Herb Lawrence, ASU Center Director

Arkansas Small Business and Technology Development Center – Little Rockhlawrenc@astate.edu

The Economy and the Current Recession Lender Concerns for Start Ups

◦ Businesses with no track record for historical cash flow Lender Concerns for Collateral

Especially small businesses where bulk of business collateral is FFE and Inventory

Lenders use a Liquidated Discount Rate on Collateral Limited Personal Collateral to pledge

Lender Terms not always Favorable Lender Balloon Features

An SBA loan is a commercial loan from a lender that is guaranteed by the

U.S. Small Business Administration.

Takes forever to get money Requires a “ton” of paperwork Offers low interest rates Provides grants NO GRANTS!

7(a) Loan Guaranty Program◦ SBA Express◦ Patriot Express◦ Micro Loan Program

504 Loan Program for Fixed Assets

SBA guarantees (insures) the loan, reducing the risk to the lender.

Borrower must secure a participating lender. No minimum loan size. Maximum loan size is $2 million.

NOTE: SBTDCs cannot “RECOMMEND” specific lenders, however Your nearest SBTDC office can give you information about banksAnd other lenders in your area who are “SBA Friendly”

Lender must be PLP Maximum loan $350,000 Lender applies for 50% loan guaranty Can Include Revolving Lines of Credit Lender handles approval and issuance

NOTE: For list of SBA Express Lenders operating in Arkansas contact your nearest SBTDC office or the Little Rock District Office of the SBA.

Loans up to $500,000 by lender approved for SBA Express (PLP)

Lender applies for 85% guaranty for loans of $150,000 or less

Lender applies for 75% guaranty for loans over $150,000 up to $500,000

Can Include Revolving Lines of Credit Interest rates same as 7(a) loans Lender handles approval and issuance

NOTE: With ARRA PatriotExpress Loans now have90% Guaranty for Lenders

Long-term, fixed rate financing for acquisition and/or renovation of capital assets including land, buildings and equipment (no working capital)

Loan backed by a debenture sold to investors

Maximum debenture: ◦ $1.5 million for business that create certain

number of jobs or improve the economy of the locality

◦ $2 million for businesses meeting a specific public policy goal

◦ $4 million for manufacturers

Repayment Ability Management Ability Equity Position Collateral

SBA is a Repayment Lender, meaning their primary concern is the ability to repay the loan from business operations.◦ Cash Flow◦ Working Capital

Historical financial statements and/or projections must demonstrate that cash flow is sufficient to service proposed level of debt.

Projections will be compared to industry standards and demographics will be considered.

Start-up Expenses Accounts Receivable Contingencies & Emergencies

◦ Rule of Thumb: 3 months fixed expenses

Application must demonstrate that, through education or experience, borrower is capable of successfully operating the business or has hired competent management.

SBA does not approve 100% funding requests.

Net worth of existing businesses and/or borrower injection must establish a reasonable equity position, reasonable being determined by the risk.

SBA will not decline a loan ONLY due to a lack of collateral.

To protect taxpayer dollars, loans must be secured as fully as possible.

TERMS TERMS TERMS

EXAMPLE:$100,000 Working Capital Loan Non-SBA 3 years at 6% interest$3,043 per month$100,000 Working Capital Loan SBA 7 years (no penalty for early repaymentAt 7% interest:$1,510 per month

For small businesses, especially those in start up mode, minimize monthlyCash outflow to bank the SBA option even at higher interest rate putsNearly $1,500 per month back into the business to use for inventory, Promotion, wages, etc. those expenses that will make you money

No pre-payment penalty on loans with maturity of less than 15 years

No balloons Patient partners Relaxed credit requirements Flexible loan terms

25 years Real Estate 10 years Equipment 7 years Inventory, Accounts Receivable,

Working Capital

Fixed or variable Maximum: Prime + 2.75% for terms of 7yrs

or more

Businesses must meet SBA size standards to qualify:

◦ Manufacturing: 500 to 1,500 employees

◦ Wholesaling: 100 employees

◦ Services: $4.5 to $32.5 million in average annual receipts

◦ Retailing: $6.5 to $26.5 million average annual receipts

◦ General Construction: $6.5 to $32 million average annual receipts

◦ Agriculture: $750,000 to $16.5 million in average annual receipts

◦ NOTE: In certain industries maximum size has been increased as part of stimulus packet to accommodate more businesses needing financing assistance

Real estate investments Other speculative activities Lending activities Not-for-profit ventures Pyramid sales or distribution businesses

Illegal activities Religious indoctrination Activities of a sexual nature Businesses not open to the general public

SBA loan proceeds can be used for most business purposes including real estate, buildings, equipment, inventory, working capital, and leasehold improvements

Finance floor plan needs NOTE: Stimulus packet now allows SBA guaranty floor planning for certain businesses

Purchase real estate for investment purposes

Disbursements to owners or principals Pay delinquent trust accounts

(withholding or sales tax) Refinance delinquent debt within a bank Acquisition of less than 100% of a

business

Borrowers on probation or parole Borrowers with serious criminal histories Borrowers that are 90 days or more delinquent on other federal government guaranteed loans (FHA, VA, USDA, HUD, student loans, etc.)

Borrowers of poor character

Arkansas Capital Corporation ◦ Certified Development Corporation (800) 216-

7237 Enterprise Corporation of the Delta –

◦ (870) 673-4470 SBA Lenders◦ Hope Community Credit Union – Micro Lender

Southern Financial Partners Planning and Development Districts

◦ 8 PDDs around the state covering specific counties

◦ http://www.arkansas.gov/drs/pdf/ar_planning_dev_districts.pdf for a complete list

"Fostering a More Small-Business-Friendly Regulatory Enforcement

Environment"

PDDs, cont.◦ Some are more involved in lending than others

Most have some type of Revolving Loan Fund◦ West Central PDD can do SBA loan assistance

statewide others cannot. FORGE (Financing Ozarks Rural Growth &

Economy) (479) 738-1585 Micro Lender Baxter, Benton, Boone, Carroll, Conway, Crawford,

Franklin, Johnson, Logan, Madison, Marion, Newton, Perry, Pope, Scott, Searcy, Sebastian, Washington, Yell

◦ Alt Consulting www.altconsulting.org (870) 335-8535 In process of being approved as Micro Lender

Some counties or communities in Arkansas have developed Economic Incentive Funds through sales or other local taxes

These programs can provide “supplemental” funding for start ups or expansions especially where jobs are involved

Check with your local Chamber of Commerce or County Economic Development Office to see if your community has passed such an ordinance and whether you can take advantage of it

"Fostering a More Small-Business-Friendly Regulatory Enforcement

Environment"

Recent scam Fake SBA letterhead Stimulus tax rebate SBA determines eligibility Need bank account informationDON’T DO IT!

www.sba.gov 7(a) Guaranty, Patriot Express MEIDL Loans www.sba.gov/aboutsba/sbaprograms/reservists/businessdev Little Rock District SBA Office Veterans Business

Development Officer http://recovery.arkansas.gov/ Arkansas Stimulus Packet http://www.recovery.gov/ Federal Stimulus Packet http://www07.grants.gov Actual Government Grants http://www.arcommunities.org/APAC.htm Arkansas

Procurement Assistance Center – Vet specific info http://www.asbdc.ualr.edu/ Arkansas SBTDC Website http://arkansasveteran.com/ Arkansas Veteran Web Portal www.navoba.com National Vet-Owned Business Association www.franchise.org Veterans Transition Franchise Initiative

Contact Rudy Ortiz ASBTDCrsortiz@ualr.edu or (501) 683-7721 for a copy of this presentation

Contact your local Small Business Administration Office for Arkansas Residents the Little Rock District Office (501) 324-7394

Or Contact your local Small Business and Technology Development Center for Assistance – state website http://asbtdc.ualr.edu to locate office nearest you or contact Herb Lawrence ASU SBTDC

For Procurement Assistance Information contact either your local SBTDC or the Arkansas Procurement Assistance Center

Log on to Arkansas Veteran Webportal http://arkansasveteran.com to stay updated on changes to financing programs

For a copy of this presentation contact Herb Lawrence, ASU SBTDC Center Director at (870) 972-3517 or e-mail at hlawrenc@astate.edu