Transcript CREDIT

Georgia Department
of
Community Affairs
_______________________________
Metro Atlanta Chamber of Commerce
August 2, 2012
History & Background of State Small
Business Credit Initiative (SSBCI)
• Component of Small Business Jobs Act,
bi-partisan legislation signed into law on Sep. 27, 2010
• $1.5 billion set aside for SSBCI, managed by U.S. Treasury,
to strengthen state-run lending programs to support small
business
• Georgia’s allocation is $47,808,507
• Requirement for the state to generate overall 10:1 leverage
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Advantages and Opportunities
for Georgia Lenders
• Credit enhancements to strengthen bank loans
for small businesses
• Delegated lending - Lenders manage
underwriting process
• SSBCI program - quick turnaround and
streamlined format (days)
• Opportunity for CRA credit
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Advantages and Opportunities
for Georgia Lenders
• Opportunity to improve Safety and
Soundness reviews
▪ A distinguished panel of state and federal regulators participating
in the roll-out of the SSBCI on 5/23/12 indicated a general
consensus that lenders participation in the SSBCI Program is
viewed positively by Safety & Soundness and Consumer
Compliance Examiners. This resource panel continues to provide
advice and assistance as program implementation progresses.
• Georgia Department of Banking and Finance; Federal Reserve; Federal
Deposit Insurance Corporation; and Office of Comptroller of Currency.
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What Does Georgia SSBCI Offer?
• Three new initiatives available to private lenders to expand
small business lending
 GCAP (Georgia Capital Access Program) - $10 million
(Risk reserve pool funded with borrower/lender fees matched with SSBCI
funds)
 SBCG (Small Business Credit Guarantee) - $17.8 million
(50% loan guarantee with a conversion option into a risk reserve pool
offering up to 80% reimbursement)
 Georgia Funding for CDFIs - $20 million
(Loan participation program specifically designed for underserved SBs)
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SSBCI – General Eligibility Criteria
• Loan proceeds can be used for eligible
“business purposes” including:
 Start-up costs
 Working capital
 Business procurement, franchise fees
 Equipment & inventory
 Purchase, construction, renovation, or tenant
improvements of eligible place of business
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SSBCI – General Eligibility Criteria
• Refinancing is not eligible; however, renewals are eligible
under certain conditions … as one example… performing
lines of credit that balloon and become due … new
balance must increase by at least 10%
• Passive real estate investment generally is not eligible.
However, exception should at least 51% of existing
commercial RE be occupied by owner).
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SSBCI – Eligibility Criteria (cont.)
•
Eligible small businesses include corporations, partnerships,
joint ventures, cooperatives, sole proprietorships, statedesignated charitable & other non-profit institutions.
•
SBs generally defined as 500 or fewer employees
•
SSBCI participation generally limited to $500,000 or less, with
exceptions and target amounts tailored for each program
•
Participating lenders and borrowers will be required to provide
certain assurances and certifications as required by US
Treasury SSBCI guidelines.
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GCAP (Georgia Capital Access Program)
• Provides risk reserve pool for lender by matching a
required fee (2% to 7%) paid by the borrower, lender or
combination, into a loan loss reserve fund for enrolled
loans
• SB loans of $500,000 or less (exceptions possible)
• In case of default on enrolled loans, claims may be made
against the loan loss reserve account for loss of principal
and up to 90 days of accrued, but unpaid, interest
• Borrower/bank fee may be financed through resulting loan.
• Up to 100% of covered loan balance losses can be claimed.
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GCAP CASE SAMPLE – Bldg Expansion &
Inventory for Small Business
Total Project Cost
$1,500,000
- Private Bank Financing
$1,350,000
- Borrower Equity
$ 150,000
- GCAP enrolled loan amt
$ 500,000
(amts > $500k require exception)
Lender/Borrower Fee
$
20,000
(assuming 4% fee)
GCAP Match
$
20,000
Total $ Placed in Reserve
$
40,000
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SBCG (Small Business Credit Guarantee)
• The (“SBCG”) Program provides a 50% loan guarantee
with a option to convert to risk reserve pool .
• Enrolled loans are covered with a 50% loan guarantee;
loans converted to risk reserve pool can be covered up to
80%.
• SSBCI funds are leveraged with private capital from
eligible lenders (banks, credit unions, qualified private
lenders, and CDFIs).
• Max terms for SBCG guarantee:
 Lines of credit - 24 months
 Amortizing loans – 48 months
• Deficiency guarantee – Lender must diligently pursue
collection from borrower prior
Page 11 to filing claim.
SBCG Case Sample – Accounts Receivable
for Software Small Business
50% Guarantee
Pool
Risk Reserve
Pool
Initial Fee – 2%
$2,000
NA
Annual Fee
½ of 1% of guarantee
balance
$0
Total Project Cost
$250,000
- Conventional Bank
$200,000
- Borrower Equity
$ 50,000
- SBCG Guaranteed Amt
$100,000
Contribution to RRP
assuming loan balance of
$180,000 at the end of Yr 1
$20,000 (10% of loan
balance plus initial fee)
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GA Funding for Community Development
Financial Institutions (CDFIs)
• GA Funding for CDFIs is a loan participation program
specifically designed to increase access to capital for
Georgia’s underserved small businesses (minority- and
women-owned small businesses, and small businesses
located in low- and moderate-income, minority, and other
underserved communities).
• CDFIs are private financial institutions certified by the
U.S. Treasury to provide credit and financial services to
underserved markets and populations.
• http://www.cdfifund.gov
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GA Funding for CDFIs – Two Options
• State will enter into contractual relationship with CDFIs.
Participating CDFIs will earn fees for underwriting, closing,
and servicing SSBCI loans through participating in one of
two capacities:
 Loan originator/servicer – State forwards SSBCI funds
directly to borrower. Receivables are returned to the State
 Generally for-profit CDFI’s attached to commercial banks
 Contracting entity – State forwards SSBCI funds to CDFI;
CDFI loans SSBCI funds to borrower. CDFI may retain
SSBCI loan payments and revolve these funds into future
SSBCI projects.
 Generally non-profit CDFI’s operating independently
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GA Funding for CDFIs Case Sample –
Bldg renovation & equipment for restaurant
Total Project Cost
$600,000
- Private Bank Financing
$440,000
- Borrower Equity
$ 60,000
- CDFI (with SSBCI funds)
$100,000
Terms
Private bank – 1st lien on bldg & equip; CDFI: second
lien
Bank interest rate: 6%; CDFI interest rate: 5%
Contracting entity CDFIs retain and revolve interest
and principal payments into new SSBCI projects.
Originator/servicer CDFIs receive principal & interest
payments and remit them to state CDFI fund.
Both contracting entity & originator/servicer CDFIs
earn fees for loan underwriting, closing (customary)
and servicing (1% of balance payable monthly)
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Getting Started – What You Need
to Know…
Applications, Program Participation Agreements, Loan
Enrollment Procedures, Transaction Documents, and
Reporting Requirements & Compliance …
www.georgia-ssbci.org
No nonsense Delegated Lending means days
until lender can begin to enroll SB loans …
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For more info, contact:
Holly Hunt, SSBCI Program Manager
(404) 679-3144; [email protected]
Brian Williamson, Assistant Commissioner
(404) 679-1587; [email protected]
www.georgia-ssbci.org
Fax: (404) 679-1583
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Opportunity
Zones
State Job Tax Credit
Page 18
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Opportunity Zones
O.C.G.A. 48-7-40.1(c)(4)
• General Strategy
▪ Encourage local governments to use existing
redevelopment statutes in an innovative fashion to
revitalize blighted commercial, industrial and
adjoining residential areas
▪ Reward local governments and businesses that
undertake such revitalization with access to
maximum State Job Tax Credits
▪ Operate state-wide, wherever eligible revitalization
and redevelopment needs occur (rural, urban and
suburban).
▪ Support bottom up, locally driven initiatives
through local collaborative partnerships
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Promising Uses for Opportunity
Zones
• Declining commercial corridors
• Pockets of older commercial and industrial
areas with outdated facilities and buildings in
otherwise affluent counties
• Deteriorating in-town neighborhoods adjoining
older industrial areas (state EZ allows tax
abatement on rehabilitated housing)
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Opportunity Zone Requirements
• Allows DCA to designate as an
“Opportunity Zone”, an area within or
adjacent to one or more contiguous census
block groups with a 15% or greater poverty
rate, where the area is part of an
Enterprise Zone OR Redevelopment Plan
adopted by the local government and the
area displays underdevelopment, general
distress and blight.
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Tax Incentives
• State designation of an Opportunity Zone
allows:
▪ ANY businesses (including retail) within the area
to qualify for the State’s maximum job tax credit
▪ Lower job creation threshold to 2 jobs to qualify
for the state’s maximum job tax credit of $17,500
per job over 5 years (3,500 per year)
▪ Allow credit against 100% of income tax liability,
with excess credit available to claim against
payroll withholding
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Example of OZ Credit Usage
Jobs Created
Year 1
2
Year 2
3
Year 3
3
Year 4
4
Year 5
4
Year 6
5
Year 7
5
Year 8
6
Year 9
6
Year 10
6
Year 11
7
Year 12
7
TOTALS
Credit
$0
$7,000
$10,500
$10,500
$14,000
$14,000
$10,500
$7,000
$7,000
$3,500
$3,500
$0
$87,500
Tax Liability
$1,200
$1,000
$1,500
$1,700
$2,100
$2,050
$1,800
$1,750
$1,450
$1,600
$0
$16,150
Withholding
$5,800
$9,500
$9,000
$12,300
$11,900
$8,450
$5,200
$5,250
$2,050
$1,900
$71,350
In the above example, a Job Tax Credit of $87,500 is generated,
with the business able to utilize all of the credit
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Application, regulation, maps and
more available at:
www.dca.ga.gov/oz
For questions on Metro Atlanta OZ please contact:
Dr. Eloisa Klementich, CEcD (404) 614-8291
[email protected]
For general questions on OZ application process:
Joanie Perry (404) 679-3173
[email protected]
For questions about how to take the tax credit:
Dawn Sturbaum (404) 679-1585
[email protected]
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