Financial Products

Overview SBA 7(a) & 504

Prepared by Will Mathee

FIRST FINANCIAL CENTRE 155 W WISCONSIN AVE, OCONOMOWOC, WI 53066

Q4 - 2019 MEMBER FDIC

October 16th, 2019

RE: FBFC SBA Product Overview

To whom it may concern,

First Bank Financial Centre (FBFC) is pleased to present you with the following Financial Products Overview to be used as examples or points of reference in placing Borrowers with the optimal package. The intent of this document is to give a brief overview of our SBA Products, applicable usage, significant restrictions, general terms, and eligibility. Please keep in mind, these guidelines are not 100% rigid and the examples are not exact replicas of each individual product type. We understand that every Borrower will have their own unique needs and we plan to take a flexible approach in structuring to address this. The team at FBFC will create a tailor-made product that satisfies the Borrower’s needs, while adhering to SBA Rules and Regulations.

As a moderately sized community bank, FBFC is unique in its capability to efficiently process a high volume of SBA transactions throughout the country. This is in part due to our Team’s hyper focus on SBA Products. FBFC is able to provide the relationship-based customer service typically found at strong community without the geographical limitations found at other financial of our size. Additionally, FBFC has a robust team of SBA Packagers that is very experienced and efficient in processing SBA Loans. This has been a key element to our success, placing FBFC among the top 30 SBA 7(a) Lenders and top 10 SBA 504 Lenders nationwide.

The following pages provide an overview of our SBA Products, applicable usage, significant restrictions, general terms, and eligibility. Please utilize this document as a tool in finding appropriate financing structures, and learning more about our SBA Products. Additionally, Will Mathee will always be available via phone or email, so please don’t hesitate to reach out anytime with questions or concerns. I look forward to working with you!

Sincerely,

Will Mathee Commercial Lender – SBA Specialist First Bank Financial Centre 155 W Wisconsin Avenue, Oconomowoc, WI 53066 [email protected] Office Phone: (262) 912-3911 Cell Phone: (262) 804-2372

Page | 1

Table of Contents:

I. Standard SBA 7(a) Loans a. Program Overview & Loan Structure (Pg. 3) b. Advantages to the 7(a) Program at FBFC (Pg. 3)

II. Standard SBA 504 Loans a. Program Overview & Loan Structure (Pg. 4) b. Eligibility per SBA Guidelines (Pg.4) c. Advantages to the SBA 504 Program with FBFC (Pg. 5)

III. SBA 7(a) & 504 Combination Loan Package a. Program Overview and Loan Structure (Pg. 6) b. Benefits of the Combination (Pg. 6) c. Projects & Borrowers that Benefit Most (Pg. 6)

IV. SBA 504 Refinance Loans without Expansion a. Program Overview & Eligibility (Pg. 7) b. Sample Sources & Uses (Pg. 7)

V. SBA 504 Refinance Loans with Expansion a. Program Overview & Eligibility (Pg. 8) b. Sample Sources & Uses (Pg. 8)

VI. SBA 504 Green Program a. Program Overview & Eligibility (Pg. 9)

VII. The FBFC SBA 504 Process (Pg. 10)

VIII. Lender Preferences (Pg. 10)

IX. Closing Remarks (Pg. 11)

Page | 2

I. Standard SBA 7(a) Loans SBA 7(a) Overview & Loan Structure:  Equity Injection required is approximately 10% based on the total project cost. This figure is subject to change based on Borrower strength, however, we typically structure 7(a) loans as close to 90% leverage as possible.  Loan Term & Amortization are typically 25 years when FBFC commercial real estate.  Extended Interest-only periods are available prior to amortization during construction  Interest Rates can be either floating or fixed for 5 years (fixed rates automatically adjust every 5 years).  Eligible Uses of Loan Proceeds Include: Acquisition of Land and/or Real Estate; Acquisition of Furniture/Fixtures/Equipment; Construction; Construction Contingency; Interest-Reserve; Soft Costs; Startup Costs; Working Capital; Financing Fees; Marketing; refinancing of eligible ; changes of ownership.  Construction Contingency of 10% (based on total construction cost) required.  An example of a 7(a) loan sources and uses is shown below. In this scenario, the Borrower would be purchasing land and constructing a new facility or remodeling an existing facility. Each 7(a) deal will differ slightly to address the Borrower’s needs. This Project includes funding for working capital, interest-reserve, soft costs, fees, etc.

Sources Uses Description Dollar Amount % Description Cost % Bank Loan $ 1,800,000 90% Purchase Land $ 400,000 20% Borrower Equity $ 200,000 10% Construction $ 1,050,000 53% Contingency $ 105,000 5% Soft Cost $ 115,000 6% Startup Costs & Marketing $ 150,000 8% Interest Reserve $ 120,000 6% Financing Fees & Working Capital $ 60,000 3% Total $ 2,000,000 100% Total $ 2,000,000 100% * Please note, this is an example that uses theoretical figures and is intended for discussion purposes only.

Advantages to the 7(a) Program with FBFC:  FBFC is an SBA Preferred Lender, meaning we can issue the SBA loan number at the Bank without separate SBA approval in California; in turn, this can help speed up the closing process for Borrowers. Additionally, we are among the top 30 SBA 7(a) Lenders nationwide.  We have a robust team of Packagers and experienced backroom staff dedicated to processing SBA 7(a) loans.  Mark McCune is our Chief Lending Officer and has exclusive signing authority, allowing him to approve loans quickly and independently (as opposed to a typical loan committee or dual-sign approval process)

Page | 3

II. Standard SBA 504 Loans:

SBA 504 Program Overview & Loan Structure:

 Equity injection as little as 10% down based on the total project cost. For startup projects this figure is increased to 15% based on the total project cost.

 Total project cost between $1MM-$20MM.

 FBFC holds onto 50% of the debt with a term/amortization somewhere between 30 and 32.5 years, depending on the project type and the incorporation of an interest-only period on the front end. FBFC offers fixed rates that will adjust on a 5 year basis.

 Additionally, we are able to provide an interest-only period up to 30 months prior to amortization

 FBFC provides an interim loan on approximately 40% of the debt that will ultimately be taken out by a CDC in the state of the project.

 Upon funding, the Borrower locks in a 20 or 25 year fixed rate with the CDC (currently 3.462% for 20 years and 3.540% for 25 years as of October 1, 2019).

 CDC handles correspondence with SBA during interim period and facilitates the debenture closing.

 Complete applications can expect closing within 90 days.

Sample Sources & Uses:

Sources Uses Description Dollar Amount % Description Cost % Bank Loan - Permanent $ 3,000,000 50% Purchase Land $ 1,110,000 19% Bank Loan - Interim $ 2,400,000 40% Construction $ 3,800,000 63% Borrower Equity $ 600,000 10% Contingency $ 380,000 6% Professional Fees $ 210,000 4% Interim Interest $ 350,000 6% Fees & Closing Costs $ 150,000 3% Total $ 6,000,000 100% Total $ 6,000,000 100% *Please note, this is an example that uses theoretical figures and is intended for discussion purposes only.

Eligibility per SBA Guidelines:

 Eligible uses of loan proceeds for purchases include: Land or Land with Building / Machinery & Equipment / Furniture & Fixtures.

 Eligible uses of loan proceeds for a new construction project include: Ground up Construction / Furniture, Fixtures & Equipment / Building Improvements / Renovations / Professional Fees.

 For a real estate project (existing building), the must occupy 51% of the building on day one; 60% on day one for ground-up construction projects.

 If the loan proceeds will improvements on a leasehold interest in land, the 504 loan must be secured by a recorded lien against the leasehold estate, including Tenant’s right to encumber the leasehold estate.

Page | 4

Advantages to the SBA 504 Program with FBFC:

 Tom Stapleton, The Director of 504 Lending at FBFC, is involved in the entire 504 Process and manages a small Packaging Team that works exclusively on 504 Loans. As FBFC’s “Resident 504 Expert”, Tom oversees everything from structuring and reviewing to packaging and closing 504 Loans.  FBFC has developed strong relationships with CDC’s throughout the country. These relationships are very important considering the complexity of the 504 Lending and Debenture Process. Tom Stapleton handles correspondence with the CDC’s, ensuring all projects are in compliance with SBA Regulations.  We have excellent fixed rate options for our SBA 504 products, which are paired with a 25-year fixed rate from the CDC that is currently ~ 1.5% BELOW Prime.  We can do up to a 30-year amortization on the Bank’s portion of an SBA 504 Loan. In turn, this lowers monthly payments; boosting cash flow, helping maintain liquidity, and increasing financial stability.  The extended interest-only period (up to 30 months) prior to amortization ensures Borrowers preserve working capital during construction and stabilization. Additionally, this feature greatly reduces the risk of shortfalls during the startup phase.

Page | 5

III. SBA 7(a) & 504 Combination Loan Package

Loan Structure & Overview:

 We often pair SBA 504 & 7(a) loans for new construction projects as this allows greater flexibility in the loan structure and preferable pricing.

 The 504 component is used to finance the real estate, construction costs, and eligible fixed-asset purchases because it provides a term fixed rate on a significant portion of the project costs.

 The 7(a) loan can be utilized for working capital, equipment, startup costs, fees, etc. (generally, this is a much smaller note in comparison to the 504 Loan).

Sources Uses Description Dollar Amount % Description Cost % Bank Loan (504) - Permanent $ 1,800,000 40% Purchase Land $ 1,400,000 31% Bank Loan (504) - Interim $ 1,450,000 32% Construction $ 2,000,000 44% Bank Loan (7a) - Permanent $ 600,000 13% Contingency $ 200,000 4% Borrower Cash Equity $ 650,000 14% Soft Costs $ 160,000 4% Interim Interest $ 140,000 3% Startup Costs & Marketing $ 80,000 2% Working Capital $ 400,000 9% Financing Fees $ 120,000 3% Total $ 4,500,000 100% Total $ 4,500,000 100% * Please note, this is an example that uses theoretical figures and is intended for discussion purposes only. Benefits to our 504 & 7(a) Combination:

 Greater flexibility in regards eligible uses of loan proceeds. Items that are not eligible for financing through the 504 Program, such as working capital, startup costs, marketing, etc., can be funded through the 7(a) Note.

 Preferable pricing that comes with the SBA 504 Program:

o CDC offers a 20 or 25 year fixed rate

o FBFC offers a 5 year fixed rate product on the remaining portion

 Extended Amortization on a significant portion of the total project costs via the 504 Loan

o Up to a 25 year amortization on the CDC Note

o Up to a 30 year amortization on the FBFC Note

o This will lower payments for Borrowers, boosting cash flow and preserving capital

 FBFC can incorporate an extended interest-only period up to 30 months prior to amortization.

o Preserves working capital in the construction phase and boosts cash flow during stabilization o The SBA 504 & 7(a) combination is an excellent product for new construction projects over $1MM.

Page | 6

IV. SBA 504 Refinance Program Without Expansion

Program Overview & Eligibility:

 Eligible Projects must have zero outstanding debt with SBA 504 Program in that fiscal year (including subsidiaries), must not exceed 50% of the dollars the CDC loaned under the 504 Program in the previous fiscal year, and Applicants must have two full fiscal years of operation.  Loan Proceeds must be used to finance Qualified Debt, which requires: A minimum of 85% of the proceeds were used to acquire eligible fixed assets, must not be subject to a Government Guarantee, Debt must be incurred not less than 2 years prior, and Borrower must be current on all payment due to previous Lender.  Max LTV is 90% if the refinance includes real estate and equipment debt per an appraisals dated within 12 months of the date the application was approved. If the refinance includes cash out for “eligible business expenses,” the max LTV is 85% with business operating expenses not to exceed 20% of the value of the eligible fixed assets securing the Qualified Debt.  Projects that result in a change of ownership may be eligible, however, proceeds must only be used for long- term fixed assets. Other assets, such as receivables and goodwill are not an eligible use of proceeds. Any change of ownership must result in the Applicant owning 100% of the business and the seller(s) are not permitted to retain employment at the business following the transaction.

Sample Sources & Uses:

Sources Uses Description Dollar Amount % Description Cost % Bank Loan - Permanent $ 1,500,000 50% Refinance Real Estate Debt $ 2,425,000 97% Bank Loan - Interim $ 1,000,000 40% Closing Costs & Financing Fees $ 75,000 3% Real Estate Equity $ 250,000 10% 0% Total $ 2,500,000 100% Total $ 2,500,000 100% * Please note, this is an example that uses theoretical figures and is intended for discussion purposes only.

Page | 7

V. SBA 504 Refinance with Expansion

Program Overview & Eligibility:

 The SBA defines an “Expansion” as a project that involves the acquisition, construction or improvement of land, and building or equipment for the use by Applicant.  If a Project involves expansion, any amount of existing indebtedness that does not exceed 50% of the cost of the expansion may be refinanced. In other words, it needs to be a large expansion because the current debt cannot be more than 50% of the total expansion expense.  Eligible Projects require a minimum of 85% of the proceeds were used to acquire land, construct improvements or purchase equipment.  The debt being refinanced does not need to be for assets at the same location or for the same type of property as the project being financed as long as the operator at the other location has the same NAICS code as the operation at the Project location. Essentially, this means that if a business owner has multiple locations and is looking to expand one of them, the owner could use the SBA 504 loan to pay off the debt on one property and expand the other.  An existing 7(a) Loan may be refinanced if the CDC has provided verification that the present Lender is either unwilling or unable to modify the current payment structure.

Sample Sources and Uses:

Sources Uses Description Dollar Amount % Description Cost % Bank Loan - Permanent $ 1,500,000 50% Refinance Existing Debt $ 1,000,000 33% Bank Loan - Interim $ 1,200,000 40% Construction $ 1,500,000 50% Real Estate Equity $ 300,000 10% Contingency $ 150,000 5% Soft Costs $ 260,000 9% Fees & Closing Costs $ 90,000 3% 0% Total $ 3,000,000 100% Total $ 3,000,000 100% * Please note, this is an example that uses theoretical figures and is intended for discussion purposes only.

Page | 8

VI. SBA 504 Green Loan Program SBA 504 Green Loan Overview & Eligibility:

 The SBA 504 Green Loan Program can be used to build or renovate a commercial property that either produces a portion of its own energy or makes a reduction in energy consumption. that produce or manufacture any of the following types of renewable energy may qualify: solar power, wind power, hydro power, biodiesel, geothermal energy, and ocean thermal.

 A newly constructed building must produce 15% of its own energy or an existing building must reduce energy consumption by at least 15%. It is important to remember that the 15% reduction is in energy consumption not dollars saved on lower utility bills

 The Green 504 loan allows the gross debenture, or second mortgage note to increase its maximum limit from $5MM to $5.5MM which makes transactions in the $12MM to $20MM range possible.

 Green Loans are available on a “per project” basis, which means the “regular” SBA maximum eligibility limits of $5MM per borrower do not apply and Borrowers are able to utilize multiple 504 Green Loans on several expansion projects and buildings.

 The federal government and many state and local utilities have incentive plans for the installation of green and renewable energy systems and some offer significant first year rebates which can help offset some of the renewable energy installation costs. The current Federal Tax is 30% as of 2019.

Page | 9

VII. The FBFC SBA 504 Process:

 Inquire with Will Mathee to begin application process.  Once approved, FBFC will issue a commitment letter detailing the terms and conditions of our loan approval.  When you accept the terms, we will begin working with a Certified Development (CDC) who acts as the "middle man" between you and the SBA. They will underwrite the loan themselves, then submit to the SBA for approval.  Once the SBA has approved the request and all closing conditions are met, the project will be funded using your equity injection, FBFC's term loan and a -term "interim" loan also provided by FBFC.  Shortly after the project is complete, and your business is operational, the CDC will fund the debenture loan and those proceeds will refinance FBFC's "interim" loan.  Going forward, the Borrower will have one loan from FBFC secured with a first lien on the project assets, and a second loan administered by the CDC which is secured with a second lien on project assets.

VIII. Lender Preferences

 Geographical Preference o We are actively seeking SBA 7(a) and 504 deals nationwide. o FBFC has no geographical limitations on SBA Products and does not have a preferred region or area.

 Collateral Preference o FBFC prefers SBA loans to be secured by the primary real estate. o All deals must include owner-occupied commercial real estate collateral.

 Preferred Deal Size & Structure o Target loan size is between $1MM and $5.5MM+. o New ground-up construction, acquisition, refinance or purchase with improvements

 Guarantor Requirements o No felonies or serious offences on criminal record o Personal guarantee required for owners with greater than 20% equity o Guarantor’s will be assessed on previous and/or current income, employment, and credit history

Page | 10

IX. Closing Remarks:

Thank you for your interest in First Bank Financial Centre. FBFC has an excellent track record with the SBA and has become extremely efficient at processing SBA Loans. We are able to offer flexible financing packages that will be individually tailored to the complex needs of our Borrowers.

Will Mathee will always be available via phone or email, so please don’t hesitate to reach out anytime with questions or inquiries of any kind.

Kind Regards,

Will Mathee Commercial Lender – SBA Specialist First Bank Financial Centre 155 W Wisconsin Avenue, Oconomowoc, WI 53066 [email protected] Office Phone: (262) 912-3911 Cell Phone: (262) 804-2372

Page | 11