SBA 504 Loan Program                  
                                                                                   

An SBA 504 loan is a partnership between a Certified Development Company (SBAlliance Capital), an applicant and a lender. The SBA 504 loan program offers eligible small businesses long term,fixed rate financing on fixed asset projects. In partnership with a third party lender, we are able to provide the applicant with up to 90% of the project’s total financing requirements. This allows theapplicant to reduce his/her capital investment to as little as 10%. The Southeast Texas Economic Development Foundation, d/b/a SBAlliance Capital, is a Certified Development Company that administers the SBA 504 loan program throughout the state of Texas.Our partnership with commercial lending institutions provides us the opportunity to finance up to 40% of the total project with the lender carrying 50% of the project financing in first lien position. The following highlights the general principles of the SBA 504 loan program. The information provided here is not meant to be a complete listing of all relevant policies and/or requirements.

PROCESSING YOUR APPLICATION Prior to submitting your application to the U.S. Small Business Administration, SBAlliance Capital will collect and review the necessary documentation to sufficiently analyze and underwrite your financing request. In this process, SBAlliance will determine your eligibility based on standards established by SBA. Eligibility includes, but is not limited to the following criteria. BUSINESS ELIGIBILITY All corporations, partnerships, proprietorships and SBA approved franchises, located within the United States and established for profit. Eligible small businesses must have a combined net worth of no more than $15 million and an average net profit after taxes from the previous two years of less than $5 million.  PROJECT ELIGIBILITY Eligible projects include the purchase, refinance renovation or construction of owner occupied commercial real estate, furniture, fixtures, equipment and project related soft costs by a for-profit business. Owner Occupancy—Small business applicants must occupy at least 51% of existing construction and must occupy at least 60% of new construction. LENDING CAPACITY The maximum share of a total project eligible for financing under the SBA 504 program is limited to 40% of the total eligible project costs. The lending maximum on most projects is $5 million. For projects involving small manufacturers and energy efficiency, lending limits are increased to $5.5 million. The minimum lending limit for SBAlliance’s 40% of the total project, is $25,000. TERMS OF THE NOTE Most real estate projects are financed for 20 years at a fixed interest rate. These terms are only applicable to the SBA portion of the project, a maximum of 40%. SBA also offers a 10 year note for both real estate projects and the purchase of machinery and equipment which demonstrate a useful life of at least 10 years. The terms of the third party lender’s financing must adhere to a minimum of 7 years on a 10 year debenture and 10 years on a 20 year debenture. INTEREST RATES The SBA 504 loan program is funded through the sale of debentures (bonds) on the New York market. At the time of sale each month, a fixed rate is assigned based on the Treasury. However, this rate will not be assigned until the project has funded, closed, and the bond has sold. Historical interest rates can be obtained through the U.S. Small Business Administration at www.sba.gov.  REAL ESTATE OWNERSHIP Under SBA regulations, a passive, single purpose real estate holding company or individual (an Eligible Passive Company), is permitted to hold title to real estate and lease a project facility to an eligible small business concern. There must be common entities and/or individuals of the operating company and eligible passive company and common entities and individuals must sign the loan documents. The project must involve an eligible use of proceeds and lease to one or more Operating Companies (OC) for conducting the OC’s business. SIZE ELIGIBILITY A small business applicant, together with its affiliates (when one concern controls or has the power to control the other), generally may not have a tangible net worth of more than $15 million and may not have an average net income after taxes for a two year average of more than $5 million. GUARANTORS Personal guarantees are required from every person or entity owning 20% or more of an eligible small business applicant or any eligible passive company owning any of the project real estate, machinery or equipment. Texas is a community property state and therefore a spousal guarantee will be required. Additional guarantors may be required at the CDC’s and/or Third Party Lender’s discretion. LIFE INSURANCE If the ongoing viability of the business is dependent on the health of an individual employee, the CDC and SBA may require, as a condition of approval, an acknowledged collateral assignment of key-person life insurance on the owner(s) of the business applicant.  METHOD OF LOAN PAYMENT Monthly payments of the SBA 504 note will be made through automatic transfer from an account designated by the small business applicant. Payments are due on the first working day of each month beginning the month immediately following the actual sale of the debenture. LOAN PREPAYMENT A small business may pay off a SBA 504 loan in full at, or prior to, a scheduled maturity date. Doing so will incur a prepayment penalty over the first half of the life of the SBA 504 loan. The penalty is calculated on a declining basis. Partial or additional payments may NOT be made against the SBA 504 note.

SBA 504 FEES/EXPENSES Loan Packaging Fee: At the time of application, the prospective applicant will be assessed a fee of $2,500. This fee is charged in advance to cover the loan packaging costs of the CDC. At the time of funding, this fee will be reimbursed to the applicant. Should the loan not fund, the CDC will retain the fee to cover the cost of services expended on the project. Out of Pocket: Recording costs and title insurance fees will be paid by the small business. Legal fees, not to exceed $3,000 and a processing fee, will be charged on the note. If the loan does not fund, the small business is responsible for reimbursing any legal or title fees incurred on its behalf. Included in Financing: The SBA 504 loan program is funded by small businesses participating in the program. A combined fee total of 2.25 to 3.00% allows for the costs associated with accessing, processing, selling, funding and underwriting the sale of the debenture on the New York Market. This combined fee total is included in the loan proceeds so no additional out of pocket expenses are incurred. Interest Rate: The monthly payment a small business makes on a SBA note includes two on-going fees associated with the program. 1) A servicing fee received by SBAlliance Capital and 2) A fee paid to a central servicing agent in New York who collects the fee and distributes it to the owner of the debenture. These fees are based on the outstanding principal balance of the debenture. This fee is subject to change, but SBAlliance Capital assesses the minimum unless circumstances necessitate charging a higher fee. Third Party Lender Fee: Unless paid by SBA, a one-time bank participation fee of 0.5% on any new deed of trust senior to the SBA 504 deed of trust, is due to the SBA by the participating lender at the time of closing. ENVIRONMENTAL REPORTING Prior to the final disbursement of funds, evidence must be provided that a project property is free and clear of any environmental hazards or contamination. Depending on the size and nature of the project, one or more of the following reports may be required: 1) Environmental Questionnaire and Records Search with Risk Assessment 2) Transactional Screen Analysis 3) Phase I 4) Phase II. TSA, Phase I and Phase II reports must be accompanied by a Reliance Letter in accordance with SBA standards and proof of liability insurance for the period during which the report was completed. Reports must be addressed to the Southeast Texas Economic Development Foundation, U.S. Small Business Administration and the Participating Lender. APPRAISAL An appraisal will be required on all projects involving the purchase or construction of real estate. It may also be required when the project involves the purchase of used equipment. Appraisals must be ordered by the third party lender and performed by a state certified appraiser. Reports must be addressed to the Southeast Texas Economic Development Foundation, the U.S. Small Business Administration and the Participating Lender. APPLICANT’S INJECTION PERCENTAGE Existing businesses interested in expanding current operations are generally required to invest 10% of the total project cost. New businesses, those operating less than two years, are required to invest a minimum of 15% of the total project cost. Special use, or single use properties also require a 15% investment. Projects that involve both a new entity and a special use property will require a 20% investment. JOB CREATION A primary objective of the SBA 504 loan program is to create and/or retain jobs. Therefore, eligible projects must satisfy SBA standards for job creation through the established public policy goals (13 CFR 120.862), or create or retain 1 job per $65,000 borrowed. APPROVAL PROCESS Once all of the requested documents have been received, SBAlliance Capital and the CDC’s contracted agent will analyze and underwrite the project. Upon completion, the loan package will be shipped to SBAlliance Capital for signatures by the borrowing entities and internal loan review by the CDC’s loan committee. Once approved by the CDC’s loan committee, the file will be transferred to SBA for authorization. When approved by SBA, the third party lender will be authorized to release funds to the small business applicant and begin the closing process. The SBA closing will follow when all transactions and any construction is complete.