Mainebiz Special Editions

W W W. M A I N E B I Z . B I Z 45 Fact Book / Doing Business in Maine B U S I N E S S R E S O U R C E S S BA loan guaranty programs pro- vide financing for small businesses that have potential but cannot qualify for credit by themselves. e SBA doesn't provide the loan, but guaran- ties a portion of the loan provided by a lender (except for microloans). e lender decides after the busi- ness applies whether an SBA guaranty is needed. Basic 7(a) Loan program is is the SBA's most frequently used non-disaster financial assistance program because of its flexibility in loan structure, variety of uses for the proceeds and availability. e loans are funded by SBA- approved lenders; the guaranty that the SBA provides reduces the lender's risk. If the borrower defaults, the lender can request SBA pay the guarantied por- tion of the debt, with the borrower still obligated for the full amount. To qualify, a business must meet the lender's criteria and 7(a) program requirements, and the lender must certify that it would not provide the loan under the proposed terms and conditions without an SBA guaranty. To get the guaranty, the applicant must be eligible and creditworthy and the loan structured under conditions acceptable to the SBA. Percentage of guarantees and loan maximums SBA only guarantees a portion of a 7(a) loan; each loan has an SBA share and an unguarantied por- tion. e percentage of guaranty depends on either the dollar amount or the lender's program. For loans of $150,000 or less, the SBA generally guarantees as much as 85%; for loans over $150,000, up to 75%. e maximum amount of a single 7(a) loan is $5 million. ere is no minimum. e maximum SBA share that can be provided to one business (including affiliates) is $3,750,000. Interest rates e interest rate is negotiated between the applicant and lender, but is subject to SBA maximums. e maximum rate comprises a base rate and an allow- able spread. ere are three acceptable base rates (Wall Street Journal Prime, 1 London Interbank One Month Prime plus 3 percent, and an SBA Peg Rate). Lenders may add an additional spread to the base rate to arrive at the final rate. Guaranty and other fees Loans guaranteed by the SBA are assessed a fee based on the loan's matu- rity and the dollar amount guarantied, not the total loan amount. e guaranty fee is initially paid by the lender and passed on to the borrower at closing. 7(a) Loan maturities e SBA's loan programs are intended to encourage longer term financing, but maturities are based on the ability to repay, the purpose of the loan and the useful life of the assets financed. Maturity generally ranges from 7 to 10 years for working capital, business start-ups and business acquisition loans, and up to 25 years if the purpose is to acquire real estate or fixed assets with a long-term useful life. Loan structure Repayment has to be set up so the loan is paid in full by maturity. Over the term of the loan there can be additional payments or payment relaxation depending on what is hap- pening with the business. Balloon payments and call provisions are not allowed on a 7(a) term loan. Collateral e SBA expects 7(a) loans to be secured with assets acquired with the loan proceeds as well as business and personal assets, depending upon the loan amount and the way the lender requests the guaranty. SBA will not decline a request to guaranty if the only unfavorable factor is insufficient collateral provided all available col- lateral is offered. SBA business loans Advisory Services Sell-Side M&A Facilitating the marketing and sale of businesses for their owners. Buy-Side M&A Facilitating strategic search and acquisitions for growth and investment. Corporate Finance Securing debt and equity for growth, recapitalization or acquisitions. Commercial Real Estate Securing debt and equity funding for investment grade commercial real estate. Local Expertise, Global Reach, International Relationships With offices across the USA, in 6 European countries, and in India, CFA has the largest global operating footprint, serving the lower middle market, more than any other M&A and corporate finance advisory firm of its kind. One Union Street, Suite #200, Portland, ME • Securities Offered Through Corporate Finance Securities, Inc. • Member FINRA/SIPC • 207.772.2221 • cfaw.com/portland For more information and expert advice contact: Peter G. Moore Managing Director & Principal pmoore@cfaw.com M: 207.712.0720 Peter B. Ventre Managing Director pventre@cfaw.com M: 207.653.4447 Craig O. Allsopp Director callsopp@cfaw.com M: 802.316.4121 S I N C E 1 9 5 6 — I N V E S T M E N T B A N K E R S T O T H E L O W E R M I D D L E M A R K E T W O R L D W I D E 1 All references to the prime rate refer to the base rate in effect on the first business day of the month the loan application is received by the SBA.

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