SBA Microloan Program: Loan Side Basics and Requirements, Study notes of Business

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SBA MICROLOAN PROGRAM

Session: Loan Side Basics

Microloan Program Purpose

The Microloan Program assists women, low

income, veteran, and minority entrepreneurs,

and other small businesses in need of

financing in amounts of $50,000 or less and

business- based technical assistance.

SBA Loans to Intermediary Lenders

• Terms and Conditions, Rate Structure
• SBA Bank Account Requirements
• MRF and LLRF Permissions and Restrictions
• Disbursements
• Matching Funds
• LLRF Requirements
• Collateral Requirements
• Loan Repayment
• First Year Interest and Annual Loan Recasting

SBA Loan Terms & Conditions

• Term: 10 years
• Maximum loan to intermediary:
  • $750,000 – 1st^ Year in Program
  • $1,250,000 - thereafter
• Maximum outstanding : $5 million
• Loans require a 15% non-Federal, non-borrowed cash match

SBA Bank Account Requirements

1. Three bank accounts must be set up when an intermediary enters the program:

• Microloan Revolving Fund (MRF) Account
• Loan Loss Reserve Fund (LLRF) Account
• Technical Assistance Account (TA) (may be general operating fund account but only one grant account per intermediary is permitted)

2. Each subsequent loan from SBA requires two new accounts- a MRF and a LLRF account. Any new grant funds may be deposited to the existing TA Bank Account

SBA Bank Account Requirements (continued)

3. Bank Accounts must be interest bearing accounts at a Federally insured depository institution
4. MRF and LLRF to be at the same bank provided this does not cause the intermediary to exceed insurance limits

• Funds must be liquid and accessible at any time without penalty
• Certificates of Deposit, Sweep Accounts, and other such accounts are not permitted.

MRF Account Restrictions

Intermediary Lenders are not permitted to:

• Transfer MRF funds to non-SBA or operating account for disbursement to micro borrowers
• Deposit microborrowers’ payments in a non-SBA account, even if funds are later transferred to MRF
• Withdraw interest earnings without prior written approval from SBA
• Withdraw funds for any reason other than to transfer non-federal matching dollars to the LLRF
• Invest idle account funds in T-bills or any other account not on the Tri-partite Agreement
• Close account or transfer funds to new account without prior written approval of SBA and SBA’s receipt of all new executed collateral documents:

*Tripartite Agreement *Security Agreement *SF 5510 *SF 3881

Permitted LLRF Account Transactions

1. Deposit matching funds or other non-federal funds
2. Transfer non-Federal funds from MRF to LLRF when LLRF is underfunded
3. Transfer principal balance of charged off microloans from LLRF to MRF The LLRF must never go below 15% of the outstanding balance of microloans owed to the intermediary (with certain exceptions).

SBA Loan Disbursement

• Disbursements may be requested by email
  • First disbursement on initial SBA loan < = 35% of approval
  • Subsequent disbursements after excess cash is committed
  • Generally, loans should be fully drawn down in no more than three requests
  • Requests may take up to 10 days to process
• Disbursement request must include evidence of 15% matching fund deposit (to MRF or LLRF)
• 24 months from Date of Loan Authorization to take full disbursement

Matching Funds

• Matching funds of 15% must be deposited for each and every disbursement. - Exception: the intermediary may deposit the full match required at time of initial disbursement
• The matching fund deposit may be made into either the LLRF or MRF account associated with the SBA loan. - Acceptable proof: deposit slip receipt, on-line transfer receipt, or bank statement showing account activity - Not acceptable: bank account balance
• Intermediaries must meet the 15% matching fund requirement regardless of whether the intermediary has a 10% or 15% loan loss reserve requirement.

Collateral Requirement

Collateral Coverage Requirement (continued)

• Intermediaries with a 10% LLRF requirement must still maintain collateral coverage of 115%
• Intermediaries will be required to develop a plan of action to remove any collateral shortfall. This plan must be approved by SBA.
• Failure to maintain appropriate collateral, and meet MRF and LLRF requirements may result in limitations on: - Loan disbursements - New loan approvals - Reporting requirements - TA funding

First Year Interest

• Calculated based on the timing and amounts of disbursements to the intermediary during the first year of a loan.
• Calculated at the 1st^ anniversary of the Note
• Cost of Funds is applied retro-actively using the appropriate discount in accordance with the program rate structure.

Annual Loan Recasting

Each Year (on the anniversary of the Note Date) the SBA loan is re-amortized

• A new Cost of Funds rate is determined based on the average size microloan in the intermediary’s portfolio
• The new Loan Payment is based on the current principal balance and the current Cost of Funds
• Intermediaries are informed when a payment is adjusted.