SMALL BUSINESSFINANCING AND ASSISTANCE SERVICE EXPERTISEEXPERIENCEDEPENDIBILITY
Background on SEED • ESTABLISHMENT • In 1982, SEED was established as a non-profit • corporation and approved by the SBA as a Certified Development Company (CDC) under the SBA 504 Program. • PURPOSE • SEED’s mandate is to assist small businesses to start-up, expand and create new jobs. • Over the last 34 years, SEED has focused on providing gap financing and technical assistance for small businesses.
SBA 504 Program: All of Massachusetts and Rhode Island (except Washington County) Geographic Coverage Small Loan Program: Barnstable, Bristol, Dukes, Middlesex, Nantucket, Norfolk, Plymouth and Suffolk counties in Massachusetts and all of Rhode Island.
Loan Programs Currently, SEED administers three loan programs: • SBA 504 Loan Program – Loans up to $5.5 million for real estate and heavy machinery and equipment. • Small Loan Program – Loans up to $250,000, usually as part of a larger project, with flexible use of funds. • Micro Loan Program – Loans up to $50,000, flexible use of funds.
Loan Programs (continued) • SEED’s loan programs are designed to work in conjunction with the financial institutions in the region. • As a “gap financier” SEED makes loans which fill a financing gap– A micro loan up to $50,000 when a small business is not • yet “bankable” or a larger loan when the bank cannot provide the entire financing needed. • SEED’s credit, cash flow and collateral ratios are more flexible, and SEED provides Technical Assistance.
Technical Assistance • SEED also provides technical assistance to prospective • and existing small business entrepreneurs through: • Individual sessions; • Monthly entrepreneurial workshops; and • A small business library.
SBA 504 Loan Program Benefits to the Borrower: • Financing for a fixed asset project with as little as a 10% • injection; • Long-term, fixed rate funds…enhancing cash flow for business; • SEED’s interest rate as of February 2017 is: - 4.67% on a 20-year debenture - 4.31% on a 10-year debenture • Ability to include soft costs, equipment and furniture and fixtures in a real estate project…enabling businesses to minimize out of pocket expenses and preserve cash; • Lower down payment conserves working capital.
SBA 504 Loan Program Benefits to the Bank: • Bank’s maximum loan-to-value is typically 50%, minimizing risk and improving liquidity; • Ability to provide 90% financing to a small business client; • Program allows reliance on financial projections – for startups and businesses with inadequate historic cash flow; • The bank’s first mortgage can be sold in the secondary market for a premium; • The CDC is responsible for all of the paperwork!!
SBA 504 PROGRAM (Continued) • SEED requires no application form • SEED offers a first time lender incentive • Competitive rates and fees • Abridged Submission Method Lender ensuring efficient SBA approval process SBA 504 Loan Program (continued)
Structure of a Typical $1 Million Project Loan % of EntityAmountProjectSecurity Lender $500,000 50% 1st Mortgage SEED/SBA $400,000 40% 2nd Mortgage Borrower $100,000 10%* TOTAL: $1,000,000 100% Total Debenture: $409,000 ($8,600 rounded up) (Up front fees of 2.15% on $400,000; included in the debenture) * Projects that involve a new business and/or special purpose building will require an additional 5-10% from the borrower.
Effective Rate Rate the borrower actually pays Note rate (as of 02/17 Sale – 20 yrs) 2.870% Plus Fees: Annual Central Servicing Agent Fee 0.100% CDC Servicing Fee (SEED .875 + SBA .125) 1.000% SBA Fee 0.697% Total Fees 1.797% SEED’s Interest Rate (As of 02/17) 4.670% SBA Required Servicing Fee – This fee can go up to 1.5%. CDC’s Servicing Fees vary and impact the client’s effective rate!
Fees Charged by the CDC Financed as part of 504 loan – 2.15% of net debenture CDC Processing Fee: 1.50% SBA Guarantee Fee: 0.00%Paid to SBA- one time fee Underwriting Fee: 0.40% Covers expense of pooling & underwriting 504 debenture, paid directly to Merrill Lynch Funding Fee: 0.25% Paid to Central Servicing Agent (Wells Fargo) Total: 2.15% Effective 10/1/15, the SBA Guarantee fee has gone to zero from 0.50%!
Use of Funds Fixed-Asset Acquisition or Expansion Including: • Purchase land & construction of new buildings • Purchase and/or renovate existing buildings • Acquire/Install machinery & equipment • Refinance existing fixed asset debt up to 50% of new SBA 504 Project • Direct refinance under new guidelines as of 6/24/16! • Soft costs related to the project (appraisal, environmental, interim interest, other) Ineligible uses of funds: • Purchase of trucks and autos • Working Capital/Inventory • Franchise fees
Bank’s First Mortgage • Permanent financing must be for at least 10 years – • (on a 20-year debenture) with no balloon payments • during that time. • Interest rate on the bank’s mortgage is set by bank. • Bank can charge points. • One-time fee of 0.50% on the bank’s first mortgage is • charged by the SBA. * * Ask us about our first-time lender incentive!
Other Requirements • Occupancy: • Business must occupy at least 51% • Business must initially occupy at least 60% of a newly- constructed building and 80% within 10 years • Jobs: • Create/Retain one job for each $65,000 borrowed through the 504 Program unless the project meets a Public Policy Goal • Manufacturing Businesses- one job per $100,000
SBA Debt Refinance Program (Returned 6/24/2016) Eligible Debt • Secured by fixed assets and be in place at least two years; • Borrower must have been in business two years and 85% of the loan must have been for Real Estate or Equipment; • Any debt being refinanced must have been current for the last 12 months. Eligible Costs • Owner-occupied commercial real estate or equipment(not Federal debt); • Other debt secured by the same assets (i.e. line of credit); • Closing Expenses; • Eligible business expenses that do NOT exceed 25% of the value of the assets, including utility bills, rent, salaries, inventory, etc.
SBA Debt Refinance Program (Continued) --Loan-to-Value (LTV) Loan-to-Value (LTV) • LTV of 90% for commercial mortgage and other debt only (additional collateral may be pledged to achieve 90%); • LTV of 85% when eligible business expenses are included (eligible business expenses are limited to 25% of the value of the fixed asset; additional assets CANNOT be used to increase the amount of the “cash out”). Fees/Costs • All regular 504 costs apply and are financed in the 504 loan; • Third Party Lender fee of 0.5% still applies; • The ongoing fee is slightly higher (0.797% vs. 0.697%) which has a minor (0.10%) impact on the effective rate.
Why YOU Should Consider a SEED/SBA 504 Loan • Up to 90% financing for 504 projects; • Lower down payment for client; improved liquidity for bank; • SEED provides quick & efficient turn around (SBA approved for the Abridged Submission Method); • Note is assumable by another borrower; • SEED offers a low 504 rate; provides loans up to $200,000at 5% fixed to assist with working capital or replace the down payment; • SEED is responsible for all the paperwork; No application form to fill out.
Small Loan Program Start-Up and Existing Businesses • Loans up to $250,000; • Use of Funds: working capital; equipment; real estate; furniture and fixtures; • 5- 6% Fixed - depending on bank/credit union participation; • Up to 10 years with amortizations up to 20 years; • No prepayment penalty. Administered with State and Federal Grants, SEED Funds, CDFI Funds, RI and MA Funds.
Micro Loan Program Start-Up and Existing Businesses • Loans from $1,000 - $50,000; • Use of funds: working capital; leasehold improvements; machinery and equipment; furniture and fixtures; inventory; and refinancing of business credit card debt; • 6% Fixed; up to 6 Year Term; • No prepayment penalty; • Start-Up Businesses - require secondary source of income.
Eligibility for Small Loan and Micro Loan Programs • Personal Credit: 600+ (Bankruptcy must be discharged for 5+ years); • Cash Flow: Global- all personal and business income and expenses are considered; • Collateral: • Real Estate (Junior position on personal and/or commercial property); • Business Assets/Equipment (if available); • Unsecured up to $10,000 if no collateral is available; • 7(A) Guaranty.
Your SEED/SBA Experts Laurie Driscoll (508) 822-1020 x 316 email@example.com Lisa Holmes (508) 822-1020 x 315 firstname.lastname@example.org Angela Laperriere (508) 822-1020 x 312 email@example.com Liz Voss (508) 822-1020 x 330 firstname.lastname@example.org South Eastern Economic Development Corporation 80 Dean Street, Taunton, MA 02780 www.seedcorp.com