# Presentation: 487151

## 	
	Small/Rural Lender Advantage (S/RLA)

	7(a) Loan Guaranty Processing Center

- 	Small/Rural Lender Advantage (S/RLA)
- 	7(a) Loan Guaranty Processing Center

**SMALL/RURAL LENDER ADVANTAGE**

## S/RLA Key Features

- Designed for small SBA loan volume lenders.
- Support and assistance for S/RLA provided by SBA field offices.
- Streamlined loan application and process for SBA loans of $150,000 or less; with limited additional information and analysis required for loans above $150,000

## S/RLA Key Features

- Maximum loan amount of $350,000
- SBA’s normal 75/85 percent guaranty applies
- Centralized and expedited SBA processing with routine loans processed within 3-5 days
- Lenders may transmit applications via fax or as attachments to e-mails*
- * As long as attachments are under 5 megs

## S/RLA Key Features

- Simplified SBA loan eligibility questionnaire
- Eligibility assistance through the Help Desk at the Standard 7(a) Loan Guaranty Processing Center

## Borrower’s Application

- Documentation to be submitted by Applicant to the Lender:
- Complete, signed and dated SBA Form 2301, Part A, *Small Business Application for Guaranty*
- Separate, completed forms identified in SBA Form 2301, Part A

## Borrower’s Application

- Business Financial Statements:
- Existing business or for a change of ownership, three years financial statements (Three years of financial statements for any affiliates also required)
- 	If the most recent statement is over 3 months old, an interim statement is required with date not more than 90 days from application

## Borrower’s Application

- Business Financial Statements cont.
- Projection of earnings for at least one year including assumptions.

## Borrower’s Application

- An itemized list of collateral including the serial/ID numbers for any valued >$5,000. Real estate requires legal description
- Other information lender may require to make an informed credit and eligibility determination

## SBA Form 2301, Part A – Page 1

**Borrower’s Application**
- Section A: general information
- Section B: the loan request from the Applicant, including Form 159 if Applicant hired an agent to assist in completing the application
- Section C: listing of any existing business indebtedness

## SBA Form 2301, Part A – Page 1

- Section D: listing of those that have completed individual Section Ds (page 2 of the form)
- Section E: signature block

- Borrower’s Application

## SBA Form 2301, Part A – Page 2, Section D

- Page 2 of SBA Form 2301, Part A is the *individual* Section D
- This must be completed by EACH principal and guarantor. For example, if there are 3 principals and 2 additional guarantors, then each must complete and sign a Section D

- Borrower’s Application

## D1: General information including citizenship. If the individual is not a US citizen, then individual must complete USCIS G-845 which lender must submit to the USCIS to verify.
D2: Voluntary information - Not required

- D2: Voluntary information - Not required

**SBA Form 2301, Part A – Page 2 Section D**

- Borrower’s Application

## SBA Form 2301, Part A – Page 2 Section D

- D3: A summary of personal financial information
- D4: Identification of any current or previous government financing that may have resulted in a loss to the federal government

- Borrower’s Application

## SBA Form 2301, Part A – Page 2 Section D

- D5: Disclosures including:
- Lawsuits
- Affiliates
- Arrest information
- Acknowledgement that applicant has received/read “statements required by law and executive orders”
- Acknowledgement of liability for providing false information

- Borrower’s Application

## SBA Form 2301, Part A – Page 2 Section D

- Statements Required by Law and Executive Orders. SBA is required to provide this information to all applicants.
- Signature and date

- Borrower’s Application

## SBA Form 2301, Part B

**Lender’s Application**
- Section A: Lender information as well as Applicant’s name and NAICS code
- Section B: Loan Terms. Any required life insurance, standby agreement, or equity injection
- Section C: Use of Proceeds and breakdown of collateral

## SBA Form 2301, Part B

- Section D: Attach the Eligibility Questionnaire (SBA Form 2301, Part C)
- Section E: If Applicant submits historical business financial statements to demonstrate business’s ability to repay in a timely manner, then IRS Form 4506-T must be completed and submitted by lender to the IRS to verify accuracy

- Lender’s Application

## SBA Form 2301, Part B

- Section F: Attach copy of Lender’s Credit Memorandum. The requirements for what the Credit Memorandum must contain are described in the instructions that follow
- Section G: The Lender’s certification to certain statements. (For example, lender has an executed SBA Form 750, *Loan Guaranty Agreement)*

- Lender’s Application

## SBA Form 2301, Part C

** ****Eligibility Questionnaire**
- Questionnaire (Part C of Form 2301) designed to simplify and expedite eligibility determinations by distinguishing between:
- Applicants that are clearly eligible without any additional documentation;
- Applicants that are not eligible; and
- Applicants where additional information/documentation must be obtained to determine eligibility.

## SBA Form 2301, Part C

- Responses are “true” or “false” - Only “true” is available in some cases, which means applicant must meet requirement or is not eligible.
- Where “false” is a choice, this means that additional documentation will be required for SBA to determine eligibility.

- Eligibility Questionnaire

## SBA Form 2301, Part C

**Example**
- Under the section entitled “The Small Business Applicant,” there is the following statement:
- 	*Applicant is not a franchisee or, if the Applicant is a franchisee,*
*	**the franchise is on SBA**’**s franchise registry. The franchise*
*	**registry is available at www.franchiseregistry.com*
- If the answer is “false,” then the Lender needs to obtain a copy of the franchise agreement for SBA’s determination if franchise is eligible.

## SBA Form 2301, Part C

- A Lender may get help to eligibility questions from:
- SBA’s SOPs, regulations, and notices, which are available at www.sba.gov/banking
- Local SBA District Office
- Standard 7(a) Loan Guaranty Processing Center at 916.735.1515 ext 4368 or 7aquestions@sba.gov

- Eligibility Questionnaire

## Lender’s Credit Memorandum

- SBA will accept lender’s credit memorandum in lieu of traditional SBA documentation assuming the following:
- Credit Memorandum must meet reasonable and prudent standards for the commercial lending industry
- To simplify loan documentation and analysis, SBA defines the following two loan tiers, which depend on size, complexity, and/or risk of loan:

## Lender’s Credit Memorandum

- Tier 1 – defined as _loans up to $150,000 __EXCEPT_ for loans to the following:
- New businesses (in business for two years or less – includes change of ownership)
- Businesses that have had judgments or bankruptcy filings.
- Businesses with a debt service coverage ratio of less than 1.2:1

## Lender’s Credit Memorandum

- For Tier 1 loans, the Credit Memorandum must include, at a minimum:
- Description of history and nature of the business
- Description of and comments on the business plan, including: 1) management experience of principal(s), particularly in the industry; 2) financial condition of the business; and, 3) nature of any competition

## Lender’s Credit Memorandum

- Spread of Business Balance Sheet to include requested loan funds and any required equity injection (as of date of loan disbursement)
- Current Ratio
- Debt/Tangible Net Worth
- Debt Service Coverage
- Any other ratios the lender considers significant for the business/industry

## Lender’s Credit Memorandum

- Analysis/calculation relative to debt service:  Show how historical cash flow would cover total debt service after the SBA loan.
- Collateral Adequacy Assessment (using liquidation values) to offset risk of default

## Lender’s Credit Memorandum

- Explanation/justification for refinancing of any debt as part of the loan request, particularly Same Institution Debt
- Discussion of credit analysis and recommendation by lender of credit decision
- Any additional information the lender considers relevant to the credit decision

## Lender’s Credit Memorandum

- Tier 2 – defined as _loans between $150,001 and $350,000 _PLUS loans to the following:
- New businesses (in business for two years or less – includes change of ownership) or
- Businesses that have had judgments or bankruptcy filings.
- Businesses with a debt service coverage ratio of less than 1.2:1

## Lender’s Credit Memorandum

- For Tier 2 loans, Credit Memorandum must include items described for Tier 1 PLUS:
- Analysis/calculation of cash flow relative to debt service:
- Show how historical cash flow covers new debt service
- Show how projected cash flow covers debt service
- If historical cash flow does not cover all existing and new debt service at least 1:1, provide analysis of reasonableness of assumptions supporting the projected cash flow
- Discussion of any: 1) seller financing; 2) stand-by agreements; 3) 90+ day delinquencies; and 4) trade disputes

## Lender’s Credit Memorandum

- Tier 2 loans, continued:
- Analysis of working capital adequacy to support projected sales growth in next 12 months
- For change of ownership, discussion/analysis of business valuation (based on generally accepted valuation methods used for the pertinent industry) used to support the purchase price.
- Discussion of any bankruptcy filings or judgments

## Q&A time:

**SMALL/RURAL LENDER ADVANTAGE**