Transcript FY 2012 SBA Approvals

SEED Lender Training
May 3, 2013
www.sba.gov/ma
FY 2012 SBA Approvals
US
• 53,848 Guaranteed Loans = $21,865 billion
44,377 (7a)
9,471 (504s)
Massachusetts
• 1846 Total Loans
• 1,535 (7a) = $199 million
In participation with 121 7(a) lenders
• 311 (504s) = $209.6 million
In participation with 8 CDCs
• 87 micro loans in Participation with 8 microlenders
LOAN DOLLARS BY FISCAL YEAR
Massachusetts District Loan Volume
FY 2002-2012
7(a) Loans
Loan Approvals by Fiscal Year
MA LOAN APPROVALS BY FISCAL YEAR
FY 2002-2012
4000
3370
3500
3000
2892
3000
2500
3310
2457
2408
2223
2205
2000
1735
1846
1637
1500
1000
500
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
As of 4/19/13 – MA is one of the most productive
SBA offices in the
US by loan approvals!
# 504s - #5
# 7a’s - # 3
MICHIGAN DISTRICT OFFICE
993
LOS ANGELES DISTRICT OFFICE
297
LOS ANGELES DISTRICT OFFICE
981
ILLINOIS DISTRICT OFFICE
207
MASSACHUSETTS DISTRICT OFFICE
871
SOUTH FLORIDA DISTRICT OFFICE
198
SANTA ANA DISTRICT OFFICE
176
MASSACHUSETTS DISTRICT OFFICE
159
SLA # 2
WISCONSIN DISTRICT OFFICE
MASSACHUSETTS DISTRICT OFFICE
101
96
And on Loans less than $150,000, the MA SBA is #1 out of
SBA’s 68 District Offices!!
Focus for 2013
Small Loan Advantage & Working Capital
Lines/Contract Lines
– SBA lender focus groups to design programs that
closely resemble what lenders do conventionally;
– “Express-like” with applications and servicing
– Streamlined – reduce lender’s transaction costs
– SLA 2.0 NOW Available to ALL lenders for loans
of $350,000 or less
– WC Caplines/Contract Lines can be processed
with delegated authority(PLP) through Etran
Why did SBA Create SLA?
• Across the US, low $ loans (under $150,000) can be
difficult to obtain;
• Adversely impacting underserved markets;
• While 7(a) dollar numbers are up, loan numbers are
down;
• Lenders Responded (Focus Groups)
– Simplify origination procedures
– Reduce SBA loans’ overhead cost
Credit Scores Will Predict Risk More Accurately and
Simply Than Complex Underwriting
Small Business Credit Scores
Accurately Predict Purchase



FICO/D&B’s LiquidCredit scores use
commercial and consumer data to predict
purchase risk.
FICO/D&B developed the suite using loan,
lease, and card data from lenders
nationwide.
Small business credit scores are
compensatory.

Criteria do not have hard-cutoffs, and scores do not
always use all criteria or data sources.
This Score Suite is an IndustryStandard Decisioning Tool

Banks across the country use the suite for
evaluating borrower risk.

Under the new Small Loan Advantage, SBA will
only approve loans scored above 140.
Source: Dun & Bradstreet, Fair Isaac Corp.
Purchase Rates
by SBPS Score Band
37%
29%
26%
22%
17%
Below 140: 21%
12%
7%
Above 140: 3.7%
5% 3%
2% 2% 1% 1% 1% 0%
Source: SBA Loan/Lender Monitoring System.
Sample Users of Small Business Credit Scores
Large National Banks
Smaller Regional Banks
KeyBank
AgriLand Farm Credit Services (TX)
Huntington National Bank
Five Star (NY)
PNC
Glenview State (IL)
RBC
Rockland Trust (MA)
USBank
Associated Bank (WI)
Zions Bank
First Volunteer (KY/TN)
HSBC
Bank of Idaho
Sovereign Bank
Union Bank of California
“You are five times less likely to have a repair and
denial using SLA 2.0 versus standard 7(a).”
(including Small Rural Lender Advantage, PLP, Non-plp
etc.)
– Repair and denial rate for standard 7(a) is 6.2%
versus 1.3% for SBA Express. SLA 2.0 borrows
the express secret sauce: “consistent with your
bank’s policies and procedures for similarly sized
non-sba commercial loans”
“When your borrower receives a credit score above
140, SBA is sharing in decisioning the credit
worthiness of that borrower.”
– When the same loan is submitted to Little Rock or
Fresno at purchase as an early default or otherwise, a
SLA 2.0 loan that scored above 140 at origination has
the benefit of the SBA having shared in decisioning
creditworthiness.
– Lenders without small business credit scoring models
can benefit from the SBA’s Liquid Credit Scorecard
that is built upon over 300,000 outstanding SBA
loans. A world class risk management tool.
• “It is in your economic self-interest to send all
term loans below $350,000 through SLA 2.0
because it will put the agency on a path to
lowering the 55 basis points you pay annually on
your outstanding loans.”
– Currently, the subsidy model is weighted heavily
on forecasted gdp growth and forecasted
unemployment rate. By allowing the agency to
score your borrowers, SBA will be able to give
forecasted portfolio performance more
significance which will lower your subsidy rate.
This means larger margins for SBA lending.
Greater profitability.
President’s 2014 budget
(proposed)
• Waive SBA fees on loans of $150,000
or less;
• 504 refi authority
• SBA One
www.sba.gov/ma
Why Do Lenders Use the SBA Guaranty?
• Longer maturities are needed
• Collateral may be inadequate to meet normal
underwriting
• Start-up or certain types of businesses
• Business leverage
• Lender’s legal or policy limit
• Minimize risk
7a Guaranteed Loan
Made by private lenders, with SBA guarantee –
SBA helps the bank get to the YES decision
with credit enhancement.
 Maximum loan size $5 million
 85% guaranty on loans below $150,000.
 75% guaranty on loans above $150,000.
The 7(a) Loan Guarantee Program
7 (a) Loan Program
Details
• SBA’s Primary Business
Loan Program
• Broad eligibility
requirements
• Wide range financing
options
7(a) Loan Program
Maturities & Interest
Rates
• 5-10 years for working
capital, machinery,
equipment
• Up to 25 years for real
estate, construction
• Prime + 2.25% for loans
of 7 years or less
• Maximum loan amount
increased from $2
million to $5 million
• Prime + 2.75% for loans
over 7 years
• 85% guarantee on loans
up to $150,000
• Rates can be higher for
smaller loans
• 75% on loans >
$150,000
7(a) Program
Guarantee Fees
• 2% on loans up to
$150,000
• 3% on loans $150,001 $700,000
• 3.5% on loans $700,001
- $ 1 million
• 3.75% on loans > $1
million
Financing –What does SBA look for?
•
•
•
•
Owners and operators w/ good credit & character
Feasible business plan
Management expertise and commitment necessary for success
Sufficient funds, including SBA guaranteed loan, to operate the
business on a sound financial basis
• Adequate equity investment in the business
• Sufficient collateral, however, SBA is a cash flow lender and not a
collateral lender.
• Ability to repay the loan on time from the projected operating cash
flow.
Eligibility Requirements
• Be operated for profit
• U.S. citizens or owners with verified “green card”
status
• Not exceed SBA size standards
• Owners must be of “good character”
• Meet SBA’s “personal resource test”
• Owners must possess management ability and
have experience in field.
• Demonstrate repayment ability
• Not engaged in lending, real-estate development,
investments or speculation
Personal Financial Statement
• Can use SBA 413 or lender form
• Must be less than 90 days old
• Must be submitted for all officers, directors,
principals and 20% owners, and spouses
http://www.sba.gov/idc/groups/public/documents/sba
_program_office/bank_sba413.pdf
www.sba.gov/ma
Liquid Resource Test
• Total Financing Package (TFP) –
includes SBA loan(s), equity injection,
and any other financing
• Applies to each 20% owner AND
SPOUSE
www.sba.gov/ma
Liquid Assets
• Include:
– Cash or Cash equivalents including:
savings accounts, CDs, stocks, bonds or
similar assets
– Cash surrender value of life insurance
• Does not Include:
– Retirement accounts
– Closely held non-marketable stocks
www.sba.gov/ma
– Equity in real estate
Total Financing Package
(TFP)
• When TFP is
– <$250,000
• 2 x TFP or $100,000, whichever is greater
– >$250,001 < $500,000
• 1 ½ x TFP or $500,000, whichever is
greater
– >$500,000
• 1 x TFP or $750,000, whichever is greater
www.sba.gov/ma
SBA Size Standard
• Manufacturing from 500 to 1,500 employees
• Wholesaling 100 employees
• Services from $4.5 million to $32.5 million in average
annual receipts
• Retailing from $6.5 million to $26.5 million
• General construction from $6.5 million to $32 million
The 2010 Jobs Bill expands the number of businesses eligible
for SBA loans by increasing the alternate size standard to those
small businesses with less than $15 million in net worth and $5
million in average net income
www.sba.gov/size
SBA Express Program
• 79% of SBA guaranteed loans in
Massachusetts are being made under Express
• Uses lender’s forms, processes & procedures – not
the SBA’s, expediting loan approval and process
• Term Loans or revolving lines of credit up to $350,000.
• SBA guaranty of 50%
Benefits to Express
•
•
•
•
Follows lenders’ own underwriting polices
Can use a “credit score” model
Can use credit cards to access the line of credit
Lenders are not required to take collateral for loans
up to $25,000.
• Uses lenders own collateral policy for loans above
$25,000
• Do not have to take personal residence
Express benefits continued
• Lender can charge 6.5% over prime for
loans of $50,000. or less
• Lender can charge 4.5% over prime for
loans over $50,000.
Debt Refinancing
• When refinancing debt the new installment
amount must be at least 10 percent less
than the existing installment amount(s). If
the note terms include an escalating
payment structure, the new installment
amount must be at least 10 percent less
than the expected installment amount
within the next 12 months.
Debt Refinancing Criteria
• Requires “substantial benefit” to
applicant
• SBA requires copies of all notes that will
be refinanced
• Demand, interest only, balloon notes
will automatically meet substantial
benefit test
Debt Refinancing
• When refinancing debt, the lender’s loan file must
include a written analysis that addresses the
following issues and any supporting documentation:
• Why was the debt incurred?
• Has over-obligated or imprudent borrowing
necessitated a major restructuring of the debt?
• Is the debt being refinanced currently on reasonable
terms?
• Will the new loan improve the financial condition of
the Small Business Applicant?
• Does the refinancing include payments to creditors in a
position to sustain a loss, for example, the applicant has
an inadequate collateral position, low or deficit net
worth, or the loan is in default?
• Would the lender/SBA be likely to sustain part or all of
the same loss by refinancing the debt or will additional
collateral or altered terms protect the interest of the
taxpayer?
• What portion of the total loan does the refinancing
constitute?
• If credit card debt will be refinanced, the borrower must
certify that the credit card debt being refinanced was
incurred exclusively for business purposes.
Debt Refinancing
• If the credit card is issued to the small business, the
lender may refinance the credit card debt:
After confirming that the credit card is in the
name of the business
The borrower has certified that the credit card
debt being refinanced was incurred exclusively
for business related purposes.
Loan proceeds must not be used to refinance any
personal expenses.
Debt Refinancing
• If the credit card is issued to an individual personally
– The lender must confirm which of the credit card obligations
were used for business-related purposes
– Lenders must document business purpose of the credit
card debt and the borrower must certify that the loan
proceeds are being used only for business-related debt
– Documentation required for refinancing credit card debt
includes a copy of the credit card statements and individual
receipts for any business expenses in excess of $100
– In all cases, the borrower must certify that the amount that
will be refinanced was used exclusively for business
expenses.
Debt Refinancing
• Refinancing Same Institution Debt:
– When a lender seeks to use SBA guaranteed loan
proceeds to refinance its own debt, it must:
Include a transcript showing the due dates and when
payments were received as part of its analysis and
recommendation.
The lender must explain any late payments and late
charges that have occurred during the last 36
months.
Debt Refinancing
Refinancing an SBA-Guaranteed Loan:
• Refinancing an existing SBA debt is permissible provided
the conditions of debt refinancing eligibility are satisfied
and the following procedures are followed:
• Contact the lender holding the existing SBA-guaranteed
loan and verify that the lender has declined to approve
an increase in loan amount or a second loan and the
lender is either unwilling or unable to modify the current
payment schedule.
• Document the conversation in the case file, recording
the date, time and person with whom you spoke, along
with a short summary of the conversation.
TRANSFER OF PARTICIPATION AGREEMENT
SBA Loan No.
Borrower:
WHEREAS, on the
day of
a certain Promissory Note in the original amount of $
was executed by
hereinafter called “Borrower,” and delivered to
, hereinafter called “Transferor,” and
,
WHEREAS, the repayment of the loan was partially guaranteed by the United States Small Business Administration
(SBA) under the provisions of a Loan Guaranty Agreement, SBA Form 750, made by and between Transferor and
the SBA, and the Authorization for Guaranty dated
, and
WHEREAS, the Transferor desires to sell, transfer and assign its participation in the loan to
“Transferee”, and
, hereinafter called
WHEREAS, the Transferor has notified the borrower of the details of this transfer, and
WHEREAS, Transferee has made and entered into a Loan Guaranty Agreement, SBA Form 750.
NOW THEREFORE, in consideration of the consent and agreement of the SBA to the Transfer of Participation, the
Transferee hereby agrees to purchase the entire interest of the Transferor in the loan and agrees to assume all the
obligations of the Transferor under the Loan Guaranty Agreement and Guaranty Authorization, copies of which
are attached as Exhibits “A.”
The
further agrees to obligate itself and be and remain liable for any and all deficiencies which may have
resulted in Transferor’s closing or servicing of this loan.
www.sba.gov/ma
IN WITNESS WHEREOF, this Agreement is executed by the undersigned parties as of the
day of
, 20
.
Transferor:
Transferee:
Lender Name:
By:
Address:
FIRS No.
Telephone Number:
Facsimile Number:
Lender Name:
By:
Address:
FIRS No.
Telephone Number:
Facsimile Number:
UNITED STATES SMALL BUSINESS ADMINISTRATION
Its:
By:
NOTE TO TRANSFEROR:
Please indicate on Form 1502 that Loan has been
Transferred. Use Code 7 NOT code 6. DO NOT
report as “Paid in Full”
Commercial Loan Service Center - Fresno
2719 North Air Fresno Drive, Suite 107
Fresno, California 93727-1547
(559) 487-5790
Commercial Loan Service Center - Little Rock
2120 Riverfront Drive, Suite 100
Little Rock, AR 72202-1794
(501) 324-5871
www.sba.gov/ma
.
Additional Template Instructions
This form must be accompanied with a statement addressing the following
elements. See SOP 50-50-4, Chapter 5, Paragraph 27 for additional details.
Did the borrower request the transfer, and will it benefit the borrower?
What is the purpose of the transfer?
When transferring a loan, the lender must notify the borrower of the details of the transfer.
Does the lender acquiring the SBA guaranteed loans have an executed SBA Form 750,
“Loan Guaranty Agreement?” (Also, identify the type of lender, e.g., CLP, PLP, LowDoc,
etc.)
Is the transfer in compliance with paragraph 26, “Assignment of Interest in a
Loan/Transfer of Loan(s)?
For transfer of a loan sold in the secondary market, both the buying and the selling
lenders must provide written notification to the fiscal transfer agent (FTA) of the transfer of
SBA’s approval
www.sba.gov/ma
Debt Refinancing
• Procedure to refinance a same institution
SBA-guaranteed loan:
– A lender may refinance one of its own SBAguaranteed loans only if it is unable to modify
the terms of the existing loan because a
secondary market investor will not agree to
modified terms.
– These applications may not be processed PLP,
they must be processed in the LGPC.
Debt Refinancing
• Refinancing under SBA Express:
– A lender may refinance an existing
non-SBA guaranteed loan or
borrower debt from another lender
if: The existing loan no longer
meets the needs of the applicant
(for example if the current loan is a
term loan and a revolver is
needed); and
• The new loan meets the SBA’s
10% increase in cash flow
requirement
• Can refinance own debt as long
as lender’s exposure will not be
reduced.
Real Estate Acquisition
• If loan proceeds are to be used to purchase or
construct real estate, we look for “owner
occupancy”
• Eligible small business must occupy 51% + of
an existing facility or
• 60% of a newly constructed facility on day one,
with expansion to 80% in 10 years
SBA Collateral Policies
• Personal guaranties from principals
owning 20% or more of business
• Liens on personal assets may be
required
• Loans are not declined for insufficient
collateral
SBA 7A Collateral Policies
• SBA loans must be secured as fully as
possible with whatever worthwhile
assets available
• A loan is fully secured if SBA has
security interests in assets with a
combined “liquidation value” up to the
loan amount.
Valuation of collateral
Generally, you calculate the net realized value of collateral by applying the
following liquidation percentages to the fair market value
•
•
•
•
•
Real Property: Commercial RE
75%
Residential RE...................................................80%
Unimproved Land..............................................50%
Business Assets (net of Depreciation):
Machinery/Equipment.......................................50%
• Furniture/Fixtures..............................................10%
• Accounts Receivable/Inventory.........................10%
• Leasehold Improvements...................................05%
A personal residence is taken as
collateral when:
• collateral offered is weak and the equity
equals or exceeds 25% of the property’s
fair market value; or
• The participating lender requires it
Eligibility-Change of Ownership:
– A Small Business Applicant may use loan proceeds for a change
of ownership in the following circumstances:
• The Small Business Applicant is purchasing 100% of the ownership
interest in a business (either an asset purchase or a stock
purchase);
• One or more existing owners are purchasing the stock of a selling
owner or owners resulting in 100% ownership by the purchasing
owners.
• The seller is not remaining as an officer, director, stockholder or key
employee of the business. (If a short transitional period is needed,
the small business may contract with the seller as a consultant for a
period not to exceed 12 months including any extensions.)
Eligibility-Change of Ownership
– The business must be the borrower.
– If there is business real estate as part of the change
of ownership, the real estate cannot be financed
separately by a non-SBA guaranteed loan unless the
SBA loan receives a shared lien position (pari passu)
on the real estate with the non-SBA guaranteed loan.
This provision does not apply if the business real
estate is being financed as part of a 504 project.
Eligibility-Change of Ownership
• The following changes of ownership are
not eligible:
– A non-owner who is purchasing a portion
of the ownership of the business from a
selling owner; or
– An existing owner who is purchasing the
ownership of another existing owner that
will not result in 100% ownership by the
purchaser.
Eligibility-Intangible Assets
• Intangible Assets: An SBA-guaranteed loan may be used to finance
a change of ownership that includes intangible assets
(goodwill, client/customer lists, patents, copyrights,
trademarks and agreements not to compete)
• If the purchase price of the business includes intangible assets in
excess of $500,000:
Borrower and/or seller must provide an equity injection
of at least 25% of the purchase price of the business for
the application to be processed under delegated
authority.
(Seller equity is defined as seller take-back financing that is on full standby
(principal and interest) for a minimum of 2 years.) The borrower and seller will
agree how much equity each will provide.
Eligibility-Intangible Assets-Cont.
• If the purchase price of the business includes intangible assets of
$500,000 or less, 25% equity does not apply.
• The purchase price of the business includes all assets being
acquired such as real estate, machinery and equipment, and
intangible assets. Real estate may not be removed from the
transaction and financed separately to avoid the 25% equity
injection requirement for PLP processing.
Eligibility-Business Valuation
• Determining the value of a business (not including real
estate which is separately valued through an appraisal)
is the key component to the analysis of any loan
application for a change of ownership.
• An accurate business valuation is required because the
change in ownership will result in new debt unrelated to
business operations and create an intangible asset.
• A business valuation assists the buyer in making a
determination that the seller’s asking price is supported
by historic operations and permits the buyer to make a
reasonable return on his or her investment.
Eligibility-Business Valuation-Cont.
• Any amount in excess of the business valuation may not
be financed with the SBA guaranteed loan.
• Lender Verification of Business Valuation Financial Data
Lender must obtain a copy of the financial information
relied upon by the individual who performed the business
valuation and verify that information against the seller’s
IRS transcripts to ensure the accuracy of the information.
CHANGE OF OWNERSHIP / BUSINESS
VALUATION
• If amount being financed (including 7(a),
504, seller or any other financing (minus
the appraised value of real estate
and/or equipment being financed) is
$250,000. or less, Lender can perform
valuation.
BUSINESS VALUATION
If amount is more than
$250,000. or if there is a close
family relationship between
buyer and seller, valuation has
to be done by a “qualified
source”
BUSINESS VALUATION
A “qualified source” is an
individual who regularly
receives compensation for
business valuations and is
either:
BUSINESS VALUATION
(1) A licensed Certified Public Accountant (CPA)
that performs the business valuation in
accordance with the “Statement on Standards ”
published by the American Institute of Certified
Public Accountants (AICPA).
BUSINESS VALUATION
(2) Accredited by one of the following recognized
organizations;
(a) Accredited Senior Appraiser (ASA) accredited
through the American Society of Appraisers;
(b) Certified Business Appraiser (CBA) accredited
through the Institute of Business Appraisers;
(c) Accredited in Business Valuation (ABV)
accredited through the American Institute of
Certified Public Accountants; and
BUSINESS VALUATION
• (d) Certified Valuation Analyst (CVA)
accredited through the National
Association of Certified Valuation
Analysts
• (e) Accredited Valuation Analyst (AVA)
accredited through the National
Association of Certified Valuation
Analysts.
Small Loan Advantage
• Based on the successful Small/Rural
Lender Advantage streamlined
application process and “SLA 1.0”
• NOW Available to ALL lenders for
loans of $350,000 or less
How will SLA Assist?
• Streamline SBA loan origination process for small loans
– Expand Express platform & make available to SBA all lenders
– For loans of ≤ $350,000
– Replace complex SBA underwriting criteria with Liquid Small Business
Credit Scores
– Couple streamlined underwriting and collateral policies with the 7(a) full
guarantee of 75% to 85%
• 6/1/2012 incorporated SLA changes into SOP 50 10 5(E)
• SBA Information Notice 5000-1240 has summary details
Key Features of SLA
• All SBA Lenders may participate
• Loan maximum of $350,000 with 75% - 85% Guaranty
• Modified credit analysis and collateral requirements
Note: same SBA 7(a) eligibility policy, maximum loan maturities, standard
program interest rate criteria, environmental policy
• Revolving lines of credit are NOT eligible (USE EXPRESS
for lines up to $350,000)
• Requires SBA “credit score” pre-screening
• All applications must be submitted through E-Tran
• Use Express application Forms 1919 &1920 Parts B & C
SLA Pre-Screen
To pre-screen the application for a credit score, enter the following in
ETRAN:
Business Entity : Legal name, EIN number address, city, state, zip
and phone, DUNNS number (if available)
All Principals: Social Security number, name, address, city, state, zip
and phone.
be sure to click save and next, click on Credit Score up top, check
off all parties and submit.
If score is above 140, give applicant 4506-T, and 1919.
Please advise applicant a personal financial form will be needed including
household (spouse and children) assets and 3 years tax returns.
63
Credit Analysis
• Perform a thorough and complete credit analysis to
reasonably assure repayment (SEE COPY OF CREDIT
MEMORANDUM)
• Documentation must, at a minimum, include:
– Factors for underwriting and credit decision consistent with
similarly-sized non-SBA loans, including:
• Cash flow analysis or projected cash flow analysis if applicant has
been in business less than 2 years
• Owner/Guarantor analysis
– May use own credit scoring criteria – under specific conditions
– Consider the length of time in business and the depth of
management experience, including a brief description of
management team
Credit Analysis, cont.
• Review strength of business including analysis of key
characteristics such as: internal credit/deposit data, current
consumer credit bureau data, etc. to determine ongoing
creditworthiness
• Verify accuracy of financial data using IRS Form 4506-T(Pre loan
approval)
• Demonstrate repayment ability from cash flow of the business by
documenting the following:
– Debt service coverage ratio exceeds 1:1 on a projected basis
and
– Loans >$50,000, global cash flow coverage ratio exceeds 1:1
on a projected basis. Lender must document the definition or
formula used to calculate global cash flow
Collateral Analysis & Policy
Just like Express…….
• SLA loans ≤ $25,000 collateral is not required
• SLA loans over $25,000 to $350,000
– Follow same collateral policies and procedures for
similarly-sized non-SBA guaranteed loans
– At a minimum, must obtain lien on borrower’s business
assets to secure SBA-guaranteed loan
– Loans > $250,000 & collateralized by commercial real
estate = must comply with appraisal requirements in
SOP 50 10 5 (E)
66
Life Insurance
Like Express, Lender may follow
their internal policy for similarly
sized non SBA guaranteed loans
regarding life insurance.
Please note: file must have reason
as to why or why insurance was
not required.
67
• Additionally, for those loans over $250,000,
and collateralized by commercial real estate,
the lender must comply with SBA appraisal
requirement set forth in SOP 50 10 5 (E)
Subpart B, Chapter 4, Paragraph II C.
• Environmental Review
Environmental review required of all
commercial properties if a security interest
will be taken to secure SLA loan - Follow
SBA rules set forth in SOP 50 10 5 (E)
SBA Application Documents
www.sba.gov/for-lenders
How to Apply
Step 1:
 Pre-screen applicant in E-Tran & obtain credit score
• Enter GLS, use “E-Tran Loan Origination” and
select “Small Loan Advantage” process
• Enter 14 data fields
• E-Tran will generate a credit score
• If Score is ≥ 140:
• Proceed with E-Tran entry, “Validate” & “Submit”
• OR exit system & re-enter at another time to fully
process the loan
Contents of SLA Application
Required SBA Forms
• 1919 Borrower Information Form
• 1920SX - Part B Lender Application
• 1920SX - Part C Eligibility Checklist
• IRS Form 4506-T
• Complete Credit Memorandum
Potential Other Required Forms [see SOP 50 10 5(E)]
• 912 Statement of Personal History
• 159(7a) Loan Agent Fees
• The SLA credit score is calculated
based on a combination of consumer
credit bureau data, business bureau
data, borrower financials, and
application data. (not be confused with
the Small Business Predictive Score
(SBPS) used in lender portal.
www.sba.gov/ma
• The minimum SLA credit score is based
on the lower end of the risk profile of the
current SBA portfolio and may be
adjusted up or down from time to time.
The minimum score will be posted on
SBA website. The current minimum SLA
credit score is 140
www.sba.gov/ma
• If loan application does not receive an
acceptable credit score, the lender may
submit a “Standard 7A” thru the CA
processing center, or may submit the
request thru Express (with a 50%
guaranty)
www.sba.gov/ma
SLA Credit Score Response
75
SLA Eligibility Screen
7(a)
76
• Lenders may use their own credit
scoring criteria to assess the character,
reputation and credit history of the
applicant, including historical
performance as well as the potential for
long term success.
www.sba.gov/ma
• Business credit scoring models may be
used as long as it does not solely rely
on consumer credit scores, and the
lender uses the business credit scoring
model for its similarly sized non SBA
guaranteed commercial loans.
www.sba.gov/ma
• Lenders must validate (and document)
with appropriate and accepted statistical
methodologies that their business credit
scoring model is predicative of loan
performance and they must provide that
documentation to SBA upon request.
The Business Credit Score must be
documented in each loan file and be
available forwww.sba.gov/ma
SBA review.
• If the lender does not have the ability to
systematically analyze the borrower, the
lender must collect and analyze
business tax returns.
• Lenders must verify the accuracy of the
applicant's financial data using IRS
Form 4506-T, before input into the
ETAN system.
www.sba.gov/ma
Equity Requirements:
• Adequate equity is important to ensure
the long term survival of a business.
Lender must determine if the equity and
pro forma debt-to-worth ratio are
acceptable based on their policies and
procedures for their similarly sized, non
SBA commercial loans. If the lender
requires an equity injection and, as part
of its standard processes, verifies the
equity injection, it must do so for SLA
loans
How to Apply, cont.
Step 2:
 E-Tran entry:
• PLP lenders: continue with E-Tran origination process and
receive SBA loan approval number via E-Tran system
• Non-PLP lenders: (a) continue with E-Tran entry through
“Validation” & “Submission”; (b) send application to the
LGPC electronically:
Email to [email protected]:
 lender’s contact info. & credit score screen-print
 copy of Forms 1919 & 1920 (Parts B & C)
 Lender’s credit memorandum
 any SBA forms specific to the project (i.e. 912)
• Use ETRAN to upload files, new
functionality
• You may also use “send this file” a more
secure option
www.sba.gov/ma
Did you know?
For SLA loans
If you upload the required (1919, 1920 parts B & C
and your credit memo) documents in ETRAN, you
are not required to include them again in your
email to [email protected]
Please remember:
You must still send the email, and include message
that the required documents are uploaded to
ETRAN and include the application number.
Non-PLP Submission Response
7(a)
85
Authorization & Closing
• Loan Authorization
– PLP lenders: create the SLA Authorization using a new
Hybrid format
– Non-Delegated lenders: SBA creates Authorization
document & sends with approval
• Closing & Disbursement
– Meet requirements of SBA Loan Authorization
– Lenders may use own Note and Guaranty forms but must
include “Federal Language”
– Disbursement procedures are the same as for similarly-sized
non-SBA guaranteed loans
Closing
• When closing an SLA loan, lender must
use same closing and disbursement
procedures and documentation it uses
for similarly sized non SBA guaranteed
commercial loans. If lender using its
own note form, the lender must ensure
the note is legally enforceable and
assignable, has a stated maturity and is
not payable on demand.
www.sba.gov/ma
SLA Note Language
• Additionally, the note must include the following
language: “When SBA is the holder, this Note will
be interpreted and enforced under federal law,
including SBA regulations. Lender or SBA may
use state or local procedures for filing papers
recording documents, giving notice, foreclosing
liens, and other purposes. By using such
procedures, SBA does not waive any federal
immunity from state of local control, penalty, tax, or
liability. As to this Note, borrower may not claim or
assert against SBA any local or state law to deny
any obligation, defeat any claim of SBA, or preempt
federal law.”
SLA Guaranty Language
If lender uses its own guaranty forms, the guaranty
must include the following language; “When SBA is the
holder, the Note and this Guarantee will be construed
and enforced under federal law, including SBA
regulations. Lender or SBA may use state or local
procedures for filing papers, recording documents,
giving notice, foreclosing liens, and other purposesBy
using such procedures, SBA does not waive any federal
immunity from state or local control, penalty, tax or
liability. As to this Guarantee, Guarantor may not claim
or assert any local or state law against SBA to deny
any obligation, defeat any claims of SBA or preempt
federal law.”
• Can obtain multiple SLA loans
• Entire amount of loan proceeds may be
used to refinance same institution debt
(same as “regular 7a”)
www.sba.gov/ma
Borrower
Portion &
Lender
Portion
• Form 1919
• Form 1920 (A,B,C)
Type
Term only. (No revolving loans)
Maturity &
Guarantee
• WC: 10 yrs. F&F, M&E: Useful life.
Real estate: 25 yrs.
• <$150K: 85%
• >$150K: 75%
Origination Guidelines for Small
Dollar 7(a) Loans (<$350K)
Origination
• SBPS scored by SBA prior to
approval
• Processed via E-Tran.
•
•
•
•
Credit
Criteria
•
Verified income (4506)
Use credit scoring
Must consider management
experience
Debt service coverage ratio
exceeds 1:1 on projected basis
With the exception of loans under
$50,000, the Small Business
Applicant’s global cash flow
coverage ratio exceeds 1:1 on a
projected basis. Lender must
document in the loan file the
definition or formula used to
calculate global cash flow.
Interest
Rate
• Prime/LIBOR base rate.
• SBA optional peg rate + 2.25% for
maturities < 7 yrs.
• Optional peg rate + 2.75% for
maturities > 7 yrs.
Collateral
• < $25K: None
• > $25K: Lender policy except must
take business assets if available
• Equity injections/Life Insurance:
lender policy
• Environmental: same as SBA
Express
Closing and
Disbursing
In closing and disbursing SLA loans,
lenders will follow the same closing
and disbursement procedures and
documentation as it uses for its
similarly-sized non-SBA guaranteed
commercial loans.
• Lender will retain all documents in the
loan file.
• Purchases and Liquidations will be
handled out of the Little Rock Servicing
Center (like Express)
www.sba.gov/ma
Working Capital and Contract
Caplines Program
Caplines 2.0: New and Improved
Structural Changes
•
Reduce 5 subprograms to 4:
– Working Capital CAPLines (formerly Standard Asset Based
CAPLines and Eliminated Small Asset Based CAPLines,
maximum line amount $200,000.)
– Contract CAPLines
– Seasonal CAPLines
– Builder’s CAPLines
• Added option of delegated processing for PLP Lenders
• Application:
– Non-delegated: standard 7(a) application forms submitted to the
LGPC.
– Delegated: PLP lenders will use SBA Forms 1919 and 1920 (SBA
Express forms) as well as their own documents, including the
Lender’s Credit Memorandum rather than the standard 7(a)
application forms (which are used for other PLP loans). E-tran
submission for SBA approval is required.
General Requirements
• Maximum line amount $5,000,000.00.
• Maximum guaranty amount limited to $3,750,000 to any
one borrower and its affiliates.
• Maximum guaranty percentage is 75% for loans over
$150,000 and 85% for loans of $150,000 or less.
• Maximum interest rate is the same as Standard 7(a).
• Maximum maturity is 10 years.
Short Term Revolving Debt
Refinance Requirements
1. The short-term revolving debt must be
terminated after it is paid off with the
CAPLine.
2. The refinancing does not put SBA in a
position to sustain a loss which the
existing lender is presently facing.
3. The borrower has a sufficient borrowing
base to support the Working Capital
CAPLine plus any other short-term debt
that is not being refinanced.
4. The refinancing is specifically identified
in the Use of Proceeds section of the
Authorization.
5. If refinancing Same Institution Debt
(SID) – the application must be submitted
to the Loan Guaranty Processing Center
(LGPC) and may not be processed under
Delegated Authority.
www.sba.gov/ma
6.
7.
8.
9.
.
If the application includes the refinancing of same-institution, SBAguaranteed short-term revolving debt, in addition to the requirements of
(1) through (5) above, the lender’s exposure to the applicant will not be
reduced.
Required Documents •
A copy of the note(s) and an explanation of the terms and
conditions of any debt(s) being refinanced.
•
A copy of the transcript of the account.
•
A borrowing base certificate with an aging of receivables and list
of inventory, as necessary.
If the short term revolving debt to be refinanced was not revolving in
accordance with the terms of the note, the debt is not eligible to be
refinanced under CAPLines.
If the applicant defaults on the SBA-guaranteed loan within 90 days of
the initial disbursement, the SBA may deny liability on its guaranty.
Collateral Requirements
– If the lender is Using a borrowing base certificate (BBC)
• Lender must obtain a first lien on the applicant’s working
/trading assets (i.e., A/R, INV).
– If the lender is Not using a borrowing base certificate
(BBC)
• Lender must obtain a first lien position on the
working/trading assets financed with the line.
• If the working/trading assets are insufficient to provide a
1:1 collateral ratio, the lender also must take additional
collateral to ensure there is a 1:1 collateral ratio.
• If business assets do not fully secure the loan, the lender
must take available personal assets of the principals as
collateral to ensure there is a 1:1 collateral ratio.
• Determining collateral value:
• A maximum of 80% Advance Rate is allowed
on eligible A/R.
• A maximum of 50% Advance Rate is allowed
on eligible Inventory.
• Machinery and Equipment is allowed at 50% of
Net Book Value (NBV) or 80% of Orderly
Liquidation Value minus any prior liens.
.
• Real estate is allowed at 80% of the value.
• An independent appraisal by a qualified
individual must be obtained by lender to
value fixed assets greater than their NBV.
• After initial disbursement, lenders have
unilateral authority to increase or decrease
the advance rate for receivables and/or
inventory by 5% above or below rate stated
in Authorization
www.sba.gov/ma
Determining Loan Amount
To determine the maximum loan amount, the lender must
follow its established policies and procedures utilized on
its similarly sized, non-SBA guaranteed Commercial Lines
of Credit. OR The lender may use the following formula:
Example
a.)
Net Sales for prior year
b.)
Divide prior year net sales by 365
c.)
Multiply daily sales figure by number of days
to finance (whatever number is the business
sales cycle)
d.)
The result will be the estimated working
capital needs
$1,000,000.00
Per year
$2,700.00
Per day
30
Days
$81,000.00
Estimated Need
* The key is the correct calculation of the business sales cycle.
Determining Disbursement Amount
Using a BBC
Determining Cash Cycle Days
The cash cycle is the number of days a business takes
from the time it acquires inventory, provides a service,
manufactures a product etc., until it collects the cash from
its sale of that inventory, service, or product.
To measure the length of the applicant cash cycle –
compute turnover ratios and convert into days.
Receivable Turnover (ARTO) days
+
Inventory Turnover (ITO) days
Payable Turnover (APTO) days
=
Cash Cycle days
Determining Cash Cycle Days (cont.)
Determining Cash Cycle Days (cont.)
Determining Cash Cycle Days (cont.)
Why is it important to calculate
CASH CYCLE DAYS?
 Cash Cycle Days are included in the Loan Authorization.
 Used to determine date for final disbursement.
 Non-delegated processing will use cash cycle days as part
of their review process to determine if the loan amount
requested is reasonable.
 Maximum line amount tied to the borrower’s cash cycle.
 Principal payments tied to the borrower’s cash cycle.
• Repayments will come from cash sales
and receivable collections. Proceeds
must pay down the line as collected with
availability to re-advance as long as the
borrower is conforming to the maximum
amount of the borrowing base certificate
www.sba.gov/ma
Determining Disbursement Amount
Not Using a BBC – Using 1:1 Collateral Ratio
 If the lender is not using a BBC, determine the availability of funds for
disbursement based on the following:
A. Use a combination of factors for the underwriting and credit decision
consistent with its similarly sized, non-SBA guaranteed commercial
lines of credit.
B. At a minimum complete:
• Cash flow analysis to determine the adequacy, duration and
dependability of cash flow.
• Collateral analysis to establish an estimated value of collateral.
• Owner/Guarantor analysis
C. Assume full utilization of the LOC and secure with sufficient
collateral to ensure a 1:1 collateral ratio.
. Level of Funds Control & Monitoring
 The level of funds control for a Working Capital CAPLine,
whether a BBC is used or not, is determined by the
banking relationship the lender has with the borrower.
• If the lender has the borrower’s deposit accounts, the lender is not
required to utilize cash collateral accounts or other types of controlled
accounts, but must follow its established procedures for its similarly-sized,
non-SBA guaranteed commercial lines of credit to monitor payments
received.
• If the lender does not have the borrower’s deposit accounts, then the lender
must utilize some form of controlled account as follows:
 The customer of the borrower can be instructed to send their remittances via joint
payee checks payable to lender and borrower, to the lender; or
 Lock box (bank account under lender control where borrower’s customers remit
payments for accounts receivable).
Level of Funds Control &
Monitoring
Using a BBC
• When a BBC is used - the minimum monitoring requirements
are:
• Monthly – BBC; Aging of A/R & A/P; and INV (if advanced
against).
• Quarterly – Borrower prepared financial statements
• Annually – For $1,000,000 or less; credit review including a
cash flow analysis, concentration analysis, collateral
analysis, owner/guarantor credit review, and annual site visit.
• Annually – For more than $1,000,000; same as above plus
Annual Field Examination.
Level of Funds Control & Monitoring
• Annual Field Examination - for loans more than
$1,000,000
• Must be conducted by the lender’s staff or a 3rd party.
• Complete a physical verification of the assets which compose
the BBC, including a sampling of the assets.
• At a minimum, an examination must be conducted prior to the
initial disbursement and annually thereafter.
• The lender should describe the level and frequency of
examinations in the credit memorandum based on the quality of
the records, risk profile of the borrower, and seasonality of the
line.
Level of Funds Control
Not Using a BBC – 1:1 collateral
• When a BBC is not used - the minimum requirements
are:
1.
2.
Use financial covenants consistent with those used on
Lender’s similarly sized, non-SBA guaranteed commercial
lines of credit – Tested Quarterly, Semi-Annually or Annually.
Annually:
• At a minimum; conduct a credit review including a cash flow
analysis, collateral analysis to ensure there is a 1:1 collateral ratio,
owner/guarantor credit review, and annual site visit.
• For $1,000,000 or less; obtain borrower prepared financial
statements and tax returns.
• For more than $1,000,000; obtain compiled, reviewed or audited
financial statements and tax returns.
. Application Process
 For Non-delegated - use Standard 7(a) application forms.
 For PLP - use SBA Forms 1919 and 1920SX Part C. The lender
should also use their own documents including the Credit
Memorandum. Use these in place of Standard 7(a) application forms
used for other PLP loans. E-Tran submission for SBA approval is
required.
 Include comment if lender will use BBC or 1:1 collateral ratio.
 Include comment on use of deposit account or controlled account.
 Include cash cycle days used to determine short term working capital
need.
Key Features of the Contract CAPLines
program – Use of Proceeds
• Proceeds can be used to finance all costs (excluding profit), previously only
labor and materials.
• Contract CAPLine proceeds may not be used for:
– permanent working capital,
– to acquire fixed assets,
– to pay delinquent taxes or similar funds held in trust (directly or
indirectly),
– to finance a contract in which significant performance has already begun,
– for change of ownership
– Floor plan financing;
– to cover any mark-up or profit;
– to finance the performance of another contract or sub-contract; or
– in repayment of a different contract or sub-contract.
Key Features of the Contract CAPLines
program – Collateral
• Assignment of Contract Proceeds:
–
Subject to the exception noted below, prior to initial disbursement on any Contract CAPLine,
the entity the borrower has entered into the contract with must be advised in writing by both the
lender and borrower that an assignment of the contract proceeds is required. Such assignment
must be in place before any disbursement for a particular contract is made and include a
provision for the lender’s right to receive all payments from the third party. The lender must
receive written acknowledgement from the third party.
• Exception to the Assignment of Contract Proceeds: An assignment of the contract
proceeds may be foregone, if at least two of the following conditions are met:
– The term of the contract being financed is 12 months or less;
– A successful track record between the borrower and the contracting authority exists
relative to the same or reasonably similar contracts. (The definition of a “successful
track record” includes but is not limited to, any prior contractual arrangement
between the subject parties, where the responsibilities of each party under the
contract were met to the satisfaction of all parties to the contract.);
– Financial analysis of historical income statements and/or tax returns and pro-forma
financial statements show that the applicant has a Debt Service Coverage ratio that
exceeds 1:1;
– All contract proceeds are paid directly to the lender by the contracting authority or,
in the instance where a performance bond is in place, a Funds Control (or escrow or
third party servicer) procedure is implemented; or
– There is other available and worthwhile collateral pledged to secure the line by
either the borrower or any owner/guarantor.
Key Features of the Contract CAPLines
program – Eligible Contracts/Purchase Orders
• A contract between a prime and subcontractor, a contract with
Performance bonds, and a purchase order is eligible for financing
under Contract CAPlines provided the lender satisfies the section 2 (a)
on page 237 of the SOP 50 10 5(d) and satisfies the following:
• Prime and Subcontractor Contracts: a contract between a Prime and
Subcontractor is eligible to be financed with a Contract CAPLine, if at
least two of the following conditions are met:
– Both the Prime and the Subcontractor have favorable credit ratings
based on an acceptable rating agency (e.g., Builders Industry
Credit Association “BICA”);
– There is a successful track record between the Prime contractor
and the subcontractor (borrower);
– There is a successful track record between the Prime contractor
and the contracting authority
– .
– The Contract CAPLine amount is less than
$300,000;
– The term of the contract is 12 months or less;
– The financial analysis of historical income
statements and/or tax returns and pro-forma
financial statements show that the applicant has
a Debt Service Coverage ratio that exceeds 1:1;
or There is other available and worthwhile
collateral pledged by either the borrower or any
owner/guarantor
www.sba.gov/ma
Contracts with Performance Bonds: a contract requiring a Surety’s
performance bond may be eligible for a Contract CAPLine provided the
lender perfects a UCC security interest in the contract proceeds
.
SBA recognizes the following conditions may be necessary to effectuate
the transaction where a contract requires a Surety’s performance bond:
The lender’s perfected UCC security interest in the contract proceeds will
be subordinate to the cost reimbursement claim of the Surety; and
The Surety may require that a funds control facility be executed. The
funds control facility would disburse directly to suppliers and laborers.
The contracting authority will remit contract proceeds directly to the funds
control facility, which will remit payment to the lender.
www.sba.gov/ma
Purchase Orders under a Master Agreement: Purchase
Orders (PO) may be substituted for a formal contract,
provided the following conditions exist:
The PO is issued to the borrower under a Master
Agreement; and
The combination of the PO and the Master Agreement
constitute a binding agreement.
www.sba.gov/ma
Capline Program Summary
Capline Program Summary
Capline Program Summary
When a loan is approved, a loan
authorization must be generated
• The Authorization spells out the terms of the loan,
including the amount, interest rate, any other terms
and conditions including collateral requirements, etc.,
and SBA’s guaranty.
– Review the authorization to insure that it spells out the terms
you intended for the loan
– Make sure you adhere to the authorization and
use the required forms.
Loan Authorization
• More experienced lenders may choose to
draft the proposed authorization
• The latest version of the wizard can be
downloaded from SBA lender page
• Lender prepares all Express Loan
Authorizations
Loan Modifications
Teri Hendrix 916.735.1961
[email protected]
Include Business name, loan number, lender
phone/fax number
ALL MODIFICATIONS DONE IN CA PRIOR
TO FINAL DISBURSEMENT
SBA Required Forms for “Regular
7A loans
SBA Note Form 147
http://www.sba.gov/idc/groups/public/documents/sba_homepage/to
ols_len147.pdf
SBA Guaranty Form 148
http://www.sba.gov/idc/groups/public/documents/sba_homepage/se
rv_tools_forms_lender_148.pdf
SBA Compensations Agreement Form 159
http://www.sba.gov/idc/groups/public/documents/sba_homepage/se
rv_tools_forms_lender_1597a.pdf
SBA Settlement Sheet Form 1050
http://www.sba.gov/idc/groups/public/documents/sba_homepage/se
rv_tools_forms_lender_1050.pdf
SBA Form 722 Equal Opportunity Poster
http://www.sba.gov/content/sba-form-722-10-02?form=lender
Commercial Loan Service Center
Little Rock, Arkansas
Servicing
[email protected]
Fax: (202) 292-3878
504 Liquidation
[email protected]
Fax: (202) 741-6930
SBAExpress Purchases
[email protected]
Fax: (202) 292-3877
• New 7a Loan Servicing and Liquidation
SOP 50 57 went into effect on 2/1/13
www.sba.gov/ma
Unilateral Servicing Authority
For all loan servicing actions not requiring
SBA’s prior written consent, lenders must
document the justifications for their decisions
and retain these and supporting documents in
their file for future SBA review to determine if
the actions taken by the lender were prudent,
commercially reasonable and complied with all
Loan Program Requirements.
•
•
•
•
•
•
•
•
•
Cancel undisbursed loans.
Terminate guaranty on disbursed loans.
Decrease undisbursed loans.
Change the use of proceeds, which does not involve an
increase to loan.
Changes to maturity date or months on loans which have
not matured.
Change loans from revolver to term or vice versa.
Change legal/trade name or address.
Change project from rural to urban or vice versa.
Change principal(s) gender, race, veteran status,
citizenship.
•
•
•
•
•
•
Close loan according to Loan Authorization.
Be familiar with SOP 50-10-5( 13 CFR, SOP 50-50-4 and Policy Notices,
which can be found on Servicing website.
Document, document, document all credit decisions, which should be
reasonable and prudent.
Service and Liquidate SBA Loan in the same manner as lender’s non-SBA
loans.
Include 7a Lender Matrix as part of lender’s documentation when approving
requests under lender’s delegated, unilateral authority. Always check
Servicing Website weekly for most recent version.
File internal bank loan according to SBA’s Ten Tab Purchase Demand Kit.
This is to ensure lender has all appropriate documents at the time lender
demands SBA honor it’s guaranty.
2008
www.sba.gov (add local information on master slide)
1502 Reporting
• Mandatory on all 7a loans with an outstanding SBA
guaranty, regardless of payment activity.
• Promptly notify SBA of cancelled or withdrawn loans.
• Reporting period includes the first calendar day
through the last calendar day of the prior month.
Colson Customer Service
www.colsonservices.com
Telephone: 1-877-245-6159
e-mail: [email protected]
What does all this mean to You?
• Working with the SBA expands your “lending
range” to small businesses
• The Bank’s risk is mitigated by the SBA’s
Guaranty
• SBA loans can increase the bank’s
profitability
9
www.sba.gov/
SBA.gov/for-lenders
www.sba.gov/ma
Questions?