Illinois District Office

2  In FY 2010, SBA Nationally  delivered over $17.0 billion in financing,  guaranteed over 60,771 loans  In FY 2010, SBA in Illinois  221 participating lenders  delivered over $719.6 million in financing,  guaranteed 2,357 loans

3 What is the SBA? Started in 1953 Small independent federal agency Small independent federal agency Mission: Help small businesses start, grow, succeedMission: Help small businesses start, grow, succeed Programs delivered through district offices, working with resource partnersPrograms delivered through district offices, working with resource partners

4 Programs & Partners Counseling & Training Assistance SCORE / SBDC’s Financial Assistance Banks, S&Ls, Credit Unions Federal Contracting Assistance Agencies - DOD, GSA, VA

5 SCORE Counselors to America’s Small BusinessCounselors to America’s Small Business Free confidential one-on-one assistanceFree confidential one-on-one assistance Monthly workshopsMonthly workshops

6 Small Business Development Center (SBDC) Provides free services of specialized technical assistance to small businessesProvides free services of specialized technical assistance to small businesses Help develop business plansHelp develop business plans Low cost SeminarsLow cost Seminars

7 SBA Guaranty Loan Programs No grantsNo grants No direct loansNo direct loans We do have several guaranteed loan programsWe do have several guaranteed loan programs

8 Three (3) Main Reasons Why Lenders Use SBA Newer or Start-Up Business Inadequate Collateral Longer Repayment Term

9 Process BorrowerBorrower applies for a loan with an SBA participating lender LenderLender submits application for SBA review and approval SBAAfter SBA approval, lender disburses funds

10 All Business Purposes All Business Purposes Export Financing Export Financing Working Capital Financing Working Capital Financing Receivable Financing Receivable Financing Inventory Financing Inventory Financing Real Estate Financing Real Estate Financing Equipment Financing Equipment Financing

11 A Typical 504 Project A private sector loan covering up to 50% A loan from the CDC covering 40% (100% SBA-guaranteed debenture) At least 10% equity from the small business Participating lender has first lien on assets

Loan Program Up to $ 13,750,000 Project Up to $ 13,750,000 Project 504 Projects 504 Projects New Construction New Construction Purchase of existing leased building Purchase of existing leased building Long Term equipment Long Term equipment Projects can be companioned with 7 (a) Projects can be companioned with 7 (a) Up to $ 5,500,000 for SBA Portion Up to $ 5,500,000 for SBA Portion

13 7(a) loans from $2 million to $5 million; 504 loans from $2 million to $5 million – standard borrowers(project up to $12.5 M) from $4 million to $5.5 million – manufacturers (project up to $13.75 M) Microloans from $35,000 to $50,000 JOBS ACT September 27,2010

14 JOBS ACT September 27, Percent Guarantee As of September 27, SBA to raise its loan guarantee to as much as 90% Prior SBA would guarantee loans up to 85% on loans up to $150,000, up to 75% on loans greater than $150,000. Maximum SBA guarantee $4.5M

15 JOBS ACT September 27, 2010 Temporary Elimination of fees Fees for SBA’s 7(a) and 504 loan programs until December 31, (a) - Upfront borrower guaranty fees range 2% to 3.75% Processing fee 1.5% Third party Lender fee.5%

16 Survival Rates Business Start-ups: 66 % New Employer Firms Last At Least 2 Years 50% New Employer Firms Last at Least 4 Years Rates Vary By Industry

17 Major Factors for Success --Adequate Capital --Owners Knowledge of Industry --Knowing Target Market --Low Fixed Cost

18 Start-up Business Available Info for Risk Analysis: Business Plan --Market for Product --Identified Target Market --Sales forecast --Capital Balance Sheet --Cash Flow projection 12 months --Owners Equity Investment --Identified needed Financing --Demonstrate Debt Repayment

19 Risk Analysis Info Cont: --Collateral --Managerial Experience --Knowledge of Industry --Credit Score

20 --Credit Score is a Numeric Summary of the Info on Your Credit Report. --Score is Counted Slightly Different by The Three Major Reporting Agencies. --Equifax, TransUnion and Experian --Use FICO (Fair Isaac Company) --FICO Score Ranges 300 to 850

21 35% --Payment History (Pay on Time) 30% --Debt Level (Keep Debt Low as a % of Credit Limit—Try to stay at 75%) 15% --Length of Credit History (Develop a long relationship with a credit card). 10% --Diversity of Credit Accounts -Mix It Up Car loan, Mortgage loan- shows you can manage 10% --Number of New Attempts To Get Credit Cards More attempts Hits Lowers your Score. 100% FICO SCORE Elements

22 FICO Scores National Distribution 58% 700 Plus 27% 600 to % 0 to 599 Very Bad 499 to 0 Bad 500 to 580 Sub Prime 581 to 619 Okay 620 to 679 Good 680 to 699 Very Good 700-Plus

23 Most Start-Ups F/S Capital Balance Sheet and Income Statement ( Financial Forecast at Best) Risk Management Association (RMA) Financial Ratio Benchmarks( Key Ratios Expressed in Upper, Median, Lower Range) Annual Statements Studies by Industry Identify industry by using Standard Industrial Codes(SIC) North American Industry Classification Code(NAICS)

24 --Meaningful Ratio Analysis Requires a Comparison Trend Over Several Years and to Industry Norms --Start-up Businesses Have No Track Record. This Limits our Analysis to: --A Few Key Ratios --Capital Balance Sheet --Income Financial Forecast --Cash Flow Statement

25 Industry Norms vs. Start-up Business B/S Assets Current Assets % Non-Current Assets % Intangible Assets % Total Assets 100% LIABILITIES Current Liabilities % Non-Current Liabilities % Total Liabilities 50% Net Worth 50% Total Liabilities & Net Worth 100% Compare value in each category to a norm for the industry for at least a one year period.

26 Forecast Income Statement Sales 100.0% - Cost of Sales (Inventory) 56.0% Gross Profit 44.0% -Operating Expenses 40.4% Operating Profit 3.6% -Other Expenses 1.9% Profit before Taxes 1.7% Shoe Store, SIC#5139,5661, NAICS# RMA Page Compare Start-up Forecast to Industry Norm

27 2:1Current Ratio= total current assets total current liabilities 1:1Quick Ratio= cash & accts receivables total current liabilities Stability Ratio 3:1Debt to Net Worth= total liabilities tangible net worth Liquidity Ratios Key Ratios Capital Balance Sheet

28 Dollar Sales Breakeven Fixed Costs $ BE= 1.-- Variable Costs Sales Divide $ BE by widget SP to determine number of widget to sell to achieve BE.

29 Monthly Cash flow for 12 month period Positive Cash each month to service P & I Month with largest Negative figure represents W/C needs. Repayment Ability

30 Additional Information- Illinois District Office 500 W. Madison, Suite 1150 (312) SBA.GOV/IL Contact: