HOW TO RAISE MONEY FOR A SMALL BUSINESS 8/96 One key to a successful business start-up and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. But as many new entrepreneurs quickly discover, raising capital may not be easy; in fact, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising money for your business will not be a painful experience. This information summary focuses on ways a small business can raise money and explains how to prepare a loan proposal. Finding the Money You Need There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision. * Personal savings: The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans. * Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started. * Banks and credit unions: The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound. * Venture capital firms: These firms help expanding companies grow in exchange for equity or partial ownership. Borrowing Money It is often said that small business people have a difficult time borrowing money. This is not necessarily true. Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: "High Risk!" To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk. Types of Business Loans Short-Term Loans Terms of loans may vary from lender to lender, but there are two basic types of loans: short-term and long-term. Generally, a short-term loan has a maturity of up one year. These include working-capital loans, accounts-receivable loans and lines of credit. Long-term loans have maturities greater than one year but usually less than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc. How to Write a Loan Proposal Approval of your loan request depends on how well you present yourself, your business and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal. A good loan proposal will contain the following key elements: General Information * Business name, names of principals, social security number for each principal, and the business address. * Purpose of the loan - exactly what the loan will be used for and why it is needed. * Amount required - the exact amount you need to achieve your purpose. Business Description * History and nature of the business - details of what kind of business it is, its age, number of employees and current business assets. * Ownership structure - details on your company's legal structure. Management Profile * Develop a short statement on each principal in your business; provide background, education, experience, skills and accomplishments. Market Information * Clearly define your company's products as well as your markets. * Identify your competition and explain how your business competes in the marketplace. * Profile your customers and explain how your business can satisfy their needs. Financial Information * Financial statements - balance sheets and income statements for the past three years. If you are just starting out, provide a projected balance sheet and income statemet. * Personal financial statements on yourself and other principal owners of the business. * Collateral you would be willing to pledge as security for the loan. How Your Loan Request Will Be Reviewed When reviewing a loan request, the bank official is primarily concerned about repayment. To help determine this ability, many loan officers will order a copy of your business credit report from a credit-reporting agency. Therefore, you should work with these agencies to help them present an accurate picture of your business. Using the credit report and the information you have provided, the lending officer will consider the following issues: * Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? (Remember, a lender or investor will not finance 100 percent of your business.) * Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommenda- tion? This is very important. * Do you have sufficient experience and training to operate a successful business? * Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business? * Does the business have sufficient cash flow to make the monthly payments on the amount of the loan request? SBA Financial Programs The SBA offers a variety of financing options for small businesses. The SBA's assistance usually is in the form of loan guaranties - the SBA guarantees loans made by banks and other private lenders to small business clients. Generally, the SBA can guarantee up to $750,000 or 75 percent of the total loan value, whichever is less. The average size of an SBA-guaranteed loan is $175,000, and the average maturity is about eight years. Whether you are looking for a long-term loan for machinery and equipment, a general working capital loan, a revolving line of credit, or a microloan, the SBA has a financing program to fit your needs. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million Small Businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0055 (8/96) ---------- MicroLoans Fact Sheet 8/96 The MicroLoan Demonstration Program combines the resources and experience of the U.S. Small Business Administration with that of locally based nonprofit organizations to provide small loans and technical assistance to small businesses. Under the Micro- Loan Program, the SBA makes funds available to qualified non- profit organizations, which act as intermediary lenders. The intermediaries use the funds provided by the SBA to make loans to new and existing small businesses. Under the MicroLoan Program, a small business can borrow up to $25,000 from an intermediary lender, which also provides manage- ment and technical assistance designed to help ensure success. Eligibility Requirements Virtually any type of for-profit small business is eligible for the MicroLoan Program. The form of the business, whether a proprietorship, partnership or corporation, is not a determining factor. It must, however, meet the SBA's size standards at the time of application (generally, borrowers applying for this type of loan will fall well within these standards). Use of Loan Funds MicroLoan funds may be used for working capital or to purchase inventory, supplies, furniture, fixtures, machinery and/or equipment. These funds may not be used to purchase real estate, to provide a down payment on a project in excess of $25,000 in value, or, with limited exceptions, to refinance existing debts. Loan Terms Under the MicroLoan Program, the maximum loan amount is $25,000. The average is around $10,000. The maximum term allowed for a loan is six years. However, loan terms vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. Interest rates vary, depending upon the intermediary lender. Rates are generally competitive. Credit Requirements MicroLoan applicants must meet the credit requirements of their local intermediary lender. Generally, however, applicants will be expected to demonstrate good character, a strong commitment to their business idea, and a credit history that demonstrates a reasonable assurance that the loan will be repaid. In addition, applicants should have some management expertise or be willing to participate in training designed to strengthen management skills. Collateral Requirements As with credit standards, collateral requirements for the Micro- Loan Program are set by the local intermediary lender. In most cases, loans are at least partially collateralized by equipment, contracts, inventory or other property. Lenders may also require personal guaranties. Applying for a Microloan The first step in applying for a microloan is to contact your local intermediary lender. The intermediary will provide the details on applying for a loan or receiving technical assistance. The MicroLoan Program is a pilot program and not available everywhere. Contact the nearest SBA office to find out if an intermediary lender operates in your area. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million Small Businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0068 (8/96) ---------- º INTEREST RATE POLICY º 12/94 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ The U.S. Small Business Administrations (SBA) interest rate policies vary, depending on the type of loan assistance. Interest rates on guaranteed loans are negotiated between borrowers and lenders, although rates cannot be higher than maximum levels set by SBA regulations. The basis for the maximum rate is the lowest prime rate listed in a national financial newspaper each business day, as published on the date SBA receives the application. For loans with original maturities of less than seven years, the maximum allowable rate cannot exceed 2.25 percent over the prime rate. For loans with original maturities of seven years or more, the maximum allowable rate cannot exceed 2.75 percent over the prime rate. For loans of less than $25,000, the maximum interest rate may be two percentage points higher than those stated above, i.e., 4.25 percent and 4.75 percent, respectively. For loans between $25,000 and $50,000, the maximum interest rate may be one percentage point higher than those stated above, i.e., 3.25 percent and 3.75 percent. For immediate participation loans, the maximum interest rate for the lenders share is one percentage point below the maximun guaranty rate for loans with comparable maturities. The interest rate may be fixed or variable, depending on negotiated loan agreements between the borrower and the lender. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Variable Rate Pegs ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Variable rate loans may be pegged to either the lowest prime rate or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the "Federal Register". The lender and borrower negotiate the amount of "spread" which will be added to the base rate. Although there may be exceptions, generally the rate cited in the note upon which payment calculations are based will be the base rate plus the negotiated spread. An adjustment period is selected which will identify the frequency at which the note rate will change. It must be no more often than monthly and must be consistent, (e.g., monthly, quarterly, semiannually, annually or any other defined, consistent period). While the base rate (e.g., prime) may change numerous times in one period, the note rate would only be adjusted once. The date of determination of the change must be the first business day of the period after the end of the last adjustment period. The effective date of adjustment is the first calendar day after the end of the last adjustment period. The exception to the "no more often than monthly" policy is that the first adjustment can occur on the first calendar day of the month following disbursement based on the base rate in effect on the first business day of the month after disbursement. On the day of the application, the participating lender must have determined:(1) the base rate; (2) the spread; (3) the note rate; and (4) the adjustment period. ÚÄÄÄÄÄÄÄÄÄ¿ ³ Example ³ ÀÄÄÄÄÄÄÄÄÄÙ A lender requests SBA's guaranty on a loan with a 10-year maturity. Prime on the day the lender submits the application to SBA is 9 percent. The lender and borrower agree that payments will be calculated at prime plus 2.50 percent and that the rate will fluctuate on a quarterly basis. The base rate is 9 percent, the spread is 2.50 percent, the note rate is 11.50 percent and the adjustment period is quarterly. If the prime rate changes either up or down, the note rate will change by the same amount in effect on the first business day of the new calendar quarter, but will be effective as of the first calendar day of that calendar quarter. The spread stays constant throughout the term of the loan. Therefore, while the maximum note rate at the time this loan was made was 11.75 percent, if prime goes up to 12 percent during the life of the loan, the rate on the note at that time would go up to 14.50 percent. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government", or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. ÉÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍ» º SURETY BOND GUARANTEE PROGRAM º 12/94 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ The Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $1.25 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through the regular commercial channels. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Eligibility ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Businesses in the construction and service industries can meet SBA's size eligibility standards if their average annual receipts, including those of their affiliates, for the last three fiscal years do not exceed $5 million. Local SBA offices can answer questions dealing with size standard eligibility. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Types of Eligible Bonds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Any contract bond (bid, performance or payment) is eligible for an SBA guarantee if the bond is: - Covered by the Contract Bonds section of the Surety Association of America Rating Manual; - Required by the invitation to bid; and - Executed by a surety company that is acceptable to the U.S. Treasury (Circular 570) and qualified by the SBA. Some noncompetitive negotiated contracts are eligible if they are in accord with appropriate federal regulations. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Size of Eligible Contracts ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA can guarantee bonds for contracts up to $1.25 million. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ SBA Guarantee ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA guarantees surety companies against a percentage of losses sustained on contracts up to $1.25 million in face value. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Duties of Contractor ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Contractors should apply for a specific bond with a surety company of their choice, providing background, credit and financial information required by the surety company and the SBA. The contractor must use the folowing forms, which are available from the SBA: - SBA Form 994: Application for Surety Bond Guarantee Assistance; - SBA Form 912: Statement of Personal History (on first application and once every two calendar years thereafter); and - SBA Form 994F: Schedule of Uncompleted Work on Hand (required initially and then at least quarterly). ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Duties of Surety Company ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ After an applicant completes the forms and furnishes the surety company with sufficient underwriting information, the surety company processes and underwrites the application in the same manner as any other contract bond application. The surety company decides whether to: - Execute the bond without the SBA's guarantee; - Execute the bond only with the SBA's guarantee; or - Decline the bond even with the SBA's guarantee. If the surety company determines an SBA guarantee is required in order to provide the bond, it must then complete an SBA Form 994B: Underwriting Review and the SBA Form 990: Guarantee Agreement. These forms -- and supporting documents -- are submitted along with the Forms 994, 912 and 994F to the appropriate SBA office. If the application is for a final bond, the contractors guarantee fee check must be attached. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Duties of the SBA ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA determines an applicant's ability to complete the contract based on the information, documentation and underwriting rationale provided by the surety company. If the review establishes performance capacity, and all other aspects of the application are approved, a duly authorized SBA official signs a guarantee agreement and returns it to the surety company. If the review fails to establish performance capacity, the SBA seeks clarification from the surety underwriter. If performance capacity cannot be reasonably assured, the SBA rejects the application. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Cost of an SBA Guaranteed Bond ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA charges fees to both the contractor and the surety company, as described in the most recent edition of 13 CFR 115: - The small business pays the SBA a guarantee fee of $6 per $1,000 of the contract amount. - When the bond is issued, the small business pays the surety company's bond premium. This charge cannot exceed the level approved by the appropriate state regulatory body. - The surety company pays the SBA a guarantee fee as determined by the SBA. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government", or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. DELTA - The Defense Loan and Technical Assistance Program 8/96 Fact Sheet DELTA is a joint effort of the U.S. Small Business Administration and the Department of Defense (DoD) to provide financial and technical assistance to defense-dependent small firms adversely affected by defense reductions. DELTA is a pilot program that will operate until September 30, 1998. The goal of the program is to help these businesses diversify into the commercial market, while remaining part of the defense industrial base. Reductions affecting businesses may be the result of any number of actions, such as cuts in defense spending, termination or cancellation of a defense contract, discontinuation of an approved weapon system, merger or consolidation of the operations of a defense contractor, or the closure or realignment of a military installation. Using funds transferred from DoD under a memorandum of understanding, the SBA will guarantee loans made by its participating lenders to qualified, defense-dependent small businesses. These loans will be made through the SBA's existing 7(a) and 504 programs, under recent modifications covering defense economic-transition loans. In addition, many DELTA clients will require technical and management assistance to make the transition to the commercial market. The SBA will provide this support through its resource partners, other federal agencies, and other technical- and management-assistance providers. Eligibility To be eligible for this program, a firm must -- * Meet the requirements of the SBA's 7(a) or 504 lending program; * Be defense-dependent, i.e., a small business that derived a substantial amount of its prior year's revenue from DoD contracts, defense-related Department of Energy contracts, or subcontracts in support of defense-related prime contracts; and * Meet at least one of the program's three policy objectives. Policy Objectives Each DELTA loan must achieve at least one of the following policy objectives: * Job retention - retain defense workers (employees of the contractor) whose employment would otherwise be permanently or temporarily terminated due to defense reductions * Job creation - create job opportunities and new economic activity in communities adversely affected by defense reductions * Plant retooling and expansion - modernize or expand the applicant's plant to enable it to remain in the nation's technical and industrial base and available to DoD Loans The maximum DELTA loan under the 7(a) Program is $1.25 million; the SBA can guarantee up to 75 percent of the loan amount. Under the 504 Program, the SBA can guarantee up to $1 million. Both programs may be used, but the maximum amount for any combination of loans is $1.25 million. DELTA loans may not be typical 7(a) or 504 loans and may require special handling because of complicated credit analyses. While they may have significant collateral, DELTA applicants may not be able to show the ability to repay based on past operations because of their state of transition. New revisions to the Small Business Act allow the SBA to resolve reasonable doubts in favor of the DELTA applicant. Use of Proceeds Loan proceeds may be used for - * working capital * acquisition of equipment * raw materials or inventory * capital improvements, including renovation, leasehold improvements, expansion or replacement of the applicant's plant. Maturities, Fees and Interest Rates Maturities, fees and interest rates are the same as for other 7(a) or 504 loans. Under 7(a), maturity is usually five to 10 years for working capital and 10 to 25 years for fixed assets, including real estate. Both fixed and variable interest rates are available. Rates are pegged at no more than 2.25 percent over the lowest prime rate for loans with maturities of less than seven years and up to 2.75 percent over prime for loans of seven years or longer. On loans with maturities of more than one year, guaranty fees are figured on an incremental scale. Fees are paid by the lender and may be passed on to the borrower. On loans with maturities of one year or less, the fee is just 0.25 percent. Under 504, interest rates on SBA-guaranteed debentures are based on current market rates for 5-year and 10-year U.S. Treasury issues plus an increment determined by market factors at the time of sale. Maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture. Technical and Management Assistance The SBA coordinates technical and management assistance through its small business development centers, the Service Corps of Retired Executives, other federal agencies and other providers. These resources help applicants to prepare realistic business plans and loan packages, as well as to make the transition to commercial markets. Types of assistance include basic technical assessments, product development, manufacturing process redesign, marketing, exporting, and employee retraining, among others. Additional assistance is available to businesses in California, Connecticut, Florida, Michigan, Missouri, New York, Ohio, South Carolina and southern Texas through special defense economic- transition grants made to small business development centers. How to Apply The 7(a) and 504 loan applications and procedures are used for DELTA loans, which are processed through special DELTA processing centers around the country. While these are located in areas with high concentrations of defense-dependent industry, the program is available to firms in any part of the United States, its territories and possessions. For more information on how to apply for DELTA assistance, contact your local SBA office. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Develop- ment Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million small businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0066 (8/96) ---------- CAPLines Loan Program Fact Sheet 8/96 CAPLines is the U.S. Small Business Administration's umbrella lending program that helps small businesses meet their short-term and cyclical working-capital needs. CAPLines can be used to: * Finance seasonal working-capital needs; * Finance the direct costs of performing construction, service and supply contracts; * Finance the direct cost associated with commercial and residential construction without a firm commitment for purchase; * Finance operating capital by obtaining advances against existing inventory and accounts receivable; and * Consolidate short-term debt. There are five distinct short-term working-capital loan programs under the CAPLines umbrella including: Seasonal Line Finances inventory and receivables during seasonal upswings in the business cycle. Repayment is made from the liquidation of these assets. The Seasonal Line can be revolving or nonrevolving. Contract Line Finances the direct labor and material costs associated with performing assignable contract(s). The Contract Line can be revolving or nonrevolving. Builders Line Finances the direct labor and material costs for small general contractors and builders that construct or renovate commercial or residential buildings. The building project serves as the collateral; Builders Line loans can be revolving or nonrevolving. Standard Asset-Based Line Provides financing for cyclical, growth and recurring short-term needs by advancing funds against existing inventory and accounts receivable. Repayment comes from converting short-term assets into cash and remitting this cash to the lender. Businesses continually draw and repay as their cash cycle dictates. This line of credit is generally utilized by businesses that provide credit to other businesses. These loans require periodic servicing and monitoring of collateral, for which additional fees are usually charged by the participating bank. The Standard Asset-Based Line assists businesses unable to meet credit standards associated with long-term credit. Small Asset-Based Line Provides up to $200,000 under an asset-based revolving line of credit similar to the Standard Asset-Based Line, except that some of the stricter servicing requirements are waived (provided that the business can consistently show repayment ability from cash flow for the full amount). Loan & Guaranty Amount All CAPLines are only provided on a guaranteed basis and can be for any dollar amount except for the Small Asset-Based loan, which is limited to $200,000. However, the maximum SBA guaranty share is limited to $750,000 or 75 percent, whichever is less. Loan Maturity & Disbursement Each of the five lines of credit has a maturity of up to five years. However, to meet the needs of the applicant, a shorter initial maturity can be established. CAPLines funds may be used as needed throughout the term of the loan to purchase assets, as long as sufficient time is allowed to convert the assets into cash by maturity. Collateral The primary collateral will either be the current assets acquired with the loan proceeds or the current assets serving as a base for disbursements. Personal guaranties will also be required from the principal owners of the business. Credit Requirements Loan applicants must: * Demonstrate the capability to convert short-term assets into cash; * Demonstrate sufficient management ability, experience and commitment necessary for a successful operation; * Demonstrate the capability to perform, and collect payment for that performance; * Have a feasible business plan; * Have adequate equity or investment in the business; * Have the capability of providing required updates on the status of current assets; * Pledge sufficient assets to adequately secure the loan; and * Be of good character. Guaranty & Service Fees A guaranty fee is paid by the lender and may be passed on to the borrower. On loans with maturities of up to one year, the fee is 0.25 percent. On loans where the guaranteed portion is $80,000 or less with maturities of more than one year, the guaranty fee is 2 percent of the guaranteed portion. On loans where the guaranteed portion exceeds $80,000 with maturities of more than one year, the guaranty fee is figured on an incremental scale. The lender also may charge a servicing fee no greater than 2 percent of the outstanding balance on an annual basis for all CAPLines loans except the Standard Asset-Based loan, where there are no fee restrictions. Interest Rates The rate of interest will be negotiated between the borrower and the lender, but cannot exceed the prime rate plus 2.25 percent. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million Small Businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0064 (8/96) ---------- SMALL BUSINESS DEVELOPMENT CENTER PROGRAM 8/96 The U.S Small Business Administration (SBA) administers the Small Business Development Center Program to provide management assistance to current and prospective small business owners. SBDCs offer one-stop assistance to small businesses by providing a wide variety of information and guidance in central and easily accessible branch locations. The program is a cooperative effort of the private sector, the educational community and federal, state and local governments. It enhances economic development by providing small businesses with management and technical assistance. There are now 57 small business development centers -- one in every state (Texas has four), the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam -- with a network of more than 950 service locations. In each state there is a lead organization that sponsors the SBDC and manages the program. The lead organization coordinates program services offered to small businesses through a network of subcenters and satellite locations in each state. Subcenters are located at colleges, universities, community colleges, vocational schools, chambers of commerce and economic development corporations. SBDC assistance is tailored to the local community and the needs of individual clients. Each center develops services in cooperation with local SBA district offices to ensure statewide coordination with other available resources. Each center has a director, staff members, volunteers and part-time personnel. Qualified individuals recruited from professional and trade associations, the legal and banking communities, academia, chambers of commerce and SCORE (the Service Corps of Retired Executives) are among those who donate their services. SBDCs also use paid consultants, consulting engineers and testing laboratories from the private sector to help clients who need specialized expertise. What the Program Does The SBDC Program is designed to deliver up-to-date counseling, training and technical assistance in all aspects of small business management. SBDC services include, but are not limited to, assisting small businesses with financial, marketing, production, organization, engineering and technical problems and feasibility studies. Special SBDC programs and economic development activities include international trade assistance, technical assistance, procurement assistance, venture capital formation and rural development. The SBDCs also make special efforts to reach socially and economically disadvantaged groups, veterans, women and the disabled. Assistance is provided to both current and potential small business owners. SBDCs also provide assistance to small businesses applying for Small Business Innovation and Research (SBIR) grants from federal agencies. Eligibility SBDC assistance is available to anyone interested in starting or expanding a small business who cannot afford the services of a private consultant. Lead SBDCs University of Alabama, Birmingham, AL (205) 934-7260 University of Alaska/Anchorage, Anchorage, AK (907) 274-7232 Maricopa County Community College, Tempe, AZ (602) 731-8720 University of Arkansas, Little Rock, AR (501) 324-9043 California Trade and Commerce Agency, Sacramento, CA (916) 324-5068 Colorado Office of Business Development, Denver, CO (303) 892-3809 University of Connecticut, Storrs, CT (203) 486-4135 University of Delaware, Newark, DE (302) 831-2747 Howard University, Washington, DC (202) 806-1550 University of West Florida, Pensacola, FL (904) 444-2060 University of Georgia, Athens, GA (706) 542-6762 University of Guam, Mangilao, GU (671) 735-2590 University of Hawaii at Hilo, Hilo, HI (808) 933-3515 Boise State University, Boise, ID (208) 385-1640 Dept. of Commerce & Community Affairs, Springfield, IL (217) 524-5856 Economic Development Council, Indianapolis, IN (317) 264-6871 Iowa State University, Ames, IA (515) 292-6351 Fort Hays State University, Hay, KS (913) 628-6786 or 5340 University of Kentucky, Lexington, KY (606) 257-7668 Northeast Louisiana University, Monroe, LA (318) 342-5506 University of Southern Maine, Portland, ME (207) 780-4420 Dept. of Economic and Employment Development Baltimore, MD (410) 333-6995 University of Massachusetts, Amherst, MA (413) 545-6301 Wayne State University, Detroit, MI (313) 964-1798 Dept. of Trade and Economic Development St. Paul, MN (612) 297-5770 University of Mississippi, University, MS (601) 232-5001 University of Missouri, Columbia, MO (314) 882-0344 Department of Commerce, Helena, MT (406) 444-4780 University of Nebraska at Omaha, Omaha, NE (402) 554-2521 University of Nevada in Reno, Reno, NV (702) 784-1717 University of New Hampshire, Durham, NH (603) 862-2200 Rutgers University, Newark, NJ (201) 648-5950 Santa Fe Community College, Santa Fe, NM (505) 438-1362 State University of New York, Albany, NY (518) 443-5398 University of North Carolina, Raleigh, NC (919) 715-7272 University of North Dakota, Grand Forks, ND (701) 777-3700 Dept. of Development, Columbus, OH (614) 466-2711 S.E. Oklahoma State University, Durant, OK (405) 924-0277 Lane Community College, Eugene, OR (503) 726-2250 University of Pennsylvania, Philadelphia, PA (215) 898-1219 University of Puerto Rico, San Juan, PR (787) 250-0000 Ext. 2072 Bryant College, Smithfield, RI (401) 232-6111 University of South Carolina, Columbia, SC (803) 777-4907 University of South Dakota, Vermillion, SD (605) 677-5498 University of Memphis, Memphis, TN (901) 678-2500 Dallas County Community College, Dallas, TX (214) 860-5833 University of Houston, Houston, TX (713) 752-8444 Texas Tech University, Lubbock, TX (806) 745-3973 University of Texas at San Antonio, San Antonio, TX (210) 558-2450 Salt Lake City Community College, Sandy, UT (801) 255-5878 Vermont Technical College, Randolph Center, VT (802) 728-9101 University of the Virgin Islands, St. Thomas, US VI (809) 776-3206 Dept. of Economic Development, Richmond, VA (804) 371-8258 Washington State University, Pullman, WA (509) 335-1576 West Virginia Development Office, Charleston, WV (304) 558-2960 University of Wisconsin, Madison, WI (608) 263-7794 University of Wyoming, Laramie, WY (307) 766-3505 Funding The SBA provides 50 percent or less of the operating funds for each state SBDC. One or more sponsors provide the rest. These matching fund contributions are provided by state legislatures, private sector foundations and grants, state and local chambers of commerce, state- chartered economic development corporations, public and private universities, vocational and technical schools, community colleges, etc. Increasingly, sponsors contributions exceed the minimum 50 percent matching share. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations All of SBA's Programs and services are provided to the public on a nondiscriminatory basis. FS0043 (8/96) ---------- º INTERNATIONAL TRADE LOAN PROGRAM º 12/94 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ The Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The International Trade Loan Program helps small businesses that are engaged or preparing to engage in international trade, as well as small businesses adversely affected by competition from imports. Loans are made by lending institutions with the U.S. Small Business Administration (SBA) guaranteeing a portion of the loan. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Eligibility ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The applicant must establish either of the following: - The loan proceeds will significantly expand existing export markets or develop new export markets. The applicant must submit a business plan, including sufficient information to reasonably support the likelihood of expanded export sales. The plan must include both a profit and loss projection and a narrative rationale. - The applicant is adversely affected by import competition. Injury attributable to increased competition with foreign firms must be demonstrated. A narrative explanation and financial statements must show that directly competitive imported products have made an important contribution to a decline in the firm's competitive position. This can be demonstrated by factors such as a decline in sales or production or underutilization of capacity, decreased profitability, or the threat of (or actual) loss of production employees. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Amount of Loan ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA can guarantee up to $1.25 million, less the amount of SBA's guaranteed portion of other loans outstanding to the borrower under the SBA's regular lending program. The maximum guarantee amount is available only if used for a combination of working capital and facilities/equipment. The working capital portion of the loan may be made according to the provisions of the SBA's Export Working Capital Program (EWCP). ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Use of Proceeds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Proceeds may be used for: - Working capital; and/or - Facilities or equipment, including purchasing land and building(s); building new facilities; renovating, improving or expanding existing facilities; purchasing or reconditioning machinery, equipment and fixtures; and making other improvements that will be used within the United States for producing goods or services. Proceeds may not be used for repayment of debt. ÚÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Collateral ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÙ Only collateral located in the United States (including its territories and possessions) is acceptable for a loan made under this program. The lender must take a first lien position (or first mortgage) on the items financed under this section. Additional supportive collateral may be required as appropriate, including personal guaranties, subordinate liens or items which are not financed by loan proceeds. ÚÄÄÄÄÄÄÄÄÄÄ¿ ³ Maturity ³ ÀÄÄÄÄÄÄÄÄÄÄÙ Maturities of loans for facilities or equipment may extend to the 25-year maximum applicable to most SBA loan programs. The working capital portion of loans, under EWCP provisions, have a three-year maturity. ÚÄÄÄÄÄÄÄÄÄÄ¿ ³ Interest ³ ÀÄÄÄÄÄÄÄÄÄÄÙ Lenders may charge 2.25 or 2.75 percentage points above the prime rate, depending on the maturity of the loan. The interest rate on EWCP loans is not regulated. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women, minorities, veterans and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government", or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a non- discriminatory basis. Small Business Investment Companies 8/96 The Congress created the Small Business Investment Company Program in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. SBICs, licensed andregulated by the Small Business Administration, are privately owned and managed investment firms. They use their own funds, plus funds obtained by borrowing at favorable rates with an SBA guaranty and/or by selling their preferred stock to the SBA, to make venture-capital investments in small businesses. Virtually all SBICs are profit-motivated businesses. They provide equity capital, long-term loans, debt-equity investments and management assistance to qualifying small businesses. Their incentive is the chance to share in the success of the small business as it grows and prospers. The program makes funding available to all types of manufacturing, distribution and service industries. Many investment companies seek out small businesses with new products or services because of the strong growth potential of such firms. Some SBICs specialize in a particular field in which their management has special knowledge or competency. Most, however, consider a wide variety of investment opportunities. Eligibility You must meet the SBA's definition of "small" to be eligible for SBIC financing. In general, the SBA defines small businesses as companies whose net worth is $18 million or less and whose average net (after-tax) income for the preceding two years does not exceed $6 million. For some industries, the above standards are too low, and alternative size standards are used. In determining whether or not a business qualifies, the SBA considers its parent, subsidiaries and affiliates. Approaching an SBIC Do Research If you own or operate a small business and would like to obtain SBIC financing, you should first identify and investigate existing SBICs that may be interested in financing your company. You should also consider whether or not the SBIC can offer the management services you need. The SBA publishes a regularly updated directory of all current SBIC licenses. The amount of each SBIC's private capital and the amount of government leverage it has received are listed, as well as information on each SBIC's type of ownership and investment policy. This information is also available over the Internet and through SBA OnLine, the agency's electronic bulletin board. For access details, see "For More Information" at the end of this fact sheet. And Plan in Advance Determine your company's need well in advance - long before you will actually need the money. Research takes time and you will not want to be caught in a cash crunch. Prepare a Prospectus/Business Plan When you've identified the SBICs you think can best meet your financing needs, you'll need to prepare for a presentation. Your initial presentation will play a major role in your success in obtaining financing. It's up to you to demonstrate that an investment in your firm is worthwhile. The best way to achieve this is to present a detailed and comprehensive business plan, or prospectus. You should include, at a minimum, the following information about your business: Identification * Full legal name of the business * Type of entity (e.g., corporation, limited partnership, etc.), including date and state of incorporation, if applicable * City, county and state of the principal location and of any branch offices or facilities Product or Service * Description of the business, including the principal products sold or services provided * History of the development of the products and/or services during the past five years or since your business was started * Relative importance of each product or service to the volume of the business and to its profits Marketing * Detailed information about your business's customer base, including potential customers, and the percentage of gross revenue accounted for by your five largest customers * Marketing survey and/or economic feasibility study * Distribution system by which products or services are delivered to customers Competition * Competitive conditions for your industry, including your company's position relative to its largest and smallest competitors * Full explanation of your pricing policies Management * Brief resumes of managers and principal owners, including their ages, education and business experience * Banking, business and personal references for each manager and principal owner Financial Statements * Balance sheets and profit-and-loss statements for the last three fiscal years or from start-up * Monthly or quarterly projections of revenues, expenses and net earnings for the coming year, and annual forecasts for the next four years * Amount of funding you are requesting and the time requirement for the funds * Reasons for your request for funds and a description of the proposed uses * Benefits you expect your business to gain from the financing - for example, increases in revenues, cost reduction, productivity improvements Production Facilities and Property * Description of real and physical property and adaptability to new or existing business ventures * Description of technical aspects of production facilities For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Develop- ment Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million Small Businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0069 (8/96) ---------- THE WOMEN'S PREQUALIFICATION LOAN PROGRAM The Women's Prequalification Loan Program was developed to promote the SBA's business loan program to current and prospective women small business owners. It also provides specialized support and assistance with the agency's loan-application process. This program uses nonprofit organizations as intermediaries to assist prospective women borrowers in developing a viable loan-application package. That application can be submitted directly to the SBA for consideration of a loan prequalification. On approval, the intermediary can assist the applicant in locating a competitive lender. The Women's Prequalification Loan Program focuses primarily on the applicant's character, credit and apparent ability to repay the loan from earnings. Loans under this program are limited to amounts of $250,000 or less. Who Is Eligible? To be eligible for the Women's Prequalification Loan Program, a business must - * be at least 51 percent owned, operated and managed by women; * have average annual sales for the preceding three years that do not exceed $5 million; and * employ less than 100 persons, including affiliates. The Prequalification Process Document Preparation The woman business owner works with a nonprofit technical- assistance organization (intermediary) in her area to prepare a business plan and complete a prequalification loanapplication. Application Submission The intermediary reviews credit information, performs a loan analysis, and submits the application to the SBA. Application Review The SBA reviews the completed application to determine whether it meets the requirements for a guaranteed loan and makes a decision regarding a loan prequalification. Qualification If the SBA approves the application, the agency issues a prequalification letter. This letter states the SBA's intent to authorize a loan guaranty. Lender Selection When an applicant receives the SBA's prequalification letter, the intermediary can assist her in locating a lender offering the most competitive loan rates. Interest Rates Applicants negotiate terms with the lender. Interest rates are tied to the prime rate and may be fixed or variable; however, they cannot exceed the following maximums established by the SBA: for loans of less than seven years, up to 2.25 percent over prime; for loans of seven years or longer, up to 2.75 percent over prime. (Loans under $50,000 may be subject to slightly higher rates.) Maturity Length of time for repayment depends on the ability to repay, and the use of the loan proceeds. Generally, loan maturities will be between five and 10 years for working capital loans; up to 10 years for machinery and equipment; and up to 25 years for real estate, construction or the purchase of equipment with a useful life of 25 years. Collateral Primary criteria for a prequalification are the ability to repay, a good business plan and good credit. Normally, business assets will be pledged, and personal assets when warranted. However, loans will not be declined where inadequate collateral is the only unfavorable factor. All owners of 20 percent or more of the business are required to personally guarantee the note. Equity The applicant must have a reasonable stake in the business. Availability The Women's Prequalification Loan Program is available through a number of SBA district offices nationwide. To find out if this program is available in your area, contact your nearest SBA district office. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million small businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0072 (8/96) ---------- MINORITY PREQUALIFICATION LOAN PROGRAM 1/96 The Minority Prequalification Loan Program helps eligible small businesses - those owned and operated by members of racial or ethnic minority groups - access capital. The program is a coordinated effort of both the public and private sectors. It uses local, private-sector nonprofit and for-profit organizations as intermediaries to assist in the loan process. A prospective borrower works with the intermediary to develop a viable loan application. The application is then submitted directly to the SBA for consideration of a loan prequalification. On approval, the intermediary also can assist the applicant in locating a competitive lender. Generally, the program is for loan requests of up to $250,000; some SBA offices, however, have established other local limitations. Who is Eligible? Businesses that: * Are at least 51 percent owned and managed by a racial or ethnic minority person(s); * Meet SBA 7(a) Loan Guaranty Program size standards and general eligibility criteria; and * Are not engaged in speculation or investment in rental real estate. If a borrower currently has an SBA loan and the combined loans requested as a result of this program exceed $250,000, the request can be processed only if a waiver is granted by the local SBA office. The Prequalification Process Document Preparation The prospective borrower works with a local technical-assistance organization (intermediary), designated by the SBA, to prepare a business plan and complete a prequalification loan application. Application Submission The intermediary reviews credit information, performs a loan analysis, and submits the application to the SBA. Application Review The SBA reviews the completed application to determine whether it meets the requirements for a guaranteed loan and makes an approval decision. Qualification If the SBA approves the application, the agency issues a prequali- fication letter. This letter states the SBA's intent to authorize a loan guaranty. Lender Selection When an applicant receives the SBA's prequalification letter, the intermediary can assist in locating a competitive lender interested in making an SBA-guaranteed loan. Required Documentation Business financial statements or tax returns and personal financial statements will be required from all owners and guarantors. Applica- tions for new businesses will require submission of a business plan. If proceeds are to be used to purchase an existing business, a copy of the terms of sale and a financial statement on the existing busi- ness are required, as well as a statement of benefit to the business as a result of the purchase. If buyer and seller are related, that must be disclosed on the application. Use of Funds Loan funds can be used for typical business purposes such as working capital, debt payment, equipment and inventory purchases, construc- tion, and real estate purchases. Proceeds may not be used for dis- tribution to principals or for payment of personal debt. The inter- mediary will require proof that credit-card and refinanced debts are business-related and not personal. Interest Rates Applicants negotiate terms with the lender. Interest rates may be fixed or variable and are tied to the prime rate. For loans of less than seven years, rates may not exceed 2.25 percent over prime. For loans of seven years or longer, the maximum rate is 2.75 percent over prime. Loans under $50,000 may be subject to slightly higher rates. Maturity The length of time for repayment depends on the ability to repay and the use of the loan proceeds. Generally, the loan maturity will be between five and 10 years for working capital; up to 10 years for machinery and equipment; and up to 25 years for real estate, construc- tion, or the purchase of equipment with a useful life of at least 25 years. Credit/Collateral Primary considerations include a willingness and ability to pay debts, as indicated by a good credit history; the likelihood that expected earnings will be sufficient to pay obligations; and the probability that the business with the requested financing. Normally, business assets will be pledged, and personal assets when warranted. As with 7(a) loan programs, loans will not be declined where inadequate col- lateral is the only unfavorable factor. All owners of 20 percent or more of the business are required to personally guarantee the note. Equity The applicant must have a reasonable stake in the business. Pilot Sites Baltimore, MD.............(410) 962-4392 Boston, MA................(617) 565-5590 Columbia, SC..............(803) 765-5377 Detroit, MI...............(313) 226-6075 Fargo, ND.................(701) 239-5131 Helena, MT................(406) 449-5381 Houston, TX...............(713) 773-6500 Kansas City, MO...........(816) 374-6708 Los Angeles, CA...........(818) 552-3210 Miami, FL.................(305) 536-5521 Milwaukee, WI.............(414) 297-3941 New York, NY..............(212) 264-2454 Philadelphia, PA..........(610) 962-3800 St. Louis, MO.............(314) 539-6600 Santa Ana, CA.............(714) 836-2494 Settle, WA................(206) 220-6520 For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0067 (1/96) ---------- º SECONDARY MARKET PROGRAM º 12/94 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ The Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Lenders who hold business loans guaranteed by the U.S. Small Business Administration (SBA) may be able to profit by selling the guaranteed portions of those loans in the active secondary market. Banks, savings and loan associations, credit unions, pension funds and insurance companies are frequent buyers. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Why Would I Want to Sell My Loans? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The two main reasons for a lender to consider selling a loan are to improve its liquidity position and its profits. ÚÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Liquidity ³ ÀÄÄÄÄÄÄÄÄÄÄÄÙ The SBA guarantee can be converted to cash. The sale process can be completed in as little as two weeks. The lender and buyer sign an agreement describing the rights and reponsibilities of both parties (SBA Form 1086, Secondary Participation Guaranty Agreement). This agreement is sent to the fiscal and transfer agent (FTA) who reviews the documentation for completeness and contacts both parties to arrange a settlement. On the settlement date, the buyer wires money to the FTA. The FTA receives the money, issues a certificate to the buyer and wires the money to the seller. ÚÄÄÄÄÄÄÄÄÄ¿ ³ Profits ³ ÀÄÄÄÄÄÄÄÄÄÙ The profits from selling a loan come from three areas: (1) the premium at the time of sale; (2) the servicing fee during the life of the loan; and (3) the float on the borrower's loan payment. Variable rate SBA loans usually sell at a premium. The premium varies with market conditions and the servicing fee retained by the lender. SBA requires that an originating lender retain a servicing fee of at least 30 basis points. Lenders are free to retain a servicing fee greater than this amount. This fee consists of the cash flow from the portion of the loan retained by the lender to cover the cost of borrower visits, financial statement analysis and other items necessary to service small business loans. The payment flow from the borrower to the investor allows the lender to hold the loan payment until the end of the month in which it was received. If the borrower pays at the beginning of each month, the lender receives about one month's float on each payment. This additional float increases the yield. For example, assume that a $100,000, 90 percent guaranteed loan with a 9 percent note rate and a seven-year maturity is sold to an investor at a net coupon rate of 6.875 percent, and that the lender retains a 2 percent servicing fee. The remaining 0.125 percent is the FTA fee. The borrower's payment date is the first of each month. The approximate first year cash flow to the lender would be $900 on the $10,000 unguaranteed portion (9 percent of $10,000) and $1,800 (2 percent of $90,000) on the guaranteed portion, for a total of $2,700. In addition, the float on the amount that must be remitted to the FTA each month could earn an additional $50-$100 per year. Applied to the $10,000 investment of the lender, the gross yield before servicing expenses is more than 27 percent. The gross yield is further increased by any premium received since the premium will lower the lenders investment in the loan. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ How Big Is the Secondary Market? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ About $2.5 billion in new loans enter the secondary market each year. An additional $1 billion of previously sold loans are traded. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ How Do I Go About Selling My Loans? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ While there is no requirement that a broker/dealer be used, a good first step is to call a few and get price quotes. These people are familiar with the paperwork and the selling process and make a market in the securities. After the deal is made, SBA Form 1086 is signed by all parties and, along with other required documents, is sent to the fiscal and transfer agent. The SBA has a list of broker/dealers and other entities that have been approved as loan pool assemblers. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ What Documentation Is Needed? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The sale is accomplished on SBA Form 1086, Secondary Participation Guaranty Agreement. A copy of the Note (SBA Form 147) also is required. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ What Are My Responsibilities After the Sale? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The lender remains responsible for all loan servicing activities. After the sale, the lender must forward the borrower's monthly payment to the FTA, along with a complete accounting of the funds (using SBA Form 1502, Standard Remittance Form). Furthermore, with the exception of one three- month payment deferment, any servicing action that would affect the payment flow must be approved by the investor before implementation. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ What Are the Responsibilities of the FTA? ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The Secondary Market Improvements Act of 1984 requires central registration of all transactions. The FTA facilitates the settlement of the first sale of a loan. On all subsequent sales, the buyer gives the money directly to the seller who then gives the buyer the certificate in return. The new owner must forward the certificate to the FTA so that a new certificate can be issued in his or her name, and the sale can be recorded on the FTA's books. The FTA also receives borrower payments from lenders each month and forwards them to investors. The FTA eliminates the need for lenders to keep track of the owners of the loans and permits lenders to write just one check each month to cover all loans that have been sold. From the investor's standpoint, the FTA keeps track of which borrowers made a monthly payment, sends one check to the investor and includes an accounting of the funds. The FTA also forwards all servicing requests from lenders to investors and forwards the response to the lender. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ For further information, please write to the Office of Secondary Market Activities, SBA, 409 3rd St. S.W., 8th Floor, Washington, D.C. 20416, or call (202) 205-6493. The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government", or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. FIXED-ASSET LOANS FACT SHEET 10/96 Through the Section 504 Certified Development Company Program The U.S. Small Business Administration enables growing businesses to secure long-term, fixed-rate financing for major fixed assets through its Certified Development Company Program. Commonly referred to as the 504 Program, it is designed to promote local economic development by helping healthy, growing businesses finance the acquisition of long-term fixed assets, such as land, buildings, machinery and equipment, or the building, modernizing, renovating or restoring of facilities. These assets must be used principally to enable the business to create or retain jobs. Why 504? Growing businesses have big plans, big ideas and big needs. When a conventional loan is not possible, a 504 loan may be the answer. The SBA's 504 program gives small business owners access to the same low-cost, fixed-rate, long-term financing that large businesses have through the bond markets. What Is a 504 Certified Development Company? Certified development companies are the key to the 504 loan. A CDC is a nonprofit organization sponsored by private interests or by state and local governments. Locally organized CDCs are set up to promote economic development in their communities. Certified by the SBA, they operate under the jurisdiction of a board that includes local government officials, private-sector lending institutions, and business and community organizations. There are almost 300 CDCs nationwide. How Does a CDC Work? CDCs help small businesses assemble the financing for fixed-asset projects by organizing the loan package, completing SBA paperwork, and then processing, closing and servicingthe loans. In a typical 504 loan package, at least 10 percent of the project's financing comes from the borrower, 50 percent from a private-sector lender, and the remaining share from the sale of debentures guaranteed by the SBA. These debentures are sold in the capital bond markets to raise the funds for the SBA portion of the project. The 504 Program provides permanent take-out financing for long-term assets. Bridge financing is usually required between the start of the project - which may include the purchase of land for later development - and receipt of funding from debentures and the first mortgage (the SBA will not actually fund a debenture until the project is completed). Amount of the Loan A CDC-financed project can be any size, but the SBA-backed portion of the loan package normally is limited to 40 percent of a project or $750,000 (up to $1 million in some cases), whichever is less. The minimum debenture is $50,000. While there are no limits to the project size, typical projects range in size from $500,000 to $1.5 million. The SBA requires that, for every $35,000 of debenture financing in the CDC's portfolio, an average of one job must be created or retained. Private 504 Lender Financing Equity % of project 50% 40% 10% Security 1st lien 2nd lien $ amount no limit $50,000 - $1 mil. Interest rate variable or fixed fixed Real estate terms 10+ years 20 years Equipment terms 7 years 10 years Use of Proceeds Loan proceeds generally may be used for the following fixed-asset projects: * Purchasing land and existing buildings, and making improvements such as grading, utilities, parking lots and landscaping; * Constructing, modernizing, renovating or converting existing facilities; and * Purchasing machinery and equipment that has a useful life of 10 years or more. Terms Interest rates are based on the current market rate for five- and 10-year U.S. Treasury issues, plus an amount slightly above the Treasury rate. Maturities of 10 and 20 years are available. Repayment is made in monthly, level-debt installments. Collateral will usually include a mortgage on the land and buildings being financed; liens on machinery, equipment and fixtures; and lease assignments, as well as other assets. Private-sector lenders are secured by a first lien on the project. The SBA is secured by a second lien and, if needed, additional collateral. The agency also requires personal guaranties from those who own 20 percent or more of the company. Fees CDC fees cannot exceed the 1.5 percent processing fee on the SBA's debenture. A monthly servicing fee, of not less than 0.5 percent and not more than 2 percent per year, is paid on the unpaid debenture balance to the CDC. There are also fees to cover the cost of public issuance of securities, fees paid to the SBA for its guaranty, and a one- time fee to the senior lienholder. Eligibility An eligible business must be a for-profit corporation, partner- ship or proprietorship with a net worth (including any affili- ates) of $6 million or less. Average net profits after taxes cannot exceed $2 million per year for the previous two years. Bottom-Line Benefits for Commercial Lenders There are a number of incentives for lenders to use the SBA's 504 Program. Lenders can - * reduce risk by financing a smaller portion of the project while maintaining a first-lien position on 100 percent of the assets being financed. * retain commercial-account relationships while participating in the long-term financing. * make bigger loans; total financing can be $2.5 million or more. * develop a secondary market in their first-mortgage portion. * comply with the Community Reinvestment Act and extend legal lending limits. * generate new business for years to come. * broaden the community's tax base. * stimulate the local economy through job creation and retention. * save time - there's no SBA paperwork for the lender. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0070 (10/96) ---------- º QUALIFIED EMPLOYEE TRUST LOANS º 12/94 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ The Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The U.S. Small Business Administration (SBA) provides financial assistance to eligible employee trusts for two purposes: to allow the trust to reloan funds to the employer company for growth and development or to permit the employees to purchase the employer company. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Eligibility ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code as an Employee Stock Ownership Plan (ESOP) or the Department of Labor Employee Retirement Income Security Act (ERISA). Applicants covered by the ERISA regulations must also secure an exemption from Department of Labor (DOL) regulations prohibiting certain loan transactions. The SBA requires that the employee trust must: - Exist at the time of application; - Be maintained by the employer concern; - Include at least 51 percent of all employees of the employer concern; - Have as its primary purpose lending to, or investing in the employer concern; - Provide that participating employees be permitted to direct the trust on how to vote employer securities allocated to the employees account; and - Provide written evidence that the trust has been qualified either as an ESOP or as an ERISA with the necessary DOL exemption. In addition to those eligibility requirements, the employer company must qualify as small under the SBA size standards and meet the other eligibility criteria applicable to all SBA loans. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Use of Proceeds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The employer concern must agree to use SBA loan proceeds it receives from the employee trust solely for the following purposes: - Growth and Development Loans,in which the trust reloans the proceeds to the employer (by the purchase of qualifying employer securities but not necessarily voting stock). The employer can use these funds for a variety of business purposes including working capital, expansion, plant construction or purchase of equipment. - Change of Ownership Loans, in which employees acquire a controlling interest in the employer company. Voting control (a minimum of 51 percent ownership) must be acquired with loan proceeds and pass to the employees no later than the loan repayment date. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Amount of Loan ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ SBA can guarantee up to $750,000 to any one borrower. The maximum includes the total SBA loan exposure in the trust, plus any other SBA loan outstanding to the employer or its affiliates. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Repayment Ability ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA determines whether the company can repay the loan by evaluating whether it can generate sufficient cash flow to meet repayment obligations and the other fixed obligations of the business. The employer company must agree to provide the necessary funds to repay loan principal and interest. ÚÄÄÄÄÄÄÄÄÄÄ¿ ³ Maturity ³ ÀÄÄÄÄÄÄÄÄÄÄÙ The loan maturity depends on the employer companys ability to repay, subject to the requirements of prudent lending practices and the SBA's regulatory maximums. Machinery and equipment cannot be financed for periods longer than their conservative economic life. Real estate and construction loan maturities generally cannot exceed 25 years. Working capital maturities generally cannot exceed seven years. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Interest Rates ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Interest rates are set through negotiations between the applicant and the participating lender, subject to maximums specified by SBA. For maturities of less than seven years, the interest rate may not exceed 2.25 percentage points above the prime rate. For maturities of seven years or more, the interest rate cannot exceed 2.75 percentage points above the prime rate. Variable rate loans are permitted. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ How to Apply ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Loans under this program are available only under SBA's guaranty plan. Prospective applicants should review their financing needs with their banks. ÚÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Collateral ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÙ The assets of the employer company will be the primary collateral. Principals of the company who are not participating in the employee trust may be asked to guarantee growth and development loans. Personal guaranties of employee trust participants are not required. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government", or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. ÉÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍ» º CERTIFIED AND PREFERRED LENDERS º 2/96 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ SBA Business Loan Guarantees ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The U.S. Small Business Administration (SBA) has been guaranteeing loans to small businesses since its creation by Congress in 1953. These guarantees of up to 80 percent of the loan value enable entrepreneurs to obtain long-term credit that otherwise would not be available on reasonable terms and conditions. Most lenders utilize regualr processing on loan guarantees. This processing requires a thorough analysis of the application and a decision by SBA. Processing time varies according to the completeness and complexity of the application--two weeks on average. About 8,000 lenders have made at least one SBA loan in the past five years. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Certified Lenders ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Certified lenders are lenders that have been heavily involved in regualr SBA guaranty loan processing and meet certain SBA criteria. Certified lenders receive a partial delegation of authority, and their loan guarantee applications are given a three-day turn- around by the local SBA office, assuming documentation is complete. This lender program accounts for 27 percent of all SBA business loan guarantees. These lenders may use regular processing when necessary. There are 520 certified lenders across the nation. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Preferred Lenders ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Preferrred lenders enjoy SBA's full delegation of lending authority and can decide unilaterally on SBA participation in eligible business loans. The purpose of this program is to fully utilize the resources of SBA's best lenders and to reduce processing time on strong credits. SBA's authority to develop this ultimate step in lender participation is Section 7(a)(2) of the Small Busniess Act. This law authorizes SBA, with respect to guaranteed business loans, to delegate to lending institutions the authority to determine eligibility, creditworthiness, loan structuring, loan monitoring, loan collection/servicing and loan liquidations actions, and to make decisions at each stage of the lending procedure without SBA's prior review or consent in most instances. Preferred loans have a maximum SBA guaranty of 70 percent. The lower guarantee percentage on preferred loans is the program's keystone. It is to be used only for the strongest credits: those on which the SBA can justify giving a lender the unilateral right to put government funds at risk. Lending institutions find preferred lending appealing because they can offer more expeditious service to their stronger credits. Periodically, SBA examines the preferred lender's portfolio to ensure that it meets agency requirements. A lender's preferred authority must be renewed at least every two years. Preferred loans are about 11 percent of all SBA business loan guarantees. Preferred lenders may use certified or regualr processing when necessary. There are 210 preferred lenders across the nation. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Program Benefits ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The Certified and Preferred Lenders Program benefits the loan applicant, the lender and the SBA. Loan applicants and lenders receive faster service, and the SBA is able to leverage more resources to more small businesses. This program is part of SBA's effort to switch its services from retailing to wholesaling. Loan guaranty activity by certified and preferred lenders requires less SBA staff time and paperwork than does regualr servicing. This enables the agency to handle a greater volume of loan applications and to devote limited resources to portfolio management among other agency responsibilities. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Interested borrowers or financial institutions should contact the nearest SBA office or the SBA Financial Institutions Branch at 409 3rd St., S.W., Washington, D.C. 20416 or call (202) 205-6493. The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government," or call the Small Business Answer Desk at 1-800-8- ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. ÉÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍ» º INTERNATIONAL TRADE ASSISTANCE º 1/95 ÈÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍÍͼ The U.S. Small Business Administration (SBA) provides financial and business development assistance to help small businesses take advantage of export markets. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Financial Assistance ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA assists businesses in obtaining the capital needed to explore, establish or expand international markets. Export loans are available under SBA's guaranty program. If your lender is unable or unwilling to make a loan directly, you should request that the lender seek SBA participation. The financing staff of each SBA district and branch office administers the financial assistance programs. You can contact the finance division of your nearest SBA office for a list of participating lenders. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Export Working Capital Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The Export Working Capital Program (EWCP) provides short-term working capital to finance small business export transactions. The EWCP, which replaces SBA's Export Revolving Line of Credit Program, can support single transactions or multiple export sales. Under this program, SBA can guarantee up to 80 percent or $750,000, whichever is less, of a loan made by a partici- pating lender. Loan maturities are generally for 12 months; revolving credit lines may be renewed twice, up to a total of 36 months. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Use of Proceeds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Guarantees can be extended for pre-shipment working capital, post-shipment exposure, or a combination of the two. A pre-shipment guaranty is used to finance the production or acquisition of goods and services for export. A post-shipment guaranty is used to finance receivables resulting from export sales. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Interest Rates ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Under the Export Working Capital Program, the maximum interest rates are negotiable between the applicant and the lender. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Preliminary Commitments ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Under the EWCP, you can apply directly to the SBA for a preliminary commitment for a guaranty. With SBA's preliminary commitment in hand, you can then find a lender willing to ex- tend the credit. The lender must apply to SBA for the final commitment. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Regular Business Loan Program ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Under this program, the SBA can guarantee up to 80 percent of a bank loan up to $100,000. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Use of Proceeds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Small businesses that need money for fixed assets or term working capital may be eligible for the SBA's regular 7(a) Loan Guaranty Program. Loan guaranties for fixed-asset acquisition have a maximum maturity of 25 years. Guaranties for general purpose working capital loans have a maximum maturity of seven years. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Eligibility ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ To be eligible, the applicant's business generally must be operated for profit and fall within size standards set by SBA. Export trading companies (ETCs) and export management companies (EMCs) also may qualify for the SBA's business loan guarantee program. Ineligible borrowers include businesses engaged in speculation or investment in rental real estate. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ International Trade Loans ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The International Trade Loan Program provides long-term financing to help small businesses compete more effectively and to expand or develop export markets.Under this program, SBA's guarantee can extend up to $1.25 million. SBA's maximum share for facilities and equipment is $1 million; the maximum share for working capital is $750,000. Loan maturities cannot exceed 25 years, excluding the working capital portion of the loan. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Use of Proceeds ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Proceeds may be used to purchase or upgrade facilities or equipment, and to make other improvements that will be used within the United States to produce goods or services. No debt payment is allowed. Proceeds can be used to buy land and buildings; build new facilities; renovate, improve or expand ex- isting facilities; and purchase or recondition machinery, equipment and fixtures. The working capital portion of the borrowing could be in the form of either an EWCP loan or a portion of the term loan. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Eligibility ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Applicants must establish either of the following to meet eligibility requirements: - Loan proceeds will significantly expand existing export markets or develop new ones; or - The applicant's business is adversely affected by import competition. Small Business Investment Company (SBIC) Financing A Small Business Investment Company (SBIC), approved and licensed by the SBA, may provide equity capital or working capital exceeding the agency's $750,000 statutory maximum. To be eligible for SBIC financing, at least half of the small business's assets and operations must be in the United States. Unlike the SBA, SBICs can invest in export trading companies in which banks have equity participation as long as other SBIC requirements are met. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Business Development Assistance ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA provides business development assistance to exporters, including trade counseling, training, legal assistance and publications. ÚÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Counseling ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÙ Counseling is available through SBA's resource partners: the Service Corps of Retired Executives (SCORE), the Small Business Development Centers (SBDCs) and Small Business Institutes (SBIs). SCORE is an organization of nearly 13,000 retired and active executives who volunteer their time to provide management and technical assistance to small businesses. A SCORE counselor can also assist you in developing an international business plan. The local SBA office can match you with a SCORE volunteer experienced in exporting. SBDCs, located on college and university campuses, provide a wide variety of information services at more than 900 locations nationwide. SBDC services include, but are not limited to, financial guidance, marketing, production, organizational development, engineering and feasibility studies, and technical assistance. Some SBDCs have designated international trade centers; all SBDCs provide export counseling, referral and/or training. In conjunction with colleges and universities across the United States, the SBA has established over 500 SBIs. Under the supervision of instructors, upper-level undergraduate and graduate business students provide intensive management assistance to small businesses that need special help. ÚÄÄÄÄÄÄÄÄÄÄ¿ ³ Training ³ ÀÄÄÄÄÄÄÄÄÄÄÙ SBA district offices sponsor export training programs, often in conjunction with SCORE, SBDCs and other public and private trade groups. Offering something for the beginner as well as the more advanced exporter, topics range from export financing to joint ventures. You can also learn how to do business outside our borders through the various market- and region-specific workshops offered. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Publications ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA publishes books and fact sheets on international trade, including "Breaking Into the Trade Game: A Small Business Guide to Exporting," which takes you step-by-step through the export process. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Legal Assistance ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Under the Export Legal Assistance Network (ELAN), your local SBA office can arrange a free initial consultation with an attorney to discuss international trade questions. This is possible through an agreement among the Federal Bar Association, the SBA and the U.S. Department of Commerce. Questions may include contract negotiation, agent/distributor agreements, export licensing requirements, credit collection procedures, documentation and much more. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Market Research ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ SBA's Automated Trade Locator Assistance System (SBAtlas) is a market research tool that can help you select the best markets for your particular product or service. Two types of free reports are available: product-specific and country-specific. The SBAtlas product report ranks the top 35 import and export markets for a particular good or service. The country report identifies the top 20 products most frequently traded in a target market. ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿ ³ Additional Information ³ ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ The SBA has offices located throughout the country. For the one nearest you, consult the telephone directory under "U.S. Government," or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (fax). For the hearing impaired, the TDD number is (202) 205-7333. All of SBA's programs and services are provided to the public on a nondiscriminatory basis. ---------- SBA's SPECIALIZED 7(A) LOAN PROGRAMS General Information Low Documentation (LOWDOC) Loans FA$TRAK Loan Program Short Term Loans - CAPLines International Trade Loan Program Export Working Capital Program Pollution Control Loans Defense Loan and Technical Assistance (DELTA) Program Minority and Women's Prequalification Pilot Loan Programs Handicapped Assistance Loans Qualified Employee Trusts Loans Veterans' Programs Also See SBA's Microloan Program GENERAL INFORMATION The SBA has a number of specialized programs under its general 7(a) Loan Program, which have been designed to address specific small business needs. Unless otherwise indicated, these programs are governed by the same rules, regulations, interest rates, fees, etc. as the regular 7(a) loan guaranty. Additional information on each of these programs is available from your local SBA office. THE LOW DOCUMENTATION (LOWDOC) LOAN PROGRAM ELIGIBLE BUSINESSES Businesses with 100 or fewer employees, including affiliates, whose average annual sales for the past three years did not exceed $5 million are eligible. Also eligible are start-up businesses. The LowDoc Program was designed to increase the availability of loans under $100,000 to the small business community and streamline and expedite the SBA loan review process. It offers a simple, one-page application form and rapid turnaround on loans of up to $100,000. Completed applications are processed quickly by the SBA upon receipt from the lender, usually within two or three days. Consequently, the loan decision process relies heavily upon the strength of the principals' character and credit history. Terms, interest rates, and uses are the same as for any 7(a) loan. FA$TRAK The FA$TRAK Program is another SBA loan program designed to increase the capital available to businesses seeking loans of up to $100,000. Under this pilot program, certain lenders are authorized to use their existing documentation and procedures to make and service an SBA guaranteed loan. There are no additional forms and no waiting for SBA loan approval. The SBA guarantees up to 50 percent of a FA$TRAK loan. SHORT TERM LOANS AND REVOLVING LINES OF CREDIT (CAPLines) CAPLines is the umbrella program under which the SBA helps small businesses meet their short-term and cyclical working-capital needs. A CAPLines loan can be for any dollar amount (except for the Small Asset-Based Line described below). There are five short-term working-capital loan programs for small businesses under the CAPLines umbrella: SEASONAL LINE: These are advances against anticipated inventory and accounts receivable help during peak seasons when businesses experience seasonal sales fluctuations. Can be revolving or non-revolving. CONTRACT LINE: Finances the direct labor and material cost associated with performing assignable contract(s). Can be revolving or non-revolving. BUILDERS LINE: If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor-and material costs. The building project serves as the collateral, and loans can be revolving or non-revolving. STANDARD ASSET-BASED LINE: This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is remitted to the lender. Businesses continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender. SMALL ASSET-BASED LINE: This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, providing the business can consistently show repayment ability from cash flow for the full amount. WHAT FUNDS MAY BE USED FOR: CAPLines may be used to: finance seasonal working capital needs, finance direct costs associated with construction, service and supply contracts; finance direct costs associated with commercial and residential building construction without a firm commitment for purchase; finance operating capital by obtaining advances against existing inventory and accounts receivable; or consolidate short-term debt. TERMS, INTEREST RATES AND FEES: Each of the five lines of credit has a maturity of up to five (5) years, but, because each is tailored to an individual business's needs, a shorter initial maturity may be established. CAPLines funds can be used as needed throughout the term of the loan to purchase assets, as long as sufficient time is allowed to convert the assets into cash at maturity. INTEREST RATES: Negotiated with the lender, the interest rate can be up to 2.25 percent over the prime rate. FEES: The guaranty fee is the same as for any standard 7(a) loan. The SBA places no fee restrictions on the lender for the standard asset-based line but will require full disclosure to ensure that fees are reasonable. On all other CAPLines, the annual fee is restricted to two (2) percent based on the outstanding balance. For additional CAPLine information, click here. THE INTERNATIONAL TRADE LOAN PROGRAM If your business is preparing to engage in or is already engaged in international trade, or is adversely affected by competition from imports, the International Trade Loan Program is designed for you. The SBA can guarantee as much as $1.25 million in com- bined working-capital and facilities-and-equipment loans (the working-capital portion of the loan may be made according to the provisions of the Export Working Capital Program). WHAT FUNDS MAY BE USED FOR: Proceeds may be used for working capital and/or facilities or equipment, including purchasing land and buildings, building new facilities; renovating, improving or expanding existing facilities; purchasing or reconditioning machinery, equipment and fixtures; and making other improvements that will be used within the United States for producing goods or services. Proceeds may not be used to repay existing debt. TERMS, INTEREST RATES AND FEES: Loans for facilities or equipment can have maturities of up to 25 years. The working capital portion of a loan, under the Export Working Capital Program (EWCP) provisions, has a maximum maturity of three (3) years. Rates and fees are the same as for a normal 7(a) loan. COLLATERAL: Only collateral located in the United States, its territories and possessions is acceptable as collateral under this program. The lender must take a first lien position (or first mortgage) on items financed under an international trade loan. Additional col- lateral may be required, including personal guarantees, subordinate liens or items that are not financed by the loan proceeds. THE EXPORT WORKING CAPITAL PROGRAM The Export Working Capital (EWCP) Program was developed in response to the needs of exporters seeking short-term working capital. The program replaces the Export Revolving Line of Credit Program. The EWCP is a combined effort of the SBA and the Export-Import Bank. The two agencies have joined their working capital programs to offer a unified approach to the government's support of export financing. The EWCP uses a one-page application form and streamlined documentation with turnaround usually within 10 days. A letter of prequalification is also available from the SBA. LOAN AMOUNTS: Loan requests of $833,333 or less are processed by the SBA while loan requests over $833,333 are to be processed through the Export-Import Bank. Borrowers may also have other current SBA guaranties, as long as the SBA's exposure does not exceed $750,000. When an EWCP loan is combined with an international trade loan, the SBA's exposure can go up to $1.25 million. POLLUTION CONTROL LOANS Pollution Control Loans are intended to provide loan guarantees to eligible small businesses for the financing of the planning, design, or installation of a pollution control facility. This facility must prevent, reduce, abate, or control any form of pollution, including recycling. LOAN AMOUNTS: The maximum amount that SBA can guaranty is $1,000,000, less the amount outstanding of any existing SBA 7(a) exposure. DEFENSE LOAN AND TECHNICAL ASSISTANCE (DELTA) PROGRAM The DELTA Program is a joint effort between the SBA and the Department of Defense to provide financial and technical assistance to defense-dependent small firms adversely affected by cutbacks in defense. Each DELTA loan must achieve at least one of the following policy objectives: job retention--retain defense workers whose employment would otherwise be permanently or temporarily terminated due to defense reductions; job creation-- create job opportunities and new economic activity in communities adversely affected by defense reductions; plant re-tooling and expansion--modernize or expand facilities in order to remain in the nation's technical and industrial base. LOAN AMOUNT: The maximum gross loan amount for a DELTA loan under the 7(a) Program is $1.25 million while the maximum for a DELTA loan under the Certified Development Company (CDC) Program is $1 million. If both types of loans are used, or if there is an existing SBA loan, the total amount is $1.25 million. COLLATERAL: DELTA loans may not be typical 7(a) or 504 loans and may require special handling because of complicated credit analyses. While you may have significant collateral, you may not be able to show ability to repay based on past operations because of your firm's state of transition. New revisions to the law allow the SBA to resolve reasonable doubts in your favor. TERMS: Like most 7(a) loans, maturities of term loans are usually five to seven years for working capital and up to 25 years for real estate or equipment. For revolving credits, you may take up to five years after the first disbursement to repay the FA$TRAK loan. ELIGIBILITY: DELTA loans are open to any qualified, eligible business, regardless of location, but are initially limited to special target markets during the start-up phase of the program due to limited administrative funding. These special target markets are: California, Dallas/Fort Worth, New York/Long Island, Florida, and South Carolina. THE MINORITY PREQUALIFICATION PILOT LOAN PROGRAM AND THE WOMEN'S PREQUALIFICATION PILOT LOAN PROGRAM The Minority Prequalification Pilot Loan Program and the Women's Prequalification Pilot Loan Program use intermediaries to assist prospective minority and women borrowers in developing viable loan application packages and securing loans. The women's program uses only nonprofit organizations as intermediaries; the minority program uses for-profit intermediaries as well. Once the loan package is assembled, it is submitted to the SBA for expedited consideration; a decision usually is made within three days. If the application is approved, the SBA issues a letter of prequalification stating the SBA's intent to guarantee the loan. The maximum amount for loans under the women's program is $250,000; under the minority program, it is generally the same, although some districts set other limits. With both, the SBA will guarantee up to 90 percent. The intermediary then helps the borrower locate a lender offering the most competitive rates. Intermediaries (usually small business development centers) may charge a reasonable fee for loan packaging. Fees charged by for-profit organizations will be higher. ELIGIBLE BUSINESSES: Eligibility requirements include: Businesses at least 51 percent owned, operated and managed by people of ethnic or racial minorities or by women; businesses with average annual sales for the preceding three years that do not exceed $5 million; businesses that employ fewer than 100, including affiliates. Pilot sites for the Minority Prequalification Pilot Loan Program are: Baltimore, MD; Boston, MA; Columbia, SC; Detroit, MI; Fargo, ND; Helena, MT; Houston, TX; Kansas City, MO; Los Angeles, CA; Miami, FL; Milwaukee, WI; New York, NY; Philadelphia, PA; St. Louis, MO; Santa Ana, CA; and Seattle, WA. Pilot sites for the Women's Prequalification Pilot Loan Program are: Buffalo, NY; Charlotte, NC; Chicago, IL; Columbus, OH; Louisville, KY; New Orleans, LA; Philadelphia, PA; Portland, OR; St. Louis, MO; and San Francisco, CA. The program is offered statewide in the following states: Colorado, Maine, Massachusetts, Montana, New Mexico, and Utah. HANDICAPPED ASSISTANCE LOANS The SBA has not been provided funding for direct handicapped assistance loans, but such individuals are eligible for all SBA loan guaranty programs. QUALIFIED EMPLOYEE TRUSTS LOANS The objective of this program is to provide financial assistance to Employee Stock Ownership Plans. The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code (as an Employee Stock Ownership Plan or ESOP) or the Department of Labor (the Employee Retirement Income Security Act or ERISA). Applicants covered by the ERISA regulations must also secure an exemption from the Department of Labor regulations prohibiting certain loan transactions. VETERANS LOAN PROGRAM The SBA has not been provided funds for direct loans to Veterans, although Veterans are eligible for special consideration under SBA's guaranty loan programs. The special consideration given such individuals includes: * Liaison personnel in each field office; * In-depth management counselling and training assistance; and, * Prompt and priority processing of any loan application. ---------- End of Document