American Capital Business Brokers

Financing
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SMALL BUSINESS ADMINISTRATION (SBA) LOANS

• Startup and Young Businesses. Many new businesses have difficulty obtaining financing. Since the SBA Guarantee reduces the risk to the lender, this helps PNC Bank consider your loan request- especially if you have prior experience in this line of business.
• Rapid Expansion. Sometimes your business can grow almost too fast! Even though sales and profits are growing, you may not have sufficient working capital to carry the greater level of inventory and accounts receivable generated. Or, you may need to add equipment, expand your facility, or even move to a larger one. You may find that conventional loans are not available.
• Purchase of an Existing Business. You've found the perfect business, but there's a problem! It could be profitable, but you lack sufficient collateral. Or it's been neglected and slightly unprofitable, but your prior experience lets you know how to turn it around-if someone just gives you the chance.
• Purchase of a Franchise. Reputable franchises can be the way to go, but can be hard to finance if there isn't sufficient collateral or other problems.
• New Equipment or Facility Expansion. Large capital purchases can cause your ratio of debt to net worth to be too large for conventional financing. Perhaps your business has a positive net worth, but you don't have the standard down payment required by other lenders.
• Long-Term Working Capital. Many lenders will not lend for working capital that cannot be repaid within a relatively short period of time. For a new business, this may not be possible.

• Larger loan. Lack of adequate capital is a chief cause for business failures. SBA loans can help eliminate this risk by providing what you really need to operate your business.
• Lower down payment. SBA understands that you may need a little longer to repay than conventional bank loans permit. In some circumstances, you may be able to borrow up to 90% of your financing need.
• Higher debt load tolerated. Although SBA wants to see a positive net worth for your business, they will permit the business to carry a higher ratio of debt to net worth than typically permitted under conventional loans.
• Less rigid collateral requirements. SBA will not decline a loan solely for lack of collateral. However, they do expect the pledge of all available collateral if the liquidation value of the collateral is less than the amount of the SBA loan.
• Longer time to repay. A longer term can substantially reduce your monthly repayment and make it much easier to meet your borrowing obligations.
• No Balloon Payment. Many conventional loans mature before the loan is paid because the amortization schedule was for a longer time to make repayment easier. However, it may be difficult to refinance when the loan "balloons" and you can incur costly new loan fees if you do refinance.

Most businesses are eligible for financing from the SBA. There are essentially four criteria that determine SBA Eligibility:

• Type of Business
• Size of Business
• Use of Loan Funds
• Creditworthiness

The vast majority of businesses are eligible for financial assistance from the SBA. However, the business must operate for profit, operate in the United States or its possessions, have reasonable owner equity to invest, and the owner must first use alternative resources including personal assets. Franchises are eligible unless franchisor retains excessive control. Those businesses that are ineligible include:

• Real Estate Investment
• Speculative Activities
• Lending Activities or Loan Packaging
• Pyramid Sales
• Illegal and Gambling Activities
• Charitable, Religious, Non-Profits
• Private Clubs with selective membership and not open to public
• Businesses with owners Incarcerated, on Parole or Probation

Based on size, nearly 99% of all businesses are eligible for SBA financing. SBA does require that the small business be independently owned and non-dominant in its field of operation. Because of the variance from industry to industry, the SBA has developed maximum size standards based on each industry to adequately reflect industry differences. When there is common ownership or company affiliations among companies, the primary business activity must be determined for the entire affiliated group. Besides the applicant small business, the entire affiliated group must meet the standard for its primary business activity in order for the applicant business to be eligible.

Most sound business purposes are eligible for SBA financing.

• Owner-Occupied Building or Improvements
• Machinery and Equipment
• Furniture and Fixtures
• Inventory
• Working Capital
• Refinancing - under certain conditions

• Investment Real Estate
• Delinquent Taxes
• Floor Plan Needs
• Payments to Owners

Although SBA is more lenient than for conventional borrowing purposes, the primary consideration is always the ability of the business to repay the loan. Both historic and projected financial statements are analyzed to determine if there is sufficient profit and cash flow to repay the SBA loan. However, the management capability, collateral, and owner's equity contributions are also important considerations. All owners with twenty percent (20%) or more are required to personally guarantee SBA loans.

The SBA 504 Certified Development Company Program (CDC) provides growing businesses with long-term, fixed rate financing for major fixed assets such as land and buildings. A Certified Development Company is a non-profit corporation set up to contribute to the economic development of its community or region. SBA selects CDCs to work with private lenders to provide this financing to small businesses. Each CDC covers a specific geographic area and there are about 290 CDSs nationwide.

Since the CDC takes a secondary lien behind the private lender:

• The lender may be willing to advance a greater loan amount and still be able to comply with internal advance rate policies.
• The lender may be induced to participate in a project otherwise viewed too risky.

504 CDC terms are longer than typical for conventional loan terms - stretching repayment over a longer period and making repayment easier. The fixed rate of interest is generally lower than what could typically be borrowed conventionally.

The small business must be a for-profit enterprise and does not have a tangible net worth in excess of $6 million and does not have average net income in excess of $2 million after taxes for the preceding two years. Loans cannot be made for speculative purposes or investment in rental real estate.

This program is designed to enable small businesses to create and retain jobs. Therefore, the CDC's portfolio must create or retain one job for every $35,000 provided by the SBA.

Rates are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Fees total approximately 3-4% of the debenture and may be financed with the loan.