Overview of GGL Lending Programs

First Community Bank of South Carolina
Board of Directors Presentation
Strategic Overview of Government Guaranteed Programs
Prepared by: Team Signature
Presentation Overview
This presentation will cover:
Program Purpose & Eligibility
Guarantee Percentages & Fees
Loan Amounts & Terms
Eligible & Ineligible Uses
Equity & Collateral Requirements
Underwriting & Approval Process
Secondary Market Opportunities
Monetizing SBA 7(a) Loans: An Example
Monetizing USDA Loans: An Example
Servicing Requirements
Default & Collection Procedures
Key Takeaways: USDA B&I vs. SBA 7(a)
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August 18, 2025
USDA B&I vs SBA 7(a) Loan Guarantee Programs
A comparison of two major government loan guarantee programs designed to help businesses access affordable financing through private lenders. Each program serves different purposes and locations.
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August 18, 2025
Program Purpose & Eligibility
USDA B&I
Focuses on providing affordable financing to businesses located in rural areas with populations of 50,000 or fewer. Eligible entities include for-profit and non-profit businesses, cooperatives, tribes, public bodies, and individuals. Borrowers must be U.S. citizens or permanent residents.  Check Eligibility       
SBA 7(a)
Aims to help small businesses access affordable financing. Key eligibility criteria include operating as a for-profit entity in the U.S., meeting SBA size standards, demonstrating creditworthiness, and proving an inability to secure funds from other sources on reasonable terms. All principal owners must be U.S. citizens or lawful permanent residents.
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August 18, 2025
Guarantee Percentages & Fees
USDA B&I
Guarantee: Up to 80% for loans up to the maximum loan amount of $25 million. 
Fees: Includes an origination fee (typically 3% of the guaranteed portion) and an annual renewal fee (around 0.5% of the outstanding guaranteed principal).
USDA guarantee amount and fee amount are determined annually.
SBA 7(a)
Guarantee: Up to 85% for loans up to $150K and 75% for loans over $150K (maximum loan amount $5M).
Fees: Features an upfront guarantee fee (ranging from 0% for small loans to 3.5% for larger loans) and an annual service fee (0.55% of the outstanding guaranteed balance).
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August 18, 2025
Loan Amounts & Terms
USDA B&I
Maximum: $25 million per borrower
Term: Up to 40 years (based on purpose, useful life, repayment ability)
Real estate: up to 30 years
Equipment: up to 15 years
Working capital: up to 7 years
Prepayment penalty determined by the bank.
SBA 7(a)
Maximum: $5 million (standard)
Real estate: up to 25 years
Equipment/working capital: typically 10 years
Prepayment penalty: 5% year 1, 3% year 2, 1% year 3, none after
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Eligible & Ineligible Uses
Eligible Uses (Both Programs)
Business expansion, modernization, development
Purchase of land, equipment, supplies, inventory
Construction financing
Debt refinancing (with conditions)
Business acquisitions (when jobs are positively impacted)
Working capital
Ineligible Uses (Both Programs)
Churches or church-controlled organizations
Gambling enterprises
Golf courses (USDA)
Speculative investments
Illegal activities
Lines of credit (USDA)
Cash out
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Equity & Collateral Requirements
USDA B&I Equity
Existing businesses: 10% net tangible balance sheet equity
New businesses/startups: 20% equity
Construction projects: 25% equity
SBA 7(a) Equity
10% minimum for startups or business ownership changes
Seller-financed notes may count (with restrictions)
Collateral Requirements
USDA: All loans must be fully secured with documented value
SBA: Under $50K - no collateral required (some exceptions)
SBA: Above $50K - lender's collateral policy applies
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Underwriting & Approval Process
USDA B&I
Underwritten and approved by the bank (no delegated authority). Bridge loans are often used to accomodate client timelines.
Submitted to State USDA office (may need DC approval)
USDA reviews and underwrites the loan
Loan goes to USDA State/National Office Loan Committee
Conditional Commitment issued if approved
USDA issues the note guarantee after review of all closing documents.
SBA 7(a)
Underwritten and approved by bank using delegated authority (PLP)
Some cases require SBA approval through general processing
SBSS minimum score: 165 (up from 155)
Must collect and verify DOB, citizenship/LPR status
Must list at least 81% of beneficial owners in E-Tran
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Secondary Market Opportunities
USDA B&I
Healthy secondary market for guaranteed portion
Premium above 10% is not shared (unlike SBA)
Sold as individual loans, not pooled
Bank has one chance to split guaranteed portion
Can be sold to Farmer Mac
SBA 7(a)
Healthy secondary market for guaranteed portion
Premium above 10% is shared with SBA (50%/50%)
Typically pooled with other loans
Premium maximized by selling early in loan life
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August 18, 2025
Monetizing SBA 7(a) Loans: An Example
This example illustrates how banks can generate significant income by originating SBA 7(a) loans and selling the guaranteed portion in the secondary market.
Scenario Details:
Loan Amount: $1,000,000
SBA Guarantee: 75% (Guaranteed portion: $750,000)
Loan Term: 25 years
Interest Rate: Prime rate + 2.75% (Assuming Prime at 3.25%, total rate: 6%)
Illustrative Income Calculation (assuming a 10% premium):
Premium on Sale: $75,000
Servicing Fee (Approx. Year 1): $750,000 (guaranteed portion) x 0.01 = $7,500
Interest Income on Unguaranteed Portion (Approx. Year 1): $250,000 (unguaranteed portion) x 0.06 (interest rate) = $15,000
Note: This is a simplified example. Actual premiums and income can vary significantly based on market conditions, loan size, interest rates, and specific terms negotiated between the bank and the investor.
Income Streams for the Bank:
Premium from Sale of Guaranteed Portion
The bank sells the $750,000 guaranteed portion of the loan in the secondary market. Lenders commonly receive a premium, a percentage above the face value. For instance, a 10% premium yields $75,000 in income ($750,000 x 0.10). The SBA may share in the premium if it surpasses a specified threshold (currently 110%).
Servicing Fee Income
Even after selling the guaranteed portion, the originating bank retains the servicing rights for the entire loan. A standard annual servicing fee of 1% is earned on the outstanding principal balance of the guaranteed portion, providing ongoing income to the bank throughout the loan's duration.
Interest Income on Unguaranteed Portion
The bank retains the unguaranteed portion of the loan (25% or $250,000 in this scenario). Interest continues to accrue on this portion as the borrower makes payments, adding to the bank's overall income from the loan.
By leveraging the secondary market for guaranteed portions, banks can enhance liquidity, free up capital for new lending, and potentially generate additional fee income, thereby serving more small businesses within their communities.
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August 18, 2025
Monetizing USDA Loans: An Example
This example illustrates how banks can generate significant income by originating USDA B&I loans and selling the guaranteed portion in the secondary market.
Scenario Details:
Total Loan Amount: $2,000,000
USDA Guarantee Percentage: 80%
Guaranteed Portion (Par Value): $1,600,000 (80% of $2,000,000)
Unguaranteed Portion Retained by Lender: $400,000 (20% of $2,000,000)
Sale Price for Guaranteed Portion: 110.0% of par (10% premium)
Transaction Costs (legal, broker, documentation): $12,000 (flat fee)
Servicing: Retained by lender
Holdbacks or Reserves: None
Illustrative Income Calculation (assuming a 10% premium):
Gross Proceeds from Sale: $1,760,000 (110% × $1,600,000)
Immediate Cash Impact to Lender (before transaction costs): The lender receives $1,760,000 cash from the buyer and retains $400,000 unguaranteed loan exposure on its books (plus future servicing income).
Net Proceeds after Transaction Costs: $1,748,000 ($1,760,000 − $12,000)
Net Liquidity Generated vs. Original Funding: $1,748,000 cash received vs. $2,000,000 originally funded by the lender. This represents 87.4% ($1,748,000 ÷ $2,000,000) of the original loan monetized in cash.
Premium (Gain) Relative to Guaranteed Par: $160,000 ($1,760,000 − $1,600,000)
Net Premium after Transaction Costs: $148,000 ($160,000 − $12,000), representing a positive net gain.
Summary:
Gross Proceeds from Sale
$1,760,000 is realized from selling the guaranteed portion at a 10% premium.
Net Proceeds after Transaction Costs
$1,748,000 remains after accounting for $12,000 in transaction expenses.
Remaining Exposure on Balance Sheet
The lender retains $400,000 (the unguaranteed portion) on its balance sheet.
Net Positive Gain vs. Guaranteed Par after Fees
A net positive gain of $148,000 is achieved, meaning the lender realized more than the guaranteed par after covering all associated fees.
By leveraging the secondary market for guaranteed portions, banks can enhance liquidity, free up capital for new lending, and potentially generate additional fee income, thereby serving more businesses within their communities.
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Servicing Requirements
USDA B&I
USDA assigns servicing partner for each loan
Financials sent to USDA annually
Loan balance and payment history sent every 6 months
Bank performs yearly review
Yearly site visit with USDA office required
USDA and lender work together on risk mitigation
SBA 7(a)
Service with same diligence as conventional portfolio
Follow SOP 50 57 (effective December 1, 2024)
Monthly 1502 Report submission required
Use E-Tran for servicing updates and actions
Some actions require SBA approval
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Default & Collection Procedures
Initial Efforts
Both programs require all attempts to work with borrower to bring account current
Modification Options
Payment deferment, interest-only periods, rate adjustments, and restructuring available in both programs
Investor Considerations
The investor can request that the guaranteed portion be repurchased if the loan goes into default.
Final Resolution
USDA: Bank can deny request; Investor must request USDA buyback within 30 days
SBA: Submit for SBA to charge-off balance and pay guaranteed portion
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Key Takeaways: USDA B&I vs. SBA 7(a)
Both the USDA Business & Industry (B&I) and SBA 7(a) Loan Guarantee Programs offer powerful tools for lenders to support businesses while mitigating risk. Understanding their nuances is crucial for maximizing benefits.
Distinct Missions, Shared Goals
USDA B&I focuses on rural economic development; SBA 7(a) supports small businesses nationwide. Both empower lenders to finance projects they might otherwise deem too risky.
Enhanced Liquidity & Profitability
Both programs allow lenders to sell the guaranteed portions in the secondary market, generating immediate cash flow (premiums) and freeing up capital for new lending opportunities.
Varying Operational Requirements
While both provide guarantees, their specific requirements differ across eligibility, loan terms, underwriting, servicing, and default procedures. Lenders must adhere to each program's unique guidelines.
Strategic Growth for Lenders
Leveraging these programs enables banks to expand their portfolio, serve underserved markets, and contribute to community growth while maintaining financial health through reduced risk and diversified income streams.
By strategically utilizing either or both programs, financial institutions can foster economic vitality and achieve their lending objectives with greater confidence.
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