Transcript SEDA-COG Local Development Corporation RR #1 Box 372

SEDA-COG Local Development Corporation
201 Furnace Road
Lewisburg, PA 17837
(570) 524-4491
Fax (570) 524-9190
Toll Free 800-326-4086
Home Page: http://finance.seda-cog.org
Contacts:
Jim McClure, Director Finance Programs
John Reichard, Senior Loan Officer
Tim Kishbach, Senior Loan Officer (cell 570-847-9531)
Mike Mignogna, SBA Specialist
SBA 504 Loan Program
 The Small Business Administration (SBA) 504 Loan Program is a
long-term, fixed asset financing program, which offers small
businesses fixed interest rate loans with terms of 10 or 20 years.
 The vehicle for these loans is a public sector, not-for-profit company
designated as a Certified Development Company. SEDA-COG LDC
is your local Certified Development Company.
 INTENT AND GOAL: The intent of the SBA 504 Program is to
stimulate local investment and create new, or save existing jobs.
SBA 504 Loan Program
 ELIGIBLE PROJECTS: The program is available to start-up and
successful small businesses planning an expansion or asset
purchase. Eligible businesses with a three year track record and
stable cash flow are desirable.
• An eligible business must be a for-profit corporation,
partnership or proprietorship. The Net Worth of the business
must not exceed $8.5 million and Average Net Profit after tax
must not exceed $3.0 million for each of the last two years.
Option to look at 7a regulations to determine eligible size.
• An ineligible business is one that is a not-for-profit
organization, speculation project, gambling facility, monopoly,
pyramid sales, offshore facility, or illegal activity, etc...
SBA 504 Loan Program
 USE OF PROCEEDS:
• Purchase of existing buildings
• Purchase of land and land improvements
• Construction
• Modernization, renovation, or conversion of existing facilities
• Purchase of machinery and equipment
• Contingency reserve for cost overruns up to 10%
• Professional fees (surveying, engineering, architectural,
appraisal)
• Repayment of interim financing, including fee and interest
expense
 COLLATERAL:
• Mortgage on the land and building being financed, liens on
machinery, equipment and fixtures, and lease assignments
SBA 504 Loan Program
 JOB CREATION:
• 1 job created and/or retained for every $65,000 in SBA funds
($100,000 for manufacturers)
 PUBLIC POLICY GOALS (PPG):
• Target areas for SBA lending
• Women-owned business
• Veteran-owned business
• Minority-owned business
• Rural Development
• Business District Revitalization (ex. KOZ sites)
• Expansion of Exports
• Enhanced Economic Competition
• Energy Projects
• Impact job creation criteria and maximum loan size
SBA 504 Loan Program
 TERMS: (a typical project)
• The 504 loan program is a dual program which involves the SBA,
through SEDA-COG, and a private lending source. Private lenders
(banks) constitute 50% of the SBA 504 project total, using their
normal credit terms. The SBA/SEDA-COG constitutes 40% of the
project total (35% for start-ups), and the Business Borrower makes up
10% of the project total (15% for start-ups). The maximum
participation for SEDA-COG is $1,500,000 (gross amount). Public Policy
Goal projects up to $2,000,000 (gross amount). Manufacturers can
access up to $4,000,000 (gross amount). The minimum is $50,000.
• SBA 504 loans are generally second mortgage loans for 40% of the
total costs. The private lending source is generally a bank. The rate
charged by the private loan is set by the private lender and may be
fixed, variable, or floating. The term is also set by the private lender,
but must be at least a 10 year amortization on construction and building
acquisition or a 7 year amortization for machinery and equipment
projects. Call features are allowed, but not before the minimum term.
SBA 504 Loan Program
 LOAN RATES:
• The rate fluctuates with the market and is set once a month for
loans that have closed the previous month.
• When a loan funds, the rate is fixed and remains constant over
the life of the loan.
 LOAN FEES:
• SEDA-COG charges a 1 ½% Commitment Fee, a $2,500 Legal
Fee, and a .05% Monthly Servicing Fee. Other SBA Closing and
Monthly Fees apply. All fees get added to the net loan amount
and are built into the monthly payment.
• All SBA 504 projects require an initial Processing Fee deposit
equal to 1% of the loan or $2,500, whichever is less. In almost
all cases, the entire amount is returned to the borrower.
SBA 504 Loan Program
 OTHER CONDITIONS:
• Debenture proceeds must be used for permanent financing of long-term
assets. Interim financing may be required in order to bridge the gap
between the loan approval date and receipt of funding from the
debenture.
• Personal guarantees from all persons who own 20% or more of a Small
Business are required.
• There is only a minimal borrower equity injection requirement which
enables the business to have adequate working capital to sustain itself.
• Ineligible purposes for 504 loans include:
• Working Capital, debt consolidation or repayment; refinancing; financing a
plant not located in the U.S.
• The bank will incur a participation fee at the time of closing which will
constitute 1/2 of 1% of the bank’s portion of the project total that is
ahead of the SBA in collateral position. This fee can be waived with a
shared lien/mortgage between the bank and the SBA.
Project Examples
Uses





Land
$307,000
Building
$4,862,849
Professional Fees
$628,100
Other
$1,001,436
Total
$6,799,385
Sources





Bank
SBA
PIDA
Equity
Total
$3,682,859
$626,000
$1,665,741
$724,785
$6,799,385
Uses




Land
$340,000
Building
$600,700
Professional Fees
$54,750
Total
$995,450
Sources




Bank
SBA
Equity
Total
$497,725
$398,188
$99,537
$995,450
Uses




Equipment
Ancillary M&E
Contingency
Total
$2,100,000
402,000
100,000
$2,602,000
Sources





Bank
$1,266,000
SBA
974,000
SEDA-COG EDA RLF 100,000
Equity
262,000
Total
$ 2,602,000
Uses





Land
Building
Equipment
Soft Cost
Total
$ 250,000
$1,200,000
$1,000,000
$50,000
$2,500,000
Sources






Equity
SBA 504
RLF
PIDA
Bank
Total
$250,000
$980,000
$100,000
$580,000
$590,000
$2,500,000
Companies Served by the 504
Program through SEDA-COG
•
Testing Laboratory
L&B
•
Home & Business Security Co.
L&B
•
Auto Dealership
L&B
•
Moving and Storage Company
L&B
•
Vegetable Canning
M&E
•
Trucking Company
L&B
•
Pre Press Graphics
L&B
•
Arts Academy
L&B
•
Quarry Company
M&E
•
Catering Company
L&B
•
Scientific Oven Manufacturer
L&B
•
Tool and Die Manufacturer
M&E
•
Supermarket
L&B
•
Orthopedic Group
L&B
•
Tour Buses Company
M&E
•
Furniture Manufacturer
L&B
•
Box and Display Manufacturer
M&E
•
Machine Shop
L&B
•
Mail Forwarding Company
L&B
•
Weather Forecasting Company L & B
•
Machine Tool Equip. Whole.
L&B
•
Printing Company
L&B
•
Electronics Manufacturer
M&E
•
Apparel Manufacturer
L&B
•
Engineer & Design Company
L&B
•
Plastic Resin Manufacturer
L&B
•
Truck/Trailer Sales and Service
L&B
•
Pre-School Learning Center
L&B
•
Hotel/Motel
L&B
•
Restaurant
L&B
SBA 504 Program
Bank Advantages
SBA 504 Program
Bank Advantages
Splits the risk in the project between the bank and the SBA
50%
40%
10%
SBA 504 Program
Bank Advantages
Cash Flow Management for your Small
Business Client
(Long-term, Fixed Rate, Minimum Equity)
SBA 504 Program
Bank Advantages
• Finance larger projects by spreading risk with lower loan
to value ratio
• Finance in specialized markets and/or specialized
equipment (case by case basis)
• Gives your small business client access to capital
markets without the high expense of bond council
• Blended fixed/variable rate with re-pricing capability
• Primary lending term shorter than 504 program 7/10 and
10/20 (bank has 1st mortgage or lien and gets paid out
first)
SBA 504 Program
Bank Advantages
• A large portion of the project is financed at a fixed rate
• Offers creative financing to differentiate your bank in the
market place
• Hedge your client’s exposure to rate increases as prime
changes
• Gives your client a cushion in their credit limit and allows
you to keep those cultivated relationships without
effecting your legal lending authority
SBA 504 Program
Bank Advantages
• The long term fixed rate leaves more money available in
your customer’s cash flow to pay your debt service
• CRA credits on SBA portion
• Spread your project risk - 50% Bank; 40% SBA; 10%
Equity financing
• Secondary market for the purchase of the first lien
mortgage
Temporary SBA 504 Changes

Changes will be in effect until 12/31/09 or
until funds are exhausted

Fees eliminated under the 504 program
(savings is approximately 87 basis points)
including the Third-Party Participation Fees
and the CDC Processing Fees
Permanent SBA 504 Changes


Job creation guideline increased to: 1 job
created/retained for every $65,000
borrowed (up from $50,000)
Some refinancing to be allowed in “eligible
project costs” for SBA funding
Thank You
• Thank you for the opportunity to present
the SBA 504 Program available through
SEDA-COG.
More information
can be found on
our website.
Contact us to
give a formal
presentation at
your next lenders
meeting.