FIVE MUST HAVES TO INCREASE EARNINGS WITH SBA LENDING. Monday, March 2 Presented by Arne Monson, President, Holtmeyer & Monson

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1 FIVE MUST HAVES TO INCREASE EARNINGS WITH SBA LENDING Monday, March 2 Presented by Arne Monson, President, Holtmeyer & Monson

2 Introductions Arne Monson President Holtmeyer & Monson Recognized authority on SBA Lending working closely with SBA and serving Banks and Small Business since 1982 ICBA Preferred Service Provider since lending customers NAGGL Committee Member

3 Why SBA Lending? Stay Current With Your Competitors Get Beneficial Resource For Bank Commercial Lending Activities Leverage Various SBA Lending Programs Gain Tremendous Profits From Secondary Market Maximize Profits with a Lender Service Provider.

4 SBA Loan Programs The Highlights

5 7 (A) Loan Program Maximum loan amount $5,000,000 Carries up to a 85% guaranty Maturities range from 10 to 25 Years Typically pegged to prime rate Guaranty fees from 2.00% to 3.75% Guaranty fees currently waived on loans of $150,000 or less and Veterans Advantage Program

6 Express Loan Program Maximum loan amount - $350,000 Carries a 50% guaranty Maturities range from 1 to 25 years Lender makes credit decision Lender must maintain SBA loan file

7 504 Loan Program Hybrid financing: fixed assets only SBA junior security or mortgage interest Application processed through CDC Maximum debenture $5,000,000 to $5,500,000 Minimum project funding structure 50%-40%-10%

8 Opportunities through SBA Lending Make more loans in your local market- compete more effectively Mitigate bank leverage and concentration issues Mitigate collateral risk via SBA enhancements Gain profit potential from non-interest fee income

9 How To Improve Your Results? The Five Must-Have s for SBA Lending $

10 Must-Have #1 Bank-Wide Support

11 Bank-Wide Support Senior management, ownership, and BOD must embrace the program Conversational knowledge throughout the organization Budget dedicated and driven quantifiable Compensation plans reflect SBA lending results Set goals and track results KPIs/metrics

12 Must-Have #2 Prospect and Product Awareness

13 Prospect and Product Awareness Build brand awareness for your bank Who are your best small business prospects based on your current customers/demographics? Referral sources professional services network Advertising and promotional programs lunch and learns, small business meetings, etc. Handle marginal commercial loan requests Expand commercial lending activities

14 Lending to Non-Traditional Borrowers Business acquisitions and financing goodwill Start-up businesses Specialty businesses e.g. hotels, restaurants, franchises Term out existing commercial loans and lines of credit

15 Must-Have #3 Lender/Staff Training and Incentives

16 Lending and Loan Operations Staff Training Working knowledge of SBA loan programs Seek out marginal credit request Transaction structuring competition and profitability Incentives provided at the department and individual level Equip staff members with tools calculators, brochures and program guides

17 Staff Training : Benefits to Borrower Ability to secure financing on terms and conditions otherwise not available Capitalize fees into loan Extended term permanent financing MAXIMIZE CASH FLOW

18 $ Must-Have #4 Secondary Market Opportunities

19 Great Earnings Opportunities Through Secondary Market A very active and lucrative secondary market exists for sale of loan guarantees Pool assemblers acquire individual guarantees at historically high premium levels Use of a yield calculator $

20 Calculate Your Potential Yield $

21 Calculate Your Potential Yield $

22 Calculate Your Potential Yield $

23 Calculate Your Potential Yield $

24 Calculate Your Potential Yield Year 1 $

25 Calculate Your Potential Yield Year 2 $

26 Must-Have #5 SBA and Regulatory Compliance

27 The nature of the beast and cannot be minimized. There are consequences.

28 Required Resources and Investment Staff dedicated to SBA Lending Allocated resources to keep up with the policy and regulatory changes Knowledge of market conditions Investment in software platform, including training - required to do business electronically with SBA The right balance: overhead has to be justified by consistent loan volume

29 Risks in the SBA Lending Process Loss or repair of SBA guaranty may result from improper loan closing process Lack of verification of equity injection Failure to perfect required security interest Example Improper disbursement of loan proceeds Pre-closing authorization modifications RISK

30 Most Overlooked Items Credit scoring requirements Collateral requirements Credit memo outlines: over or under $350,000 Credit bureau reporting requirements On-going changes to SBA policies and procedures!

31 The Bottom Line in Compliance Lenders must strictly follow SBA procedures to assure compliance with guaranty authorization requirements SBA assumes the role of the largest risk-taker in the transaction Post-closing loan servicing actions and reporting can be cumbersome for lenders SBA loan liquidations and guaranty claims are very specialized reverse application

32 The Five Must-Haves Bank-Wide Support Prospect and Product Awareness Lender/Staff Training and Incentives $ Secondary Market Opportunities SBA and Regulatory Compliance

33 There IS help available.

34 Holtmeyer & Monson Program Features Holtmeyer & Monson is a full-service SBA Lender Services Provider that focuses solely on the unique opportunity SBA lending presents for community banks. Complimentary Initial Consultation to determine eligibility and program structure. Submission of the Completed Loan Application to the SBA for approval and guarantee issuance. Loan Closing Services with detailed documentation instructions Securitization and Sale of SBA Guarantee generated from the loan transaction SBA Loan Portfolio Management, including payment processing and remittance, required reporting, and detailed monthly activity reconciliation and reporting.

35 Why Consider Outsourcing SBA Lending High level of expertise without significant investment Assure agency and regulatory compliance Meet conforming documentation requirements Leverage existing bank personnel Avoid mis-steps which may jeopardize guarantees

36 Advantages for ICBA Members Reasonable and competitive fee structure 10% off H&M Lender fees for ICBA Members H&M contributes fees in the form of royalties to ICBA NO NET COST TO BANK! Now we are able to compete with our larger bank players in the market.. our partnership with Holtmeyer & Monson keeps our expenses down and their expertise provides a level of efficiency that far exceeds our expectations. Jenny Scully, Vice President Howard Bank, Rising Sun, MD Holtmeyer & Monson helped us add 33% to our normal earnings last year through SBA lending. Will Griffin, Jr., President, Brighton Bank, Brighton, TN

37 Next Steps Contact us to discuss your situation Calculate your potential SBA earnings holtandmon.com/calculator Sign up for our e-newsletter SBA Lending Matters Start getting your must haves in order TODAY!

38 Thank You!