ษออออออออออออออออออออออออออออออออออออออออป บ HOW TO RAISE MONEY FOR A SMALL BUSINESSบ ศออออออออออออออออออออออออออออออออออออออออผ Successful small business expansions and new formations lead the way in creating new markets, innovations and jobs that fuel economic growth and prosperity. In recognition of the importance of small business to a strong economy, the U.S. Small Business Administration (SBA) is pleased to help meet the information needs of existing business owners and aspiring entrepreneurs. We hope "Focus On The Facts" meets your needs and we invite your comments and questions. Your success in business depends on what you know and how well you can apply what you have learned. ษออออออออออออออออออออออออออออออออออออออออป บ RAISING MONEY บ ศออออออออออออออออออออออออออออออออออออออออผ One key to successful business start-up and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. But as many entrepreneurs who are just beginning quickly discover, raising capital may not be easy. It can be a complex and frustrating process. But if you are informed, well prepared and have planned effectively, raising money for your business will not be a painstaking experience. This information summary focuses on the ways a small business can raise money and describes how to prepare a loan proposal. ษออออออออออออออออออออออออออออออออออออออออป บ WHERE TO FIND THE MONEY YOU NEED บ ศออออออออออออออออออออออออออออออออออออออออผ There are several sources to consider when looking for funding. It is important that you explore all of your options before making a decision. ๙ Personal Savings: Most new businesses are started with the primary source of capital coming from personal savings and other forms of personal equity. ๙ Friends and Relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Oftentimes, money is loaned at no interest, or with low interest, which can be beneficial when getting started. ๙ Venture Capital Firms: These firms provide start-up and other needed money for new companies in exchange for equity or part ownership. ๙ Banks and Credit Unions: the most common source of funding, banks and credit unions will provide a loan if you can show that your business is sound. ษออออออออออออออออออออออออออออออออออออออออป บ BORROWING MONEY บ ศออออออออออออออออออออออออออออออออออออออออผ It is often said that small business people have a difficult time borrowing money. This is not necessarily true. Banks are in the business to make money, and the way they make money is by lending money. However, it is the inexperience of small business owners in financial matters, that prompts many small business loan requests to be turned down. To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it and how you can pay it back. You must be able to convince your lender that you are a good credit risk. Requesting a loan when you are not properly prepared makes a statement to your lender. That statement is. . ."High Risk!" ษออออออออออออออออออออออออออออออออออออออออป บ BUILDING EXCELLENCE IN ENTERPRISE บ ศออออออออออออออออออออออออออออออออออออออออผ Types Of Business Loans Short-Term Loans: Loans that are paid back in less than one year. Types of short-term loans include: ๙ Working Capital Loan ๙ Accounts Receivable Loan ๙ Line of Credit (Revolving Credit Line) Long-Term Loans: Loans with maturities greater than one year but usually less than seven years. These loans are used for major business expansions, purchases of real property, acquisitions and in some instances start-up costs. Types of long-term loans include: ๙ Personal Loan ๙ Commercial Mortgage ๙ Term Loan ษออออออออออออออออออออออออออออออออออออออออป บ HOW TO WRITE A LOAN PROPOSAL บ ศออออออออออออออออออออออออออออออออออออออออผ Approval of your loan request depends on how well you present yourself, your business and your financial needs to a lender. Remember lenders want to make loans, but they want to make good loans, loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written loan proposal. A good loan proposal will contain the following key elements: General Information ๙ Business name, name of principals social security number of each principal and business address. ๙ Purpose of the loan - State exactly what the loan will be used for and why it is needed. ๙ Amount required - Request the exact amount you need to achieve your purpose. Business Description ๙ History and nature of business - Give details of your business's age, number of employees and current business assets. ๙ Ownership structure - Provide details on your company's legal structure. Management Profile ๙ Management description - Develop a short statement on each principal staff member in your business; provide background, education, experience, skills and accomplishments. Market Information ๙ Clearly define your products and market. ๙ Identify your competition and explain how your business competes in the marketplace. ๙ Profile your customers and explain how your business can satisfy their needs. Financial Information ๙ Financial statements - Provide balance sheets and income statements for the past three years. If you are just starting out, provide a projected balance sheet and income statement. ๙ Personal financial statement - Prepare a personal financial statement on yourself and other principal owners of the business. ๙ Collateral - List all collateral you would be willing to pledge to the bank as security for the loan. ษออออออออออออออออออออออออออออออออออออออออป บ HOW YOUR LOAN REQUEST WILL BE REVIEWED บ ศออออออออออออออออออออออออออออออออออออออออผ A loan officer's primary concern when reviewing a loan request is whether or not the loan will be repaid. To help answer this question, many loan officers will order a copy of your business credit report from a business credit reporting agency. Therefore, it is helpful if you work with these agencies to help them prepare an accurate picture of your business. Using the credit report, and the information you have provided, the lending officer will consider the following issues: ๙ Have you invested savings or personal equity in your business totaling at least 25% - 50% of the loan you are requesting? Remember a lender or investor will not finance 100% of your business. ๙ Do you have a sound record of credit worthiness as indicated by your credit report, work history and letters of recommendations? This is very important. ๙ Do you have sufficient experience and training to operate a successful business? ๙ Have you prepared a loan proposal and business plan which demonstrates your understanding of the business and your commitment to the success of the business? ๙ Does the business have sufficient "cash flow" to make the monthly payments on the loan request? ษออออออออออออออออออออออออออออออออออออออออป บ SBA FINANCIAL PROGRAMS บ ศออออออออออออออออออออออออออออออออออออออออผ The SBA offers a variety of financing options for small businesses. However, it rarely makes a direct loan to an individual or company. The Agency is primarily a guarantor - it guarantees loans made by banks and other private lenders to small business clients. SBA guaranteed loans generally do not exceed $500,000, of which the Agency guarantees 85 or 90 percent of the loan balance to the bank. The average size of an SBA guaranteed loan is $175,000 and the average maturity about eight years. SBA guaranteed loans are obtained through private lenders. ษออออออออออออออออออออออออออออออออออออออออป บ HOW TO GET MORE INFORMATION บ ศออออออออออออออออออออออออออออออออออออออออผ Information is power! - Make it your business to know what business information is available, where to get it and most importantly, how to use it. Sources of information include: ษออออออออออออออออออออออออออออออออออออออออป บ U.S. SMALL BUSINESS ADMINISTRATION บ ศออออออออออออออออออออออออออออออออออออออออผ ๙ SBA District Offices ๙ Small Business Development Centers (SBDCs) ๙ Service Corps of Retired Executives (SCORE) ๙ Small Business Institutes (SBIs) Consult your telephone directory under U . S . Government for your local SBA office or call the Small Business Answer Desk at l-800-368-5855 for information on any of the above resources. In Washington D.C. call 653-7561. Also, you may request a free Directory of Business Development Publications from your local SBA office or the Answer Desk. Other Sources ๙ State Economic Development Agencies ๙ Chambers of Commerce ๙ Local Colleges ๙ The Library ๙ Manufacturers and suppliers of small business technologies and products. Good Luck!SMALL LOAN PROGRAM THE PROGRAM The U.S. Small Business Administration (SBA) started the Small Loan Program to meet the ever-growing need for loans of $50,000 or less. These loans will be particularly valuable to small firms in the service sector. Under this program, the SBA changed the guaranty fee to participating lenders and simplified the application form to encourage lenders to consider SBA- guaranteed loans of $50,000 or less. The change in the program allows lenders making SBA-guaranteed loans of $50,000 or less with maturities greater than 12 months to retain half of the guaranty fee that is normally paid to the SBA. For example, a $50,000 loan with a 90 percent guaranty has an SBA- guaranteed portion of $45,000, and the two percent guaranty fee would be $900. Under the new changes, the lender may retain $450 and forward $450 to SBA, or, at its option, the lender may choose not to charge the small business borrower the half of the guaranty that it would have retained. The guaranty fee remain at two percent of the amount that the SBA guarantees on loans exceeding $50,000 with maturities greater than 12 months. The lender pays the guaranty fee to SBA. However, the lender may charge the fee to the small business borrower. A new and simplified application form (SBA Form 4 Short Form) has been designed by the SBA to make the program easier to use. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a non- discriminatory basis. INTEREST RATE POLICY POLICY The U.S. Small Business Administration's (SBA) interest rate policies vary, depending on the typeof loan assistance. Interest rates for direct loans are based on a survey of the investment market for federal fixed-income securities. The rates are adjusted quarterly. On the other hand, interest rates on guaranteed loans are negotiated between borrowers and lenders, although rates cannot be any higher than maximum levels set by SBA regulations. Maximum rates are based on the lowest New York prime rate on the date the SBA receives the application. For loans with maturities of less than seven years, the maximum rate is 2.25 percentage points above the prime rate. For loans with maturities of seven or more years, the maximum rate is 2.75 percentage points above the prime rate. For immediate participation loans, the maximum interest rate for the lenders' share is one percentage point below the maximum guaranty rate for loans with comparable maturities. The interest rate may be fixed or variable, depending on negotiated loan agreements between the borrower and the lender. VARIABLE RATE PEGS Variable rate loans may be pegged to either the lowest New York prime rate or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the Federal Register. The lender and borrower negotiate the amount of "spread" which will be added to the "base" (New York prime or optional peg) rate; not more than 2.25 percentage points on loans with maturities of less than seven years, and not more than 2.75 percentage points on loans with longer maturities. Although there may be exceptions, generally, the rate cited in the note upon which payment calculations are based will be the base rate plus the negotiated spread. An adjustment period is selected which will identify the frequency with which the note rate will change. It can be monthly, quarterly, semi-annually, or annually. While it is possible that the base rate (prime, for example) could change numerous times in one month, the note rate would only be adjusted once, on the first business day of the month following the last change. This example assumes that the adjustment period had been identified as being monthly. On the day of the application, the participating lender must have determined: (l) the base rate, (2) the spread, (3) the note rate, and (4) the adjustment period. EXAMPLE A lender agrees to request SBA's guaranty of a loan to have a 10-year maturity. New York prime on the day the lender submits the application to SBA is nine percent. The lender and borrower have agreed that payments will be calculated at "prime plus 2.50 percent" and that the rate will fluctuate on a quarterly basis. The base rate is nine percent; the spread is 2.50 percent; the note rate is 11.50 percent; and the adjustment period is quarterly. If the New York prime changes either up or down during any calendar quarter, the note rate will change by the same amount on the first business day of the calendar quarter following the quarter in which the change occurred. The spread stays constant throughout the term of the loan. Therefore, while the maximum note rate at the time this loan was made was 11.75 percent, if prime goes up to 12 percent during the life of the loan, the rate on the note at that time would go up to 14.75 percent. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA or (202) 205-7064. For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non- discriminatory basis.SURETY BOND GUARANTEE PROGRAM THE PROGRAM The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $1.25 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through the regular commercial channels. ELIGIBILITY Businesses in the construction and service industries can meet the SBA's size eligibility standards if their average annual receipts, including those of their affiliates, for the last three fiscal years do not exceed $3.5 million. Local SBA offices can answer questions dealing with size standard eligibility. TYPES OF ELIGIBLE BONDS Any contract bond (bid, performance or payment) is eligible for SBA guarantee if the bond is: covered by the contracts bonds section of the Surety Association of America Rating Manual;  required by the invitation to bid or by the contract; and  executed by a surety company that is determined by SBA to be eligible to participate in the program and is certified acceptable by the U.S. Treasury (Circular 570). Some non-competitive negotiated contracts are eligible if they are in accord with appropriate federal regulations. SIZE OF ELIGIBLE CONTRACTS The SBA can guarantee bonds for contracts up to $1.25 million. SBA GUARANTEE The SBA guarantees surety companies against a percentage of losses sustained on contracts up to $1.25 million in face value. DUTIES OF CONTRACTOR Contractors should apply for a specific bond with a surety company of their choice, providing background, credit and financial information required by the surety company and the SBA. The contractor must use the following forms, which are available from the SBA: SBA Form 994: Application for Surety Bond Guarantee Assistance SBA Form 912: Statement of Personal History (on first application and once every two calendar years thereafter) SBA Form 994F: Schedule of Uncompleted Work on Hand (required initially and then at least quarterly) DUTIES OF SURETY COMPANY After an applicant completes the forms and furnishes the surety company with sufficient underwriting information, the surety company processes and underwrites the application in the same manner as any other contract bond application. The surety company decides whether to: - execute the bond without the SBA's guarantee; - execute the bond only with the SBA's guarantee; or - decline the bond even with the SBA's guarantee. If the surety company determines an SBA guarantee is required in order to provide the bond, it must then complete an SBA Form 994B: Underwriting Review and the SBA Form 990: Guarantee Agreement. These forms -- and supporting documents -- are submitted along with the 994, 912 and 994F to the appropriate SBA office. If the application is for a final bond, the contractor's guarantee fee check must be attached. DUTIES OF THE SBA The SBA determines an applicant's ability to complete the contract based on the information, documentation and underwriting rationale provided by the surety company. If the review establishes performance capacity, and all other aspects of the application are approved, a duly authorized SBA official signs a guarantee agreement and returns it to the surety company. If the review fails to establish performance capacity, the SBA seeks clarification from the surety underwriter. If performance capacity cannot be reasonably assured, the SBA rejects the application. COST OF AN SBA GUARANTEED BOND The SBA charges fees to both the contractor and the surety company, as described in the most recent edition of 13 CFR 115: The small business pays the SBA a guarantee fee of six dollars per thousand of the contract amount. When the bond is issued, the small business pays the surety company's bond premium. This charge cannot exceed the level approved by the appropriate state regulatory body.  The surety company pays the SBA a guarantee fee as determined by the SBA. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333. All of SBA's programs and services are extended to the public on a non- discriminatory basis.LOANS TO SMALL GENERAL CONTRACTORS THE PROGRAM The U.S. Small Business Administration (SBA) makes regular business loans to small general contractors to finance construction or renovation of residential or commercial buildings that will be offered for sale. These loans are available only under the guaranty loan program. ELIGIBILITY Eligibility rules require construction contractors and homebuilders to have already demonstrated the managerial and technical ability to build or renovate projects comparable in size to those for which they are seeking SBA financing. In addition, they must qualify as small businesses under the SBA's size standards and meet the Agency's credit criteria. AMOUNT The SBA can guarantee as much as 85 percent of the loan up to $750,000. The maximum guaranty for loans up to $155,000 is 90 percent. TERMS The loan maturity cannot be more than 36 months plus a reasonable estimate of the time it takes to complete the construction or renovation. Principal repayment may be required in a single payment when the project is sold. Interest payments, however, are required at least twice a year and must be paid from the applicant's own resources, not from loan proceeds. INTEREST RATES A lender may charge 2.25 percentage points over the New York prime interest rate. USE OF PROCEEDS Loan proceeds can be used only for direct expenses of the project. Rehabilitation projects also qualify if they are "significant" and if, at the time of loan application, the estimated costs are equal to or more than a third of the purchase price or the fair market value of residential or commercial buildings at the time they are offered for sale. Loans also can be used to purchase vacant land if the price is no more than 20 percent of the total loan. Not more than 5 percent of the loan can be used for streets, curbs and other developmental costs that benefit properties other than the one being built or rehabilitated. SPECIAL APPLICATION REQUIREMENTS In addition to the requirements of SBA's regular business loan program, the applicant must submit three letters to SBA (or to the participating lender). One letter must be from a mortgage lender doing business in the area affirming that permanent mortgage financing for qualified purchasers of comparable real estate is normally available in the project's area. Another letter must come from an independently licensed real estate broker with three years of experience in the project area. The letter must state whether a market for the proposed structure exists and whether it is compatible with other buildings in the neighborhood. The third letter must be from an independent architect, appraiser or engineer, confirming availability of construction inspection and certification at intervals during the project. This letter writer cannot be affiliated with the applicant in any way. The cost of construction inspections must be paid by the applicant and can be paid from the loan proceeds. COLLATERAL Loans for the project must be secured by not less than a second lien. The total amount of the first and second liens on a property cannot exceed 80 percent of the contractor's anticipated selling price. The first lien must include provisions for transferring clear title to the purchaser of each parcel. The SBA will not take a second position in a subdivision that is subordinate to a lien requiring the entire loan to be paid in full before any property is released. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064. For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non- discriminatory basis. 8(a) PARTICIPANT LOANS The Program This program provides financial assistance to businesses participating in the 8(a) program. Loans may be made on a direct basis, or through lending institutions under SBA's immediate participation or guaranty program. ELIGIBILITY Only applicants currently participating in the 8(a) program and therefore eligible for contractual assistance under that program are eligible. LOAN AMOUNTS The maximum SBA guaranty of a loan through a lending institution is $750,000. Direct and immediate participation loans are limited to an SBA share of $150,000. LOAN PROCEEDS Loan proceeds are to be used within a reasonable time for plant construction, conversion or expansion, machinery and equipment, or facilities. Loan proceeds to manufacturers may be used for working capital purposes. For non- manufacturers working capital loan proceeds are limited to inventory, supplies, and materials. No debt payment is permitted. INTEREST RATES Interest rates on guaranty loans are set by the lender, not to exceed two and three quarter percentage points over the New York prime interest rate. The interest rate on direct loans will be one percent less than the SBA direct loan rate, which changes each calendar quarter. COLLATERAL Collateral requirements for guaranteed loans are the same as SBA's regular program. Generally, collateral is required to the extent it is available and in value sufficient to secure the loan. Direct or immediate participation loans will be subordinate to perfected security interests held by financial institutions arising from the borrower's past borrowings. This provision does not apply to past borrowings from individuals. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064. For the hearing impaired, call (202) 205-7333 (TDD) All of SBA's programs and services are extended to the public on a non- discriminatory basis.LOANS FOR VIETNAM-ERA AND DISABLED VETERANS THE PROGRAM Disabled and Vietnam-era veterans who cannot secure business financing on reasonable terms from private sector or guaranty loan sources can turn to the U.S. Small Business Administration (SBA) for direct loans. Veterans can use the loans to set up a small business or to operate or expand an existing small business. The ceiling on these loans is $150,000. While all qualified veterans get special consideration when they apply for SBA assistance, most loans are made by financial institutions and many are guaranteed by SBA. When a guaranteed loan or other reasonable credit financing is available, SBA cannot make a direct loan. Applicants must meet certain basic credit criteria. They must, for example, have sufficient equity in the business and the ability to repay the loan from business earnings. Applicants must apply to local financial institutions for loans in order to show that they cannot get financing on reasonable terms without SBA assistance. Applicants must provide evidence that a request for a loan on the same or similar terms as those sought from the SBA was rejected for reasons other than credit factors. ELIGIBILITY Vietnam-era veterans are veterans who served for more than 180 days, any part of which was between August 5, 1964, and May 7, 1975, and were discharged other than dishonorably. Disabled veterans are veterans with 30 percent or more compensable disability or veterans with a disability discharge. A veteran who meets the above criteria must own at least 51 percent of the firm, participate in the actual day-to-day operation of the business, show ability to successfully run a business, show significant capital investment in the firm, and show that the loan requested is not available elsewhere. Loans for investment, rental real estate and gambling are prohibited by law. INTEREST RATE The interest rate on Vietnam-era and disabled veteran loans is the same as the current rate for SBA direct loans, which is adjusted quarterly. COLLATERAL The SBA must be satisfied that loans are of sufficiently sound value or reasonably secured to assure repayment. Generally, applicants must pledge available collateral. The Agency may also require personal guarantees by principals. SINGLE LOAN BENEFIT The veteran status of an individual may only be used one time to qualify for an SBA loan. Subsequent loans under this program must be based on 51 percent minimum ownership by persons with unused eligibility. ADDITIONAL INFORMATION Most SBA offices cosponsor training to help veterans make decisions on going into business, acquaint them with lender requirements and help them determine what paperwork may be required. The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis. BLACK-OWNED SMALL BUSINESSES SBA ASSISTANCE The U.S. Small Business Administration (SBA) provided a total of 518 direct and guaranteed loans (excluding disaster loans) worth more than $91.1 million and 1,628 8(a) contracts totaling nearly $1.44 billion to Black-owned firms in FY 1990. More than 1,870 Black-owned firms participate in the 8(a) program. The SBA also maintains the Procurement Automated Source System (PASS), a computerized listing of small business contractors seeking government procurements. More than 13,430 Black-owned firms are profiled in the system. CENSUS STATISTICS According to the latest U.S. Bureau of the Census statistics, there were 424,165 Black-owned businesses in the United States in 1987. That is a 38 percent increase from the 1982 total of 308,260. This rate of growth is nearly three times the rate for all businesses during that time. In 1987, 49.4 percent of the Black-owned firms were concentrated in the service industries. These categories accounted for 31 percent of the gross receipts. Retail trade had the next largest concentration with 15.6 percent of the firms and 29.8 percent of the receipts. The manufacturing and wholesale trade industries experienced strong growth among Black-owned firms between 1982 and 1987. Black-owned manufacturing firms more than doubled, rising from 3,707 in 1982 to 8,004 in 1987. The growth in receipts in this industry was nearly a four-fold increase, from $345 million in 1982 to just over $1 billion in 1987. Black-owned firms in the wholesale trade industry increased from 3,119 businesses in 1982 to 5,519 businesses in 1987, an increase of 77 percent. Receipts more than quadrupled, rising from $432 million in 1982 to $1.3 billion in 1987. The majority of the firms (400,339 or 94.4 percent) owned by Blacks in 1987 operated as sole proprietorships. Partnerships accounted for 3.3 percent of the Black-owned firms, with Subchapter S corporations accounting for three percent. Gross receipts in 1987 for Black-owned businesses were $19.8 billion, up from $9.6 billion in 1982. Sole proprietorships accounted for 50.9 percent of the gross receipts, partnerships for 10 percent, and Subchapter S corporations, 39.2 percent. Almost one-quarter million Americans were employed in Black-owned firms in 1987, up 82 percent from 1982. The number of Black-owned businesses with paid employees rose by 87 percent, from 37,841 in 1982 to 70,815 in 1987. In 1987, the largest number of Black-owned firms -- 47,728 -- were located in California, with gross receipts of $2.4 billion. New York was second with 36,289 firms and receipts totaling $1.9 billion. Slightly less than 44 percent of the Black-owned firms and 44.7 percent of gross receipts were concentrated in California, Texas, New York, Florida and Illinois. The 10 metropolitan areas with the most Black-owned firms in 1987 were: City # Firms Receipts New York 28,063 $1.2 billion Los Angeles 23,932 $1.3 billion Wash., D.C. 23,046 $1.0 billion Chicago 15,374 $0.9 billion Houston 12,989 $0.4 billion Atlanta 11,804 $0.7 billion Philadelphia 10,249 $0.6 billion Detroit 9,852 $0.5 billion Baltimore 8,593 $0.3 billion Dallas 7,857 $0.2 billion ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract and export assistance. The Agency also offers specialized assistance to women business owners, other minorities and veterans. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis. HISPANIC-OWNED SMALL BUSINESSES SBA ASSISTANCE The U.S. Small Business Administration (SBA) provided a total of 894 direct and guaranteed loans (excluding disaster loans), totaling 168.3 million to Hispanic-owned small businesses in the United States and Puerto Rico in FY 1991. The SBA awards federal contracts through the 8(a) program to eligible socially and economically disadvantaged firms. In FY 1991, 1,265 contacts were let to Hispanic-owned 8(a) firms totaling more than $1.2 billion. There are approximately 1,060 Hispanic-owned firms in the United States and Puerto Rico participating in the 8(a) program. The SBA also maintains the Procurement Atomated Source System (PASS), a computerized data base of small business contractors. The system responds to requests made by government agencies or major contractors for potential small business suppliers. More than 11,605 Hispanic-owned firms are profiled in the system. GENERAL information The most recent data available from the U.S. Bureau of the Census show that in 1987, there were 422,373 U.S. businesses owned by Hispanic persons, up from 233,975 in 1982, an increase of 80.5 percent. The rate of growth is almost six times the rate for all businesses. Hispanic firms account for roughly 3.1 percent of all U.S. businesses. Hispanic firms were concentrated in the service industries, which accounted for 43.7 percent of all Hispanic-owned firms. The industries with the strongest relative growth in both number and receipts are wholesale trade and manufacturing. The wholesale trade industry saw a 202 percent increase in the number of businesses, up from 3,359 in 1982 to 10,154 in 1987. Receipts grew by 219 percent, from $766.65 million in 1982 to $2.45 billion in 1987. The majority of firms -- 396,769 (93.9 percent) -- owned by Hispanics in 1987 operated as sole proprietorships. Partnerships totaled 12,230 or 2.9 percent of the firms. Corporations accounted for 3.2 percent of the firms. Hispanic businesses had gross receipts of $24.73 billion in 1987, up from $11.76 billion in 1982. Sole proprietorships accounted for 61.3 percent of the gross receipts; partnerships, 9.3 percent; and corporations, 29.4 percent. The Census Bureau data show that between 1982 and 1987, Hispanic-owned businesses with paid employees more than doubled, rising from 39,272 businesses in 1982 to 82,908 such businesses in 1987. Hispanic-owned firms provided jobs for 264,846 Americans in 1987. Approximately 76 percent of all Hispanic-owned businesses in the U.S. are located in California, Texas, Florida and New York. California has the largest number with 132,212, followed by Texas, 94,754; Florida, 64,413; and New York, 28,254. The firms in these states generated about 76 percent of the receipts of all such businesses in the country in 1987. The cities with the largest number of Hispanic-owned firms in 1987 were: City # Firms Receipts Los Angeles 21,819 $1.22 billion New York 20,945 $1.1 billion San Antonio 13,405 $580 million Miami 12,771 $1.29 billion Houston 10,872 $406 million Hialeah, Fla. 8,100 $513 million El Paso 7,399 $415 million Chicago 5,021 $294 million San Diego 4,083 $205 million San Jose 3,609 $166 million ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, other minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, calll (202) 205-7333 (TDD) All of SBA's programs and services are extended to the public on a non-discriminatory basis. SMALL BUSINESSES OWNED BY ASIANS, AMERICAN INDIANS AND OTHER MINORITIES (NOTE: Black and Hispanic-owned businesses are covered in other SBA fact sheets.) THE PROGRAM The U.S. Small Business Administration (SBA) provided a total of 1,315 direct and guaranteed loans (excluding disaster loans) in 1991 to small firms owned by Asian Americans, American Indians and other minorities in the United States and Puerto Rico. The loans were worth $425.6 million. The SBA awards federal contracts through the 8(a) program to eligible socially and economically disadvantaged firms. During FY 1991, 1,458 8(a) contracts were let to firms owned by Asians, American Indians, and other minorities. These contracts were worth $1.04 billion. There are approximately 979 such firms in the 8(a) program in the United States and Puerto Rico. The SBA maintains the Procurement Automated Source System (PASS), a computerized database of small business contractors. PASS responds to requests made by government agencies or major contractors for potential small business suppliers. More than 15,250 firms owned by the above-named groups are profiled in PASS. CENSUS STATISTICS According to the 1987 Economic Census, there were 376,711 firms in the United States owned by Asians, American Indians and other minorities. Firms owned by these groups had gross receipts of $34 billion. Sixty-eight percent of these firms were concentrated in California, Hawaii, Texas, New York and Illinois. The majority of these firms operated as sole proprietorships: 340,615, or 90.4 percent. They accounted for 62.4 percent of the gross receipts. Of the total number of firms owned by Asians, American Indians and other minorities, 5.1 percent, or 19,261, were partnerships, accounting for 12.4 percent of the gross receipts. Only 4.5 percent were corporations, but they collected 25.1 percent of the gross receipts. More than 70 percent of all firms owned by Asians, American Indians and other minorities were concentrated in the services and retail trade industry divisions. The 1987 Census data show that the two largest major industry groups were business services, with 48,598 firms, and personal services with 38,111 firms. California led the way with the largest number of businesses, 147,633 and gross receipts of $14.8 billion. New York was second with 36,257 firms, reporting $3.2 billion in gross receipts. The metropolitan areas with the largest number of firms owned by Asian Americans, American Indians and other minorities in 1987 were: City # Firms Receipts Los Angeles 63,139 $ 6.9 billion New York 29,248 $ 2.4 billion Honolulu 24,452 $ 1.3 billion San Francisco 17,260 $ 1.7 billion Anaheim- Santa Ana 15,407 $ 1.4 billion Chicago 12,593 $ 1.2 billion Oakland 12,011 $ 1.1 billion Wash., DC 11,693 $925 million San Jose 11,566 $993 million Houston 8,777 $805 million ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, other minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, check the telephone directory under U.S. Government or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non-discriminatory basis. HANDICAPPED ASSISTANCE LOANS THE PROGRAM Handicapped individuals and public or private non-profit organizations for the employment of the handicapped can get U.S. Small Business Administration (SBA) financing for starting, acquiring or operating a small business. The loans are available under the Handicapped Assistance Loan Program. ELIGIBILITY Public or Private Non-profit Organizations (HAL-1) Financial assistance is available to state- and federal-chartered organizations that operate in the interest of handicapped individuals. Eligibility rules specify that the applying organization's net income cannot benefit any stockholder or other individual, and that at least 75 percent of the direct work involved must be done by handicapped persons. To establish HAL-1 eligibility, applicants must provide evidence that the business is operated in the interest of handicapped individuals. The evidence may consist of copies of by-laws, incorporation papers, certification of tax-exempt status as determined by the Internal Revenue Service, or recognition and approval by the U.S. Secretary of Labor or a state vocational rehabilitation agency. Handicapped Individuals (HAL-2) To be eligible for loans under the HAL-2 program, handicapped individuals must provide evidence of the following: Their business is a for-profit operation and qualifies as small under the SBA's size standard criteria. Loans cannot be made to businesses involved in creating or distributing ideas or opinions -- such as newspapers, magazines and academic schools -- or businesses engaged in speculation or investment in rental real estate. The business must be 100 percent owned by one or more handicapped individuals. A handicapped individual is a person who has a permanent physical, mental, or emotional impairment, defect, ailment, disease or major disability. Applicants must show that their disability keeps them from competing on a par with non-handicapped competitors. The handicapped owner(s) must actively participate in managing the business. Applications that propose absentee ownership are not eligible. Whether the business is organized as a proprietorship, a partnership or a corporation is not a determining factor with respect to eligibility as a small business. AMOUNT, TERMS AND INTEREST RATES The SBA can guarantee up to $750,000 of a loan made by a private lending institution. Direct loans from the SBA are limited to $150,000. Interest rates on direct loans are three percent per year. Interest rates on guaranteed loans are set by the private lending institution and must be legal, reasonable and within a maximum allowable rate established by SBA. No direct loan can be approved if a guaranteed loan is available. The SBA will not provide financial assistance if funds are otherwise available from the applicant's own resources, from a private lending institution or through financing by a government entity other than the SBA. HAL-1 loan proceeds may be used for most business purposes. They may not be used for supportive services. Supportive services refers to expenses incurred by HAL-1 organizations to subsidize wages of low producers, health and rehabilitation services, management, training, education and housing of handicapped workers and other such uses. BASIS FOR LOAN APPROVAL Nonprofit organizations must have the capability and experience to successfully produce or provide marketable goods and services. An evaluation of the experience, competency and ability of the owners and operators of the small business must indicate that they can operate it successfully and can repay the loan from business earnings. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans,international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333 (TDD) All of SBA's programs and services are extended to the public on a non- discriminatory basis.INTERNATIONAL TRADE LOAN PROGRAM THE PROGRAM The International Trade Loan Program helps small businesses that are engaged or preparing to engage in international trade, as well as small businesses adversely affected by competition from imports. Loans are made by lending institutions with the U.S. Small Business Administration (SBA) guaranteeing a portion of the loan. ELIGIBILITY The applicant must establish either of the following: The loan proceeds will significantly expand existing export markets or develop new export markets. The applicant must submit a business plan, including sufficient information to reasonably support the likelihood of expanded export sales. The plan must include both a profit and loss projection and a narrative rationale. The applicant is adversely affected by import competition. Injury attributable to increased competition with foreign firms must be demonstrated. A narrative explanation and financial statements must show that directly competitive imported products have made an important contribution to a decline in the firm's competitive position. This can be demonstrated by factors such as a decline in sales, production, and underutilization of capacity, decreased profitability, or the threat of (or actual) loss of production employees. AMOUNT OF LOAN The SBA can guarantee up to $1.25 million, less the amount of SBA's guaranteed portion of other loans outstanding to the borrower under the SBA's regular lending program. The SBA's guaranteed portion of loans for facilities and equipment is limited to $1 million, and SBA's share of loans for working capital is limited to $250,000. The working capital portion of the loan will be administered according to the provisions of the SBA's Export Revolving Line of Credit (ERLC). USE OF PROCEEDS Proceeds may be used for: Working capital. Facilities or equipment, including purchasing land and building(s); building new facilities; renovating, improving or expanding existing facilities; purchasing or reconditioning machinery, equipment, and fixtures; and making other improvements that will be used within the United States for producing goods or services. Proceeds may not be used for debt payment. COLLATERAL Only collateral located in the United States (including its territories and possessions) is acceptable for a loan made under this program. The lender must take a first lien position (or first mortgage) on the items financed under this section. Additional supportive collateral may be required as appropriate, including personal guaranties, subordinate liens or items which are not financed by loan proceeds. MATURITY Maturities of loans for facilities or equipment may extend to the 25-year maximum applicable to most SBA loan programs. The working capital portion of loans, under ERLC provisions, have a three-year maturity. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women, minorities, veterans and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis.CONTRACT LOAN PROGRAM THE PROGRAM The Contract Loan Program (COL) is a short-term line of credit designed to finance the estimated costs of labor and materials needed to perform a specific contract. The loans are guaranteed by the U.S. Small Business Administration (SBA) and do not allow revolving account access to funds guaranteed by the Agency. These loans are available only under SBA's guaranty program. Eligible businesses may have more than one COL outstanding at any given time as long as SBA's total exposure does not exceed $750,000. ELIGIBILITY To be eligible, a business must be for-profit and qualify as small under the SBA's size standard criteria, with an exception for sheltered workshops under the Handicapped Assistance Loan Program. Businesses involved in creating or distributing ideas or opinions -- such as newspapers, magazines, and academic schools -- and businesses engaged in speculation or investment in rental real estate are not eligible. Also, the business must have been in continuous operation for 12 months immediately preceding the application date. Contractors and subcontractors in the construction, manufacturing and service industries may apply. Applicants must provide a specific product or service under an assignable contract. The program is not intended to provide money to finance receivables or inventory on-hand. AMOUNT, TERMS AND INTEREST RATES SBA can guarantee as much as 85 percent of the loan up to $750,000. For loans up to $155,000, the maximum guaranty is 90 percent. Under the program, loan maturity usually will be 12 months or less from the date of the first disbursement by the SBA. For larger contracts, the Agency may permit loan maturities of up to 18 months. Any request for any maturity longer than 18 months requires special approval from the director of the SBA Loan Policy and Procedures Branch. COLLATERAL Collateral includes an assignment of contract proceeds, although the Agency usually requires a pledge of outside assets and secured personal guaranties. TAX REQUIREMENTS All applicants must be current on payroll taxes and provide a depository plan for payment of future withholding taxes. Special Program Requirements Applicants must submit a proposed schedule of draws against the loan and payments on it. They must also submit a projected cash flow for all business operations over the term of the contract and the loan. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For hearing impaired, call (202) 205-7333. All of SBA's programs and services are extended to the public on a non- discriminatory basis. SEASONAL LINE OF CREDIT PROGRAM THE PROGRAM The Seasonal Line of Credit Program offers short-term loans to help small businesses get past cash crunches attributable to seasonal changes in business volume. The loans are guaranteed by the U.S. Small Business Administration (SBA) and are used to finance increases in trading assets, such as receivables and inventory, required as a result of seasonal upswings in business. These loans are available only under the guaranty loan program. ELIGIBILITY Eligible businesses must be for-profit operations. They also must qualify as small according to the criteria set by the SBA's size standards, although an exception is provided for sheltered workshops qualifying under the Handicapped Assistance Loan Program. Loans cannot be made to businesses involved in the creation or distribution of ideas or opinions -- such as newspapers, magazines, and academic schools -- or those engaged in speculation or investment in rental real estate. In addition, businesses must have been in operation continuously for one year immediately preceding the application date. They also must have established a definite pattern of seasonal activity. Applicants who are eligible under the Contract Loan Program are not eligible under this loan program. AMOUNT OF LOAN The SBA can guarantee as much as 85 percent of the loan up to $750,000. For loans of up to $155,000, the Agency can guarantee up to 90 percent of the principal. The loan amount is determined by the increased working capital needed to meet the seasonal increase in business. MATURITY The term of the Seasonal Line of Credit loan cannot be more than 12 months from the date of the SBA's first disbursement. Only one Seasonal Line of Credit loan can be outstanding at any one time and each loan must be followed by an out-of-debt period of at least 30 days. These restrictions do not apply to agricultural enterprises. COLLATERAL The collateral required for the loans is primarily liens on all inventory and accounts receivable. Additional collateral, including the pledge of outside assets and personal guaranties, also may be required. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non- discriminatory basis. SOLAR ENERGY AND CONSERVATION LOAN PROGRAM THE PROGRAM Small firms in the energy conservation business can get financial help under the U.S. Small Business Administration's Small Business Solar Energy and Conservation Loan Program. Financing is available for small businesses engaged in engineering, manufacturing, distributing, marketing, installing or servicing products or services designed to conserve the nation's energy resources. Loans can also be used to buy land for plant construction; convert or expand existing facilities; purchase machinery, equipment, furniture, fixtures, facilities, supplies and materials; or provide working capital for entry or expansion into eligible conservation project areas. Firms installing or undertaking energy conservation measures in their own plants or offices are not eligible under this program, although they can apply for financing under the SBA's regular business loan program. Up to 30 percent of loan proceeds can be used for research and development if the business plan shows strong repayment ability or when a product or service already being marketed needs further development. ELIGIBILITY Small firms engaged in the following energy production or conservation activities are eligible: Wind energy conversion equipment; Solar thermal energy equipment; Photovoltaic cells and related equipment; Hydroelectric power equipment; Equipment primarily used to produce energy from wood, biological waste, grain or other biomass sources; Equipment for industrial cogeneration of energy, heating or production of energy for industrial waste; Products or services that use devices that increase the energy efficiency of existing equipment, or improve operation of systems that use fossil fuels and are on the Energy Conservation Measures List of the Secretary of Energy or approved by the SBA. These include insulation procedures and procedures involving heating, cooling and lighting in residential, commercial and industrial buildings; and Engineering, architectural, consulting or other professional services that are necessary or appropriate to help citizens use any of the conservation resources described above. AMOUNT, TERMS AND INTEREST RATES An SBA loan guaranty can cover up to 85 percent of loans up to $750,000. The maximum guaranty for loans up to $155,000 is 90 percent. Both direct and immediate participation (IP) loans, when funds are available, are limited to $150,000 of SBA participation. The maturity of a Small Business Energy Loan is set according to the borrower's ability to repay and the proposed use of proceeds. The maximum maturity is 25 years, but maturities of that length are used to finance fixed assets. Lenders may charge 2.25 or 2.75 percentage points above the New York prime rate, depending on the maturity of the loan. COLLATERAL Applicants must pledge adequate collateral and provide personal guaranties if required by the Agency. Refusal to pledge available collateral may be sufficient reason for declining the loan. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis. ษออออออออออออป บ SECONDARY บ บ MARKET บ บ PROGRAM บ ศออออออออออออผ THE PROGRAM Lenders who hold business loans guaranteed by the U.S. Small Business Administration (SBA) may be able to profit by selling the guaranteed portions of those loans in the active secondary market. Banks, savings and loan associations, credit unions, pension funds and insurance compa- nies are frequent buyers. U.S. Small Business Administration ษออออออออออออออออออออออออออออป บ WHY WOULD I WANT TO SELL บ บ MY LOANS? บ ศออออออออออออออออออออออออออออผ Lenders sell loans to improve liquidity and profits. ษออออออออออออป บ LIQUIDITY บ ศออออออออออออผ The SBA guarantee can be converted to cash, and the whole process can be completed in as little as two weeks. The lender and buyer sign an agreement describing the rights and responsibilities of both parties (SBA Form 1086, Secondary Participation Guarantee and Certification Agreement). This agreement is sent to the fiscal and transfer agent (FTA), who reviews the documents for completeness and contacts both parties to arrange a settlement. On the settlement date, the buyer wires money to the FTA. The FTA receives the money, issues a certificate to the buyer and wires the money to the seller. ษอออออออออออออป บ PROFITS บ ศอออออออออออออผ The profits from selling a loan come from three areas: a premium at the time of sale, a servicing fee during the life of the loan, and the float on the borrower' s loan payment. Variable rate SBA loans usually sell at a premium. The premium varies with market conditions and the servicing fee retained by the lender. SBA requires that an originating lender retain a servicing fee of at least one percent, although they are free to retain a larger fee. This fee consists of the cash flow from the portion of the loan retained by the lender to cover the cost of borrower visits, financial statement analysis, and other items necessary to service small business loans. The payment flow from the borrower to the investor allows the lender to hold the loan payment until the end of the month in which it was received. If the borrower pays at the beginning of each month, the lender receives about one month's float on each payment. This additional float increases the yield. For example, assume that a $100,000, 90 percent guaranteed loan with a 10.5 percent note rate and a seven-year maturity is sold to an investor at a net coupon rate of 8.375 percent, and that the lender retains a two percent servicing fee. (The remaining 0.125 percent is the FTA fee.) The borrower's payment date is the first of each month. The approximate first year cash flow to the lender would be $1,050 (10.5 percent) on the $10,000 unguaranteed portion and $1,800 (two percent) on the $90,000 guaranteed portion, for a total of $2,850. In addition, the $1,357 float that must be paid to the FTA each month would earn six percent, about $80 per year. Applied to the $10,000 investment of the lender, the gross yield before servicing expenses is almost 30 percent. The gross yield is further increased by any premium received because the premium will lower the lender's investment in the loan. ษอออออออออออออออออออออออออออป บ HOW BIG IS THE SECONDARY บ บ MARKET? บ ศอออออออออออออออออออออออออออผ About $1.7 billion in new loans enter the secondary market each year. An additional $1.0 billion of previously sold loans are traded. ษอออออออออออออออออออออป บ HOW DO I GO ABOUT บ บ SELLING MY LOANS? บ ศอออออออออออออออออออออผ While there is no requirement that a broker/dealer be used, a good first step is to call a few and get price quotes. These people are familiar with the paperwork and the selling process and make a market in the securities. After the deal is made, SBA Form 1086 is signed by all parties and, along with other required documents, is sent to the fiscal and transfer agent. The SBA has a list of broker/dealers and other entities that have been approved as loan pool assemblers. ษออออออออออออออออออออออออป บ WHAT DOCUMENTATION IS บ บ NEEDED? บ ศออออออออออออออออออออออออผ The sale is accomplished on SBA Form 1086, Secondary Participation Guarantee and Certification Agree- ment. A copy of the Note (SBA Form 147) also is required. ษออออออออออออออออออออป บ WHAT ARE MY บ บ RESPONSIBILITIES บ บ AFTER THE SALE? บ ศออออออออออออออออออออผ The lender remains responsible for all loan servicing activities. After the sale, the lender must forward the borrower's monthly payment to the FTA, along with a complete accounting of the funds (using SBA Form 1502, Standard Remittance Form). Furthermore, with the exception of one three-month payment deferment, any servic- ing action that would affect the payment flow must be approved by the investor before implementation. ษอออออออออออออออออออออป บ WHAT ARE THE บ บ RESPONSIBILITIES บ บ OF THE FTA? บ ศอออออออออออออออออออออผ The Secondary Market Improvements Act of 1984 requires central registration of all transactions. The FTA facilitates the set- tlement of the first sale of a loan. On all subsequent sales, the buyer gives the money directly to the seller who in return gives the buyer the certificate. The new owner must forward the certificate to the FTA so that a new certificate can be issued in his or her name, and the sale can be recorded on the FTA's books. The FTA also receives bor- rower payments from lenders each month and forwards them to investors. The FTA eliminates the need for lenders to keep track of the owners of the loans and permits lenders to write just one check each month to cover all loans that have been sold. From the investor's standpoint, the FTA keeps track of which lenders made a monthly payment, sends one check to the investor and includes an accounting of the funds. The also forwards all servicing requests from lenders to investors and forwards the response to the lender. ษออออออออออออออออออออออออป บ ADDITIONAL INFORMATION บ ศออออออออออออออออออออออออผ For further information, please write to the Office of Secondary Market Activities, SBA, 409 - 3rd Street, S.W., 8th Floor, Washington, D.C. 20416, or call 202/205-6493. The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers special- ized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis.SECTION 504 CERTIFIED DEVELOPMENT COMPANY PROGRAM the Program The U.S. Small Business Administration (SBA) provides long-term financing to small businesses through its Certified Development Company Program. The program makes loans available for acquiring land, buildings, machinery and equipment, and for building, modernizing, renovating or restoring existing facilities and sites. WHAT IS A 504 CERTIFIED DEVELOPMENT COMPANY? A Certified Development Company (CDC) is a private, public sector nonprofit corporation that is set up to contribute to the economic development of its community or region. It must: Operate in a defined area; Be composed of 25 or more members who are geographically representative of the CDC's area of operation and who include representatives from government agencies in the area of operation, private sector lending institutions, businesses and community organizations; Provide a full-time professional staff who can market the program and process, close and service its loan portfolio; Have the ability to sustain its operations on a continuous basis from reliable sources of funds; Have five or more directors who meet quarterly. At least one director must have commercial lending experience; and Have incorporated within its bylaws and articles that its chief purpose is to "promote and assist the growth and development of business concerns in its operation area." A CDC is responsible for assisting at least two small businesses a year, injecting 10 percent of the funds necessary to complete each project, and ensuring that the debentures are correctly closed and secured. It must maintain a place of business that is open to the public during business hours and listed under a separate phone number. The CDC is also responsible for submitting an annual report containing financial statements, management information, a full activity report and an analysis of its assistance to small businesses. HOW DOES A CDC WORK? CDCs can sell 100 percent SBA-guaranteed debentures to private investors in amounts up to 40 percent of a project or $750,000, whichever is less (in some cases, the maximum SBA portion may be $1 million). In addition, a CDC's portfolio must create or retain one job for every $35,000 worth of debenture financing. Debenture proceeds must be used for permanent financing. Interim financing may be required in order to bridge the gap between the loan approval date and receipt of funding from the debentures. A typical finance structure for a CDC project would include a first mortgage from a private sector lender covering 50 percent of the cost, a second mortgage from the CDC (100 percent SBA-guaranteed debenture) covering 40 percent, and a contribution of at least 10 percent by either the CDC or the small business being helped. AMOUNT of Loan Although the total size of projects using CDC financing is unlimited, the maximum amount of CDC participation in any individual project is $750,000 (or $1 million for some projects). Typical projects range in size from $500,000 to $2 million. The average is about $1 million. The minimum amount of CDC participation is $50,000. A $25,000 debenture may be approved in special cases. USE OF PROCEEDS Proceeds may be used for the following fixed asset projects: Purchasing existing buildings; Purchasing land and land improvements such as grading, street improvements, utilities, parking lots and landscaping; Construction; Modernizing, renovating or converting existing facilities; Purchasing machinery and equipment; Financing a construction contingency fund, which cannot exceed 10 percent of total construction costs; Paying interest on interim financing; and Paying professional fees directly attributable to the project, such as surveying, engineering, architectural, appraisal, legal and accounting fees. Terms Interest rates are based on the current market rate for 5- and 10-year U.S. Treasury issues, plus an increment above the Treasury rate, based on market conditions. Maturities of 10 and 20 years are available. Repayment is made in monthly, level-debt installments. Collateral may include a mortgage on the land and the building being financed; liens on machinery, equipment and fixtures, and lease assignments. Private sector lenders are secured by a first lien on the project. The SBA is secured by a second lien. The Agency also requires personal guarantees from all persons who own 20 percent or more of a company that is financed by a CDC. FEES SBA regulations specify limits on fees that must be paid in connection with SBA funding. The development company fee cannot exceed the 1.5 percent processing fee on the SBA's debenture and a monthly service fee of not less than 0.5 percent nor more than 2.0 percent per annum on the unpaid debenture balance. Development company legal fees related to loan closing cannot exceed $2,500 without prior approval by the SBA. A funding fee of 0.25 percent to cover the cost of public issuance of securities and a reserve deposit of 0.5 percent are required, as is an underwriting fee of 0.625 percent of the total debenture amount. ELIGIBility An eligible business must be a for-profit corporation, partnership or proprietorship. The business' net worth cannot exceed $6 million, and average net profit after taxes cannot exceed $2 million for the previous two years. CDC investment funds cannot be used for working capital or inventory, consolidating or repaying debt, refinancing, or financing a plant not located in the U.S. or its possessions. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis.GUARANTEED LOANS TO QUALIFIED EMPLOYEE TRUSTS THE PROGRAM The U.S. Small Business Administration (SBA) provides financial assistance to eligible employee trusts for two purposes: to allow the trust to reloan funds to the employer company for growth and development or to permit the employees to purchase the employer company. ELIGIBILITY The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code (as an Employee Stock Ownership Plan or ESOP), or the Department of Labor (the Employee Retirement Income Security Act or ERISA). Applicants covered by the ERISA regulations must also secure an exemption from Department of Labor (DOL) regulations prohibiting certain loan transactions. The SBA requires that the employee trust must:  Exist at the time of application;  Be maintained by the employer concern;  Include at least 51 percent of all employees of the employer concern;  Have as its primary purpose lending to or investing in the employer concern;  Provide that participating employees may direct the trust on how to vote employer securities allocated to the employee's account; and  Provide written evidence that the trust has been qualified either as an ESOP or as an ERISA with the necessary DOL exemption. In addition to those eligibility requirements, the employer company must qualify as small under the SBA size standards and meet the other eligibility criteria applicable to all SBA loans. USE OF PROCEEDS The employer concern must agree to use SBA loan proceeds it receives from the employee trust solely for the following purposes:  Growth and Development Loans, in which the trust reloans the proceeds to the employer (by the purchase of qualifying employer securities but not necessarily voting stock). The employer can use these funds for a variety of worthwhile business purposes, including working capital, expansion, plant construction or purchase of equipment.  Change of Ownership Loans, in which employees acquire a controlling interest in the employer company. Voting control (a minimum of 51 percent ownership) must be acquired with loan proceeds and pass to the employees no later than the loan repayment date. AMOUNT OF LOAN SBA can guarantee up to $750,000 to any one borrower. The maximum includes the total SBA loan exposure in the trust, plus any other SBA loan outstanding to the employer or its affiliates. REPAYMENT ABILITY The SBA determines whether the company can repay the loan by evaluating whether it can generate sufficient cash flow to meet repayment obligations and the other fixed obligations of the business. The employer company must agree to provide the necessary funds to repay loan principal and interest. MATURITY The loan maturity depends on the employer company's ability to repay, subject to the requirements of prudent lending practices and the SBA's regulatory maximums. Machinery and equipment cannot be financed for periods longer than its conservative economic life. Real estate and construction loan maturities generally cannot exceed 25 years. Working capital maturities generally cannot exceed seven years. INTEREST RATES Interest rates are set through negotiations between the applicant and the participating lender, subject to maximums specified by SBA. For maturities of less than seven years, the interest rate may not exceed 2.25 percentage points above the New York prime rate. For maturities of seven years or more, the interest rate cannot exceed 2.75 percentage points above the prime rate. Variable rate loans are permitted. HOW TO APPLY Loans under this program are available only under SBA's guaranty plan. Prospective applicants should review their financing needs with their banks. COLLATERAL The assets of the employer company will be the primary collateral. Principals of the company who are not participating in the employee trust may be asked to guarantee growth and development loans. Personal guaranties of employee trust participants are not required. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non-discriminatory basis. The SBA does not discriminate against applicants or recipients on the basis of race, color, religion, sex, age, marital status, handicap or national origin. EXPORT REVOLVING LINE OF CREDIT LOAN PROGRAM THE PROGRAM The U.S. Small Business Administration's (SBA) Export Revolving Line of Credit Program (ERLC) is designed to help small businesses obtain short-term financing to sell their products and services abroad. The program guarantees repayment to a lender in the event an exporter defaults. By reducing a lender's risks, the ERLC provides an incentive for lenders to finance small business exporters' working capital needs. The ERLC protects only the lender from default by the exporter; it does not cover the exporter should a foreign buyer default on payment. Lenders and exporters must determine whether foreign receivables need credit risk protection. ELIGIBILITY Applicants must qualify as small businesses under the SBA's size standards and meet the other eligibility criteria applicable to all SBA loans. Applicants must also have been in business for at least one year before filing an application. Applicants must be current on all payroll taxes and have an operating depository plan to ensure payment of future withholding taxes. USE OF PROCEEDS Loan proceeds can be used only to finance labor and materials needed for manufacturing, to purchase goods or services for export, to develop foreign markets or to finance foreign accounts receivable. If the primary purpose is to develop or penetrate foreign markets, a traditional SBA 7(a) guaranteed loan may be more appropriate. Funds may not be used to pay existing obligations or to purchase fixed assets, although other SBA programs can be used for these purposes. AMOUNT OF LOAN The SBA can guarantee 85 percent of the loan up to a limit of $750,000. The maximum guaranty for loans up to $155,000 is 90 percent. Applicants can have other SBA loans in addition to an ERLC, but the SBA cannot guarantee more than $750,000 in loans to any one borrower, unless the borrower has also secured an international trade loan. In that case, the limit is $1 million, plus $250,000 in working capital. The loan amount also can increase if a co-guaranty is secured from the Export-Import Bank of the United States. MATURITY ERLC loan maturity is based on the applicant's business cycle, but cannot -- together with all renewals -- exceed 36 months. Maturities are usually for one year with options to renew at the discretion of SBA and the lender. Requests for renewals must be made through the lender not more than 45 nor less than 30 days prior to maturity. They must be accompanied by current financial data and an additional guaranty fee. INTEREST RATES Interest rates are set through negotiations between the applicant and the participating lender, subject to maximums specified by SBA. FEES Guaranty fees must be paid to SBA as follows:  For maturities of 12 months or less, the fee is 0.25 percent of the guaranteed portion of the loan.  For each renewal of 12 months or less, the fee is 0.25 percent of the guaranteed portion of the original loan amount.  For maturities exceeding 12 months, the fee is 2 percent of the guaranteed portion of the loan, and no additional fees are needed to obtain renewals. Initial guaranty fees must be paid by the lender but may be charged to the borrower upon approval of the ERLC by SBA. Additional guaranty fees are paid by the borrower at the time a renewal is requested. Lenders may charge a commitment fee equal to 0.25 percent of the loan amount ($200 minimum). This fee cannot be levied until SBA approves the ERLC. In addition, the normal fees permitted on all SBA loans may also be assessed on ERLC loans. COLLATERAL Collateral may include accounts receivable, inventory, assignment of contract proceeds, bank letters of credit, and appropriate personal guarantees. Only collateral that is located in the United States, its territories and possessions, or other assets under the jurisdiction of U.S. Courts is acceptable (receivables generated from sales to foreign buyers are considered domestic assets for ERLC purposes). SPECIAL PROGRAM REQUIREMENTS Applicants must submit a cash flow projection showing anticipated monthly activity and cash balances for the entire term of the ERLC. After the SBA approves the ERLC, borrowers must also submit monthly progress reports to the lender. ERLC loans are available only under SBA's guaranty program. Prospective applicants should review their export financing with their lenders. Applicants should request that lenders seek SBA participation if the lender is unable or unwilling to make the loan directly. ADDITIONAL INFORMATION The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The agency also offers specialized programs for women, minorities, veterans, international trade and rural development. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333. All of SBA's programs and services are extended to the public on a non-discriminatory basis. CERTIFIED AND PREFERRED LENDERS ษอออออออออออออออออออออออออออออออออออออออออป บ SBA BUSINESS LOAN GUARANTEES บ ศอออออออออออออออออออออออออออออออออออออออออผ The U.S. Small Business Administration (SBA) has been guaranteeing loans to small businesses since its creation by Congress in 1953. These guarantees cover up to 90 percent of the loan value and allow entrepreneurs to get credit that otherwise would not be available on reasonable terms and conditions. Most lenders who participate in SBA loans do so through the 7(a) program, which requires a thorough analysis of loan applications and a decision by SBA staff. It takes about two weeks to process a request, but that can vary according to the completeness and complexity of the application. About 8,000 lenders have made at least one SBA loan in the past five years. ษอออออออออออออออออออออออออออออออออออออออออป บ CERTIFIED LENDERS PROGRAM (CLP) บ ศอออออออออออออออออออออออออออออออออออออออออผ Lenders who are more heavily involved in the SBA guaranty program and who meet the Agency's criteria can participate through the Certified Lenders Program. Certified lenders get a partial delegation of authority that allows the local SBA office to process loan guaranty applications in three days, assuming everything is in proper order. There are about 600 certified lenders across the country. About 25 percent of all business loan guarantees are made through the CLP process. CLP lenders also follow regular processing procedures in some cases. ษอออออออออออออออออออออออออออออออออออออออออป บ PREFERRED LENDERS PROGRAM (PLP) บ ศอออออออออออออออออออออออออออออออออออออออออผ The SBA delegates wider authority to lenders who participate in the Preferred Lenders Program. PLP lenders can commit the Agency to guarantee eligible business loans, and decide the level of SBA participation up to the 80 percent limit. The program is meant to reduce processing time on strong credit applications and to use the resources of the SBA's best lenders to the maximum. Such a wide delegation of authority is permitted under Section 7(a)(2) of the Small Business Act, which authorizes the Agency to permit certain lending institutions to determine eligibility, creditworthiness, loan structuring, loan monitoring, loan collection/servicing and loan liquidation actions, and to make necessary decisions at each stage of the guaranteed loan application process without, in most instances, the SBA's prior review or consent. PLP loans have a maximum SBA guaranty of 80 percent. The lower maximum guaranty requires lenders to accept more of the lending risks in exchange for giving them the unilateral right to put government funds at risk. Despite the greater risks, lending institutions like the PLP because it lets them offer faster service to their most credit-worthy clients. The Agency examines the PLP lender's SBA portfolio periodically to ensure it meets SBA requirements. A lender's PLP authority must be renewed every two years. There are 160 preferred lenders. About 15 percent of all business loan guarantees are made through the PLP process. PLP lenders also follow regular and CLP processing procedures in some cases. ษอออออออออออออออออออออออออออออออออออออออออป บ PROGRAM BENEFITS บ ศอออออออออออออออออออออออออออออออออออออออออผ Everyone -- lenders, borrowers and the SBA -- benefits from the Certified Lender and Preferred Lender programs. The expert lenders who participate now account for 60 percent of all 7(a) loan guarantees. These programs are part of an effort by the SBA to switch from retailing its services to wholesaling. Loan guaranty activity by certified and preferred lenders requires less staff time and paperwork by the SBA, allowing Agency staff to handle a greater volume of loan applications. At the same time, it gives them more time and resources to deal with portfolio management and other Agency responsibilities. ษอออออออออออออออออออออออออออออออออออออออออป บ ADDITIONAL INFORMATION บ ศอออออออออออออออออออออออออออออออออออออออออผ The SBA has a number of programs and services available. They include training and educational programs, advisory services, publications, financial programs and contract assistance. The Agency also offers specialized programs for women business owners, minorities, veterans, international trade and rural development. Interested borrowers or financial institutions can contact the SBA Office of Financial Institutions at 409 Third Street, SW., Washington, DC 20416, or call their local SBA office. The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-U ASK SBA. All of SBA's programs and services are extended to the public on a nondiscriminatory basis. INTERNATIONAL TRADE ASSISTANCE The U.S. Small Business Administration (SBA) provides financial and business development assistance to encourage and help small businesses in developing export markets. FINANCIAL ASSISTANCE The SBA assists businesses in securing the capital needed to explore, establish or expand international markets. SBA's export loans are available under SBA's guaranty program. As a prospective applicant, you should request that your lender seek SBA participation if the lender is unable or unwilling to make the loan directly. The financing staff of each SBA district and branch office administers the financial assistance programs. You can contact the finance division of your nearest SBA office for a list of participating lenders. Borrowers can use different SBA loan programs and types of loan guarantees simultaneously, as long as the total SBA-guaranteed portion does not exceed the agency's $750,000 statutory loan guaranty limit to any one borrower. The lender may charge a maximum interest rate of 2.75 percentage points above the New York prime interest rate, or 2.25 percentage points above New York prime if the maturity is less than seven years. REGULAR BUSINESS LOAN PROGRAM The SBA can guarantee up to 90 percent of a bank loan up to $155,000. For larger loans, the maximum guaranty is 85 percent or $750,000 whichever is less. Use of Proceeds Small businesses that need money for fixed assets and for working capital may be eligible for the SBA's regular 7(a) business loan guarantee program. Loan guarantees for fixed-asset acquisition have a maximum maturity of 25 years. Guarantees for general purpose working capital loans have a maximum maturity of seven years. Export trading companies (ETCs) and export management companies (EMCs) also may qualify for the SBA's business loan guarantee program. Eligibility To be eligible, the applicant's business generally must be operated for profit and fall within size standards set by SBA. Loans cannot be made to businesses involved in creation or distribution of ideas or opinions, such as newspapers, magazines and academic schools. Other types of ineligible borrowers include businesses engaged in speculation or investment in rental real estate. EXPORT REVOLVING LINE OF CREDIT PROGRAM The Export Revolving Line of Credit (ERLC) Program offers a credit line up to 36 months. Any number of withdrawals and repayments can be made as long as they don't exceed the dollar limit of the credit line and the disbursements are made within the stated maturity period. Loan maturities are generally for 12 months, with options to renew. Use of Proceeds Loans can be used to finance labor and materials for manufacturing or wholesaling for export, to develop foreign markets, or to finance foreign accounts receivable. Foreign business travel and participation in trade shows are also among the eligible uses, but a regular 7(a) business loan may be more appropriate for these purposes. Eligibility Applicants must satisfy eligibility criteria established for all SBA loans. Also, applicants must have been in business -- not necessarily exporting -- for at least 12 months continuous operation before filing an application. The 12-month requirement may be waived by the SBA regional office if the firm's management has sufficient export experience or enough management ability to warrant an exception. INTERNATIONAL TRADE LOANS The International Trade Loan Program provides long-term financing to help small businesses compete more effectively and to expand or develop export markets. Loan maturities cannot exceed 25 years, excluding the working capital portion of the financing. The SBA's guaranty cannot exceed 85 percent of the loan amount, thus precluding loans of $155,000 or less. The agency's maximum share for facilities or equipment loans is $1 million, plus $250,000 for working capital. Use of Proceeds Proceeds may be used to purchase or upgrade facilities or equipment, and to make other improvements that will be used within the United States to produce goods or services. No debt payment is allowed. Proceeds can be used to buy land and building(s); build new facilities; renovate, improve or expand existing facilities; purchase or recondition machinery, equipment and fixtures. The working capital portion of the borrowing could be in the form of either an ERLC or a portion of the term loan. Eligibility Applicants must establish either of the following to meet eligibility requirements: Loan proceeds will significantly expand existing export markets, or develop new ones. The applicant's business is adversely affected by import competition. SMALL BUSINESS INVESTMENT COMPANY (SBIC) FINANCING A Small Business Investment Company (SBIC), approved and licensed by the SBA, may also provide equity capital or working capital exceeding the agency's $750,000 statutory maximum. Unlike the SBA, SBICs can invest in export trading companies in which banks have equity participation as long as other SBIC requirements are met. BUSINESS DEVELOPMENT ASSISTANCE The SBA provides business development assistance to exporters, including trade counseling, training, legal assistance and publications. Counseling Counseling is available through SBA's resource partners, the Service Corps of Retired Executives (SCORE) and the Small Business Development Centers (SBDCs). SCORE is an organization of retired executives who volunteer their time to provide management and technical assistance to small businesses. A SCORE counselor also can assist you in developing an international business plan. Your local SBA office can match you with a SCORE volunteer experienced in exporting. SBDCs, located on college and university campuses, provide a wide variety of information and guidance in easily accessible locations, SBDC services include, but are not limited to, financial guidance, marketing, production, organizational development, engineering and feasibility studies and technical assistance. Some SBDCs have designated international trade centers; all SBDCs provide export counseling, referral and/or training. Training SBA district offices sponsor export training programs, often in conjunction with SCORE, SBDCs and other public and private trade groups. Offering something for the beginner to the more advanced exporter, topics range from export financing to joint ventures. You also can learn how to do business outside our borders through the various market- and region-specific workshops offered. Women executives and business owners can take advantage of a conference series offered under SBA's "Women Going International" program. A joint effort of the Offices of International Trade and Women's Business Ownership, the program is designed to encourage more women to export and to provide the basic, "how-to" training necessary to get started. Publications The SBA publishes books and fact sheets on international trade, including the "Exporter's Guide to Federal Resources for Small Business," which describes international trade services available from the federal government. Other SBA publications also are available. Legal Assistance Your local SBA office can arrange a free initial consultation with an attorney to discuss international trade questions, under an agreement between the Federal Bar Association and the SBA. Such questions may include contract negotiation, agent/distributor agreements, export licensing requirements, credit collection procedures, documentation and others. ADDITIONAL INFORMATION The SBA has offices located around the country. For the one nearest you, consult the telephone directory under U.S. Government, or call the Small Business Answer Desk at 1-800-8-ASK-SBA or (202) 205-7064 (FAX). For the hearing impaired, call (202) 205-7333 (TDD). All of SBA's programs and services are extended to the public on a non-discriminatory basis.