module 9 sources requirements for financing

8/14/2019 Module 9 Sources Requirements for Financing

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SBDC Counselor Certification ManualMODULE 9 Sources & Requirements for Financing

Table of Contents1. Performance Objective

2. Introduction

3. Change of Ownership of Existing Business

4. Where to Find Money for Your Business

5. Loans

Performance Objective

The Business Counselor will: Explain the advantages, disadvantages, and requirements for debt and

equity financing, and the requirements and process of obtaining a SBAloan. The Business Counselor will also assess the clients potential for

financing prior to advising the client to seek financing.

Evaluation

The Business Counselor will demonstrate proficiency in sources andrequirements for financing by completing all of the following tasks.

1. Demonstrating to the mentor during co-counseling, the ability toassess a clients ability to achieve financing; effectively advising theclient of the advantages, disadvantages and requirements of debt andequity financing; and the requirements and process of obtaining SBAloans. The mentor will verify proficiency to the training coordinator.

2. Reporting the results of the interview, including the loan checklist, withthe loan officer to your mentor.

3. Correctly answering case study questions concerning financing issues.1


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How You Will Be Trained1. Read Module 9 in its entirety.2. Attend training on financial sources.3. Co-counsel clients with your mentor.

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Introduction

Understanding basic credit issues is the first step in determiningwhether or not a client needs, is eligible to apply, or qualifies for financialassistance.

Equity Investment

Determining whether the companys level of debt is appropriaterequires an analysis of the companys expected earnings and the variabilityof these earnings, as well as the ratio between total debt and equity. Strongequity and low debt levels provide resiliency which will help a firm weatherperiods of operational adversity. There must be careful examination of thedebt-to-worth ratio of a company. Sufficient equity is particularly importantto new businesses. Business loan applicants must have a reasonable amountto invest to ensure that, along with any borrowed funds, the business canoperate on a sound basis. A strong equity position ensures that owners willremain committed to their business.

Earnings Requirements

Financial obligations are paid with cash, not profits. When cash outflowexceeds cash inflow for an extended period of time, a business cannotcontinue to operate. As a result, cash management is extremely important.In order to adequately support a companys operation, cash must be at theright place, at the right time, and in the right amount. A company must beable to meet debt payments as they come due.

Working Capital

Working capital is essential for a company to meet the continuousoperational needs of business. The adequacy of working capital directlyinfluences the firms ability to meet its trade and short-term debt obligations,and ultimately its ability to remain financially viable. Working capital is theexcess of current assets over current liabilities. Because working capital isthe excess of the more liquid, working assets over the obligations of a firmwhich are due within one year, it measures the funds available to finance acompanys current requirements and represents the cushion or margin of protection for a companys short term creditors.

Collateral

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To the extent that worthwhile assets are available, adequate collateralis required as security on an SBA guaranteed loan. However, a loan may notbe declined where inadequacy of collateral is the only unfavorable factor. Inthe event real estate is to be used as collateral, borrowers should be awarethat banks and other regulated lenders are now required by law to obtain

third-party appraisals on real estate related transactions of $250,000 ormore. Certified appraisals are required for business loans of $1 million ormore. However, when commercial real estate represents the major piece of collateral for a loan, the SBA will require a third party appraisal. Regardlessof loan size the lender is expected to use prudent valuation practices. Justbe aware that an evaluation of some sort is likely to be required on realestate secured transactions.

Each piece of commercial real estate collateral taken must undergoenvironmental inspection, per the commercial lenders prudent lendingpractices as well as SBAs environmental investigation policies in the SBA

SOP 50 10 New Loan processing.

Owner-occupied residences are generally used for collateral when: the participating lender requires the residence as collateral the equity in the residence is substantial and other credit factors are

weak such collateral is necessary to assure that the principal(s) remain

committed to the success of the venture for which the loan is beingmade,

the applicant operates the business out of the residence or otherbuildings located on the same parcel of land.

Change of Ownership of Existing Business

Buyers and sellers of a business as well as commercial lenders all needto make a determination of going concern value for that existing business.

The SBA will require the lender and purchaser to follow empirical financialstudies of historicalcash flow and profits to determine the going concern value of the businessand assets being financed compared to the amount of the loan. The SBDCoffers a business valuation service that meets these criteria.

Resource Management

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The ability of a potential borrower to manage resources is a primeconsideration when determining whether or not a loan will be made, and inwhat amount.

Managerial capacity is an important factor involving such areas aseducation, experience and motivation. Proven ability in resource

management is also a large consideration. Mathematical calculations basedon information provided in financial statements provide an illustration of howresources have been managed in the past. It is important to understand thatno single ratio will provide a whole illustration but that several used inconjunction with one another will provide an overall picture of managementperformance.

Funding SourcesA common misconception about finding money for your business is

that you will get a loan in one big, fat check that will handle all startup costs. This is rarely the case. Usually a business is financed by a combination of

sources and a whole lot of creative thought on the part of the entrepreneur.Its like putting together a puzzle with lots of pieces. As a counselor, your jobis to help the entrepreneur fit together that puzzle. Below is a list of potentialfunding sources you can pass along to your clients.

Where to Find Money for Your Business You- The most logical place to look for financing is in your own

assets. These sources include money in bank accounts, certificatesof deposit, stocks and bonds, cash value in insurance policies, realestate, home equity, and value of hobby collections, automobiles,and pension fund, Keogh or IRAs.

Friends and Family- Quite frequently, friends and family representa source of money needed for a small business start-up or ongoingbusiness. If you use this source, youll want to be sure to have awritten agreement and handle the transaction in a businesslike way.Spell out clearly the terms to which you and your friends or relativeshave agreed.

Your Own Company- An established company or business hasseveral options available to serve your financing needs. Theseinclude taking a first or second mortgage on any real estate orproperty that it owns; borrowing money against machinery or hardassets such as equipment or motor vehicles; or borrowing againstinventory that is considered liquid.

Pledging Accounts Receivable- If you have accounts receivable,you can pledge them by turning them over to a bank or loancompany in exchange for cash. Then, as the receivables are paid,the bank deducts a certain amount of each payment until the loan ispaid. Factoring is another method. The cost the factoring companycharges depends on how old your accounts receivable are, who

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owes you the money, what you sell, and how long you have been inbusiness. You can find a listing of factors in the Yellow Pages. Youcan also get a list of such companies from your banker.

Commercial Banks- Banks represent the largest single source forloans and financing. The amount of interest they charge is based on

two factors: the size and history of the customer and the risk thebank will take in providing the loan. SBA guaranteed loans areavailable through banks, making more money available for businessloans.

Finance Companies- Finance companies are generally consideredcollateral lenders, that is, they rely upon the borrowers ability toback up every dollar of the loan with assets. Their interest rates areusually higher than banks.

Credit Unions- Credit Unions have traditionally financed cars andappliances; however, recently they have expanded their lendingoperations to include nonmembers and investments outside of

traditional financial investments. Private Investors- These individuals or groups make investments

and loans, usually in exchange for an equity interest in a company. The funds available from private investors vary widely. Someconfine their activities to high technology firms, while others mayinvest or lend money to retailers. Investors can be found throughlocal bankers, accountants, lawyers or your local newspapersSunday classified advertising pages.

Venture Capitalists- The venture capitalist almost always seeksan equity or ownership interest in the firm in exchange for capital.

The venture capitalist is usually interested in high- technology ortechnology-related start-up businesses.

Customers- Customers or potential customers can be an excellentsource of funding. Customers may provide you with actual cashloans to put into your company or they may provide cash throughprepayment for services or products.

Suppliers- Suppliers can be a great source of funding by giving 30to 90 day terms. Sometimes, suppliers will provide supplementalequipment that is necessary for use with the products they provide.For example, food wholesalers will often provide display cases,shelving and other equipment.

Leasing Companies- Lease your equipment instead of buying itand you may find companies eager to help you make the deal.

Credit Cards- With a good credit rating and lots of cards, you couldbe able to use $25,000-$75,000 worth of credit from your plastic.Interest rates are high, but access to money cant be beat. Thisresource should be used with caution.

Owner Financing- Buying a business? Ask the seller if he or shewill be willing to sell it to you on a contract.

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Stages of Financing

It is important to understand that there are different stages of financing, and different types of money available for the different stages. The

four basic financing needs of businesses are: Seed money Startup capital Working capital Growth capital

Seed money is the money needed to develop an idea. It is used forresearch and development, to create prototypes, to research themarket and to write a business plan. Money for this stage generallycomes from personal finances or friends and family. Investors arerarely interested in investing in this early stage. However, the SBIRprogram can be an excellent resource for this stage.

Startup capital is used to take the business concept to themarketplace. It pays for initial equipment and all expenses of gettingthe enterprise underway. Startup money comes from personalfinances, friends, family and sometimes investors and banks if theconcept is very strong and the management team looks good.

Working capital is used for financing inventories, accounts receivableand the cash necessary to operate the business. When a business isperking along quite well and has a good track record for growth, thenworking capital is the easiest money to attract. Banks are traditionalfinanciers for working capital and factoring companies also play a rolehere.

Growth capital is used for financing a plant expansion, purchasingnew equipment, or training new people for the growth of yourbusiness. Traditionally, growth is financed by the profits of theoperations. Other sources for growth capital include venture capitalists,stockholders and taking your company public.

SBA LOAN PROGRAMSU.S. SMALL BUSINESS ADMINISTRATIONFEDERAL BUILDING, ROOM 4001100 EAST B STPO BOX 44001CASPER, WY 82602-5013

Telephone: (307) 261-6500

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FAX: (307) 261-6535www.sba.gov

SBA 7(a) LOAN GUARANTEE PROGRAM The Small Business Administration (SBA) offers loan guarantees to

commercial lenders making loans to small business for working capital,inventory, machinery, land, buildings, purchases of businesses and othernew money projects. See the table at the end of this module for completeprogram information.

Eligibility

An applicant must be a small business an defined by theSBA. The definition is expressed in average annual receipts for the last threeyears, or number of employees. The size standard used depends upon theNorth American Industry Classification System (NAICS) codes for the type of

industry. The following are typical size limits for broad categories of businesses:

Retailing annual sales of $7,000,000 or less over a 3 yearaverage.

Manufacturing - are generally limited to 500 or fewer full timeequivalent employees.

Specialty Contractors - $14,000,000 Construction Contractors - $33,500,000

Loans may be any size, from small to up to $2,000,000 with the SBAguaranty not exceeding $1,500,000 to any one borrower.

Certain loans are ineligible for SBA guaranteed loans such as loans forinvestments, speculation, and SOME landlord-tenant relationships. Contactyour SBA office for further information.

Projects can be any size, but SBAs share of the 7(a) financing cannotexceed $1,500,000 to any one applicant/borrower, including any existing SBAloans.

Terms

SBA guaranteed percentage to the lender is up to 85% for amounts of $150,000 or less, and up to 75% for amounts over $150,000. Interest ratesare indexed to the NY prime rate as published in the Wall Street Journal. Theinterest rate is negotiated between the borrower and the private lender butmay not exceed the SBA cap of 2.25% over NY prime for loan terms of less

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than 7 years, 2.75% for 7 years or longer. The interest rate may be fixed orvariable. To encourage lenders to make smaller SBA loans, SBA allows alender to charge higher interest rates on loans of $50,000 or less. See yourlender or SBA for exact details on these interest rates for loan of less than$50,000.The guaranty fee is based on the size of the loan. The guaranty fee

can be included in the amount of the loan requested.

Guaranty FeesLoan Size (Total Amount) Guaranty Fee (Based on

Guaranteed Portion)

0 to $150,0002% (lender allowed to retain25% of this fee to cover costs of making smaller loans)

$150,001 to $700,000 3%

$700,001 to $1,333,333 3.5%

Over $1,333,333 3.75%

*Note: Short term loans of 1 year or less have a guarantee fee of .25% Term of the loan is determined on a case by case basis, and is based

on the use of proceeds, and applicants ability to pay, subject to the followingmaximum maturities:

Working Capital - up to 7 to 10 years Machinery & Equipment - up to 10 to 25 years Real Estate - up to 25 years

CATEGORIES OF LOANS SBA Guaranteed Loans 7(a) Guaranteed Loans (so-called because they are under

Section 7(a) of the Small Business Act), are business loans madeby commercial lenders, partially guaranteed by SBA. Themajority of SBA guaranteed loans are usually long term (overone year).

The use of loan proceeds ranges from working capital, inventory,

machinery, land, buildings, purchase of existing businessesand other new money projects.

Express Loans for working capital purposes, up to$350,000, canbe made by an SBA Express approved lender. Express workingcapital loans in most instances are made for 12-months or less,but the lender and SBA can make the term up to 7-years. If the

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term is twelve months or less, the guaranty fee to SBA is only 1/4of 1% of the amount guaranteed by SBA. These Express workingcapital loans can be revolving or lines of credit. The lender andits policies will dictate the loan terms and conditions following itsown internal policies. The Express Loan Program and its

documentation are minimized to encourage more use by lenders. The Express loans carry a 50% guaranty which is a lowerguaranty than the standard SBA 7(a) loan.

Express Loans for equipment purchases and other businessneeds that require a longer loan term also offer limited lenderdocumentation for easier processing. The maximum Expressloan amount is $350,000.

Rural Lender Advantage Loans (RLA) are a derivative of the

regular SBA 7(a) guaranty loan. The advantage to the lenderusing RLA is that loans for $350,000 or less can be processedwith less front-end documentation and still receive 85% or 75%guaranty. Refer to SBA for more details.

Patriot Express loans offer simple reduced front-end loandocumentation that encourage lenders to use the program bygiving the lender the normal 7(a) guaranty percentage of 85% or75% on a easy to process SBA loan. The lender must be anapproved Patriot Express lender. Patriots are defined as beingveterans, the spouses of veterans, or persons who have been inthe Reserves and National Guard. Please see SBA for morecomplete details on this Patriot Express Loan Program.

SBA Loan Applicants must demonstrate:

Capability to convert short-term assets into cash. Sufficient management ability, experience, and commitment

necessary for a successful operation. Capability to perform, and collect payment for that performance. A feasible business plan. Adequate equity or investment in the business Capability of providing required updates on the status of current

assets. Pledge sufficient assets to adequately secure the loan. Good character.

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The CapLine Working Capital Loan Program - The CAPLine Programis still in existence, however, it is rarely used in 2008 because mostof its features have been replaced by the SBA Express loans. TheCAPLine loan program is a working capital loan program for large

loans. Lenders are no longer familiar with this program, but it isworth mentioning. The lender has a high responsibility formonitoring the borrower and its business which makes it a laborintensive program to use. In most cases, just refer the borrowerand the lender to the SBA Express loan program for working capital.

See SBA lending personnel for more information on CAPLine if needed.

Special Purpose Loans

1. Export Express Loan: This program follows along the similar lines of Express loans, however, for working capital the Export Express Loanhas a maximum of $250,000. Lenders are encouraged to use theExport Express Loan Program because of its ease of use anddelegated authority to the lender. For more detail on this program callMr. Dennis Chrisbaum, SBA International Trade Office - Denver(303)844-6622 EX16.

2. Export Working Capital Program (EWCP): SBA guarantees (up to

the lesser of $1,000,000 or 90% of the loan amount) short-termworking capital loans made by participating lenders to small businessexporters. Loan maturities may be for up to three years with annualrenewals.

Proceeds can be used only to finance export transactions, andmay be used to acquire inventory, pay the manufacturing costs of goods for export, purchase goods or services for export, supportstandby letters of credit, for pre-shipment working capital, and forpost-shipment foreign accounts receivable financing. Loans can be forsingle or multiple export transactions. Applicant must be in businessfor one full year at the time of application, but not necessarily in theexporting business.

Collateral: Borrower must give SBA a first security interestsufficient to cover 100 percent of the EWCP loan amount. Collateralmust be located in the United States, its territories, or possessions.

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Applicant must submit cash flow projections to support the needfor the loan and the ability to repay, and must continue to submitprogress reports after the loan is made.

SBA does not limit the amount of extraordinary servicing feesunder the EWCP program. Neither does SBA limit the interest rates,but monitors them for reasonableness.

For further information, contact:Dennis ChrisbaumInternational Trade & Finance Officer, SBAU.S. Export Assistance Center1625 Broadway, Suite 680Denver, CO 80202(303) 844-6622 or (303) 844-5652

3. International Trade Loans: Loans to small businesses that areengaged or preparing to engage in international trade; or adverselyaffected by import competition.

Applicant must establish that:a. Loan proceeds will significantly expand an existing export market

or develop new export markets.b. Applicant business is adversely affected by import competition.c. Upgrading facilities or equipment will improve the applicants

competitive position.d. Applicant must have a business plan reasonably supporting its

projected export sales.Use of proceedsBorrower may use loan proceeds to acquire,construct, renovate, modernize, improve, or expand facilities andequipment to be used in the United States to produce goods orservices involved in international trade, and to develop and penetrateforeign markets.

Amount of guaranteeSBA can guarantee up to $1.25 million, lessthe amount of SBAs guaranteed portion of other loans outstanding tothe borrower under SBAs regular lending program. Financing can be acombination of fixed-asset financing (cannot exceed $1,000,000), and

working capital, supplies, and EWCP assistance (cannot exceed$750,000).

4. Energy Conservation: In 2008, this program is rarely used becausethe 7(a)

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loan, the Express, the Patriot Express, and the Rural Lender AdvantageLoan Programs are easier to use and can accomplish similar results,provided the borrower meets the normal SBA eligibility and creditstandards.

5. Pollution Control: In 2008, this program is rarely used because theSBA 7(a)guaranty, the Express, the Patriot Express, and the Rural LenderAdvantage loan programs can accomplish similar results with less loanpreparation difficulty.

6. Special Considerations to Veterans: Please refer to the PatriotExpress Loan Program for more details. A commercial lender must beapproved by SBA to use this loan program. SBA has been and

continues to encourage lenders to apply for the Patriot Express lenderdesignation.

Veterans of the armed forces have fought to maintain the freedom thathas made our country strong. SBA wants veterans to receive the

benefits of all of the programs the Agency provides. To ensure this,the Administrator announced in a policy statement in May 1982 thatveterans will be given special consideration in Agency programs.Special consideration involves unique management training programsspecifically for veterans, processing veterans loan applications beforenon-veterans loan applications received the same day, monitoringloan and procurement activities to measure veteran participation,coordinating training and counseling activities for veterans with otherAgency departments. In each local SBA office, there is a persondesignated as the Veterans Affairs Officer (VAO). This person shouldbe the veterans initial contact and resource person for information onSBA programs.

Application Process for Section 7(a) Loans:

The business person should prepare an outline of the requestedproject. A business plan is very helpful for both the applicant and lender tounderstand the project. A detailed cash flow projection is helpful (and will berequired by the lender/SBA on a start-up business), with appropriatefootnotes and explanations of assumptions about sales, expenses, accountsreceivable and payable cycles, and flow of funds in the business.

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For existing businesses, three years of historical trend studies isrequired using past balance sheets, income statements, and tax returns. Fornew businesses projected sales supported by underlying assumptions andmarket conditions is needed.

Project presentation should be made to the commercial lender. SBAguaranty applications can be obtained from lender.

All Wyoming banks, some federal saving banks, and some non-banklenders participate with SBA to produce SBA guaranteed loans.

TERMS (FOR 7(a) LOANS)Loan maturities are generally up to 7 years for working capital, up to

10 years for machinery and equipment, and up to 25 years for real estate.Interest rates are negotiated between borrowers and lenders and are

generally set at market rates, subject to SBA maximums of 2.25 points abovethe prime rate for loans of less than seven years maturity and up to 2.75points above the prime rate for loans of seven years and longer. Loansunder $50,000 are subject to slightly higher rate caps.

Borrowers can use loan proceeds for legitimate business purposes,including working capital and expanding, renovating or purchasing abusiness, machinery and equipment, or inventory. Loan proceeds cannot beused for distribution to owners or principals or for payment of personal debt.

Applications for purchasing an existing business must include a copy of the terms of sale, financial statements on the existing business, a statementon the benefits the business receives as a result of the change of ownership,and a statement as to the relationship between the buyer and the seller.

SBA 504 DEVELOPMENT COMPANY LOAN PROGRAMLoan proceeds may only be used for the acquisition, construction, or

installation of fixed assets, i.e. real estate projects. Long lived equipment ,conservatively with a life of 10-years or more and not rolling stock, alsoqualify but are not as frequently financed under this 504 Program. Jobcreation and community development are a high priority under this program.

SBA, through Certified Development Companies (CDCs) provides long-termfixed rate financing for a portion of the total project. A Lender finances up to50% of the project (non-SBA guaranteed), with a first mortgage on theproperty. The SBA/CDC 504 loan finances up to 40%, with a secondmortgage. The Applicants equity provides a minimum of 10% of the project.

The loan is funded from the sale of debentures, which SBA guarantees.

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Eligibility:

An applicant must be a small business as defined by the SBA. The sizestandards for the 504 programs are, the business must not have a tangiblenet worth in excess of $8.5 million, and must not have an average netincome after Federal income taxes (excluding any carry-over losses) for thepreceding two years in excess of $3.0 million, after tax. Or, the sizestandards for 7(a) may be used.

Terms:

Second mortgage debentures are provided in amounts generally up to$1,500,000 or 40% of total project cost, whichever is less. The interest rate

is fixed and varies according to the current rate of debenture sales. Loanterms are for 10 to 20 years.

Up-front (out of pocket) costs are $2,500 legal fee, cost of titleinsurance, filing fees and administrative fees of 2.875% of the totaldebenture, all which can be financed over the term of the loan. 504 loans formanufacturing can go as high as $4,000,000.

7(a) and 504 Loan ProgramsA new provision has been added that the ownership requirements to

determine the eligibility of a small business concern that applies forassistance shall be determined without regard to any ownership interest of aspouse arising solely from the application of the community property laws of a state for purposes of determining marital interest.

Businesses should contact a Certified Developmental Company. TheCDC will assist in finding a private Lender if one has not already beencontacted. The project application will be reviewed by the private Lender,the CDC, and the SBA.

STATEWIDE CDC:

Frontier Certified Development Company232 East 2 nd St, Suite 300Casper, Wyoming 82601(307) 234-5351 FAX (307) 234-0501

CDC LIMITED TO SERVING WYOMING COUNTIES OF UINTA,

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LINCOLN, TETON, SWEETWATER , & SUBLETTE:Mountain West Certified Development Company2595 East 3300 SouthSalt Lake City, UT 84109(801) 474-3232 FAX (801) 493-0111

SURETY BOND GUARANTEE PROGRAMSBA can guarantee bonds for contracts up to $2 million, covering bid,

performance and payment bonds for small and emerging contractors whocannot obtain surety bonds through the regular commercial channels. Thisprogram is not limited to SBA borrowers.

Eligibility:Businesses in construction and service industries can meet SBA size

eligibility standards if their average annual receipts, including those of theiraffiliates, for the last three fiscal years do not exceed $6 million.

Any contract bond (bid, performance or payment) is eligible if it is: Covered by the Contract Bonds section of the Surety Association of

America Rating Material. Required by the invitation to bid. Executed by a surety company that is acceptable to the U.S. Treasury

(Circular 570) and qualified by the SBA.Contractor should apply for a specific bond with a surety company of

their choice, providing background, credit, and financial information required

by the surety company and the SBA. The contractor must use the following forms, which are available from

the SBA: SBA Form 994, Application for Surety Bond Guarantee Assistance. SBA Form 912, Statement of Personal History. SBA Form 994F, Schedule of Uncompleted Work on Hand.

The surety company processes and underwrites the application in thesame manner as any other contract bond application, and decideswhether to:

Execute the bond without the SBA guarantee. Execute the bond only with the SBA guarantee. Decline the bond even with the SBA guarantee.

If the surety company decides to require the SBA guarantee, it thencompletes the required forms and forwards it to SBA. If SBA approves the

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application, the authorized SBA official signs a guarantee agreement andreturns it to the surety company.

For further information contact:Walter Lee/Surety Bonds SpecialistDenver, CO 80201-0660(303) 844-5231 ext. 254; FAX (303) 844-6490

FEES FOR AN SBA SURETY BOND GUARANTEE: The small business pays the SBA processing fee based on a percentage

of the contract amount (call SBA for current rate). When the bond is issued, the small business pays the surety

companys bond premium. The surety company pays the SBA a guaranty fee.

SBA LOAN APPLICATION PROCESS To apply for a guaranteed loan, applicants should take all available

financial and other business information to a financial institution, preferablytheir bank of account. The information should include a written statementdescribing the business and its history, the proposed use of the loanproceeds and an explanation of how the loan will be repaid. Applicantsshould always request that their lender make the loan directly.

If the lender is unable or unwilling to make the loan, the applicant canrequest the lender consider making the loan under the SBA GuarantyProgram. If the lender agrees to participate with the SBA, the applicant thencompletes a formal application for forwarding to the SBA.

In the case of guaranteed loans, SBA generally deals with the privatelender, not with the loan applicant unless directed to by the lender. Thelender interacts with the applicant and services the loan. For moreinformation from the SBA, consult the SBA web page, www.sba.gov Youmay call the Wyoming SBA 307-261-6500 and ask for an SBA Loan Specialist.

STANDARD APPLICATION FORMS

A 7(a) Submission Checklist can be found on the SBA web page andthe various SBA loan forms for various programs can be found on the SBAweb page www.sba.gov under Forms. Work with the lender in conjunctionobtaining the various needed financial disclosure statements. Your businessplan should contain many of the same exhibits and similar information. CallSBA-Wyoming as needed 307-261-6506.

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THE SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAMSBIR is a highly competitive program that encourages small business

to explore their technological potential and provides the incentive to profitfrom its commercialization. By including qualified small businesses in thenations research and development (R&D) arena, high-tech innovation isstimulated and the United States gains entrepreneurial spirit as it meets itsspecific research and development needs.

SBIR targets the entrepreneurial sector because that is where mostinnovation and innovators thrive. However, the risk and expense of conducting serious R&D efforts are often beyond the means of many smallbusinesses. By reserving a specific percentage of federal R&D funds forsmall business, SBIR protects the small business and enables it to competeon the same level as larger businesses. SBIR funds the critical startup and

development stages and it encourages the commercialization of thetechnology, product, or service, which in turn, stimulates the U.S. economy.(Currently $1.6 billion is available annually the largest seed capital fundavailable to Wyoming small businesses.)

Since its enactment in 1982, as part of the Small Business InnovationDevelopment Act, SBIR has helped thousands of small businesses tocompete for federal research and development awards. Their contributionshave enhanced the nations defense, protected our environment, advancedhealth care, and improved our ability to manage information and manipulatedata.

Small businesses must meet certain eligibility criteria to participate inthe SBIR program:

American-owned and independently operated For-profit Principal researcher employed by business (50+ %) Company size limited to 500 employees

Each year, ten federal agencies are required by law to reserve aportion of their R&D funds for award to small business.

Department of Agriculture (USDA) Department of Commerce [DOC-includes National Institute of

Standards and Technology (NIST) and National Organization of Atmospheric Administration (NOAA)]

Department of Defense (DoD) Department of Education (DOEd)

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Department of Energy (DOE) Department of Health and Human Services or National Institutes of

Health (NIH) Department of Transportation (DOT) Environmental Protection Agency (EPA) National Aeronautics and Space Administration (NASA) National Science Foundation (NSF)

These agencies designate R&D topics and accept proposals.Following submission of proposals, agencies make SBIR awards based

on small business qualification, degree of innovation, technical merit, andfuture market potential. Small businesses that compete successfully thenbegin a three-phase program:

Phase I is the startup phase. Awards of up to $100,000 forapproximately 6 months support exploration of the technicalmerit or feasibility of an idea or technology.

Phase II awards of up to $750,000, for as many as 2 years,expand Phase I results. During this time, the R&D work isperformed, a prototype is developed, and the developerevaluates commercialization potential. Only Phase I awardwinners are considered for Phase II.

Phase III is the period during which Phase II innovation movesfrom the laboratory into the marketplace. No SBIR funds supportthis phase. The small business must find funding in the private

sector or other non-SBIR federal agency funding. The US Small Business Administration plays an important role as the

coordinating agency for the SBIR program. It directs the 10 agenciesimplementation of SBIR, reviews their progress, and reports annually toCongress on its operation.

All of SBAs programs and services are extended to the public on anondiscriminatory basis.

THE WYOMING SBIR/STTR INITIATIVE (WSSI)

The Wyoming SBIR/STTR Initiative (WSSI) was formed in 1996 and is a joint venture sponsored by the Wyoming Business Council (WBC) andadministered by the University of Wyoming. The purpose of the initiative isto assist Wyoming entrepreneurs and innovative small businesses inobtaining these federal SBIR grants to fund the development of theirinnovative new product concepts.

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A $5,000 Phase 0 grant is available to resident Wyoming individualsand small businesses that intend to compete for SBIR awards. The WSSIPhase 0 program solicits competitive proposals each month. The purpose of the grant is to enable the recipient to access the resources necessary toprepare a quality, competitive Phase I SBIR proposal. Proposals are due nolater than 5 PM on the first day of each month. Award announcements areusually made by the tenth of that month. (Currently 2 awards/month areavailable.)

Complete WSSI Phase 0 program information aw well as detailedinformation on the SBIR program can be found on the WSSI web site:www.uwyo.edu/sbir

The Small Business Technology Transfer (STTR) program is similar tothe SBIR program but with an emphasis on the transfer of technology fromthe nonprofit research institutions to small businesses for the purpose of

commercializing the technology. Five federal agencies participate in thefunding of the STTR program DOD, DOE, NIH, NASA, & NSF.

For more information on the SBIR Program, please contact:Kelly Haigler Cornish, WSSI Outreach [email protected] or toll free 866-703-3280Dept. 3672, 1000 E. University Ave.Laramie, WY 82071

SBA 7(a) Loan Table:

7(a) LOANS: Standard, PLP, SBA Express , Rural Lender Advantage, and PatriotExpress

Proess

Attributes

Standard 7(a) PreferredLendersProgram(PLP)

SBA Express(est. 1995)

Rural Lender Advantage(est. 2007)

Patriot Express (est.2007)

GeographicArea

Nationwide Nationwide Nationwide Region VIII (Currently) Eligible small businessmust be owned and

controlled (51 percentor more) by one ormore of the followinggroups: veteran, activeduty military, reservistor national guardmember or a spouse of any of these groups, ora widowed spouse of a

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service member orveteran who died of aservice-connecteddisability.

orrowerortion of BA

Application

Extensive. SBA Form 4plus requiredattachments. Allreviewed by SBA loanofficers for credit andeligibility.

Same asStandard 7(a).No creditreview by SBA.

Form 1919requiresabbreviatedinformation andno exhibits. Nocredit review bySBA.

SBA Form 2301, Part A.More abbreviatedinformation than Form 4.SBA does not receivesupporting documentation.

Form 1919 requiresabbreviated informationand no exhibits. Nocredit review by SBA.

ype of ender

Lenders that do not havedelegated authority fromSBA.

Lenders thathave proventheirknowledge of eligibility andcredit and are,

therefore,havedelegatedauthority bySBA.

Lenders thathave proven theirknowledge of eligibility andcredit and are,therefore, have

delegatedauthority by SBA.

Designed for low volumeSBA lenders that are notproficient with SBAseligibility and creditrequirements - Limited tolenders approving 20 or less

SBA loans annually.

Lenders that haveproven their knowledgeof eligibility and creditand are, therefore,have delegatedauthority by SBA.

endersortion of BA

Application

Extensive. SBA Form 4-Iplus numerous exhibitsfrom borrower. Alsoextensive EligibilityQuestionnaire which isoptional.

Same asStandard 7(a)BUT SBA doesnot reviewprior to issuingapproval loanno.

Form 1920 whichis veryabbreviated anddoes not includeany creditanalysis.Eligibilitychecklist is brief.

SBA Form 2301, Part B.Abbreviated informationabout applicant includinglenders credit memo and abriefer eligibilityquestionnaire.

Form 1920 which isvery abbreviated anddoes not include anycredit analysis.Eligibility checklist isbrief.

arget Proc.me

6 business days. 3 days-CLP

1 day 1 day 3-5 days 1 day

ent.rocessing

Yes Complete review of credit and eligibility bySBA loan officers

Yes.Abbreviatedreview of eligibilitychecklist onlyby SBA loanofficers.

Yes. Abbreviatedreview of eligibilitychecklist only bySBA loan officers.

Yes SBA makes eligibilityand credit determination,with credit scoring used tostreamline/expedite SBAsreview.

Yes. Abbreviated reviewof eligibility checklistonly by SBA loanofficers

-tranAvailable

No Available. Available. Not yet. Available.

Maximumoanmounts

General rule is gross loanamount limited to$2,000,000 per loan.

SBA guaranty amountlimited to $1,500,000.toone borrower (and itsaffiliates).

Same asStandard 7(a)

Limited To$350,000 (gross)

Limited To $350,000 (gross) Limited to $500,000(gross)

ercent of 85% for loans of Same as 50% Same as Standard 7(a) Same as Standard 7(a)

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Guaranty $150,000 or less.

75% for loans over$150,000

Standard 7(a)

uspensionf the

ollowingBA Policies

13 CFR, part 120 governseligibility. Also SOP 50

10. No suspension of any of these.


Modified rulesgoverning

interest rates andfees a lender maycharge. Also theSBAExpressGuide describesdifferences inSBAs policies.

Same as Standard 7(a) Same as SBAExpress

Maturity Depends on use of proceeds and which loanprogram used.Maximum of 25 yearsreserved for fixed assetsincluding real estate.


Maximum of 7years forRevolving Linesof Credit.Otherwise, sameas Standard 7(a).

Same as Standard 7(a) Same as SBAExpress.

nterestRates

Prime + 2.25% formaturities under 7years .

Prime + 2.75 % for7years + .

Rates can be higher by2% for loans of $25,000or less; and 1% for loansbetween $25,000 and$50,000.


Loans $50,000 orless: Prime +6.5%.

Over $50,000:Prime +4.5%

Same as Standard 7(a) Same as Standard 7(a)

ollateralolicy

Available collateral(liquidation value) up toloan amount.


$25,000 or less,no collateralrequired. Above$25,000, Lendersmay use theirown collateralpolicies that theyapply to theirnon-SBA-guaranteedloans.

Same as Standard 7(a) Same as SBAExpress upto $350,000. Over$350,000, the lendermust secure the loanwith all availablecollateral.

Guarantyees

Multiply

ercentagemesuaranteedmount, notrossmount.)

Maturity of 12 months orless = 0.25%

Maturities over 12 Months

Gross loan: $150,000 orless = 2%

Gross loan $150,001 -$700,000 = 3.0%

Over $700,000 = 3.5%3.75% on guaranteed



Same as Standard 7(a) Same as Standard 7(a)

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amount over $1 million.

On-going guaranty fee =0.494%

Revolving/C available

No No Yes No Yes

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Module 9 Training Checklist Business Counselor _________ Read Module 9 _____ Date Attend day training _____Date Case Study #3 _____ Date

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module 9 sources requirements for financing

Documents