PURPOSE
The purpose of this loan program is to provide flexible financing to small businesses for development and growth when conventional financing is not available.

ELIGIBILITY

Use of loan proceeds

Eligible Uses:
-Land and building acquisition      
-Accounts receivable
-Machinery and equipment   
-Refinancing certain outstanding debt
-Inventory -Fixed assets
-Working capital    
-SBA guarantee fee
-Building/Leasehold improvements     
-Franchise Fee

Ineligible Uses:
The loan proceeds cannot be used for the following purposes:
-Payment or distribution or loans to associates of applicant
-Refinancing of debt owed to an SBIC (Small Business Investment Company)
-Floor plan financing
-Purchase of stock
-Payment of delinquent taxes
 
Loan Amount
The limit on the gross loan amount is $2,000,000.  Maximum guaranty is 75% up to $1,000,000. 

 
Type of Business
Eligible businesses include most operating for-profit businesses located in the U.S.-Also, financial assistance may be provided to eligible passive entities who lease eligible project assets to an eligible operating business.

Ineligible businesses include:
* Passive income and real estate companies   
* Financial businesses
* Life Insurance Companies      
* Foreign located businesses
* Developer/landlord deals
* Not-for-profit businesses
* Businesses restricting patronage    
* Consumer & Marketing
* Businesses owned by Persons of Cooperatives Questionable Character  
* Businesses promoting religion
* Businesses providing Prurient
* Businesses with prior loans to the government, political,
   sexual material, or lobbying businesses

Business Size Standards
The size standards apply to the applicant (borrower) and its affiliates as defined by the Small Business Administration.

· Manufacturing businesses must employ less than 500 persons unless otherwise specified in the Standard Industrial Classification (SIC) code.

· Wholesale businesses are limited to 100 employees.

· Retail and service businesses may not have gross annual sales that exceed $5 million unless otherwise specified in the SIC code.

· Construction businesses may not have gross annual sales that exceed $11.5 million unless otherwise specified in the SIC code.

CREDIT AVAILABLE
In order to be eligible for a Small Business Administration guarantee, credit must be unavailable from non-federal sources at reasonable terms. 

PERSONAL RESOURCES
An owner of 20% or more of the applicant business, for SBA assistance, may be required to inject personal resources (liquid assets) in excess of $100,000 for funding the project, depending on the total financing package.  “Liquid assets” include cash, bank accounts, CD's, stock and bonds.  The amount of liquid assets that an individual may retain without being required to apply against the funding required is as follows.  Funds in excess of the limits must be used to reduce the SBA portion. 

Asset Limit Not Requiring       Total Loan   Injection of Personal Resources  0 - $250,000      2 times the Total Financing Package or $100,000, whichever is greater. $250,001-$500,000  1-1/2 times the Total Financing Package or $500,000, whichever is greater Above $500,000  1 times the Total Financing Package or $750,000, whichever is greater

LOAN PROGRAM PROCEDURE
Approval   The loan application (prepared by CADDA staff) and the participating bank's agreement to fund the loan is submitted to the SBA office for approval.  Upon approval, SBA issues an "Authorization and Loan Agreement," a written commitment to guarantee a portion of the loan request based on the terms and conditions contained within this document.

Closing      The guaranteed loan is closed by an attorney selected by the bank according to the terms and conditions outlined in the "Authorization and Loan Agreement."  CADDA recommends that the bank use an experienced attorney familiar with SBA closings.  Proper documentation is essential to protect the bank's guaranty.  

Funding      The lending source is the bank.  SBA does not provide funding, only issues a guarantee for a percent of the loan amount. 

Servicing  It is the bank's responsibility to provide loan servicing on SBA guaranteed loans.  The bank is required to report the status of all of its SBA guaranteed loans.  Servicing issues should be directed to the SBA Little Rock Servicing Center, 2120 Riverfront Dr., 1-800-644-8564; fax: 501/324-6072.

LOAN PROGRAM FEATURES

Benefits

· The SBA guarantee encourages the bank to approve the loan request.

· The company obtains a loan that is not otherwise available.

· The bank's loan volume is increased.

· The bank's credit risk is reduced.

· The bank is provided a marketable security guaranteed by the federal government.

· The loan application is prepared by CADDA.

· The community benefits from the economic activity. 

Paperwork
CADDA prepares the SBA application for the borrower. The bank is required to provide a commitment letter, an environmental statement for the application; and a written request to justify the need for an SBA guarantee, including the reasons conventional financing is unavailable.

GUARANTY PERCENTAGES
The maximum allowable guarantee percentage on a SBA loan will be determined by the loan amount.  Currently, the percentages are:  Loans of $150,000 or less may receive a maximum guarantee of 85 percent.  All other loans may receive a maximum guarantee of 75 percent, not to exceed $1,500,000 unless otherwise authorized by SBA.
 
Interest Rate
The funding bank determines the interest rate.  The maximum variable interest rate for loans maturing in less than seven years cannot exceed 2.25% above New York Prime. For loans maturing in seven or more years, the maximum interest rate cannot exceed 2.75% above New York Prime.   SBA's maximum allowable rates apply only to the initial rate on the date SBA receives the loan application.  The first change may occur on the first calendar of the month following the initial disbursement, using the base rate in effect on the first day of the month.  After that, changes may occur no more often than monthly.  Variable rates may be adjusted not more than monthly.  The maximum fixed interest rate a lender may charge is published in the Federal Register periodically.

Repayment Terms
The funding bank recommends the loan's repayment terms, which SBA must approve.  The repayment terms may vary from 5 to 25 years depending on the purpose, the use of the loan proceeds, the ability to repay, and the useful life of the assets pledged to secure the loan.  Generally, the loan maturity must be set for the shortest term in which the borrower can reasonably be expected to repay the loan.  Maximum maturities are working capital: 10 years; fixed assets (including real estate): 25 years.
 
Loan Transfer
The SBA loan may be assigned to another borrower, provided the new buyer meets the necessary credit standards satisfactory to both the participating bank and SBA.  This assignment can be advantageous to both the seller and the buyer because it reduces legal costs and provides reasonable interest charges.
 
RefinancingTo be eligible for refinancing with 7(a) proceeds, the existing debt must not presently be on reasonable terms and the refinancing must provide a substantial benefit to the small business (at least a 20% savings in total existing debt service).  If the participating lender has existing debt, which will be included in the SBA loan, the borrower's payment history with this lender must have never been past due.

PREPAYMENT
Banks that may consider selling the guaranty may charge a prepayment penalty if the loan's maturity is 15 years or more, the borrower voluntarily prepays during the first three years of the loan's term, and the prepaid amount exceeds 25% of the outstanding loan balance.  The fee is 5% of the amount of the prepayment if made in the first year after the loan is made, 3% of the prepayment amount if made in the second year of the loan's term, and 1% of the prepayment amount of made during the third year.  Penalty proceeds must be remitted to SBA.

LOAN PROGRAM REQUIREMENTS
APPRAISAL
An appraisal prepared by a state licensed or certified appraiser is required prior to disbursement of the interim loan for all real estate financing exceeding $250,000.  If the project is less than $1,000,000, an appraisal does not have to be included with the application package, but must be available prior to initial disbursement of the interim loan.  When the real estate transaction is more than $1,000,000, or the estimate value of the real estate is more than $1,000,000, a complete appraisal is required at the time of application.  

Cash Flow
For an existing business, the small business concern's adjusted cash flow must be adequate to service the entire debt.  If the business is a start-up, a documented business plan with reasonable assumptions supported by trade averages must be included in the application.  

Credit History
Small business concern (owners and guarantors) must have satisfactory history of meeting debt obligations in a timely manner.  

Management
The management ability must consider such factors as education, experience and motivation.  The applicant's management ability or potential is important to the company's success. 

Personal Guarantee
Personal guarantee of persons or entities having ownership in the business is required; however, SBA/Lender could require guarantees from all owners.  

REPAYMENT ABILITY
The small business concern's ability to repay the loan from cash flow of the business is the most important consideration in granting loan approval.  

OCCUPANCY
If the use of proceeds is for construction of real estate, the borrower is permitted to lease permanently not more than 20% of the eligible space if the borrower permanently occupies and uses at least 60% of the total business space, initially.  For buildings acquired and/or renovated, fifty-one percent (51%) must be occupied by the borrower (49% may be leased all the time), if the loan proceeds were not used to remodel or convert the space to be leased out.    CASH/EQUITY INJECTIONThe cash or equity injection of the company may vary from 10% to 50%, depending on the collateral pledged to secure the loan, the viability of the project, and the profitability of the company.  SBA generally will not provide 100% financing for an applicant.
 
 
Insurance Requirements

·Hazard insurance equal to the market value or the replacement cost of the fixed assets pledged is required.

·Life insurance assignments on principals must be equal to the loan amount.

·  Flood insurance, if applicable.

· Workman's Compensation and Liability insurance are also required.  

BANK FEES
the participating lender is required to pay an annual service fee equal to ½% (.005) of the outstanding balance of the guaranteed portion of each loan. This service fee may not be charged to the borrower.
 
SBA GUARANTY Fees
 
A participant is required to pay a one-time guaranty fee, based on the amount of the guaranty portion or SBA share of the loan.  The schedule of the guaranty fees is as follows:  

Maturity Length and Size of Guaranteed Portion	Fee Measures as Percentage of Guaranteed Portion	When Payable	Lender May Get Fee From Borrower	When SBA Refunds Fee FromBorrower
12 Months or less	0.25%	With Guarantee Application	When SBA Approves Loan	If Application Withdrawn or Denied (1)
More Than 12 months And Total Guaranteed Portion Is $150,000 or Less	2.0% Lender is allowed to retain .25% of fee	Within 90 Days of SBA Approval	After First Disbursement	If Loan Canceled and Never Disbursed
More Than 12 Months And Amount of Guaranteed Portion of Loan is Between $150,000 and $700,000	3.0%	Within 90 Days of SBA Approval	After First Disbursement	If Loan Canceled and Never Disbursed
More Than 12 Months And Amount of Guaranteed Portion of Loan Exceeds $700,000	3.5%	Within 90 Days of SBA Approval	After First Disbursement	If Loan Canceled and Never Disbursed
More Than 12 Months And Amount of Guaranteed Portion of Loan Exceeds $1,000,000	3.75%	Within 90 Days of SBA Approval	After First Disbursement	If Loan Canceled and Never Disbursed

⁽¹⁾ Also, if SBA substantially changes the Lender's loan terms and approves the loan, but the modified terms are unacceptable to the Borrower or Lender.  (The Lender must request refund in writing within 30 calendar days of the approval).  

SBA CONTINUING Fee
 The annual on-going fee on all loans funded is 0.50 percent paid monthly.  

CADDA Fees

· The Coastal Area District Development Authority's (CADDA) packaging fee is determined on a case-by-case basis and generally does not to exceed 1% of the total loan amount.  The underlying basis for computing the fee is staff time and costs to process the loan request. 
OTHER FEES 

· The bank may charge usual and customary fees to the borrower, acceptable to SBA.  

OTHER SBA PROGRAMS  If your project does not qualify within the SBA 7(A) loan program, it may qualify under other programs.   

FOR MORE INFORMATION CONTACT:

Coastal Area District Development Authority (CADDA)

WEBSITE:  www.cadda.com 

501 Gloucester St., Ste. 201, Brunswick, GA  31520
PHONE:  (912) 261-2500     FAX:  (912) 261-0032
1 Bull Street, 3^rd Floor, Savannah, GA  31401
PHONE:  (912) 236-9566   FAX:  (912) 236-9562