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SBA Overview. September 2012. Presenter –Rich Bradshaw. Richard Bradshaw Head of SBA TD Bank, America ’ s Most Convenient Bank O (864) 552-9088 [email protected] - PowerPoint PPT Presentation
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SEPTEMBER 2012
SBA Overview
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Presenter –Rich Bradshaw
Richard Bradshaw Head of SBA TD Bank, America’s Most Convenient BankO (864) [email protected]
Based in Greenville, S.C., Bradshaw manages TD Bank’s expanding SBA team in delivering competitively-priced, government-backed financing programs that help small businesses grow and succeed. He steers the bank’s efforts to achieve SBA portfolio growth and become a top SBA lender throughout the Maine to Florida footprint. TD Bank is currently the 7th largest SBA lender in the U.S. (as of April 30, 2012). Bradshaw brings more than 20 years of experience in the lending field to TD Bank. He is a graduate of the U.S. Air Force Academy with a Bachelor of Science Degree in Management and a Masters of Business Administration from Pepperdine University. Rich serves on the Board of Directors for Greenville Literacy Association, Inc
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• Headquarters
Toronto, ON Canada• Asset Size
$773.2 B• Deposits
$470.0 B• Loans
$394.3 B• Customers
22 MM• NYSE Traded
TD• Market Capitalization*
$75.8 B• Founded
1855• Bank Branches
2,441
As of April 2012
Presenter – Julie Huston
Julie Huston SBA Division President U.S. BankO (858) [email protected]
As President of U.S. Bank’s SBA Division, Julie Huston oversees Small Business Administration lending from San Diego, California. Huston has been part of the SBA lending community since 1986. Her passion for small business has translated into building programs, developing products, improving delivery systems and creating methods to ensure that small businesses receive the funding and services they need to succeed. Under Julie’s leadership, U.S. Bank is currently ranked as the 3rd largest SBA lender in the U.S. (as of June 30, 2012). Before joining U.S. Bank in 2010, she held various senior management roles at leading financial services organizations. Julie serves on the Board of Directors for the National Association of Government Guaranteed Lenders and CDC Small Business Finance.
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U.S. Bancorp Businesses
2Q12 Dimensions• Asset Size
$353 B• Deposits
$241 B• Loans
$216 B• Customers
17.4 MM• NYSE Traded
USB• Market Capitalization*
$63 B• Founded
1863• Bank Branches
3,080• ATMs
5,085
* As of July 31, 2012 5
U.S. Banking Industry
Billions of Dollars
Q1 2012All
Insured Banks
Commercial Banks
Savings Banks
Agriculture Banks
Number of FDIC Insured 7,307 6,263 1,044 1,491
Total Assets $ 13,926 12,781 1,145 212
Total Loans $ 7,411 6,738 673 125
Domestic Deposits $ 8,826 7,948 878 177
Equity to Assets% 11.27 11.24 11.56 11.29
Percent Profitable % 89.7 90.2 86.2 96.0
Source: FDIC March, 2012 6
U.S. Banking Industry - Performance
Q1 2012All
Insured Banks
Commercial Banks
Savings Banks
Agriculture Banks
Average ROA (Qtr) % 1.02 1.02 0.99 1.27
Average ROE (Qtr)% 9.07 9.12 8.52 11.21
Net Interest Margin(Qtr)% 3.52 3.54 3.31 3.76
Net Charge Off Rate – All Loans (Qtr)%
1.17 1.17 1.19 0.17
Source: FDIC March, 2012 7
What is the U.S. Small Business Administration (SBA)?
Created in 1953 Independent agency of the United States federal
government
Mission:To aid, counsel, assist and protect the interests of small
business concerns
To preserve free competitive enterprise
To maintain and strengthen the overall economy of the nation
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Why Use SBA?
Why do Banks use the SBA’s Guaranty?
1. Borrower needs a long term loan that exceeds internal credit requirements of the bank
2. Borrower does not meet lender’s collateral requirements
3. Borrower can not meet the lender’s “down payment” requirements
4. Borrower is outside the established limits of the range of the credit risk of the bank
5. Borrower is a start up business or one with no borrowing history
6. Loan is in an industry with which the lender is comfortable
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The Value of the SBA Guaranty
Example 1 Example 2 Example 3Loan Amount $500,000 $1,000,000 $5,000,000Guaranty Purchase @ 75% $375,000 $750,000 $3,750,000Remaining Exposure $125,000 $250,000 $1,250,000
Collateral Recovery $0 $700,000 $3,000,000Government Gty @ 75% $0 $525,000 $2,250,000US Bank Gty (25%) $0 $175,000 $750,000
Total Recovery $375,000 $925,000 $4,500,000USB Loss $125,000 $75,000 $500,000Loss % of Loan Amount 25% 8% 10%
Example 1 Example 2 Example 3Loan Amount $500,000 $1,000,000 $5,000,000Guaranty Purchase @ 75% $375,000 $750,000 $3,750,000Remaining Exposure $125,000 $250,000 $1,250,000
Collateral Recovery $0 $700,000 $3,000,000Government Gty @ 75% $0 $525,000 $2,250,000US Bank Gty (25%) $0 $175,000 $750,000
Total Recovery $375,000 $925,000 $4,500,000USB Loss $125,000 $75,000 $500,000Loss % of Loan Amount 25% 8% 10%
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Historical Loss Rates
For the quarter ending March 31, 2012, the past 12-month actual charge-off rate was 3.2%, which is down from a high of 3.5% in September 2010
SBA Total Portfolio Charge-Offs(past 12-month actual charge-off rate)
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%
3.31.12 12.31.11 9.30.11 9.30.10 9.30.09
Source: SBA Lender Portal 1
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SBA and Special Interests
Special SBA Loan Programs include: Disaster lending Women and minority lending
Counseling and training opportunities: Women Business Centers Veterans Business Outreach Centers SCORE
Entrepreneurial development for SMEs Small Business Development Centers Partnerships with other special interest groups
(i.e. Native American Affairs)
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SBA Loan vs. Conventional Loan
The SBA is primarily a guarantor of loans under the 7a program and also makes direct commercial second mortgages under the 504 program
The SBA helps small businesses by providing loan terms that exceed conventional lending criteria (amortization, equity, etc)
Not all companies are eligible for a SBA enhanced loan. Must meet certain size criteria and business type 1
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What types of SBA loans are available?
Two main loan programs:
Section 7(a) Loan Guaranty Program
Section 504 Certified Development Company Program
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7(a) Loan Program
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Section 7(a) Loan Guaranty Program
Provides for broad financing needs of small businesses, including startups and existing small businesses
Maximum Loan Amount = $5 million Maximum Term:
Commercial Real Estate (CRE) = 25 years Equipment = 15 years W/C= 7 to 10 years
Rate is negotiable but is subject to SBA maximums (~6.0% today)
7(a) Express Product maximum loan amount= $350,000
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How can proceeds of a 7(a) loan be used?
Purchase land or buildings Construct commercial buildings Expand or renovate facilities Finance receivables and supplement working
capital Purchase machinery, equipment, fixtures, and
leasehold improvements Refinance existing debt under some
circumstances Purchase an existing business
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Ineligible use of 7(a) proceeds:
For a non-sound business purpose To repay delinquent state or federal withholding
taxes or other funds that should be held in trust or escrow
To make a partial change of ownership or change in the business that will not benefit the business
To refinance existing lender debt where the SBA would be placed in an inferior position
To permit reimbursement of funds owed to any owner of the business
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SBA 7(a) – Advantages to the Customer
Goal is to enhance cash flow
Longer Terms
No Balloon Payments/Calls
Fixed Rates (certain lenders only)
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Safety: 75% guarantee from
the U.S. government 7(a) Express = 50%
Product Differentiation
Targets: Doctors Dentists Veterinarians CPAs Real Estate Franchises Business Expansion
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Advantages to the Bank
Annual 7(a) Approvals
Year Number of Approvals
Amount of Approvals
FY 2009 44,222 $9.3B
FY 2010 52,936 $12.6B
FY 2011 49,288 $18.1BYTD 2012
(June 2012)32,934 $10.8B
Source: SBA.gov and NADCO 2
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504 Loan Program
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SBA 504 Example
$1,000,000 – Commercial Real Estate Purchase
$100,000 – Equity from borrower (10%)
$500,000 – Bank 1st mortgage (50% LTV), fixed or variable (conventional)
$400,000 – SBA debenture, 2nd mortgage (90% LTV), fixed for 20 years – 100% U.S. Gov’t Guarantee
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Terms of 504 Loan (Debenture)
Maximum Loan Amount = $5.5MM (2nd Mortgage)
Maximum Term = 20 yearsInterest rates are pegged to an increment
above the current market rate for 5 and 10-year Treasury issues (currently ~ 4.7%)
Fees normally are approximately 3% of the debenture
Generally the project assets are used as collateral
Personal guarantees of the principal owners required
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Eligibility for 504 Loan
Must be operated for profit
Must have tangible net worth of less than $15 million
Must have an average net income of less than $5 million after taxes for preceding two years
Job creation criteria must be met
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Borrower Benefits of a 504 Loan
Lower Down-payment 10-20% of total project cost 10% Baseline
Additional injections are cumulative
Therefore, minimal equity requirements
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Section 504 Certified Development Company Program
Provides financing for “bricks and mortar” - the purchase of real estate and fixed assets
Funds cannot be used for working capital or inventory
Requires cooperation of a certified development company (“CDC” – Privately held agencies)
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Annual 504 Loan Approvals
Year Number of Approvals
Amount of Approvals
FY 2009 6,608 $3.8BFY 2010 7,733 $4.4BFY 2011 6,810 $4.0B
YTD 2012 (June 2012)
6,382 $5.6BSource: SBA.gov and NADCO 2
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