Transcript Slide 1

SBA Overview
SEPTEMBER 2012
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Presenter –Rich Bradshaw
Richard Bradshaw
Head of SBA
TD Bank, America’s Most Convenient Bank
O (864) 552-9088
[email protected]
Based in Greenville, S.C., Bradshaw manages TD Bank’s expanding SBA team in
delivering competitively-priced, government-backed financing programs that help small
businesses grow and succeed. He steers the bank’s efforts to achieve SBA portfolio growth
and become a top SBA lender throughout the Maine to Florida footprint. TD Bank is
currently the 7th largest SBA lender in the U.S. (as of April 30, 2012). Bradshaw brings
more than 20 years of experience in the lending field to TD Bank. He is a graduate of the
U.S. Air Force Academy with a Bachelor of Science Degree in Management and a Masters
of Business Administration from Pepperdine University. Rich serves on the Board of
Directors for Greenville Literacy Association, Inc
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.
As of April 2012
• Headquarters
Toronto, ON Canada
• Asset Size
$773.2 B
• Deposits
$470.0 B
• Loans
$394.3 B
• Customers
• NYSE Traded
• Market Capitalization*
• Founded
• Bank Branches
22 MM
TD
$75.8 B
1855
2,441
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Presenter – Julie Huston
Julie Huston
SBA Division President
U.S. Bank
O (858) 530-9700
[email protected]
As President of U.S. Bank’s SBA Division, Julie Huston oversees Small Business
Administration lending from San Diego, California. Huston has been part of the SBA
lending community since 1986. Her passion for small business has translated into
building programs, developing products, improving delivery systems and creating
methods to ensure that small businesses receive the funding and services they need to
succeed. Under Julie’s leadership, U.S. Bank is currently ranked as the 3rd largest SBA
lender in the U.S. (as of June 30, 2012). Before joining U.S. Bank in 2010, she held
various senior management roles at leading financial services organizations. Julie serves
on the Board of Directors for the National Association of Government Guaranteed
Lenders and CDC Small Business Finance.
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U.S. Bancorp Businesses
2Q12 Dimensions
• Asset Size
$353 B
• Deposits
$241 B
• Loans
$216 B
• Customers
• NYSE Traded
• Market Capitalization*
• Founded
17.4 MM
USB
$63 B
1863
• Bank Branches
3,080
• ATMs
5,085
* As of July 31, 2012
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U.S. Banking Industry
Billions of Dollars
All Insured
Banks
Commercial
Banks
Savings
Banks
Agriculture
Banks
Number of FDIC
Insured
7,307
6,263
1,044
1,491
Total Assets $
13,926
12,781
1,145
212
Total Loans $
7,411
6,738
673
125
Domestic
Deposits $
8,826
7,948
878
177
Equity to
Assets%
11.27
11.24
11.56
11.29
Percent
Profitable %
89.7
90.2
86.2
96.0
Q1 2012
Source: FDIC March, 2012
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U.S. Banking Industry - Performance
All Insured
Banks
Commercial
Banks
Savings
Banks
Agriculture
Banks
Average ROA
(Qtr) %
1.02
1.02
0.99
1.27
Average ROE
(Qtr)%
9.07
9.12
8.52
11.21
Net Interest
Margin(Qtr)%
3.52
3.54
3.31
3.76
Net Charge Off
Rate – All Loans
(Qtr)%
1.17
1.17
1.19
0.17
Q1 2012
Source: FDIC March, 2012
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What is the U.S. Small Business Administration (SBA)?
Created in 1953
Independent agency of the United States federal
government
Mission:
 To aid, counsel, assist and protect the interests of small
business concerns
 To preserve free competitive enterprise
 To maintain and strengthen the overall economy of the
nation
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Why Use SBA?
Why do Banks use the SBA’s Guaranty?
1. Borrower needs a long term loan that exceeds internal credit
requirements of the bank
2. Borrower does not meet lender’s collateral requirements
3. Borrower can not meet the lender’s “down payment”
requirements
4. Borrower is outside the established limits of the range of the
credit risk of the bank
5. Borrower is a start up business or one with no borrowing
history
6. Loan is in an industry with which the lender is comfortable
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The Value of the SBA Guaranty
Example 1
Loan Amount
Guaranty Purchase @ 75%
Remaining Exposure
Collateral Recovery
Government Gty @ 75%
US Bank Gty (25%)
Total Recovery
USB Loss
Loss % of Loan Amount
Example 2
Example 3
$500,000
$375,000
$125,000
$1,000,000
$750,000
$250,000
$5,000,000
$3,750,000
$1,250,000
$0
$0
$0
$700,000
$525,000
$175,000
$3,000,000
$2,250,000
$750,000
$375,000
$925,000
$4,500,000
$125,000
25%
$75,000
8%
$500,000
10%
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Historical Loss Rates
 For the quarter ending March 31, 2012, the past 12-month actual
charge-off rate was 3.2%, which is down from a high of 3.5% in
September 2010
SBA Total Portfolio Charge-Offs
(past 12-month actual charge-off rate)
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
3.31.12
12.31.11
9.30.11
9.30.10
9.30.09
Source: SBA
Lender Portal
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SBA and Special Interests
 Special SBA Loan Programs include:
 Disaster lending
 Women and minority lending
 Counseling and training opportunities:
 Women Business Centers
 Veterans Business Outreach Centers
 SCORE
 Entrepreneurial development for SMEs
 Small Business Development Centers
 Partnerships with other special interest groups (i.e.
Native American Affairs)
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SBA Loan vs. Conventional Loan
 The SBA is primarily a guarantor of loans under the
7a program and also makes direct commercial
second mortgages under the 504 program
 The SBA helps small businesses by providing loan
terms that exceed conventional lending criteria
(amortization, equity, etc)
 Not all companies are eligible for a SBA enhanced
loan. Must meet certain size criteria and business
type
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What types of SBA loans are available?
Two main loan programs:
 Section 7(a) Loan Guaranty Program
 Section 504 Certified Development Company
Program
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7(a) Loan Program
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Section 7(a) Loan Guaranty Program
 Provides for broad financing needs of small businesses, including
startups and existing small businesses
 Maximum Loan Amount = $5 million
 Maximum Term:

Commercial Real Estate (CRE) = 25 years

Equipment = 15 years

W/C= 7 to 10 years
 Rate is negotiable but is subject to SBA maximums (~6.0%
today)
 7(a) Express Product maximum loan amount= $350,000
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How can proceeds of a 7(a) loan be used?
 Purchase land or buildings
 Construct commercial buildings
 Expand or renovate facilities
 Finance receivables and supplement working capital
 Purchase machinery, equipment, fixtures, and
leasehold improvements
 Refinance existing debt under some circumstances
 Purchase an existing business
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Ineligible use of 7(a) proceeds:
 For a non-sound business purpose
 To repay delinquent state or federal withholding taxes or
other funds that should be held in trust or escrow
 To make a partial change of ownership or change in the
business that will not benefit the business
 To refinance existing lender debt where the SBA would be
placed in an inferior position
 To permit reimbursement of funds owed to any owner of
the business
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SBA 7(a) – Advantages to the Customer
 Goal is to enhance cash flow
 Longer Terms
 No Balloon Payments/Calls
 Fixed Rates (certain lenders only)
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Advantages to the Bank
 Safety:


75% guarantee from the
U.S. government
7(a) Express = 50%
 Targets:




 Product Differentiation



Doctors
Dentists
Veterinarians
CPAs
Real Estate
Franchises
Business Expansion
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Annual 7(a) Approvals
Year
Number of Approvals
Amount of Approvals
FY 2009
44,222
$9.3B
FY 2010
52,936
$12.6B
FY 2011
49,288
$18.1B
YTD 2012
32,934
$10.8B
(June 2012)
Source: SBA.gov
and NADCO
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504 Loan Program
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SBA 504 Example
 $1,000,000 – Commercial Real Estate Purchase
 $100,000 – Equity from borrower (10%)
 $500,000 – Bank 1st mortgage (50% LTV), fixed or
variable (conventional)
 $400,000 – SBA debenture, 2nd mortgage (90%
LTV), fixed for 20 years – 100% U.S. Gov’t
Guarantee
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Terms of 504 Loan (Debenture)
 Maximum Loan Amount = $5.5MM (2nd Mortgage)
 Maximum Term = 20 years
 Interest rates are pegged to an increment above the
current market rate for 5 and 10-year Treasury issues
(currently ~ 4.7%)
 Fees normally are approximately 3% of the
debenture
 Generally the project assets are used as collateral
 Personal guarantees of the principal owners required
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Eligibility for 504 Loan
 Must be operated for profit
 Must have tangible net worth of less than $15 million
 Must have an average net income of less than $5
million after taxes for preceding two years
 Job creation criteria must be met
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Borrower Benefits of a 504 Loan
 Lower Down-payment
 10-20% of total project cost
 10% Baseline
 Additional injections are cumulative
Therefore, minimal equity requirements
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Section 504
Certified Development Company Program
 Provides financing for “bricks and mortar” - the
purchase of real estate and fixed assets
 Funds cannot be used for working capital or
inventory
 Requires cooperation of a certified development
company (“CDC” – Privately held agencies)
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Annual 504 Loan Approvals
Year
Number of Approvals
Amount of Approvals
FY 2009
6,608
$3.8B
FY 2010
7,733
$4.4B
FY 2011
6,810
$4.0B
YTD 2012
6,382
$5.6B
(June 2012)
Source: SBA.gov
and NADCO
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