Fraud Prevention Tactics

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Fraud Prevention Tactics How to protect your
business April 8, 2008
Borrowing During Uncertain Economic Times What
You Need to Know July 16, 2009
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Agenda

• What is the SBA?
• Why SBA and Why Now?
• Recovery Act SBA Provisionswont last forever!
• Value proposition of stimulus provisions
• Expanded size standard
• SBA Borrower Benefits
• SBA Lending Overview
• SBA eligibility
• SBA loan programs overview
• SBA assistance beyond loan programs
• Resources
• QA

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What is the SBA?

• U.S. Small Business Administration
• Established in 1953 by an act of Congress
• Independent agency
• SBA maintains and strengthens the nation's
  economy by aiding, counseling, assisting and
  protecting the interests of small businesses
• Four primary areas of assistance
• Advocacy
• Management
• Procurement
• Financial assistance

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Why SBA and why now?

• These are the provisions of the American Recovery
  and Reinvestment Act of 2009 (the Recovery Act)
  (P.L. 111-5)

Section 501 Temporary elimination of the one-time, up-front borrower guarantee fee for all SBA loan programs, including SBA 504 Effective 03/16/09 Sunset 12/31/09
Section 502 Permit SBA guaranty of 90 on all loan programs except Express Effective 03/16/09 Sunset 12/31/09
Section 503 Establish secondary market gty. for pools of 1st-lien SBA 504 loans for sale to 3rd party investors In process of clearing regulations
Section 504 Authorize SBA the ability to refinance a limited amount of certain existing loans as SBA 504 (never allowed before) Effective 06/23/09 Sunset 09/30/10
Section 505 Increase the maximum amount of outstanding leverage made available to SBICs In process of clearing regulations
Section 506 Create NEW program that allows SBA to gty. loans of 35,000 or less that have qualifying loans and are suffering immediate financial hardship Effective In Process Sunset 09/30/10
Section 508 Increase maximum contract amount for SBA bond gty. to 5MM or 10MM if Federal Contract requires Effective 03/27/09 Sunset 09/30/10
Section 509 Allow SBA to make loans to important broker-dealers that operate in the SBA 7(a) Secondary Market Effective In process Sunset 2-years
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Value proposition of provisions

• Temporary elimination of SBA guaranty fees
  normally paid by borrowers has real economic
  value
• Preserves working capital or reduces interest
  charges had the fee been financed
• Some examples of fee savings
• 1,000 on 100k EXP LOC
• 5,250 on 350k EXP Term
• 26,250 on 1MM PLP Term
• 53,750 on 2MM PLP Term
• Temporary increase to the SBA guaranty percentage
  on nearly all SBA loan programs was beneficial
  for Lenders
• The market is still awaiting the benefits of
  other to-be-implemented Stimulus Provisions

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Great NewsNearly ALL businesses are now
eligible for SBA loans from a size standard
perspective
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Theres nothing small about SBA

• SBA has implemented an Interim Final Rule
  effective May 5, 2009 that allows Lenders to use
  an Alternate Size Standard until September 30,
  2010.
• Eligibility can now be based on
• 1) The traditional size standards for revenue
  or employees determined by NAICS code
• Manufacturer and wholesaler size standard based
  on number of employees
• Contractor, retailer, service company size
  standard based on three-year average of annual
  revenue (including any affiliates)
• 2) A NEW Size Standard based on net worth and
  average net income
• Net worth for company and all affiliates can not
  exceed 8.5MM
• Average Net Income after federal taxes (excl.
  carry-over losses) for the previous two fiscal
  years can not exceed 3.0MM
• SBA works for
• For-profit companies, family-owned and
  closely-held companies
• Eligible uses of loan proceeds real estate,
  equipment, leaseholds, working capital, inventory

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Business Characteristics that fit the SBA
profile

• When should a borrower consider an
  SBA-enhanced financing solution...when these
  business characteristics are present
• Emerging businesses/start-ups
• Seasonal businesses/cyclical industries
• Change of ownership/stock purchase/business
  acquisition
• Service companies
• High growth businesses
• Nature of collateral
• Collateral insufficiency
• Insufficient borrower down payment
• Long-term fixed asset acquisition and investment
  (via SBA 504)
• To gain a non-balloon payment financing structure

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SBA benefits clients and prospects

• How do SBA financing alternatives benefit
  borrowers?
• Reduced breakeven with improved cash flow (via
  longer allowable amortization schedule)
• Increased investable cash flow to fuel growth
• Long-term security (reliable fixed payment
  credit availability known interest expense)
• Sustainability / Economic Downturns (guaranteed
  portion is considered pass credit which
  translates into staying power for both Bank
  Borrower)
• Confidence and pride in working with a nationally
  recognized leader in financing family-owned and
  closely-held businesses via SBA and other
  government guaranteed financing solutions
• Competitively Differentiated loan proposals
  (customers receive choices from their Bank of
  choice)
• Improved flexibility of capital investment
  (higher advance ratios often apply)

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SBA eligibility considerations
Here are some of the basic eligibility conditions
that must be met in order to obtain an SBA loan

• Be an operating business and organized for profit
• Be located in the U.S. and meet the SBA size
  standard for small business
• Demonstrate a need for the desired credit show
  that funds are not available from other sources,
  including personal resources and have Lender
  certify that desired credit is not available
  elsewhere on reasonable terms
• Lender must have reasonable assurance of
  repayment in a timely manner from the cash flow
  of the business

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SBA eligibility considerations
SBA loan programs are not available for every
lending situation. Here are some of the most
common ineligible loan conditions

• Loans to non-profit entities, or engaged in
  political or lobbying activities
• Loans to businesses primarily engaged in lending
  (banks, finance companies, factors)
• Passive entities owned by developers and
  landlords that do not actively use or occupy the
  assets acquired or improved with loan proceeds
• Businesses located in a foreign country
• Private clubs and businesses which limit the
  number of memberships for reasons other than
  capacity
• Businesses principally engaged in teaching,
  instructing, counseling, or indoctrinating
  religion or religious beliefs, regardless of
  setting
• Businesses with associates who are incarcerated,
  on probation, on parole, or have been indicted on
  a felony
• Businesses or applicant involved in a business
  which defaulted on a Federal loan
• Refinance of existing SBA loans with new SBA
  loans (unless funding a Change of Ownership)

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The SBA eligibility maxim

• An SBA guaranty doesnt make a bad loan good
• But
• An SBA guaranty does enhance a good loan for the
  benefit of the borrower and bank when certain
  credit considerations need to be mitigated.

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SBA loan program overview

• SBA Americas Recovery Capital (ARC)
• Loans up to 35M
• 100 guaranty for all loans regardless of loan
  size
• Interest free to borrower with rate subsidized by
  SBA
• Used to make 6 months of payments on Qualified
  Small Business Loans
• No payments for 18 months, then PI amortized
  over 5 years
• Available to viable small business showing
  positive cash flow in at least 1 of the last 2
  years
• Business must show financial hardship (such as
  significant loss in sales, gross margin, working
  capital, customer base, employees or major
  suppliers)
• Approval by SBA in approximately 1-3 weeks

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SBA loan program overview

• SBA Express
• Loans up to 350M
• 50 guaranty for all loans regardless of loan
  size
• Revolving Lines of Credit and Term Loans
• Lender approves eligibility
• Lenders loan documents are used
• Lender can refinance its own, or other banks,
  conventional loans up to program limit
• Immediate SBA Approval via Internet

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SBA loan program overview

• SBA Community Express
• Loans up to 250M
• Lender approves with a Technical Assistance
  (T/A) requirement
• for borrower
• Technical Assistance paid for by Lender
• TA provided SCORE, SBDC, private provider, etc.
• Lenders loan documents are used
• Revolving Lines of Credit Term Loans
• Eligible clients
• Any business is eligible for a loan up to 25,000
• Otherwise, business must be located in a
  Low-to-Moderate
• Income Track or HubZONE
• 90 guaranty until approx.12/31/09
• Lender can refinance its own, or other banks,
  conventional loans
• up to program limit
• Immediate SBA Approval via Internet

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SBA loan program overview

• SBA Patriot Express
• Loans up to 500M
• Eligible audience active members of military
  reservists and national guard also includes
  spouses and widows
• Lenders loan documents are used
• Revolving Lines of Credit and Term Loans
• 90 guaranty until approx. 12/31/09
• Lender can refinance its own, or other banks,
  conventional loans up to program limit
• Immediate SBA approval via Internet

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SBA loan program overview

• SBA Export Express
• Loans up to 250M
• Available to borrowers who have been in business
  at least 12 months
• Borrower must be entering or expanding an export
  market
• Lenders loan documents are used
• Revolving Lines of Credit and Term Loans
• 90 guaranty until approx.12/31/09
• Lender can refinance its own, or other banks,
  conventional loans up to program limit
• Immediate SBA approval via Internet

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SBA loan program overview

• Preferred Lender Program PLP 7(a)
• Loans up to 2MM
• Term/Installment Loans only
• Lender underwrites and approves loan request
  under its Delegated Authority
• 90 guaranty for all loan sizes up to a maximum
  of 1,500M in guaranteed dollars until
  approx.12/31/09
• Lender prohibited from refinancing its own
  conventional loans
• Lender allowed to refinance other banks
  conventional loans
• Interim conventional loans allowed up to 90 days
  with SBA take-out
• Immediate approval Internet

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SBA loan program overview

• General Program Regular 7(a)
• Loans up to 2MM
• 90 guaranty for all loan sizes up to a maximum
  of 1,500M in guaranteed dollars (until approx.
  12/31/09)
• Term / Installment Loans only
• When appropriate?
• Lender desires to term-out or refinance its own
  existing conventional loans
• To provide financing in business acquisition
  situations when Goodwill is the lesser of
• 50 of the loan amount, or
• 250,000
• Approval by SBA in approximately 1-3 weeks

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SBA loan program overview

• Special 7(a) Loan Programs
• CAPLines
• Seasonal Line / Contract Line / Builders Line
• Loans up to 2MM w/ 85 max. SBA Gty
• Export Working Capital Loan (EWCP)
• Loans up to 2MM w/ 90 max. SBA Gty
• Term loans Lines of Credit
• Entering/expanding export efforts adversely
  affected by competition from imports
• International Trade Loan
• Loans up to 2MM w/ 85 max. SBA Gty
• Term loans only
• Entering/expanding export efforts adversely
  affected by competition from imports

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SBA loan program overview

• SBA 504 is a Debenture Program
• Lender partners with a Certified Development
  Company (financial Intermediary) to provide
  long-term, fixed-asset acquisition and expansion
  financing
• Long-term, competitive fixed-rate on up to 40 of
  transaction
• Fixed Asset Purchases Only (i.e. real estate,
  equipment and related soft costs)
• Recommended for loan requests gt 350M
• Permanent take-out financing for lender via sale
  of debenture in secondary-market
• 10- or 20-year fixed rate set at time debenture
  is sold

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Additional SBA assistance

• Beyond Loan Programs
• Financial Assistance and Advocacy
• SCORE volunteer organization providing business
  management counseling
• SBDC provide business counseling and training
• Other Financial Assistance Providers
• Microloan Intermediaries Non-profit six
  located in Wisconsin
• Small Business Investment Companies fills gap
  between Venture Capital and borrower needs that
  cant be handled by traditional lending sources

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Additional SBA Assistance

• Beyond Loan Programs
• Other Programs
• Surety Bond Program bonding assistance for
  government and private contracting opportunities
• Small Business Training Network business
  training
• Prime Subcontracting Assistance Program govt
  contracting
• HUBZone job creation in urban rural areas
  including Procurement Assistance
• 8(a) Development Program assistance for
  socially and economically disadvantaged
  individuals
• Small Business Innovation Research Program
  funds critical startup and development stages for
  new technology and commercialization of said
  technology
• Small Business Technology Transfer Program
  support for innovation and Research Development
• Management and Technical Assistance additional
  business management support

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Additional SBA Assistance

• Disaster Recovery Loan Programs
• Physical Disaster Program
• For businesses, homeowners and renters to assist
  with replacement of real estate, equipment,
  fixtures, furniture, inventory, and leasehold
  improvements to pre-disaster condition
• Up to 1.5MM as approved by SBA
• Economic Injury Disaster Program
• For small businesses only that sustain economic
  injury as a direct result of a disaster event
• Up to 1.5MM as approved by SBA
• Military Reservist Economic Injury
• For small businesses that have essential
  employees and/or owners called up to active
  duty (Title 10 Activation) support working
  capital needs during deployment
• Up to 1.5MM as approved by SBA

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Whats the real scoop? What is the bank
really looking at when you apply for a loan?

• Management
• Cash Flow
• Profitability
• Collateral
• Industry trends
• Credit
• Capital

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Before you go to the bank, prepare

• Where do you stand with the seven (7) items on
  previous slide?
• Find a bank that understands small business
• Build a relationship before you need a bank
• Talk with more than one bank
• Use resources available

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Resources

• Helpful Internet Web sites
• www.sba.gov
• www.score.org
• www.business.gov
• www.sba.gov/sbdc
• www.sba.gov/services
• www.franchiseregistry.com
• www.sba.gov/reservists
• www.sba.gov/VETS/

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Questions?
Information provided was deemed to be accurate as
of May 6, 2009. Neither Associated Banc-Corp nor
any of its affiliates give tax or legal advice.
Please consult a financial, tax or legal
professional for information specific to your
situation. Loans subject to credit approval.
Associated Bank, N.A. is a Member FDIC and
Associated Banc-Corp. Equal Housing Lender. Equal
Opportunity Lender.