Starting Your Own SBA Department

With Tim Thomas, IBI Credit Union Services; Tucker Herring, The Liberty Group; Vern Hansen,

JR Bruno & Associates

Why SBA? High Initial Profitability At First $4,427,000 A Year (1/Mo x $368,920) $3,320,380 Guaranteed $298,825 Nine Point Premium -$74,706 Incentive to BDO $224,119 Gain (S/T FAS 166) +$33,203 Servicing on the guaranteed part +$66,405 interest on the UN guaranteed

part =$323,727 Year 1 on $53,124 in capital (8%

of the $1,106,000 You Kept) = 609% ROE Y1

$1,095,550 in SBA 504 FIRST mortgages $931,218 85% Guarantee Sold 6% Premium $55,973 Profit Contribution (S/T FAS 166) ($164,333 Balance kept on the books) +$10,271 Annual Interest $66,255 Contribution vs $13,147 in Capital. ROE Year 1 507%

SBA 504s Add Profit Initially Too

$10,000,000 Loan Growth Target $1,271,000 Retained on the Books $8,730,000 Shortfall Buy the Guarantee Full Faith and Credit Irrevocable for Secondary Market Buyer No Principal Risk No Accrued Interest Risk Control Principal Rrisk by Re-Underwriting

and Review

Thou Can Buy What Thou Dost Not Originate and Taketh No Credit Risk Just Premium Risk

Buy, Acquire, Expand Start Up Debt Refinance if it’s Good For You NO cash out For Profit $15MM NW/$5 MM Profit Rule 51/60 Rule Credit Elsewhee Test

7A in a Nutshell

Life Insurance Good Will Broker Fees 5010C Yes You can Do Construction +Perm Character Counts – Franchises All Available Collateral

7A Quirks

2% of Guarantee under $150K $3% of Guarantee 151 – 700 3.5% $701-$5MM Plus 3.5% Override on $$ over $1MM PPP on 15 Plus 5/3/1 Gross Rate 6% You Service 1% SBA Gets 0.55% x its 75% Guarantee Owner gets the Rest (Colson)

All Those Fees

RE Collateral to 25/25 P+275 Adjust Quarterly Pay Monthly 5/3/1 Prepay 90% LTV

Typical Deal

Sample Financing   Project $1,000,000 First $500,000 6.5% fixed 5 = $3,375 PI Second $400,000

5.5% Fixed 20 = $2,751 PI Down Pmt $100,000

504

90% to Cost Max Purchase or Make Sense Refi Green $5.5 MM MFR $15/5 Rule 120% + Guarantee Check their Liquidity vs $ Financed Debenture (2nd) 0.65% + $2,000 10-20 Yr 2nd

1st Fully Amortized Tyo]pical 25/25 5+5

504 Quirks

1. Assess2. Who Has the Skills?3. SBA Office Contact4. Prepare Approval Diocumentation5. Credit Policy Manual6. Structure the Department7. Create Proceedures8. Budget9. Training10. Marketing and Sales Plan

One Small Step And Then Some

Credit Training and/or underwriting experience to include: Working knowledge of SBA business size and eligibility requirements Understanding of utilizing  SOP 5010-C as a reference Working knowledge of balance sheet, P&L and corporate/partnership tax

return analysis Understanding of SBA packaging and credit requirements Understanding of personal and business cash flow analysis Understanding of the SBA approval process Ability to prospect for new clients and referral sources Ability to develop and execute marketing plan Aptitude for building new relationships with new clients and referral

sources Ability to present clearly to internal customers and borrowers regarding

products and services that will enhance existing relationships Present to and consult with management on business trends  

BDO Skill Set

Lenders who book assets and hold those assets in their portfolio typically pay the BDO as a percentage of the total loan amount, such as the following:

  Loan Volume Basis Points Paid as Commission $0 to $3MM 40 bps $3MM to $6MM 75 bps $6MM to $10MM 100 bps $10MM+ 150 bps

BDO CU COMP - Portfolio

Customer focused individual with expert knowledge of credit products and processes including thorough knowledge of SOP 50 10 10 5(C)

Strong organizational, analytical, communication and interpersonal skills.

Proven leadership abilities. Extensive knowledge of credit policy, procedures and

Bank regulations.  Thorough understanding of commercial credit

structures, loan documentation, and related legal issues.

Knowledge of SBA operating procedures and eligibility guidelines

CO Skill Set

5010 C Know SBA policy on Franchises, goodwill,

citizenship, equity injection, life insurance, available collateral rule, felonies

Use NAICS Startups – Caution See Pages 20-22 for ideas of what to

do/avoid See p22 for Collateral Rules

Credit Policy

Pick Low Default industries Select Targets Market Directly’ See Sam’s Plan Chapter 7 P-22

Marketing: Pick Your Target

Loan $300,000 Guaranteed Portion $225,000 Un-Guaranteed Portion 75,000   Sell the guarantee for: $22,500   Let’s look at the $225,000 guaranteed part (Pretend it’s interest only the first year)   Coupon 2.75 over Prime 6.000% = $13,500 paid by the borrower SBA Fee 0.675 = $ 1,519 goes to Colson Services who master services for

SBA You Service for 1.000 = $2,250   The investor, who buys the guaranteed part, gets the rest: 6%-0.675%-1%= 4.325.   So your revenue on the guarantee is $22,500 premium, plus your servicing revenue

of $2,250, less whatever you are paying your outside SBA servicer.

Secondary Marketing

The Budget

Decisions Go For It, Hire a Consultant or CUSO and

build a solid program Risk too High, Buy Guaranteed Product to

supplement loan assets Keep risk Off Balance Sheet, originate for

wholesalers like Zions, Midwest Business Credit

Become a PLP, add Small Loan Advantage, Express

Servicing – Outsource or no? Processing Outsource or No? SBA Annual Audit

Other Issues

Secondary Marketing:   Tim Thomas, Director Western Region, IBI Credit Union Services, tim@isaakbond.com (303) 623-7500   Jared Livingston, Director Eastern Region, IBI Credit Union Services, jared@isaakbond.com (303) 623-7500   Consulting:   Vern Hansen, JR Bruno and Associates, vern@jrbrunoassoc.com (602) 820-1337     rocessing:

Vern Hansen, JR Bruno and Associates, vern@jrbrunoassoc.com (602) 820-1337

  Mike O’Donnell, Colorado Lending Source mike@coloradolendingsource.org (303) 657-0010

Member Business Lending, West Jordan Ut, www.mblllc.com

  Recruiting:   Tucker Herring, The Liberty Group tuckerh@thelibertygroup.com, (713) 961-7666   Professional Organizations:   National Association of Government Guaranteed Lenders www.naggl.org   National Association of Development Companies www.nadco.org    

Resources and Experts