Capital Opportunities for Small Businesses - sbtdc

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C A P I T A L O P P O R T U N I T I E S F O R SMA L L B U S I N E S S E S SBA Intermediary Lending Pilot in North Carolina - The Support Center and NCEED The Small Business Jobs Act of 2010 established a three year pilot program to provide direct loans to eligible non-profit intermediaries for the purpose of making small business loans of up to $200,000. These experienced intermediaries assist small business concerns in areas suffering from a lack of credit due to poor economic conditions or changes in the financial market. SBA’s Intermediary Lending Pilot (ILP) Program aims to help business owners start and grow successful enterprises. The Support Center 3120 Highwoods Blvd., Suite 350 Raleigh, NC 27604 919-803-1437 Vicki Lee Parker vparker@thesupportcenter-nc.org Center for Economic Empowerment and Development (NCCEED) 230 Hay Street Fayetteville, NC 27604 910-323-3377 Rayshonia Manuel rmanuel@ncceed.org SBA Small Loan Advantage Program This initiative allows lenders to get a pre-qualification indication from SBA that the applicant business has sufficient creditworthiness to warrant giving the applicant full consideration for financing. The small business applicant applies for financial assistance from an SBA approved lender. The lender decides if the request will require an SBA guaranty. To help the lender decide creditworthiness for lower-dollar loans, the lender can obtain certain data from the applicant and then get a pre-qualification indication from SBA as to the acceptability of the applicant for a loan guaranty. If the pre-qualification comes back positive, the lender may complete a streamlined credit memo and make a formal request to SBA for guaranty. Small Loan Advantage is structured to encourage existing SBA lenders to make lower-dollar loans, which often benefit businesses in underserved markets. Maximum Loan Size: $350,000 Guarantee: 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000. www.sba.gov/about-offices-content/2/3127/news/1634 42
C A P I T A L O P P O R T U N I T I E S F O R SMA L L B U S I N E S S E S 504 Certified Development Company Program While the SBA is generally a vehicle for investment in disadvantaged businesses and for start-up ventures, mature businesses with proven cash flow and well-capitalized start-up businesses are more often the recipients of the 504 loan program. The 504 Certified Development Company Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company (CDC) is a non-profit corporation established to contribute to the economic development of the country. CDCs work with the SBA and private sector lenders to provide financing to small businesses. The 504 Certified Development Company is a channel that allows private funds, guaranteed by SBA, to flow into community businesses. Typically, a 504 project includes a loan secured with a senior lien in favor of a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (a 100 percent, SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The maximum SBA debenture generally is $5 million (or $5.5 for small manufacturing or when meeting the public policy goals of energy reduction or alternative fuels). The program is designed to enable small businesses to create and retain jobs. The CDC generally must create one job for every $65,000 provided by the SBA on each loan. There are some exceptions available for certain projects that meet specific public policy goals. Proceeds from 504 loans must be used for fixed-asset projects. Applicable projects include purchasing or improving land; constructing new facilities; modernizing, converting, or renovating existing facilities; or purchasing long-term machinery and equipment. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt or speculation or investment in rental real estate. The American Recovery and Investment Act of 2009 (ARRA) authorized a permanent change to the 504 loan program which allows small businesses to refinance existing loans if there is a business expansion and the debt refinanced does not exceed 50 percent of the projected cost of the expansion. To be eligible, the borrower must be current on all payments of existing debt for one year prior to the date of refinancing, and the new financing must provide a substantial benefit to the borrower when any penalties, fees and other financing costs are taken into account. Interest rates on 504 loans are pegged to an increment above the current market rate of intermediate term U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan. Generally, the project assets being financed are used as collateral. Personal guarantees of the principal owners are also required. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income in excess of $5 million after taxes for each of the preceding two years. In addition to SBA lending, some CDCs may have their own microloan and revolving loan programs. You may obtain a current list of Certified Development Companies by visiting the SBA’s North Carolina District Office website at www.sba.gov/about-offices-content/2/3127/news/16341. 43
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