A NEW PROSPECT YES We ll Fund it Conventionally

A NEW PROSPECT YES! We’ll Fund it Conventionally NO WAY ! EVER! WELL MAYBE IF…. Call David & Clara!

SBA Loan Programs - Today 504 Loans SBA Participation Loan with local Community Development Corporation “CDC” TERM LOANS – Use for the acquisition, expansion or improvement of Real Estate or long life Equipment. Borrower must occupy not less than 51% of the rentable SF of the subject Real Estate Borrower Equity 10 -20% Depending Use of Property and Eligibility of Business CDC Funds 40%, Bank Funds 50% Maturities: Bank: 10 Years, 20 Year Am CDC: 20 Years Fully Amortized Current SBA all-in fixed rate of 4. 6% Lender Funds an “Interim Loan” which is paid off by the issuance and sale of a debenture by the CDC Maximum Loan Amount: $5, 500, 000 Lender’s One Time Fee: . 50% of 1 st Mortgage Refinancing allowed with restrictions

7(a) Loans – 75% Guarantee TERM LOANS - Appropriate for: Start- Up Businesses, Business Acquisitions or Expansions, Buy-Outs, Debt Refinancing, Real Estate Purchases, Equipment, Inventory, Franchises, Leasehold Improvements, Working Capital, Etc. Specific Rules & Eligibility Requirements Apply Does the Prospect Currently have an SBA Loan? 504? The Maximum Aggregate of SBA Loan(s) is - $5, 000 Maximum Guaranty $3, 750, 000 Interest Rates: Varies By Loan Size and Term Maximum Interest Rate: Prime + 2. 75% Floating Maximum Maturities – Varies By Use Of Proceeds - Not the Collateral Guaranty Fees : Varies by Loan Size Maximum Guaranty Fee: 3. 75% of Guaranteed Portion Fixed Rate Financing is permitted Contact us for current published rates Lender Servicing Fee: 0. 540% Annually as of October 1, 2016

SBA Express Loans: Revolving Lines of Credit or Term Loans 50% SBA Guaranty Maximum Loan Size : $350, 000 Maturities: Maximum 7 Years for LOC & same as standard 7(a) for Term Loans Maximum Interest Rates: WSJ Prime + 6. 5% Depending on Maturities Streamlined “Express” Processing and Approval. Lender uses own closing documentation. Bank must initially be signed up as an Express Lender with the SBA to utilize this type of guaranteed loan CAPLine Loans –Specific Asset Based Loans – Revolving Lines of Credit 75% SBA Guaranty Maximum Loan Amount: $5, 000 Maturities : Up to 10 Years Depending On Loan Program Interest Rates: Same as 7(a) Specific Regulations Regarding Eligibility of Disbursements Monitoring & Control of Funds of Required Servicing Fees: Up to 2% Permitted

As you would expect, the US Government is anxious to provide assistance to businesses which export their products. The SBA has two exceptional loan programs for this purpose. EWCP (Export Working Capital) Loans- Revolving Lines of Credit in support 90% SBA Guaranty of Export Receivables Maximum Loan Amount - $5, 000 Maturities: Maximum – 36 Months Interest Rates: No SBA Maximum IT ( International Trade) Loans- Term Loans to Finance Equipment & 90% SBA Guaranty Inventory used in production of sales to international customers. Maximum Loan Amount: $5, 000 Maturities: Maximum 10 years Interest Rates: Same as 7(a)

Business Acquisitions and Start Ups By their nature, Change of Ownerships and Start Ups are often considered for SBA loans. A Start Up Business requires significant attention to available equity, sustainable cash flow, and borrower experience. Here, reasonable and justifiable projections must be taken into account when submitting the SBA loan. There are certain eligibility matters with regard to Business Acquisitions loans. • The Borrower must be acquiring 100% of the business • Stock or Asset Purchase is permitted • Seller may NOT remain involved in the business beyond a 12 month transitional period. • Goodwill – if over $250, 000 a business valuation is required with submission of loan. If over $500, 000, 25% equity required as well.

Refinancing Eligibility regulations regarding refinancing apply • The original use of proceeds must have been SBA eligible – credit card debt is VERY DIFFICULT to document and verify • Debt to be refinanced must be on Unreasonable Terms (i. e. balloon payment due, inappropriate amortization) and the new installment payment must be an improvement of not less than 10%. • Seller notes are eligible for refinancing only when seasoned a minimum of 24 months (Question, when is a Seller Note which was on full standby (no P or I payments ) eligible to be refinanced? Answer 48 months) • Refinancing another Bank’s SBA loan is eligible and specific rules apply. The existing SBA lender must be agreeable to the refinancing and must state in writing that it is either unwilling or unable to provide new capital or a modification of the current loan terms to the borrower. • When refinancing, SBA loan proceeds may not be used to pay a creditor in a position to sustain a loss. However, when an existing lender has formally agreed to a discounted payoff, it is eligible for refinancing.

Today, refinancing same institution debt is eligible, with one exception, you can not refinance your own existing SBA loan with another SBA loan. Here are some basic guidelines for refinancing same institution debt using an SBA loan. • May not be used to refinance same institution debt where there is an appearance that the lender will shift to SBA all or part of a potential loss from that same debt. • If refinancing your own non SBA loan, a signed certified 36 month payment transcript is required evidencing no payments past 29 days in any given month. If late payments are shown, remittance must include a reasonable explanation of any late payments. • The Bank may not reduce its existing exposure to it’s own borrower. (A Guarantee @ 50% reduces exposure by 50%, so dollar for dollar refinancing would not be eligible)

Business Profiles which are NOT eligible for SBA loans • Not For Profits • Whose Stock in trade is money and which are engaged in financing, i. e. : Banks, Life Insurance Companies (but not independent agents) Finance or Investment Companies • Primarily engaged in owning or purchasing real estate and leasing it or engaged in subdividing real property • Speculative Businesses • Business which are located in foreign countries or Owned by Undocumented Resident Aliens • Provide Prurient Sexual Material • Engage in Gambling - 1/3 rd of Gross Annual Revenue (Video Slots & Poker Machines? ? ? ) • Restrict Patronage i. e. : Curves, for Women Only • Engage in Promoting Religion • Cooperatives • The Lender or any of its associates with an equity interest in the Small Business

• The Borrower must occupy at least 51% of the rentable property of any real estate being financed with an SBA loan. • The Borrower or a key person in the company should have experience in the industry or business being acquired or started. • If the business is in a distressed situation, is there a “Turn. Around” strategy and how will the SBA loan funds improve the situation? Remember – 1. 15 Debt Service Coverage &/or Reasonable & Justifiable Projections!

Ineligible Use of Proceeds for SBA loans • Consumer Financing – Financing Must Always Be for Business Purposes • Repayment of delinquent IRS taxes, sales taxes, or similar funds held in trust • To provide or refinance funds used for payments, distributions, or loans to Associates of the Applicant, except payment of ordinary compensation for services rendered at a fair and reasonable rate • Payment to a creditor in a position to sustain a loss. However, exceptions are made when the existing creditor formerly agrees to a discounted payoff. • Piggy Back Financing!

Guidelines & Policies Along with looking at the small business’s profile, part of recognizing a potential SBA loan, includes having some knowledge of basic SBA lending guidelines. • The SBA expects participating lenders to implement PRUDENT LENDING PRACTICES • SBA loans must be used SOLELY for business purposes • Every lender should understand the loan they are making, and be familiar with the borrower and their business. Remember CREDIT AVAILABLE ELSWEHERE - the lender must demonstrate a need for the SBA Guaranty • PROPERLY DOCUMENT EQUITY INJECTION – Follow the Money Where is $ coming from? Gift? Cash on Hand? Is it Borrowed? Seller Note? 90 Day Evidence of Availability • Appropriate GLOBAL CASH FLOW COVERAGE is a paramount consideration – Personal debt service AND business debt service must be sustainable.

SBA - Acceptable Advance Rates 10% on trading assets ( A/R and inventory) 85% on real estate 75% on new equipment being purchased 50% on existing equipment using the net book value or 80% on the orderly liquidation appraised value of the equipment Remember, if an SBA loan is not fully collateralized by the underlying assets of the business, the lendable equity in the guarantors’ personal real estate MUST also be pledged. This is a new policy from the SBA, it used to be that ALL available personal collateral was required to be pledged to completely secure the loan.

SBA REQUIREMENTS – Let’s Get Personal • Any owner or shareholder of 20% or greater of the business MUST personally guarantee an SBA Loan and provide a personal financial statement (JOINT if married) as well as a statement of personal history. Additionally, personnel who are key to the operation of a business must also provide a personal history. • The SBA considers the character of borrowers and key personnel to be paramount in underwriting. Not only are there businesses which are ineligible for an SBA loan; there also Individuals who are ineligible to be guarantors of SBA loans. They include: • Persons who are or have been incarcerated, on probation, on parole, or indicted for felonies or crimes of vile or depraved acts • Persons with poor credit (675 Experian Score is a current benchmark) with histories of collections, judgments, suits, and in particular, tax liens. Explanations may clear slow pay issues, but tax liens must be satisfied and released • Persons who have previously defaulted on Government secured loans – including STUDENT LOANS - Lenders must clear this potential issue through CAIVERS.

The SBA is no longer a “Casual” Program! The entire SBA loan system is now exclusively electronic. Access to any of the SBA loan processes now requires sign in protocols requiring security clearance for either an authorized LSP designate or a designated authorized user within the Bank’s own SBA lending department. Effective July of 2016, the SBA began requiring utilization of their brand new “life of the loan” portfolio management platform called SBA ONE. As of October 1, use of SBA One will be mandated. Your LSP is enrolled, trained and prepared to access all services in SBA ONE as required.

SBA One As of October 1, 2016 it will not be possible to originate a loan submission without 100% of the required documentation in file this includes SBA Express loans.

THE SIGNIFICANCE OF THE TERMS SHOULD & MUST CAN NOT BE UNDERSTATED! The SBA continues to give more latitude to their partner Banks with regard to implementation of their loan programs. Bearing that in mind, the SBA now writes policy using these two terms to specifically dictate which rules concerning the loan SHOULD be implemented as best practice and which MUST be adhered to. Throughout the new SOPs these two words accompany many policies and are no longer “casual” matters when it comes to your Guaranty!

CREDIT MEMOS & LOAN PRESENTATIONS Your CMs & LPs are an integral part of the SBA loan submission and are carefully examined by the SBA officer assigned to the loan and now…. • MUST include a statement that the 4506 T has been submitted to the IRS AND the accompanying transcripts have been received, reviewed and verified by the Loan Officer. Omission of this statement now triggers an automatic screen out at the SBA. • MUST include the Lenders certification that the requested credit is not available elsewhere on reasonable terms from non-Federal or other government sources without SBA assistance. A statement identifying the exceptions(s) to Bank policy which identify the “Credit Available Elsewhere Test” MUST be included in your Credit Memo. The SBA is extremely critical of this omission! • SHOULD include discussion of ownership experience

LOAN PROCESSING CONCERNS & HOT BUTTONS • Proforma MUST evidence 1. 15 debt service coverage on the last filed tax return or on REASONABLE & JUSTIFIABLE projected basis • MUST Include Appraisals & Environmental Reports at the time of loan submission • 51% or greater shareholder MUST be US Citizen or verified Permanent Alien Status at the time of loan submission (a designate for the Bank must be signed up with US Immigration to obtain verifications) • Current Credit Reports with Scores MUST be ordered, Tri. Merge Reports SHOULD be ordered. ANY derogatories MUST be cleared and explanations provided The SBA is now VERY rigorous in looking at negative credit issues!

REFINED CONSIDERATIONS • Equity Injection – If you require it and reference it in your LP, the funds MUST be tracked and verified 90 days prior to closing • Refinancing - Would the lender and SBA be likely to sustain part or all of a loss by refinancing the debt ? Would additional collateral or altered terms protect the interest of the taxpayers? 10% Improvement Rule / Reduction in Exposure Rule • Refinancing Other Debt– Original Use of Proceeds MUST have been for SBA eligible purposes AND the collateral securing the original loan or collateral in like kind MUST secure the new SBA loan. Always request copies of the original notes & security agreements being refinanced. Our office can assist with structuring and compliance to make this policy work for your proposed refinance. • Refinancing Own Debt – The Lender MUST include a transcript of payments for the prior 36 months, or the life of the loan whichever is less evidencing No payments over 29 Days past due.

CLOSING & POST CLOSING CONSIDERATIONS • All loan documentation MUST contain the SBA specific language • Banks SHOULD utilize outside counsel for particular closings and documentation preparation – Remember All third party expenses other than LSP fees can be passed through to the Borrower AND can be included in the loan as well as the Guaranty Fee. • Modifications prior to, during and post closing MUST be properly documented, prepared, submitted and approved at various levels. • 1502 Reporting – MUST be conforming, correct and submitted to Colson with ongoing servicing fee on a monthly basis.

AN SBA GUARANTEE DOES NOT MAKE A BAD LOAN A GOOD LOAN!!! We all know however, that inevitably a perfectly good SBA loan may default, and then…The most important numbers you MUST remember are 31 and 60 Because all hell is about to break loose!!

These numbers are critical because, at 31 DAYS past due the Bank MUST conduct a Site Visit, fully document the status of all collateral and your conversations with the Borrower. This is also the time to immediately conduct a full file audit and take every opportunity to work with the Borrower to cure any file deficiencies. At 60 DAYS past due the Bank MUST have a viable plan to get the loan payments back on track or put the loan into LIQUIDATION STATUS, make demand on the Borrower, accelerate the loan, and commence liquidation action immediately. There is SBA specific protocol for this action. TAKING NO ACTION WILL JEPORDIZE YOUR GUARANTY!

The SBA has stringent loan servicing policies! They expect you to service your SBA loans with no less vigor than you do your conventional loans. The SBA does not want the loans to languish! Proactive liquidation and wrap up is expected on the part of the Lender! AND NOW MUST be completed within 24 Mos of Liquidation Status. Not doing so will impair your Guaranty and potentially risk your Bank’s good standing with the SBA.