sba guidelines

Published on: Mar 15, 2018

  

The Small Business Administration (SBA) recently made a number of changes to its loan guaranty programs that could fuel small business lending. Its flagship lending program, the SBA 7(a) loan, is widely known as an excellent way to establish a new business, as well as finance the acquisition of an existing business. Yet until recently, the requirements for this loan program have been challenging.


In an effort to better streamline the process and make SBA loan programs more appealing, the SBA recently issued a series of modifications to its standard operating procedure (SOP 50 10 5(J)), which became effective January 1, 2018. Among these SOP modifications are substantial changes to rules involving SBA 7(a) loans used for acquisition financing, as well as financial assistance for franchises.


Lower equity requirements for acquisition loans.


Under the old rules for acquisitions loans, deals with over $500,000 in goodwill required 25 percent seller note/buyer equity, while deals less than $500,000 in goodwill required 20 percent seller note/buyer equity. The SBA has now slashed equity injection requirements to 10 percent, so banks will be able to finance up to 90 percent of the deal. Now, just 10 percent equity must come from the buyer and/or a seller note. Out of that 10 percent, at least 5 percent must come in the form of cash from the buyer, while the remaining 5 percent equity can come in the form of a seller note. These new rules are expected to make small business acquisition financing more accessible.


Seller standby rule is extended to the life of the loan.


If the equity injection is through a seller note, the standby now extends through the life of the loan (instead of two years). In other words, the seller debt may not be considered part of the equity unless it is full standby (no payment of principal or interest for the term of the SBA guaranteed loan). Buyers may find it difficult to get sellers to agree to this new 10-year standby, yet the advantage of this new rule is that the full standby is only on the equity portion of the deal. In many cases, a deal can be structured with a second seller note with the buyer making payments to the seller starting on day one.


While both rule changes to the 7(a) loan program are significant, the SBA has only established minimum requirements for what is necessary to preserve the government guarantee. Ultimately, each lender will have its own rules regarding risk tolerance and may require a higher amount of buyer/seller equity injection.


New SBA franchise directory listing franchises eligible for SBA financial assistance.


SBA loan programs typically limit their lending to independent small businesses. Because many franchisees are subject to certain controls under their agreement with the franchiser, the SBA would consider them an affiliate and ineligible for a loan. In an effort to resolve these concerns, franchisers would have their brand listed on FranData, a third party registry, along with a pre-negotiated amendment to their agreement that enables them to be eligible for SBA financing.

In an effort to streamline the process, a franchiser must now appear on a centralized list of franchisers that are eligible to receive SBA guaranteed loans. To get started, the franchiser must first complete a standard franchise-agreement addendum form to achieve loan eligibility. The directory includes four columns with the franchise brand's SBA Franchise Identifier Code, as well as whether the brand meets the definition of a franchise, if an addendum is required, and any other issues the lending institution should consider.


New SBA Rules and Pro-Business Environment Expected to Fuel Small Business Expansion.


There are many reasons for small business owners to be optimistic these days. BizBuySell data shows owners are expecting to benefit from President Trump's loosening business regulations and new tax cuts. Furthermore, with rising interest rates from the Federal Reserve, banks have greater incentive to offer loans, especially with adjustable interest rates.


Small business lending has been increasingly active. According to a recent SBA Loan Performance Report, overall volume of SBA 7(a) loans has set records over the past three years, reaching $25.8 billion in 2017, with the first fiscal quarter of 2018 reporting a surge of ~20 percent year-over-year. This number is expected to grow even higher with more streamlined loan processing and flexible equity standards.


This increase in activity is further demonstrated by a record number of small businesses changing hands in 2017. According to BizBuySell's Insight Report, small business transactions exceeded previous highs set in 2016 by 27 percent. Since 2013 closed, business-for-sale transactions have steadily increased, yet 2017 represented a significant bump, with 9,919 transactions reported compared to 7,842 the previous year. Transaction data also showed stronger financials and faster sales.


With these new SBA rules and guidelines along with a more pro-business administration and a stronger economy, lenders are facing a dramatically different environment than they did nearly a decade ago. Many businesses that have previously held off on acquisitions and expansions are expected to move forward going into 2018 as a result.


Published on: Mar 15, 2018

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help for small businesses-covid 19

Small businesses hurt by coronavirus can access $20M in support from Michigan Strategic Fund

  

Updated 12:51 PM; Today 12:47 PM 

By Malachi Barrett | mbarret1@mlive.com 


The Michigan Strategic Fund unanimously voted to approve a $20 million economic relief program meant to help struggling small businesses make payroll and cover their bills during the coronavirus COVID-19 outbreak.


There are an estimated 117,000 businesses and 593,000 directly impacted by Gov. Gretchen Whitmer’s March 16 order to temporarily close bars, restaurants, cafes, recreational facilities and other personal service businesses to slow the spread of COVID-19. MSF board members said businesses need help to face significant financial hardship from revenue losses that could continue for weeks.


The board granted the Michigan Economic Development Corporation to distribute $10 million in grants and $10 million in low-interest loans to businesses across the state. Josh Hunt, vice-president of business development at MEDC, said the goal is to deploy funds to 1,100 businesses by April 1.


Hunt acknowledged that businesses will need more help as the coronavirus pandemic continues. President Donald Trump indicated the emergency could continue through the summer at a press conference earlier this week.


“We are still in the stages of evaluating other programming and other tools that will be needed,” Hunt said. “This is our attempt to get a money shipment to the most immediate need. We expect to need to do more in the long term.”


MEDC will partner with regional economic development organizations across the state to identify small businesses facing significant financial challenges from the COVID-19 pandemic. Up to $10,000 in grants will be delivered to each qualifying business.


Board Member Ronald Beebe said the grant funding will be spent quickly, estimating $10,000 is close to one week of payroll for many businesses.


“While a good idea, the $20 million is lacking a zero or two,” Beebe said. Hunt agreed.  “This $20 million won’t do enough to impact every small business in the state or everyone in need at this time,” he said.


Businesses must meet the following criteria to qualify for grant support:


· The company is in an industry affected by Whitmer’s executive orders or can demonstrate it is otherwise affected by the COVID-19 outbreak

· The company has 50 employees or less

· The company needs working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses that occur in the ordinary course of business

MEDC will also provide $10 million loan funding to small businesses. Loan amounts start at $50,000 and are capped at $200,000, with a 0.25% interest rate and a guarantee that businesses only need to pay off interest for the first five years.

Businesses must meet the following criteria to qualify for loan support:

· The company is in an industry affected by Whitmer’s executive orders or can demonstrate it is otherwise affected by the COVID-19 outbreak

· The company has fewer than 100 employees

· The company needs working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses that occur in the ordinary course of business;

· The company can demonstrate that it is unable to access credit through alternative sources

MSF Board Member Cindy Warner expressed some concern about requiring businesses to prove they can’t access loans through any other sources but ultimately voted to approve the financial aid program. Warner and other board members said supporting businesses immediately is a necessity.

“These people are going to need this money like yesterday," We need to think carefully about the administration of this and the rules and requirements. These people as of this week won’t be able to pay payroll. Unemployment hasn’t started yet and they have real payroll expenses for people next week can’t buy groceries."

The federal government is also offering up to $2 million in loans through U.S. Small Business Administration.

State Sen. Curtis Hertel, D-East Lansing, commended the sweeping actions Whitmer’s administration took in the last week to mitigate the spread of COVID-19. He also said the funds will provide much-needed relief to businesses worrying about how they will continue under the coronavirus pandemic.

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sba-Coronavirus (COVID-19)

SBA Disaster Assistance in Response to the Coronavirus

  

The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.

o Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses and private, non-profit organizations to help alleviate economic injury caused by the Coronavirus (COVID-19). This will apply to current and future disaster assistance declarations related to Coronavirus.


o SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
 

o Once a declaration is made, the information on the application process for Economic Injury Disaster Loan assistance will be made available to affected small businesses within the state.


o SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
 

o These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
 

o SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
 

o SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.
 

o For questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail  disastercustomerservice@sba.gov.

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