Biomass Feasibility Project Final Report - Xcel Energy

Loan Amount. $100,000 to $2 million. Although the SBA encourages lenders to make loans as
low as $10,000, the paperwork is too extensive and the bank's set up costs too high to make
small loans cost effective. However, smaller banks are often motivated to consider lower loan
amounts conventionally and through SBA for existing customers with creditworthy proposals.
Some large banks consider making smaller Express Loans to existing businesses with a strong
history of cash flow. Two banks make Community Express Loans to under-served borrowers in the
$5,000 to $50,000 range and may accept tainted credit histories and no collateral.
Suitable Borrowers. For-profit SBCs with good credit (business and owners) and a history of
sufficient cash flow. Some small community banks make loans to start-up SBCs and require more
cash assets, collateral and experienced ownership. SBA defines the maximum size of the
business by industry and is based upon ether gross revenues or number of employees. Most SBCs
qualify. A few industry types are excluded from SBA programs.
Purpose of the Loan. To expand, acquire or start a small business. Weaker proposals normally
require substantial collateral, such as real estate while stronger proposals are sometimes
accepted with less substantial collateral, such as fixtures and equipment.
Loan to Collateral Value or Cost. Up to 90% of cost or value is possible for well-established SBCs
with quality collateral. 70-80% more typical for most start-ups. Lenders have other critical ratios
related to cash flow, liquidity and assets that limit the loan amount available. Credit
requirements, collateral prerequisites, cash flow minimums and loan amounts vary among SBA
approved lenders. Most have requirements that are more severe than the minimum
acceptable to SBA. Be sure to understand what your lender requires before you make
application. Please go to www.sba.gov/financing/index.html for details on SBA's financing
programs.
SBA 504 Program
The U.S. Small Business Administration's 504 program is intended to create jobs based upon a
formula that has been modified several times over the years. Particular preference is given to
rural, economically disadvantaged areas and minority and female applicants for which SBA
may waive the job creation requirement. The loan proceeds must be used to finance long-term
assets such as real estate and fixtures which makes the program ideal for construction, for
expansion of manufacturing facilities and other job intensive structures.
Loan Amount. Typically $250,000 and up. Because of the complicated processing, lower loan
amounts are often relegated to other loan programs and higher amounts may be too risky for
most lenders. 504 loans are processed by SBA-licensed Certified Development Corporations
(CDC). The CDC creates a SBA guaranteed subordinated debenture (similar to a 2nd
mortgage). The debenture, up to $1.5 million ($4 million for manufacturing) is piggy-backed with
a conventional first mortgage of any amount. It's usually provided by a local bank. The
borrowing Small Business Concern (SBC) makes one payment to the CDC which is then
proportionately paid to the bank and to the trustee for the debenture holder.
Interest rate. The debenture rate is fixed at closing at a rate close to treasury securities of like
term. Banks may charge a fixed or floating market rate for their conventional portion along with
points and fees. The result is a blended rate to the SBC. The CDC also charges fees.
Term. The SBA portion is usually 20 years and the conventional portion is usually 10 years.
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Identifying Effective Biomass Strategies:
Quantifying Minnesota’s Resources and Evaluating Future Opportunities