Small Business Administration West Virginia District Office SBA MICROLOAN PROGRAM Small Business Administration West Virginia District Office

Microloan Program Purpose The Microloan Program assist women, low income individuals, veterans , and minority entrepreneurs and other small businesses in need of small financing assistance and business- based technical assistance. The purpose of the Microloan Program is to assist women, low income individuals, veterans, and minority entrepreneurs and other small businesses in need of small financing assistance and business- based technical assistance.

Microloan Program – Loan Side Basics Loans From SBA to Intermediary Lender Loans From Intermediary to Micro- Borrowers Grants for Technical Assistance to micro-borrowers. The basics of the program are simple; SBA lends money to the approved Intermediary Lender at a discounted rate, who in turn, lend the money to qualified Micro-Borrowers located within their service area at market rates. SBA may also award grants to Intermediaries to be used to assist Micro-borrowers and potential Micro-borrowers with marketing, management, and other business based training and technical assistance.

SELECTION OF MICROLOAN PROGRAM PARTICIPANTS Applicant must be deemed both eligible to receive funding and qualified to administer the program. To be approved as a Microloan Program Intermediary Lender, an applicant must be deemed both eligible to receive funding and qualified to administer the program. The eligibility determination and qualification process are based on the review of information submitted in the application for participation.

Eligibility to Participate as an Intermediary Have a minimum of one year of internal experience directly making and servicing loans of no more than $50,000. Have at least one year of experience directly providing intensive marketing, management, and technical assistance Be an eligible organization; Located in the United States or its territories. Only those applications from organizations SBA deems eligible will be further reviewed for qualification. To be considered eligible, an applicant must meet each of the following requirements: At the time of application, the applicant must have a minimum of one year of internal experience directly funding and servicing short-term, fixed rate loans of not more than $50,000 to startup, newly established, or growing small business concerns. At time of application, the applicant must have at least one year of experience directly providing intensive marketing, management, and technical assistance to its Micro-borrowers. Most of the technical assistance must be provided by the Applicant’s own staff or contract staff, rather than by another organization, thought the use of organizations like the WV Small Business Development Centers and Women Business Center is encouraged. The applicant must be one of the following types of organizations: A private nonprofit Community Development Corporation, or other private nonprofit entity; A consortium of private nonprofit organizations, or nonprofit Community Development Corporations. Each member of the consortium must meet eligibility requirements in order for the consortium to be eligible; A quasi-governmental Economic Development entity (such as a planning and development district) An agency of or a nonprofit entity established by a Native American Tribal Government. The applicant must be located within the United States, including the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa.

Application Submission Applicants must submit an application for participation as an Intermediary via hard copy, or through the Microloan Intermediary Application System, accessed through SBA’s General Login System (GLS). In addition to the online application submission, Microloan Intermediary applicants must also submit some additional information to the Program Office.

SBA Loan Terms & Conditions Term: 10 years Maximum loan to intermediary: $750,000 – 1st Year in Program $1,250,000 – per year thereafter Maximum outstanding : $5 million Loans require a 15% non-Federal, non-borrowed cash match Loan Maturity - Any loan made by SBA to an Intermediary under this program will have a maturity of ten years from the Note Date. Maximum Loan Amount- An Intermediary may not borrow more than $750,000 in the first year of participation in the Microloan Program. After the first year, the maximum loan amount is $1,250,000. An Intermediary’s total outstanding Microloan Program debt must not exceed $5 million. Proceeds of the loan shall be used for no other purposes than to make Microloans or to repay SBA if funds are not used. All loans requires a 15% non-federal, non-borrowed cash match.

Interest Rate Structure Based on the Cost of Funds 5- Years Treasury Rate (base rate) Discount Rate (2% or 1.25% depending on average loan size) Cost of Funds The interest rate paid by an Intermediary on its SBA loan is based on the rate applicable to five year obligations of the United States Treasury (5-year T-Bill Rate). This Base Rate is then adjusted downward, based on the average size of Microloans made by the Intermediary as follows: Rate discounted by 2% if the Intermediary maintains an historical portfolio of Microloans averaging $10,000 or less (Specialized Intermediaries); Rate discounted by 1.25% if the Intermediary maintains an historical portfolio of Microloans averaging more than $10,000. The Base Rate, after adjustment, is the Intermediary’s Cost of Funds. Interest will accrue only on funds which have been disbursed to the Intermediary. The Intermediary’s Cost of Funds is calculated annually, beginning one year from the date of the Note.

SBA Bank Account Requirements Intermediaries need three bank accounts: Microloan Revolving Fund (MRF) Account Loan Loss Reserve Fund (LLRF) Account Technical Assistance (TA) Account Each subsequent loan from SBA requires two new accounts- a MRF and a LLRF account. Any new grant funds may be deposited to the existing TA Bank Account Once an organization is approved as an Intermediary lender, they have to open three accounts: a Microloan Revolving Fund Account, a Loan Loss Reserve Fund and a Technical Assistance Account. The Technical Assistance Account (TA) may be a general operating fund account but only one grant account per intermediary is permitted. The Microloan Revolving Fund Account and the Loan Loss reserve Account have to be opened before the disbursement of the SBA loan proceeds. Likewise, Each subsequent loan from SBA requires two new account; a MRF and a LLRF account. No new TA account is needed for subsequent grant funds.

Permitted MRF Account Transactions To receive funds from SBA; To make payments to SBA; To disburse Microloans; To receive Microloan repayments; and To fund the Loan Loss Reserve Fund (LLRF) All Micro-lending activity should be managed through the MRF. The MRF is to be used only for the following purposes: To receive funds from SBA; To make payments to SBA; To disburse Microloans; To receive Microloan repayments; and To fund the Loan Loss Reserve Fund (LLRF). Intermediaries may choose to deposit matching funds into the MRF or directly into the LLRF.

Permitted LLRF Account Transactions Deposit matching funds or other non-federal funds; Transfer principal balance of charged off microloans from LLRF to MRF. Must never go below 15% of the outstanding balance of microloans owed The LLRF is used to pay for any shortage in the MRF caused by delinquencies or losses on Microloans. Also, the LLRF is considered to be collateral against the debt owed to SBA. In the event of failure on the part of the Intermediary, SBA may use all or part of the funds in that account to repay the intermediary’s debt to the Agency. The LLRF must be maintained in an amount equal to at least fifteen percent (15%) of the outstanding balance of Microloans owed to the Intermediary under the corresponding loan from SBA, unless the Intermediary has been granted a reduction in the reserve requirement.

SBA Loan Closing Closings < = 120 Days of loan approval. Closing Documents at SBA HQ Disbursements made to Intermediary 2 years to take Disbursements if <=$750K 3 years to take Disbursements if > $750K Upon approval of a loan to an Intermediary, the Loan closing must take place within 120 days. Failure of the Intermediary to close its loan from SBA in a timely manner may result in cancellation of the loan. The Intermediary may request an extension of closing date to SBA though. The Intermediary will be responsible for payment of the closing costs for the SBA loan. The intermediary will have 24 months to take disbursements on loans $750K or less, and 36 months for loans of more than $750K. Intermediaries that fail to draw down the entire loan amount during the above mentioned periods, may be subject to reduced loan amounts on future requests.

SBA Loan Disbursement Disbursements may be requested by email First disbursement on initial SBA loan up to 35% of approval. Subsequent disbursements after funding is committed. Generally, loans should be fully drawn down in no more than three requests. Requests may take up to 10 days to process. Disbursement request must include evidence of 15% matching fund deposit (to MRF or LLRF). 24 months from Date of Loan Authorization to take full disbursement (first year loan). The initial disbursement to the Intermediary will be made as soon as possible after receipt of a satisfactory loan closing package by the Program Office. The Intermediary should anticipate its micro-lending needs (pipeline) in advance and request a disbursement that will cover its needs for a minimum of three months (one quarter). SBA will only disburse up to 35% of the initial loan amount as the first disbursement. The first disbursement on subsequent SBA loans is not subject to the 35% limit.

Collateral Requirement MRF Account Balance LLRF Account Balance Microloan Principal Balance Outstanding MUST BE greater than or equal to: The full measure of collateral is made up of the cash available in the Microloan Revolving Fund (MRF), the cash available in the Loan Loss Reserve Fund (LLRF), and the total principal balance of outstanding SBA Microloans made by the Intermediary. At all times, the sum of the amounts in the MRF, the LLRF, and the total principal amount of the outstanding performing Microloans must equal 115% of the amount owed to SBA by the Intermediary. Therefore, if any part of the collateral fluctuates to the extent that the total collateral falls below 115% of the debt due to SBA, the Intermediary must inject cash into the MRF and/or LLRF accounts to ensure that the collateral is maintained at the required level. 115% Debt Owed to SBA At All Times

SBA Loan Repayment First payment is deferred until 13th month after loan note date. Monthly payment amount is calculated as: The principal balance and interest amortized over 108 months. Loan Interest on disbursed funds during first year are accrued and then amortized over 108 months. Regular payments are generally debited on the 7th of each month. Other payments or final payments may be made via pay.gov or by check. SBA Loans to Intermediaries have a repayment schedule of 10-years. The repayment of the principal and interest is deferred during the first year, and interest will only accrue on funds which have been disbursed. Because the Intermediary’s Cost of Funds is based on the average size of its Microloans, SBA does not calculate the Cost of Funds until one year from the date of the Note. Therefore, the rate of interest accrued during the deferment period will be retroactively applied after the Cost of Funds has been determined. Following the initial twelve months deferment, the loan will be fully amortize over the remaining nine years (108 months). The interest accrued during the first year will be divided equally by 108 and added to the calculated payment over the remaining life of the loan. Payments will be withdrawn from the Microloan Revolving Fund. The Cost of Funds is calculated annually, beginning one year from the date of the Note. The Cost of Funds will be reviewed annually and adjusted as necessary in accordance with the anniversary date of the Note. This process is called “recasting”. Any change in the Cost of Funds will be applied to the total outstanding principal balance due SBA at the time of recalculation.

Technical Assistance (TA) Grants As part of the requirements to participate in the Microloan Program, Intermediaries must provide an integrated program of business and technical assistance for their Micro-borrowers and potential Micro-borrowers. Intermediaries must use their TA grant funds to deliver ongoing training to their Micro-borrowers, including training and counseling on topics such as: business formation; pro-forma financial, breakeven planning and analysis; marketing; bookkeeping and accounting; licensing and legal requirements; and personnel and labor issues. Intermediaries are restricted by law from using more than 25 percent of their grant funds to provide TA to prospective Micro-borrowers. Therefore, Intermediaries should develop partnerships with other SBA funded TA providers, such as Women’s Business Centers, Veteran’s Business Centers, Small Business Development Centers, SCORE Chapters, and PRIME recipients to assist with pre-loan Technical Assistance (TA).

Technical Assistance (TA) Grants Limited to a maximum of 25% of the amount owed to SBA under the Microloan Program; Grant Match- 25% of the grant amount; HUD Block Grants may be used as matching funds; Grant Match Funding must be fully documented; Need not to be available at time of application. The maximum authorized standard grant percentage is 25% of the amount owed to SBA. Due to funding limitations, SBA will strive to make grants awards that are at least equal to 15% of each Intermediary’s outstanding debt. Regardless of the amount of TA funding received from SBA, each Intermediary is required to provide the appropriate level of TA to its Micro-borrowers. The Grant Match is equal to 25% of the grant amount and may be in the form of cash or in-kind contributions or a combination of both. The cash contribution for the Grant match must be non-borrowed, non-Federal funds allocated specifically to the operation of the technical assistance project. Grant Match does not include indirect costs, overhead costs, in-kind contributions or borrowed funds. For purposes of the Microloan Program, Department of Housing and Urban Development Community Development Block Grant (CDBG) funds are non-federal and may be used as matching funds.

Technical Assistance (TA) Grants Maximum $50,000 Grand funds during initial year of participation; Term of 1-year; 25% limit for TA to prospective Micro- borrowers; 25% limit to contracts with third parties; Grant budget may include SBA required staff training; 25% limit to marketing costs. Newly selected Intermediaries Will be eligible to receive not more than $50,000 in grant funds during its initial year of participation, or the maximum allowable standard grant for that year based on the loan amount, whichever is less. No grant disbursements will be made until loan funds have been disbursed to the Intermediary. In the case of partial loan disbursement, grant funds will be disbursed as a ratio of the actual loan debt. Any Intermediary that is newly selected after grant funds have been awarded for the year will have to wait until the next annual round of grant funding before it can be awarded grant funds. All Intermediary grants will be for a term of one year. Intermediaries are restricted by law from using more than 25 percent of their grant funds to provide TA to prospective Micro-borrowers. Intermediaries may not use more than 25 percent of their grant funds to contract with third parties for the provision of TA to Micro-borrowers Intermediaries are authorized to budget the cost for attendance to required SBA training (only) for up to two people into their grant budget. Marketing the program is considered a part of pre-loan technical assistance costs, and is therefore limited to 25% of grant funds

Questions?

For more information on SBA’s programs and Services Please contact: Contact Information For more information on SBA’s programs and Services Please contact: Emma Wilson, Branch Manager (304) 347-5220 E-mail: emma.wilson@sba.gov Leo Lopez, Lender Relations Specialist E-mail: leo.lopez@sba.gov Rick Haney, Lender Relations Specialist (304) 623-7449 E-Mail: richard.haney@sba.gov Or, visit our office web site at: www.sba.gov/wv

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