%

SBA Express = 50%
18
SBA 7a Program – Interest Rates

Interest Rates –

Loans can be fixed or variable (can have re-set periods)

SBA periodically publishes the maximum fixed rate

The maximum variable rate is Prime plus 2.75%

Lender pays SBA servicing fee (52 bps) annually on
guaranteed amount resulting in reduced rate margin.
19
SBA 7a Program – Collateral

Collateral –

SBA will not decline a loan request solely on the basis of
inadequate collateral.

SBA does not permit its guaranty to be used as a substitute
for collateral.

“All Available Collateral” - SBA requires that the Lender
collateralize the loan to the maximum extent possible up to
the loan amount. If the business assets do not fully secure
the loan , the Lender must take available personal real estate
assets of the principals as collateral.

First security interest in assets purchased by SBA loan
proceeds is required.
20
SBA 7a Program – Program Fees
21
SBA 504 Program – Overview

The SBA 504 program is a very specific funding mechanism for
new purchases of commercial property and equipment.

Commercial property acquisition, construction, renovation or
expansion as well as Equipment purchases.

There are only two debenture options:
1.
20 year Debenture: Commercial property; Equipment with
at least a 20-year useful life (printing presses, pick/pack
machines). Current 20-year Fixed Rate is 5.75%.
2.
10 year Debenture: Typically used only for Equipment
purchases. Current 10-year Fixed Rate is 5.04%.
22
SBA 504 Program – Typical Structure

50/40/10 structure is standard:
Conventional Structure
Lender
Conventional
80%
Borrower Equity
20%

$800K
20 year Am.
5 year Term.
5 year Rate reset.
$200K
SBA 504 Structure
Lender
Conventional 1st
50%
$500K
20 year Am.
10 year Term.
5 year Rate reset.
SBA 2nd Mortgage
40%
$400K
20 year everything.
Equity 10%
$100K
Benefits: $100K Reduction in Equity required. 2nd Mortgage on
20-year Fixed Rate of 4.59%. Inclusion toward Equity of all
eligible soft and closing costs (instead of out-of-pocket).
23
SBA 504 Program – The Details

Details on the 504 program:

Special purpose facilities and start-ups increase Equity
injection requirement by 5% each.

Rate is set when debenture funds (45-60 days after closing)

Pre-payment penalties during the first 10 years.

Maximum SBA portion of $5.0 million ($5.5 exception).

Must be owner-occupied (greater than 50% of sq.ft.)

New construction allowed (60-80% of sq.ft. requirement).

Projection-based loans for expansion are eligible.

Fully secured by project collateral. Appraisal needed.
24
SBA 504 Program – Quick Reference

Quick Reference on SBA 504 Program:

New Commercial Property and Equipment purchases.

90% funding. Typical 50/40/10 funding structure.

20-year Fixed Rate of 4.59%.

10% Equity requirement.

Inclusion of eligible soft and closing costs toward Equity
instead of out-of-pocket.
25
The Prudent Lenders Process
The Prudent Lenders Process
Lender responsibility
Prudent responsibility
27
The Prudent Lenders Process
Required Forms
Fast Track Assessment
Produced in
Source Documents
48 hours
28
The Prudent Lenders Process
Vendor reports ordered
29
Creating a Successful Program

Develop a responsive program

A quick no or yes

Eliminate bottlenecks
 Life Insurance
 Appraisals

Identify Centers of Influence

CPA, Realtors

Referral Fees

Market the process

Follow-up and track progress
30
Contact Information
31