Bart Binning: Commercial Business Loans

Business Loans

Conventional Loans - provided by private banks and other financial institutions and are, by definition, without other government aid, guarantees, or other forms of assistance

SBA 7(a) - a Small Business Administration loan guarantee program that is one of the SBA's primary programs. Can be used to finance owner occupied small businesses with fully amortized loans over 25 years.

SBA 504 - provides businesses with long-term, fixed-rate financing for capital assets such as real estate and may not be used for: working capital or inventory, consolidation or repayment of debt or debt refinance. Private lenders will often use this program to finance up to 50% of the project costs for owner-occupied businesses, in conjunction with the SBA and a nonprofit corporation, such as a Certified Development Company (CDC)

A certified Community Development Financial Institution (CDFI), or a certified Community Development Entity (CDE) such as the Oklahoma MetaFund provides support in economically depressed areas.

UDSA B&I - the Business and Industry program helps stimulate rural economies by providing financial backing or rural businesses.

Conventional Loans

Purpose

Business acquisition, expansion, recapitalization, and refinance

Loan Amount

Varies according to the lender

Interest Rate

Varies, may be fixed or a floating rate adjusted monthly

Term

Usually up to 25 years, fully amortizing, secured with a mortgage

Prepayment Penalty

Declining scale

Recourse

Full guarantee of all principals

Loan To Value ratio

Typically 75% to 80%

Debt Service Ratio

Typically a minimum 1.25x for current fiscal year

Financial Data

Business:
• Three years of historical tax returns and financial statements
• One year of projections for existing business or two years for start-ups

Personal:
• Three years of tax returns & financial statements of owners with 20% or more ownership

Third Party Reports

Appraisal and environmental study

SBA 7(a) Loans

Purpose

Business acquisition, expansion, construction, recapitalization, refinance, working capital, and machinery and equipment purchase

Loan Amount

Up to $2 million -- Current loan cap $500,000

Interest Rate

Typically, floating rate, up to 2.75% over WSJ prime

Term

Up to 25 years, fully amortizing

Prepayment

• May prepay up to 25% during first 3 years without penalty
• Above 25%, prepayment penalty of 5%, 3%, 1%

Fee

One time SBA guarantee fee of up to 2.6% of the loan, may have an annual fee on each outstanding SBA guaranteed loan equal to 0.5 percent (50 basis points) of the guaranteed share of the outstanding balance of the loan

Collateral Position

Mortgage on business real estate, machinery and equipment, secondary collateral, UCC filings

Recourse

Full guarantee of principals

Loan To Value Ratio

Maximum 80%

Debt Service Ratio

Minimum 1.0x

Financial Data

Third Party Reports

Appraisal and environmental study

SBA 504 Loans
Purpose	Purchase of fixed assets of a capital nature
Loan Amount	Up to $3,000,000 - First Mortgage Loan is approximately 50% of total project costs; Second Mortgage/SBA Debenture is 30-40% of total project costs; owner's equity injection is 10-20% of total project costs.
Interest Rate	• First Mortgage Loan - Floating rate over 30-day LIBOR, adjusted monthly • SBA Second Mortgage Debenture - Fixed rate determined by the SBA • Interim Period Loan - Floating rate only
Term	• First Mortgage - Up to 25 years, fully amortizing • SBA Second Mortgage Debenture - Up to 20 years, fully amortizing
Prepayment	Declining Scale
Origination Fee	Minimum 1.5% on the First Mortgage Loan
Interim Fee	Minimum 1% on the Interim Second Mortgage Loan
Collateral Position	First and second Mortgages/Deeds of Trust; additional collateral as required
Recourse	Full guarantee of all principals
Financial Data	Business: • Three years of historical tax returns and financial statements • One year of projections for existing business or two years for start-ups Personal: • Three years of tax returns & financial statements of owners with 20% or more ownership
Third Party Reports	Appraisal and environmental study

The Small Business Development Center provides a list of preferred and certified lenders. Websites of some local banks with SBA financing experience include (but is not limited to):