Herb Lawrence, ASU Center Director Arkansas Small Business and Technology Development Center – Little Rock [email protected]
Sep 08, 2014
Herb Lawrence, ASU Center Director
Arkansas Small Business and Technology Development Center – Little [email protected]
The Economy and the Current Recession Lender Concerns for Start Ups
◦ Businesses with no track record for historical cash flow Lender Concerns for Collateral
Especially small businesses where bulk of business collateral is FFE and Inventory
Lenders use a Liquidated Discount Rate on Collateral Limited Personal Collateral to pledge
Lender Terms not always Favorable Lender Balloon Features
An SBA loan is a commercial loan from a lender that is guaranteed by the
U.S. Small Business Administration.
Takes forever to get money Requires a “ton” of paperwork Offers low interest rates Provides grants NO GRANTS!
7(a) Loan Guaranty Program◦ SBA Express◦ Patriot Express◦ Micro Loan Program
504 Loan Program for Fixed Assets
SBA guarantees (insures) the loan, reducing the risk to the lender.
Borrower must secure a participating lender. No minimum loan size. Maximum loan size is $2 million.
NOTE: SBTDCs cannot “RECOMMEND” specific lenders, however Your nearest SBTDC office can give you information about banksAnd other lenders in your area who are “SBA Friendly”
Lender must be PLP Maximum loan $350,000 Lender applies for 50% loan guaranty Can Include Revolving Lines of Credit Lender handles approval and issuance
NOTE: For list of SBA Express Lenders operating in Arkansas contact your nearest SBTDC office or the Little Rock District Office of the SBA.
Loans up to $500,000 by lender approved for SBA Express (PLP)
Lender applies for 85% guaranty for loans of $150,000 or less
Lender applies for 75% guaranty for loans over $150,000 up to $500,000
Can Include Revolving Lines of Credit Interest rates same as 7(a) loans Lender handles approval and issuance
NOTE: With ARRA PatriotExpress Loans now have90% Guaranty for Lenders
Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital)
Loan backed by a debenture sold to investors
Maximum debenture: ◦ $1.5 million for business that create certain
number of jobs or improve the economy of the locality
◦ $2 million for businesses meeting a specific public policy goal
◦ $4 million for manufacturers
Repayment Ability Management Ability Equity Position Collateral
SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations.◦ Cash Flow◦ Working Capital
Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt.
Projections will be compared to industry standards and demographics will be considered.
Start-up Expenses Accounts Receivable Contingencies & Emergencies
◦ Rule of Thumb: 3 months fixed expenses
Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management.
SBA does not approve 100% funding requests.
Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk.
SBA will not decline a loan ONLY due to a lack of collateral.
To protect taxpayer dollars, loans must be secured as fully as possible.
TERMS TERMS TERMS
EXAMPLE:$100,000 Working Capital Loan Non-SBA 3 years at 6% interest$3,043 per month$100,000 Working Capital Loan SBA 7 years (no penalty for early repaymentAt 7% interest:$1,510 per month
For small businesses, especially those in start up mode, minimize monthlyCash outflow to bank the SBA option even at higher interest rate putsNearly $1,500 per month back into the business to use for inventory, Promotion, wages, etc. those expenses that will make you money
No pre-payment penalty on loans with maturity of less than 15 years
No balloons Patient partners Relaxed credit requirements Flexible loan terms
25 years Real Estate 10 years Equipment 7 years Inventory, Accounts Receivable,
Working Capital
Fixed or variable Maximum: Prime + 2.75% for terms of 7yrs
or more
Businesses must meet SBA size standards to qualify:
◦ Manufacturing: 500 to 1,500 employees
◦ Wholesaling: 100 employees
◦ Services: $4.5 to $32.5 million in average annual receipts
◦ Retailing: $6.5 to $26.5 million average annual receipts
◦ General Construction: $6.5 to $32 million average annual receipts
◦ Agriculture: $750,000 to $16.5 million in average annual receipts
◦ NOTE: In certain industries maximum size has been increased as part of stimulus packet to accommodate more businesses needing financing assistance
Real estate investments Other speculative activities Lending activities Not-for-profit ventures Pyramid sales or distribution businesses
Illegal activities Religious indoctrination Activities of a sexual nature Businesses not open to the general public
SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements
Finance floor plan needs NOTE: Stimulus packet now allows SBA guaranty floor planning for certain businesses
Purchase real estate for investment purposes
Disbursements to owners or principals Pay delinquent trust accounts
(withholding or sales tax) Refinance delinquent debt within a bank Acquisition of less than 100% of a
business
Borrowers on probation or parole Borrowers with serious criminal histories Borrowers that are 90 days or more delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.)
Borrowers of poor character
Arkansas Capital Corporation ◦ Certified Development Corporation (800) 216-
7237 Enterprise Corporation of the Delta –
◦ (870) 673-4470 SBA Lenders◦ Hope Community Credit Union – Micro Lender
Southern Financial Partners Planning and Development Districts
◦ 8 PDDs around the state covering specific counties
◦ http://www.arkansas.gov/drs/pdf/ar_planning_dev_districts.pdf for a complete list
"Fostering a More Small-Business-Friendly Regulatory Enforcement
Environment"
PDDs, cont.◦ Some are more involved in lending than others
Most have some type of Revolving Loan Fund◦ West Central PDD can do SBA loan assistance
statewide others cannot. FORGE (Financing Ozarks Rural Growth &
Economy) (479) 738-1585 Micro Lender Baxter, Benton, Boone, Carroll, Conway, Crawford,
Franklin, Johnson, Logan, Madison, Marion, Newton, Perry, Pope, Scott, Searcy, Sebastian, Washington, Yell
◦ Alt Consulting www.altconsulting.org (870) 335-8535 In process of being approved as Micro Lender
Some counties or communities in Arkansas have developed Economic Incentive Funds through sales or other local taxes
These programs can provide “supplemental” funding for start ups or expansions especially where jobs are involved
Check with your local Chamber of Commerce or County Economic Development Office to see if your community has passed such an ordinance and whether you can take advantage of it
"Fostering a More Small-Business-Friendly Regulatory Enforcement
Environment"
Recent scam Fake SBA letterhead Stimulus tax rebate SBA determines eligibility Need bank account informationDON’T DO IT!
www.sba.gov 7(a) Guaranty, Patriot Express MEIDL Loans www.sba.gov/aboutsba/sbaprograms/reservists/businessdev Little Rock District SBA Office Veterans Business
Development Officer http://recovery.arkansas.gov/ Arkansas Stimulus Packet http://www.recovery.gov/ Federal Stimulus Packet http://www07.grants.gov Actual Government Grants http://www.arcommunities.org/APAC.htm Arkansas
Procurement Assistance Center – Vet specific info http://www.asbdc.ualr.edu/ Arkansas SBTDC Website http://arkansasveteran.com/ Arkansas Veteran Web Portal www.navoba.com National Vet-Owned Business Association www.franchise.org Veterans Transition Franchise Initiative
Contact Rudy Ortiz [email protected] or (501) 683-7721 for a copy of this presentation
Contact your local Small Business Administration Office for Arkansas Residents the Little Rock District Office (501) 324-7394
Or Contact your local Small Business and Technology Development Center for Assistance – state website http://asbtdc.ualr.edu to locate office nearest you or contact Herb Lawrence ASU SBTDC
For Procurement Assistance Information contact either your local SBTDC or the Arkansas Procurement Assistance Center
Log on to Arkansas Veteran Webportal http://arkansasveteran.com to stay updated on changes to financing programs
For a copy of this presentation contact Herb Lawrence, ASU SBTDC Center Director at (870) 972-3517 or e-mail at [email protected]