U.S. SMALL BUSINESS ADMINISTRATION

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U.S. SMALL BUSINESS ADMINISTRATION

• THE 504 PROGRAM
• MOVING FORWARD

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What is the SBA 504 Loan Program?
It is the Small Business Administrations economi
c development financing program
Loans are provided to expanding,
small businesses to aid in job creation
SBA loans are guaranteed by the Federal
Government
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Benefits to Borrower

• Up to 90 financing for project
• Long-term, fixed rate funds enhancing
• cash flow for business
• 10 or 20 year term avoids balloon payments
• or loan extension
• Lower down payment conserves working
• capital

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Use of Funds

• Fixed-Asset Acquisition or Expansion Including
• Purchase land construction of new buildings
• Purchase and/or renovate existing buildings
• Acquire/Install machinery
• Construct or remodel buildings on leased land
• Soft costs involved in above projects

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Project Size Requirements
Minimum Amount of Loan 50,000
Maximum Amount of Loan Up to 1,500,000 Maximum
40 of project costs
There is no maximum limit to project size.

• 2,000,000 if within SBA Public Policy Goals
• 4,000,000 if loan is to small manufacturer

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Job Requirements
Provide one job for every 50,000 funded

• Exception
• Small Manufacturer must provide one job for
  every 100,000 funded.
• Projects located in State-designated enterprise
  zones, empowerment zones, enterprise communities
  and labor surplus areas must provide one job for
  every 75,000 funded.
• Projects that meet SBA Public Policy Goals

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Public Policy Goals
Opportunity to fund up to 2.0 Million and Not
Required to Create one job for each 50,000

• Rural Development
• Expansion of Minority, Women or Veteran-Owned
  Business Development
• Expansion of Exports
• Business District Revitalization
• Enhanced Economic Competition
• Restructuring Due to Federally Mandated
  Standards and/or Policies
• Changes Necessitated by Federal Budget Cutbacks

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Not Eligible for 504 Funding

• Non Profits
• Lending institutions
• Life Insurance companies
• Private clubs
• Speculative investment
• Non-owner occupied building
• Gambling concerns
• Businesses engaged in promoting religion
• Cooperatives (exception for some producer
  coops)
• Political or lobbying services
• Businesses located in foreign country or owned
  by an alien
• Businesses selling through pyramid plans
• Businesses with prior loss to the government

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Typical Structure for Established Business Loan
SBA 504 Loan - 40
Bank - 50
Owners Equity 10
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Typical Structure for a Special Purpose Building
OR Start-up
SBA 504 Loan 35
Bank 50
Owners Equity 15
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Typical Structure for Start-Up Business AND
Special Purpose Building
SBA 504 30
Bank 50
Owners Equity 20
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Size Standards

• Business when combined with affiliates must
• Have less than 7,500,000 tangible net worth
• Have less than 2,500,000 in net income
  (average for last 2 yrs)

There is no limitation on annual sales volume
There are exceptions for certain types of
companies for businesses in
labor surplus areas.
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Who participates on the front end of local 504
deals?

• Lender group in Kansas City District Office is
  active and diversified helping create economic
  development.

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Mo-Kan Development, Inc., St. Joseph,
Missouri 504 Loan Activity 10-1-2001 thru
04-30-2005
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NEW AREA OF OPERATIONS

• As of November 6, 2003 all CDCs minimum area of
  operations is the state in which the CDC is
  incorporated.
• In other words, the old borders are open.
• Nothing further is required of any CDC to operate
  throughout that state if it chooses to do so.
• Additionally, CDCs may expand to Local Economic
  Area Expansions in an adjacent state with SBA
  approval.

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Opportunities? Choices?

• The small business community now has more access
  to capital within a state or region.
• Each CDC needs to identify its competitive
  advantage within a market.
• CDCs must target their ideal customers.
• Competition more likely to be intense in urban
  areas rather than rural areas!

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Combination Financing

• Dont forget the opportunity exists to combine
  the 504 program with other SBA loan guaranty
  programs!
• Trend in the 7(a) lending program is the rapid
  expansion of the SBAExpress Loan. It is a 50
  guaranty program that can accommodate lines of
  credit and has a maximum loan limit of 350,000.
  Already 54 Lenders participate in SBAExpress!

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Assessing Your SBA OptionsWhich Other SBA
Loans Can You Use?

• LowDoc- 150,000 and less 85 guarantee
• SBAExpress (dollar limit of 350,000) 50
  guarantee
• Regular 7(a) Program including Caplines
  (Contract,Asset-Based, Seasonal, Builders)
  75-85 guarantee
• Microloan Loan Program Go Connection and RMI
• loan amounts of 35,000 and less
• Pre-Qualification Program in Selected Areas
• Export Working Capital Program, International
  Trade Loan, DELTA options

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How to Contact SBA?

• Electronically
• www.sba.gov/banking

• By mail/ phone
• Kansas City District Office
• 323 West 8th St., Ste 501
• Kansas City MO 64105
• 816-374-6701

• Or through Mo-Kan Development
• [phone]
• john_at_mo-kan.gov