Pilot Loan Program
U.S. Small Business Administration
September 2014
Program Agenda
1.SBA Community Advantage Overview
2.Program Sustainability
3.Best Use of the Program
4.Associate Program
5.Questions and Contacts
Panelists
Chuck Evans, Prudent Lenders, President and CEO
Kitty Barbee, Eastern Maine Development
Corporation, Deputy Director – Business and
Economic Development
Lisa Holmes, South Eastern Economic
Development (SEED) Corporation, Sr. Vice
President and Lending Team Leader
What is the Community Advantage (CA) Program?
 A Pilot Loan Program introduced by US SBA to meet the
credit, management and technical assistance needs of
small businesses in underserved markets.
 CA is designed to provide mission-oriented lenders,
primarily nonprofit financial intermediaries focused on
economic development, to access to 7(a) loan guarantees
for loans of $250,000 or less.
 CA will operate through March 15, 2017 and may be
extended or made permanent at SBA’s discretion.
Is my organization eligible to participate as a
CA Lender?
Certain organizations making loans in underserved
markets are eligible to participate in CA:
 SBA Authorized Certified Development Companies (CDC’s)
 SBA Authorized Microloan Intermediaries
 Non-Federally Regulated Community Development
Financial Institutions (CDFI’s)
What are the SBA’s goals for CA?
 Increase access to credit for small businesses
located in underserved areas;
 Expand points of access to the SBA 7(a) loan
program by allowing non-traditional, missionoriented lenders to participate;
 Provide Management and Technical Assistance
(M&TA), as needed; and
 Manage portfolio risk at acceptable levels.
Example 1:
Example 2:
Infancy, minorityowned retail pharmacy
 Enhanced cash flow of
a growing business by
paying off short term
payable
 Collateral was limited


Wanted to support good
9-month results!
Pre-existing, ML client
that was in operation
five years, but was
overcoming a hurdle in
last FY
 Relying on in-house
figures after a difficult
year
 Limited collateral
Support an excellent previous
client during recovery time!
SBA Program
CA - Expanding Access
Eligible Businesses
For profit
Eligible Use of Proceeds
Purchase of land & building
Construction & renovation
Machinery & equipment
Business acquisitions (incl. goodwill)
Leasehold improvements
Existing debt refinance (incl. seller notes)
Furniture & fixtures
Working capital (incl. franchise fees, liquor license)
Maximum Loan Amount
$250,000
Loan Guarantee
85% / Maximum of $150,000
75% / Maximum of $250,000
Interest Rates
Set by lender according to SBA max. Base Rate + 6%
Equity
10% standard for fixed asset purchases
Typically higher for start-up or change in ownership
Fees
Up to $150,000 = 2% of guaranteed portion
Lender may retain 25% of fee for loans $150,000 and below
Above $150,000 = 3% of guaranteed portion
Available Loan Term
Up to 25 years. Set by lender according to SBA maximum
Term must also agree with Lenders CA Loan Policy
Eligibility Criteria
Sales And Employee Limits By Industry or
Tangible net worth < $15 million;
NIAT < $5 million
Pre-Payment Penalty
5%, 3%, 1% on loans > 15 years
Non-Penalized Pre-Payment
For 15 year terms or greater, 25% or less of principal in any one
year during the first three (3) years of the loan term
SBA Program Overview – Interest Rates
Interest Rates –





Loans can be fixed or variable.
SBA establishes maximum rates based on term of
the loan
Two sets of maximum rates: < 7 years and > 7
years.
The maximum rate is Prime plus 6% or 9.25%,
Lender pays SBA servicing fee (52 bps) annually on
guaranteed amount resulting in reduced rate
margin.
SBA Program Overview - Eligibility
Eligibility –




Organized for Profit
Small Business Concern -SBA Size Standards for the
industry or the Alternate Size Standard ($15MM
Tangible Net Worth and $5MM Average Net Income
After Tax - 2 years)
Affiliates as well as franchise, dealer, jobber and
license arrangements come under scrutiny in
determining size standard.
The business must need the loan as determined by
the "credit elsewhere test".
SBA Program Overview - 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 assets of the principals as collateral.
First security interest in assets purchased by SBA loan
proceeds is required.
SBA Program Overview – 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
SBA Program Overview – Best Use
The most common way to utilize the 7a program is
in expanding the conventional credit box by:



Reducing the collateral requirement of lender;
Providing longer terms than would be required
conventionally;
Reduced Equity injection in the project versus what
would be required conventionally.

Start-ups

504 Companion Loans
Who Are We?
 Private non profit, established in 1967 (EDD & CDC)
 Located in Bangor Me and serve the four Eastern Counties of
Maine: Hancock, Penobscot, Piscataquis Counties as well as
portions of Waldo County
 Our service area covers almost 11,000 square miles with a
population of 257,334 and is the largest economic
development district in Maine
 Our professional staff members are divided into three service
areas - business, community and workforce development
EMDC – CA Lender
 First loan approved January 26, 2012, in the
amount of $225,000
 Since then, a total of 42 loans have been
approved
 Average amount $121,000
 Industries include: manufacturing, hospitality,
medical office, transportation and others
YTD 2014:
14 approved
6 in process
Community Advantage Performance as of August 05, 2014
Lender / CDC
lender state
# loans
approved
$ loans approved
CDC SMALL BUS. FINAN CORP.
CA
130
16,817,500
EMPIRE ST. CERT. DEVEL CORP
OBDC SMALL BUSINESS FINANCE
NY
121
15,869,900
CA
89
11,599,600
VALLEY ECONOMIC DEVEL CORP.
CA
77
11,087,000
EASTERN MAINE DEVEL CORP
ME
42
6,522,000
PEOPLEFUND
TX
55
3,992,800
TRENTON BUS. ASSISTANCE CORP
NJ
26
3,390,000
ACCION TEXAS, INC.
TX
26
3,281,600
NORTHERN ECONOMIC INITIATIVE C
MI
18
3,227,800
GROWTH CAPITAL CORP.
OH
25
3,214,700
MONTANA COMMUN DEVEL CORP.
MT
25
2,945,000
SHOREBANK ENTER. GROUP PACIFIC
WA
13
2,549,500
#5
How the Process Works
 Business Visitation/ Client counseling
 Assistance with necessary paperwork and application
 Underwriting by staff
 Review by loan review committee and board
 Submission to Small Business Administration
 Loan funded by EMDC
 Loan servicing
Examples
Two Rivers Realty
Refinance to remove balloon payment
$150,000
Print Central
Leased building
Purchase of existing business, equipment
$250,000
Dog Not Gone
2nd 7(a) loan
expansion of business, inventory & working capital
$125,000
Advantages
 Streamlined process
 ETran system, simple to utilize
 Dedicated support
 Quick turnaround time
Affiliate Program: Not a Lender?
Be a CA Associate
 Allows for additional leverage of capital
 Expands reach and impact of program
 No application or paperwork required by SBA
 Form 159(7a) must be completed
 MOU between organization outlining agreement
 Sub notes between organizations
Questions?
Michelle Genovese
Amy Bassett
Financial Analyst
Office of Economic Opportunity
US Small Business Admin.
409 3rd St, SW
Washington, DC 20416
202-401-8282
Michelle.genovese@sba.gov
Deputy District Director
New Hampshire District Office
US Small Business Admin.
55 Pleasant St, Suite 3101
Concord, NH 03301
202-481-0190
Amy.bassett@sba.gov