SBA_Underwriting

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					Illinois District Office
In FY 2010, SBA Nationally
  delivered over $17.0 billion in financing,
  guaranteed over 60,771 loans

In FY 2010, SBA in Illinois
   221 participating lenders
  delivered over $719.6 million in financing,
  guaranteed 2,357 loans

                                            2
     What is the SBA?


• Small independent federal agency

• Started in 1953

• Mission: Help small businesses start,
  grow, succeed

• Programs delivered through district offices,
  working with resource partners

                                           3
     Programs & Partners

• Counseling & Training Assistance
   SCORE / SBDC’s
• Financial Assistance
  Banks, S&Ls, Credit Unions
• Federal Contracting Assistance
   Agencies - DOD, GSA, VA
                                   4
              SCORE

• Counselors to America’s Small
  Business

• Free confidential one-on-one
  assistance

• Monthly workshops

• www.scorechicago.org
                                  5
 Small Business Development
        Center (SBDC)

• Provides free services of
  specialized technical assistance
  to small businesses
• Help develop business plans

• Low cost Seminars

• www.ilsbdc.biz                     6
            SBA Guaranty
           Loan Programs
• No grants

• No direct loans

• We do have several guaranteed loan
  programs


                                       7
Three (3) Main Reasons Why
     Lenders Use SBA
  • Newer or Start-Up Business
  • Inadequate Collateral
  • Longer Repayment Term


                                 8
                 Process
• Borrower applies for a loan with an SBA
  participating lender

• Lender submits application for SBA review
  and approval

• After SBA approval, lender disburses funds

                                               9
• All Business Purposes
   •   Export Financing
   •   Working Capital Financing
   •   Receivable Financing
   •   Inventory Financing
   •   Real Estate Financing
   •   Equipment Financing

                                   10
          A Typical 504 Project


• A private sector loan covering up to 50%
• A loan from the CDC covering 40%
 (100% SBA-guaranteed debenture)
• At least 10% equity from the small business
• Participating lender has first lien on assets


                                            11
          504 Loan Program


• Up to $ 5,500,000 for SBA Portion

• Up to $ 13,750,000 Project

• 504 Projects
    •   New Construction
    •   Purchase of existing leased building
    •   Long Term equipment
    •   Projects can be companioned with 7 (a)
                                               12
          JOBS ACT September 27,2010


• 7(a) loans from $2 million to $5 million;

• 504 loans from $2 million to $5 million
  – standard borrowers(project up to $12.5 M)
• from $4 million to $5.5 million
  – manufacturers (project up to $13.75 M)


• Microloans from $35,000 to $50,000

                                             13
             JOBS ACT September 27, 2010


90 Percent Guarantee

• As of September 27, 2010 - SBA to raise its
  loan guarantee to as much as 90%

• Prior SBA would guarantee loans
  up to 85% on loans up to $150,000,
  up to 75% on loans greater than $150,000.

• Maximum SBA guarantee $4.5M
                                            14
             JOBS ACT September 27, 2010


Temporary Elimination of fees
• Fees for SBA’s 7(a) and 504 loan programs
  until December 31, 2010.

• 7 (a) - Upfront borrower guaranty fees
  range 2% to 3.75%

• 504 - Processing fee 1.5%
  Third party Lender fee .5%

                                           15
Survival Rates Business Start-ups:


66 % New Employer Firms Last At Least 2 Years

50% New Employer Firms Last at Least 4 Years


            Rates Vary By Industry


                                           16
  Major Factors for Success

--Adequate Capital
--Owners Knowledge of Industry
--Knowing Target Market
--Low Fixed Cost

                              17
Start-up Business Available Info for Risk Analysis:

                 Business Plan
--Market for Product
--Identified Target Market
--Sales forecast
--Capital Balance Sheet
--Cash Flow projection 12 months
--Owners Equity Investment
--Identified needed Financing
--Demonstrate Debt Repayment
                                                      18
Risk Analysis Info Cont:

--Collateral

--Managerial Experience

--Knowledge of Industry

--Credit Score


                           19
--Credit Score is a Numeric Summary of the
         Info on Your Credit Report.

--Score is Counted Slightly Different by The
     Three Major Reporting Agencies.

   --Equifax, TransUnion and Experian

    --Use FICO (Fair Isaac Company)

     --FICO Score Ranges 300 to 850
                                               20
             FICO SCORE Elements


35% --Payment History (Pay on Time)
30% --Debt Level (Keep Debt Low as a % of Credit
      Limit—Try to stay at 75%)
15% --Length of Credit History (Develop a long
      relationship with a credit card).
10% --Diversity of Credit Accounts -Mix It Up Car loan,
     Mortgage loan- shows you can manage
10% --Number of New Attempts To Get Credit Cards
      More attempts Hits Lowers your Score.
100%

                                                 21
FICO Scores National Distribution

       58%      700 Plus
       27%     600 to 699
       15%       0 to 599

     Very Bad      499 to 0
         Bad       500 to 580
     Sub Prime      581 to 619
         Okay      620 to 679
         Good       680 to 699
      Very Good      700-Plus       22
Most Start-Ups F/S
Capital Balance Sheet and Income Statement
( Financial Forecast at Best)

Risk Management Association (RMA)
Financial Ratio Benchmarks( Key Ratios Expressed
in Upper, Median, Lower Range)

Annual Statements Studies by Industry
Identify industry by using
     Standard Industrial Codes(SIC)
    North American Industry Classification Code(NAICS)
                                                   23
--Meaningful Ratio Analysis Requires a
    Comparison Trend Over Several Years and to
    Industry Norms

--Start-up Businesses Have No Track Record.
  This Limits our Analysis to:
      --A Few Key Ratios
      --Capital Balance Sheet
      --Income Financial Forecast
      --Cash Flow Statement

                                              24
             Industry Norms vs. Start-up Business B/S

                        Assets
            Current Assets              %
            Non-Current Assets          %
           Intangible Assets             %
           Total Assets               100%

                       LIABILITIES
           Current Liabilities             %
          Non-Current Liabilities          %
          Total Liabilities              50%
                 Net Worth               50%
          Total Liabilities & Net Worth 100%

Compare value in each category to a norm for the
industry for at least a one year period.                25
      Compare Start-up Forecast to Industry Norm

         Forecast Income Statement
Sales                                100.0%
  - Cost of Sales (Inventory)         56.0%
Gross Profit                          44.0%
  -Operating Expenses                  40.4%
Operating Profit                        3.6%
 -Other Expenses                        1.9%
Profit before Taxes                     1.7%

  Shoe Store, SIC#5139,5661, NAICS#448210
            RMA Page 974-975
                                          26
       Key Ratios Capital Balance Sheet

               Liquidity Ratios
                              total current assets
2:1       Current Ratio =
                             total current liabilities

                            cash & accts receivables
1:1        Quick Ratio =
                             total current liabilities


                 Stability Ratio
                                 total liabilities
3:1   Debt to Net Worth =      tangible net worth

                                                   27
         Dollar Sales Breakeven


                    Fixed Costs
    $ BE= 1.--      Variable Costs
                      Sales


Divide $ BE by widget SP to determine
number of widget to sell to achieve BE.




                                          28
             Repayment      Ability



Monthly Cash flow for 12 month period

Positive Cash each month to service P & I

Month with largest Negative figure
represents W/C needs.




                                            29
Additional Information-
      Contact:
Illinois District Office
500 W. Madison, Suite 1150
(312) 353-4528
SBA.GOV/IL

                             30

				
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