NewtekOne Inc (NEWT) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Newtek Business Services third quarter 2014 earnings call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the call to your host, Barry Sloane.

Good afternoon, everyone, and welcome to the third quarter 2014 financial results conference call. I am Barry Sloane, Founder, President and CEO of Newtek Business Services Inc, a NASDAQ company. And I have here with me today that will help me on the presentation, Jennifer Eddelson, our Chief Accounting Officer and Treasurer. We certainly appreciate the opportunity to present today. This particular presentation was delayed a couple of days past our typical earnings release, due to the fact that we just closed a capital raise a couple of days ago.

I do want to point out before we go into the Safe Harbor statement, that today's presentation will primarily reflect, obviously our third quarter results. There will be some forward-leading statements, however, I think that we are basically positioning ourselves today for our third quarter as a C Corp which is what we were, and going forward, we have recently converted to a business development corp. So the format of our presentation will clearly change in quarters going forward down the road.

Today we are going to give some forward statements and forecasts, based on what we look like as a BDC, but also what we have done in the third quarter as a C Corp, and there will be some follow through on fourth quarter annual results as a C Corp. And with that, I would like to ask Jenny Eddelson to go over the Safe Harbor statement.

The following discussion of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements, and the accompanying notes contained in the Company's quarterly report on Form 10-Q for the period ending September 30, 2014.

The statements contained herein may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative development and similar matters. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. In order to comply with the terms of the Safe Harbor, we note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward-looking statements, such as intensified competition and/or operating problems in its operating business projects, and their impact on revenues and profit margins, or additional factors as described in the Company's annual report on Form 10-K and other filings with the SEC.

Thanks, Jenny. I would like to call everyone's attention that would like to follow along on the presentation to our website, thesba.com, and to the investor relations section. This PowerPoint is presented there as well.

Looking at our Q3 2014 financial highlights, Newtek recently effected a 1 for 5 reverse stock split on October 22. All the share data that we will be talking about today has been adjusted to reflect the reverse stock split, as well as the increased number of shares, based on the recent reverse stock split and BDO transaction, the business development corp transaction. Closing stock price as of 11/18/14 yesterday was $13.12. Today we closed at $13.40.

Pretax income for the quarter was $4.5 million, an increase of 132%. Net income attributable to Newtek Business Services Inc. was $2.6 million, a 45% increase over the prior quarter -- over the same quarter in the prior year. Diluted EPS was $0.34 a share, an increase of 41%, and that obviously was an increase over Q3 2013. Operating revenue was $38.2 million, an increase of 9.8% over Q3 2013.

Adjusted EBITDA of $6.7 million, an increase of 52% over Q3 2013. And for the nine months ended September 30, 2019(sic -- see slides "2014") diluted EPS, $0.86, an increase of 26.5% over the same nine-months last year 2013 quarter ended September 30, 2013. After the nine months ended September 30, 2014, GAAP diluted EPS was $0.71, an increase of 4.4%, over GAAP EPS of $0.68 for the nine months ended September 30, 2013. Our Small Business Finance segment pretax was $4.2 million, an increase of 145% over Q3 2013, and the Small Business Finance revenue was $10.9 million, an increase of 44.5% over Q3 2013.

Our operational highlights on page number 3, we originated $48.7 million worth of loans, a [15.1]% increase over Q3 2013. And the month of October, we funded $25 million worth of loans, an increase of 47%. We hope and anticipate that we will have ä fourth quarter of approximately $75 million worth of loans, which would be our largest quarter ever. The Small Business Finance segment closed an additional $23 million in additional financing with Capital One Bank. They are our senior warehouse lender for our existing SBA 7(a) business, increasing the total size of the revolver to $50 million for Newtek's Small Business Finance.

Total capital available -- total financing available through Capital One Bank is $70 million. Of the $70 million, there is a $10 million term loan which is fully amortizing, and $60 million of revolving lines of credit which are primarily used for the SBA 7(a) business. The $10 million term loan was used to refinance $10 million of mezzanine capital, which was previously on our books from Summit Capital Partners. By refinancing that off in recent quarters, we reduced our annual interest expense by more than $1 million, or over a 1,000 basis points. So as you look at our earnings over the course of the last several years, those are with -- in excess of an 18% interest rate on our capital.

Newtek's Small Business Finance maintains its position as the largest non-bank 7(a) lender by volume dollar of loans for the 12 month period ending September 30, 2014 according to the SBA. Also we announced today that Newtek has entered into an exciting new partnership with Secure, acronym SEQR, which is a company-owned by Seamless, which is a Swedish Stockholm-based company, and Seamless positions itself as the world's largest supplier of payment systems for mobile phones.

Obviously, the mobile payment business is an extremely important valuable business in the marketplace today. We are really excited about our opportunity to work with Seamless, bringing over their customer base to us, their technology. They have decided to utilize Newtek and its secured gateway for to provide the ability to ACH money from a consumer into a business account, and essentially avoid interchange in debit and credit. We are excited about this opportunity, and we think it will give a tremendous lift to our payments business, and we look forward to talking about it further in this presentation, and quarters to come.

Previously, as a C Corp, we obviously had given out guidance for the entire year of 2014. We are maintaining that guidance. We estimate a 12.1% revenue increase on a consolidated basis over 2013. We are looking at adjusted pretax income at the midpoint of approximately $13.5 million, that is 21% increase over 2013. Adjusted diluted EPS mid point of $1.15, that is a15% increase over 2013. GAAP diluted EPS, and adjusted EBITDA mid point of $26 million, that is a $26.2 million increase over 2013 adjusted EPS.

Recently Newtek Business Services Inc went out to solicit its shareholders through a proxy, and I believe held its shareholder meeting date on October 22. We went out with five or six proposals. All those proposals were voted in excess of 90% by existing shareholders, and where the insiders were excluded on one particular vote, we got a 95% approval rating.

Newtek recently has converted to a business development corp, and obviously this new structure is expected to result in significant tax efficiencies for the Company, as well as to pay a attractive dividend to shareholders. We anticipate in Q1 2015, a dividend of $0.38 a share. We anticipate an average quarterly dividend, cash dividend I should say for 2015 of $0.45 a share, and at the current stock price of $13.12, which was yesterday's stock price, that would be a cash yield of 13.7%.

In connection with the conversion, Newtek is currently a C Corporation, that in 2015 will elect a RIC, registered investment corporation status, where in effect it has to distribute retained earnings to the shareholders. In doing so, upon making the RIC election which we clearly intend to and anticipate doing, we will have to pay a special mandatory dividend. It is mandatory that we distribute the retained earnings of Newtek Business Services Inc [should make that Newtek] Business Services Inc. legacy business to new shareholders. After Jennifer Eddelson computes our taxes, which will probably be around April or May for the 2014 period, we will most likely call a Board meeting, and we will announce the special dividend. I think it's anticipated that dividend will be paid in the fourth quarter.

In the final prospectus that we put out, that dividend was $4.50 a share based on June 30, 2014 financial information. All of that is in the registration statement. We anticipate that dividend to be paid 80% in shares of stock, 20% in cash. We anticipate that the dividend will be a qualified dividend. The cash, we anticipate will be there and available to cover the tax that would be incurred based upon the entire dividend. But we think this is for new and old shareholders, a nice special add-on on top of the 13.7% yield. The special dividend is anticipated to be about $4.50 per share.

Newtek is an internally managed BDC, or business development corp. For those of you that are familiar with business development corps, the majority them are externally managed, where the management team pays itself a management fee, and a percentage of the Ops or increase over base rate. There is no management fee or incentive fees, everything is internally done. Most internally managed BDCs trade at a median price NAV of approximate 1.5 times NAV. The pro forma NAV at June 30, [2015], after the capital raise, including the greenshoe overallotment was $15.50. Clearly, at our current closing price today of $13.40, we are trading at a discount to NAV. We think that should be especially attractive for those that believe internally manage BDCs should trade at a premium.

In the recent equity transaction, we sold 2.53 million shares at a public offering price of $12.50. Total gross proceeds of $31.625 million. I think what was important is, that we went on the road show with a $2 million share raise. We increased the amount 10% to $2.2 million, and the greenshoe was exercised to get us to 2.53 million. In the syndicate structure, the joint book-runners JMP Securities, Ladenburg Thalman, and co-manager of Lebenthal, the group did a tremendous job.

We were well over-subscribed, we had institutional orders in excess of $2.4 million, retails orders in excess of $2.5 million. And we look forward to -- well, actually the investors themselves formally filing the forms that they need to. We have a very impressive institutional ownership, which we think will get us over 30% institutional ownership. So you take that, plus the insiders, we have really dramatically changed profile of institutional, versus retail ownership. Mind you, the insiders still own in excess of 22% of the outstanding shares. That would include myself, the other founder Jeff Rubin, the executive management team and the Board.

On slide number 7, there is a conversion structure of the new Newtek Business Services Inc, a business development corporation. A part of the BDC obviously is Newtek's Small Business Finance, our licensed non-bank SBA lender, the largest non-bank SBA lender in the United State, in the top 10 including banks. We are going to go through sort of the SBA loan product in this presentation, to make sure the new shareholders fully understand how this product works, how we get our rates of return, and how this works going forward.

Our other portfolio companies, which will all qualify under the 70% BDC test, we currently have nothing in the 30% bucket. Newtek Business Credit, 100% owned. We have owned this business for over 10 years.

Newtek Merchant Solutions, a 100% owned. We have owned this business for over 10 years. Newtek Managed Technology Solutions, we own 100% of it. We have owned it for over 10 years. Newtek Insurance Agency, 50 state license broker insurance agency. We have owned it for over 10 years. Newtek Payroll Solutions, four years of ownership. We own 90% of it.

The reason why I kept talking the about the ownership and the management of these entities is, we believe these represent fairly low-risk choices for those investing in BDCs. We are not investing in other people's businesses. We are not lending to other people's businesses. These are businesses that we own, operate and control. We have owned Newtek Small Business Finance and our non-bank SBA lender business since 2003. We know these businesses well.

Yes, when you development businesses, or you don't know them, you tend to make the mistakes, but we have known them for well over 10 years. I would like to believe we have gotten the bugs out, and these businesses with very little leverage and prior expensive cost of equity capital, have really generated some very nice returns. So we look forward to being able to access the capital markets that we have done recently, with our cost of capital being at the dividend rate, being able to get lower-cost of debt financing as we go forward, and really growing the operating leverage of this entity. Not only to provide an attractive dividend, but an ever-increasing dividend. As well as we are hopeful, that the market will appreciate the fact that the enterprise values of these operating businesses should clearly exceed NAV, and generate some nice premiums down the road.

On slide number 8, Newtek's Small Business Finance for Q3 2014, pretax income increased 145% to $4.2 million. Revenue of the Small Business Finance, our licensed SBA lender, increased by 44.5%, $10.9 million. We originated $48.7 million of loans, 15.1% increase. We funded $25 million worth of loans in October.

As we said earlier, we increase our Capital One Bank line to $70 million. We are the largest non-bank SBA lender in the US for the 12 month period, 10th largest including banks. And we primarily anticipate using the funding in the capital from the raise to primarily grow the SBA 7(a) business, as well as to add opportunity within the business services footprint. We have recently signed some new attractive alliance partners like UBS's retail system and [Randolph-Brooks] and others.

When you look at Newtek Small Business Finance, in 2013 our return -- pretax return on capital in the lender was almost, well, in excess of 35%, 36.5%. If you take a look at our capital at 12/31/12, the pretax income of $9.2 million, great returns. We think that our return on capital in Newtek's Small Business Finance will be in excess of 40% in 2014, which is one of the reasons why we want to deploy the majority of the capital in this particular business.

In studying Newtek's Small Business Finance, we talked about it being like a specialized SBA government guaranteed lender. The average size of our current loan is about $1 million, 75% is full faith and credit US government guaranteed. When we make these loans, we typically sell the government guaranteed participation certificate into the market, netting 113% premium in the par We then have created a 25% senior secured uninsured participation certificate -- very important, uninsured, but not subordinated of $250,000.

Now our current portfolio size, if you look at our scheduled investments in our prospectus is $150,000 of uninsured loan participations. So those of you that are -- are typically used to investing in BDCs, on the average BDC loan is $5 million, $10 million, $15 million, $50 million, so you have got big loans in that portfolio. With Newtek in this particular segment, you are looking at $150,000 average loan balances that are not subordinated, they are not tranched, they are senior secured. They float quarterly over prime. So the borrower is paying a current rate of 6%, with a 7 to 25 year amortization schedule.

And there is a liquid secondary market for the government guaranteed piece. This is a program that has been in the market for over 61 years. The SBA 7(a) program has historically returned money to the US Treasury. And for Newtek and its shareholders, this provides real good returns, and for borrowers, they get great loans. They get 6% floating rate loans with long-term amortization schedules.

Importantly, as we will demonstrate on the next slide on 11, once we do a securitization, and we securitize the uninsured loan participations, and we sell the government participation off, which is almost done immediately, after we make a loan, the principal of the loan is returned. And slide number 11, this is a typical depiction of $1 million loan. So when we create that $1 million loan, typically that day we call up the 11 pool assemblers on Wall Street.

We sell the government guaranteed piece in this example. We net a 12.5% premium, that is $93,750. We, at that point in time, get a100 basis points to service that loan, so the gain is less the 100 basis points. We capitalize that at $18,630, getting a total premium income of $112,380. We receive some small amount of packaging fee.

On the uninsured, but not subordinated participation certificate, we mark those participation certificates to market. We write that down typically by 5 points. This will change quarter to quarter, based upon our mark to market discounted cash flow analysis, as finally determined by the Board of Directors.

Referral fees paid to alliance partners, we have 0.75 point in this example. I think historically it is about 70 basis points. So the net risk-adjusted profit is $94,000 on $1 million loan. We say risk-adjusted profit because the uninsured loan participations, we take a non-cash write-down of 5 points. When you run that through our discounted flow analysis at a 25% cumulative severity and a [1/3%] charge-off, that participation certificate yields 180 basis points higher than where our rated securitizations have been trading. The net cash that is created once we do securitizations, which are currently done approximately every 12 month is $11,250 above and beyond the $1 million that we lay out for the loan. So we actually do generate cash when we securitize the uninsured loan participations.

Clearly, we have grown our portfolio of loan originations over the last several years from approximately $68 million to $118 million to $177 million last year. I think we anticipate closing $215 million to $220 million of 7(a) loans this year. One of the things that, I think investors should be concerned about is, as you grow loans originations, are you cutting credit quality?

Slide number 12 is a great depiction of the fact, that we not only have maintained credit equality, but we have improved it. As a matter of fact, if you look at our portfolio of loans, which I want to repeat is $150,000 average balances. Now by the way these are not small loans, they are small loan participations over $1 million average loans at current origination. The number of start-ups which is really the most risky category of small business loans went from 20% in the portfolio, down to 6.6%. So we have significantly cut back the number of startups. We have also significantly cut back the number of business acquisitions, probably the second most risky category of small business lending.

By the way, not all of these loans are bad, we want to obviously pick the better ones or better opportunities that we have coming to us through the referral system. And existing businesses went from 54% to 79.6%. Our weighted average FICO score went from 675 to 704, and our weighted average current LTV went from 78% down to 73%. Our concentrations, where we had 21% state concentration in Florida as of 12/31/2010, went down to 11.4%. So you could see, diversified portfolio, fewer start-ups, more existing businesses, first lien on commercial real estate very high, (inaudible) percent of our loans are currently secured by their real estate.

On slide number 11, you can take a look at the growth of our servicing portfolio. This a servicing for our own accounts and servicing others. We are an S&P rated servicer. This portfolio has grown significantly. We also have a four-year contract with the FDIC when they (inaudible) service their performing and nonperforming loans. The electronic payment processing segment which historically has been an important component of Newtek. We have been in this business for over 12 years. The EPP business now becomes one of our portfolio companies.

For Q3 2014, pretax income increased by 17.6%. We had a real good quarter. We have also announced that we are now part of the AMEX Blue program. So AMEX Blue, which is probably only 15% of our loan volume, we are now going to get the same types of margins that historically we have gotten on Visa and MasterCard. This should be real good extra bottom line income, particularly for 2015 when we are able to convert all of our merchants over through the [renewal] applications.

We have over 15,000 business accounts in his portfolio. By the end of the year, we anticipate our processing volume will be somewhere near $4.7 billion to $4.8 billion. And as we have talked about earlier, this recent new partnership with SEQR in the press release that we put out earlier today, really puts us in a great position to be state-of-the- art for mobile payments. We also have a great strategy relating to offering tablet-based POSs. For those of you that have recently walked into new up-and-coming restaurants or for that matter traveled in airports, you can see that the method of taking payments going forward are from mini iPads or iPads. The micro systems, or others types of old POS systems, a little bit antiquated.

These are less expensive. They are mobile related. Retailers and restaurants are going to them. We are able to provide those solutions to clients in better gateway, and our payment processing capability in it. We have put the electronic payment processing business into the BDC at a 4.75 multiple to EBITDA, valued at $44 million. When you look at some of the comparative publicly-traded companies like Heartland at 9.1, and Vantiv at 10.24, we obviously feel this is a conservative and attractive valuation. And it is that valuation that makes up the $15.50 NAV.

Managed technology solutions on slide number 15. We have owned 100% of it, and have been operating this business since 2004. We have over 106,000 business accounts. The MTS pretax income declined by 8.7%. This is a business that has been under some pressure, under a modest decline.

We are very positive about cloud computing or managed technology solutions According to Gartner, cloud computing is expected to have a great future and experience significant growth. Enterprises are going to spend approximately $920 billion over public cloud services over the next five years. We think that we are well-positioned in the marketplace.

We have recently this year made some senior management changes to redirect the company. I think historically we have been slow in repositioning out of Microsoft primarily products, and we are -- our product line is much more diverse, and we are offering real attractive opportunities for designers, developers and resellers to work with us, work at our military-strength proof facility in Phoenix, Arizona where we are around 24/7. From a valuation standpoint, this business we valued at $22 million, 3.75 EBITDA multiple. Obviously, competing entities like Endurance, Rackspace, 12 to 7 times EBITDA evaluations. We are very constructive about this business, and we think that investors that are investing in our organization are getting fairly conservative evaluations.

Speaking of a valuations, we are comparing ourselves going forward to internally-managed publicly-traded BDCs, entities like Hercules, [HGDC], KCAP, KCMP, Bank Street, Main, Triangle, TCAP. When you look at the valuations of these entities, the median yield 9%, and three of the four of them have yields lower than 9%. The median NAV, 1.5 times. So we think there is real interesting comparisons between Newtek Business Services Inc and these other internally managed BDCs. We are real happy with how we are positioned the marketplace.

Current number of outstanding shares, 10.2 million. Market cap as of yesterday's close, $133 million. We are probably close to about $140 million as of today. In summation, before I turn over the presentation to Jenny for a financial view, we talked about our great position in the SBA space. We talked about returns on investment in excess of 30% and 40%, 30% in 2013, 40% this year.

We talked about us being in business a long period of time. We have been publicly traded since September 2000. We have been in the lending business for 11 years, so we are not a newbie to this. We have an 11 year track record of loan default frequency and severity statistics.

Management's interest, very much aligned with shareholders, prior to the raise, 30%. I myself own in excess of 13.4% of the shares in name. This is all prior to the recent raise. Post the raise, we are still in excess of 22%. We are looking at a current dividend cash yield for 2015 to be about 13.7%, $1.80 for the year, $0.45 on average, with $0.38 in the first quarter. So (inaudible) are a attractive comparison to other internally managed BDCs.

From a risk standpoint, you are owning businesses that have been around, from the business services standpoint that we have operated and managed for over 10 years. The loan portfolio, floating-rate, no caps on our $50,000 average balance. You are investing in a company that is an S&P rated commercial [small loan balance servicer], and has accessed the capital markets four times since 2010, doing four successive securitizations.

We also have a very unique financial technology platform, in which we acquire customers called the NewTracker system. We have received a patent on the NewTracker System. There is more information on this in our Ks and Qs, but the best way to describe is it's salesforce.com for business referral process. Through the use of the NewTracker system in 2013, we looked at $4 billion of loan opportunities. This year, we looked at $5 billion. We actually reject 98% of 100 lending opportunities that come to us. So we are very selective that way, and we are able to do that cost effectively. Those are the financial highlights of the Company. We realize this is a little bit longer than normal, but we have a lot of material to cover. And now I am going to turn the financial review over to Jenny Eddelson.

Thank you, Barry. On a consolidated GAAP basis for Newtek Business Services Inc. our third quarter results were as follows. We had operating revenue of $38.2 million, a 9.8% increase over the third quarter of 2013. Pretax income was $4.5 million, a 132% increase compared with the year ago quarter. Net income increased by 45.3% to $2.6 million, and our diluted EPS were $0.34 per share, up $0.10 or 41.7% from the third quarter of 2013.

Slide 22 represents a summary of our third quarter 2014 revenue and pretax income or loss, and adjusted EBITDA by segment, compared with the year ago period. Electronic payment processing segment revenue increased by 3% to $22.7 million from $22.2 million. Processing revenue less processing costs or margin increased from 14.6% in Q3 2013 to 16.1% in the current quarter, due to the implementation of a monthly noncompliance fee in the third quarter of 2014. Pretax income was $2.2 million, an increase of 18% from $1.9 million a year ago, and primarily due to the increase in margin dollars.

The Small Business Finance segment had a 45% improvement in total revenue, increasing by $3.4 million to $10.9 million for the third quarter of 2014. The majority of this increase was in servicing fee income, which increased to $2.6 million for our combined portfolios. Our aggregate servicing portfolio grew to approximately $1.1 billion, an increase of $459 million or 74% quarter over quarter.

Interest income increased by 36% to $1.7 million, as a result of the average outstanding performing loan portfolio increasing by 39% quarter over quarter. The third quarter 2014 average net premium on the sale of the guaranteed portions of our loans was 13.19%, as compared to 10.74% in the third quarter of 2013. Total expenses for the lending segment increased by $791,000. The majority of the increase in expense was in salaries and benefits, due to the addition of staff in [quals] departments of the lender. Overall, the lending segment had pretax income of $4.2 million, a 146% improvement over the third quarter of 2013.

Managed technology solutions segment revenues totaled $3.8 million for the third quarter of 2014, a decrease of 14% compared with the year ago quarter. While the segment realized an increase in the average monthly revenue per plant, the total number of web hosting plants continued to decline during the third quarter 2014. Total expenses also decreased primarily in G&A costs, resulting in a $560,000 reduction in total expenses, compared to the year ago quarter. Pretax income was $804,000, down 9% from the third quarter of 2013.

The all other segment which primarily represents results from our insurance and payroll subsidiaries had a pretax loss of $368,000 in 2014, a $57,000 increase in loss over the year ago quarter. While current quarter revenue increased by $50,000 mostly related to our insurance division, total expenses also increased by $107,000 due in part to the settlement of a legal dispute in the third quarter of 2014. The pretax loss for our corporate segment increased by $190,000 in the current quarter, due to an increase in interest expense in the corporate segment, resulting from the new credit facility.

The pretax loss in our CAPCO segment improved by $148,000 in the current quarter, decreasing to a pretax loss of $229,000. And finally, slide 23 reflects our -- reaffirms adjusted full-year consolidated operating company guidance for 2014, as well as guidance by segment for revenues, adjusted pretax income or loss, and adjusted EBITDA. I would now like to turn the call back to Barry.

Thank you, Jenny. Operator, we would love to open up the call to any questions.

(Operator Instructions)

Chris York, JMP Securities.

Good afternoon guys and thanks for taking my questions. Barry, I just wanted to see, you have historically been able to cross sell about one in eight borrowers to other business services on the Newtek platform. With the strong origination outlook that you just gave us, how are you think about the ability to further cross-sell into other businesses?

Sure Chris. I think that the lending clientele from a client count is the smallest. When we do work with borrowers, we obviously look at their payroll account and processing accounts, their insurance policies effectively as part of the collateral package. Because a business owner that has the right Workmen's Comp, has the right payroll solution, has the right payment solution, that makes their business better. For that matter, think about a dentist that has got all of their data on a server If ultimately you've got a liquidation event, you really want all the data on the server to be able to resell the business.

And in addition, a dentist that has its server sitting in a closet is at risk for a HIPAA compliance violation. So that's obviously one way that we have been able to cross-sell and cross-market, but we clearly don't force clients to take our services. But it is part of the collateral package, and it will help improve their likelihood of getting approved when it goes into credit underwriting committee.

In the other particular areas, the business must to fit together. So when you think about e-commerce, the hosting of the site, the taking of the payment, the gateway and the web design, they go together. Or for that matter on the benefits side, payroll, Workmen's Comp, health and benefits, particularly today it goes together.

Going forward, are we going to do better more aggressive job particularly with the capital raise, putting more dollars into the marketing, to making sure we do better job of cross-selling and cross-marketing going forward, and drilling into the database. I think it is important to note, if an existing business comes to us which is the preferred customer opportunity, versus a totally new company, it is pretty hard to change all the providers up front. So what you hope to do is close one opportunity.

We message them regularly. I think we put out close to $90,000 -- excuse me, 90,000 newsletters a month to our customer base, with about a 15% open rate. Cross-selling and cross-marketing is important to us, they have to be overall synergies. We look forward to being able to put out better and more impressive statistics, to (inaudible) to our bottom line. There is a lot of upside in that, in that particular portfolio.

Got it. That makes sense there. And then switching gears just a little bit. So again, thanks for the update on the $75 million loan expectation in Q4, and great job on the $25 million in October. So is this origination loan pace sustainable f in 2015? And if so, how are you thinking, well, or what point would you potentially need more equity capital as the balance sheet leverage would probably start to approach the debt net equity level at one time?

I think that we are thinking for 2015 given the dividend that we have projected we are looking about $280 million worth of 7(a) loans. And obviously, we will be doing securtizations throughout the year. I think our goal would be to access the market at some point in time in 2015. Most likely it will be -- I will say the third quarter plus or minus a quarter. We prefer to be later than sooner, but that remains to be seen. I think we have a lot of flexibility in our business model, particularly relative to the leverage cap,.

Clearly very under-levered in certain aspects of a business, particularly the business service side, which has got effectively $10 million of debt. And right now, that debt actually sits up at the holding company. We may need to make an adjustment where that debt comes down to the portfolio companies, and that gives us more room on the BDC cap. So as we move into the BDC world, we are happy and proud to say, we have got (inaudible) that is probably the top accounting firm in this area, and someone on legal side advising us. So we have got real good counsel, and a lot to figure this out strategically as we go along. But we are pretty comfortable where we are. We don't see us rushing back into the market anytime in near future, not necessary.

Good. Thanks for that. So how would I think about your -- or have you thought about a potential target on balance sheet leverage level? I know other BDCs tend to float out to 0.6 to 0.8 times, as being in the level they are comfortable running the business. Have you guys put out anything, or thought about what level it makes sense there for your business?

I would say, Chris, at this point in time that is going to be a bit of a moving target. The one thing I will tell you, is we've just finished our roadshow and got tremendous receptivity. The primary utilization of the capital will be in the most levered side of the business and that is the 7(a) aspect. It is also the highest rate of return, and we think with the most modest amount of risk.

In the business services side, where effectively we could do acquisitions and probably get, call it 15% to 20% cash on cash yields without leverage, okay? That part of our business is going to buffer the SBA side of it. So as we think about targets, we will probably be little bit more levered with respect to 2015, than we may be in 2016 or 2017. Does that make sense to you?

It does, and I understand completely the complexity of it too, clearly with converting at this point, there is a lot of moving parts there so.

Yes, I want to point out one other thing. A significant part of our leverage is in securitization. Jenny, what is it $100 million right now or I'm sorry? (Multiple Speakers). It's about $100 million? Right. So contemplating something that might happen in the near future, we might be [safe] up to $100 million right, in the business model going forward. It is important to note that that is nonrecourse financing, with our cash back. Very different than most BDCs, right?

Yes. That is a point of differentiation. That's it for me. So thank you very much for taking my questions, Barry.

Thank you, Chris. Much appreciated.

Mickey Schleien, Ladenburg.

Good afternoon, Barry. Given that you have lent to the small business market for a decade, and you've worked through a couple of cycles at this point, could you give us an idea of how those businesses -- how the loans performed, both in terms of when the economy is expanding and contracting? And almost more importantly, because it seems the backdrop is pretty steady right now, how do they do when interest rates rise? I think there is a concern out there that small businesses will struggle if and when the Fed starts to increase interest rates?

Sure, Mickey. I appreciate that. I think that it is important to note that we have lent over the course of 11 years, and the lower interest rates -- a lower interest rate environment are sort of the byproduct or the last maybe four or five since the credit collapse in 2009. But we have been through higher rate cycles. The management team here has been together in excess of 10 years in the lending side. But Peter Downs, who is Chief Lending Officer sits on our Board. He has been lending to small businesses over 25 years. I think that what you want to be real careful about, anybody that tells you a rising rate environment is good for anything, I don't know unless they own an inverse bond of some kind, it's just not true. So I won't tell you that is good for us.

However, in the rising rate environment, number one, our loans are floating-rate. Number two, there is a long am schedule. So yes, the interest rate is an important component but the real payment modestly is driven by that long amortization schedule. 85% of our loans are collateralized by real estate. So in that rising rate environment, you typically have inflation. The real estate collateral becomes more valuable, and frankly if the business falters based upon lower demands, or higher cost to cover the debt service the ability -- which is what we see you all day long in our 11 year history in lending, of the business owner to liquidate a house, to liquidate of piece of the commercial real estate, to be able to continue to make the payments and stay in business is valuable.

Frankly, in the robust economy, the enterprise value of the business in and of itself is more valuable. So although I do believe we suffer holding everything else constant as our clients do, in a rising rate environment, we don't think it is that significant to us versus other participants. And we have observed that over the course of time. We have default and delinquency statistics in our registration statement. We have got them in our private placement memorandums.

Once again, you are discounted cash flow analysis, we estimate that we will survive one in four loans in our entire portfolio going bad, with a third severity which has been our history. That is a very extreme severity. We think that we are currently originating at a much lower rate. So we feel pretty good about where we are. The reason why we have been able to survive 11 years as a non-bank lender when most banks require government bailouts is conservative accounting and real conservative loan underwriting.

Barry, what sort of I imagine that the management team is preparing the budget for next year, and presenting it to the Board. Or maybe they have already done that. But what is sort of the base case outlook that you are using for the economy next year in terms of GDP growth, and the direction of interest rates in terms of you are looking for, in terms of -- as far as loan origination volume? And more importantly, the terms that you are willing to go out with for the coming year?

Sure. We are looking at loan origination volume of around $280 million. That is the number we have used to basically drive a components of our forward estimated projection for the dividend yield. In terms of the economy, we are looking at like 2% to 2.5% GDP, and we are looking for a modest rise in interest rates at this point in time, of say, 0.25% to 0.5%. But certainly not in the early quarters. The economy is still struggling. The Federal Reserve recognizes that, and we do not see the Federal Reserve doing anything to raise short-term rates in the near term.

Okay. I appreciate that. That's for taking my questions.

Thank you.

[Michael Kaplinsky], UBS.

Hey Barry. You touched on it a little bit, but just wondered if you could kind of expand on the primary rationale of why a BDC, and how this is going to benefit your Newtek shareholders?

Thanks, Michael, I think the Board and management elected to bring to the shareholders a vote to convert to the BDC, based upon our studying of the market, and realizing that the benefit that we and our shareholders receive from not having to pay corporate tax was quite useful. Jenny, in 2013 we paid about $6 million or $7 million?

$7 million.

What do you think we will pay this year if you had to guess? (Multiple Speakers). Okay. So we paid out $7 million in corporate tax in 2013 and 2014. That is now cash flow that goes to shareholders, clearly a benefit. That cash flow effectively is reducing our cost of equity capital.

When you look at our Company, and we had a great experience on the roadshow, meeting a lot of people. They say with this is one fantastic company, why are you so -- why are you valued at this level? I won't say we are over-valued or undervalued, you can -- the reality of it is we are small. And if you ask anybody on Wall Street, a $140 million equity valuation of the business is under the radar screen. Prior to the stock split, we were a $2, $3 dollars stock. So now we are split. We're -- interested more people. We have got over 20 institutions, that brought in to the deal on the roadshow, and we are excited about that. And our goal is to get the size of the BDC through cost effective equity raises.

We have been able to demonstrate that we can earn higher rates of return, even with expensive capital like the mezzanine debt that we recently paid off. But we get this thing up to $200 million, $250 million we are going show up on the investment screen, of a much big universe of investors that really wouldn't even think twice about investing in a stock like ours, in a company that has been around for 11 years, and is currently paying a 13.7% dividend. Matter of fact, if you compare us to the other guys, what do they have on us that [they are bigger] primarily. So if you think we are going to get there, and be able to bridge that gap, this is interesting.

So when we looked at the BDC opportunity, we said, hey, this is a good opportunity for us to be able to raise cost effective equity, grow the business, and benefit shareholders. And then if you think that these operating businesses have great enterprise value, beyond what is on the schedule of investments -- I think that is really important. When you look at the schedule investments which create NAV, there is no value placed on the fact that are lender has gone from $3 million of earnings to this year, what $14 million? (Multiple Speakers). On the guidance to $14 million, and next year probably a much, much higher number to be able to pay out that dividend. That doesn't show up on the schedule of investment.

The fact that our processing business will probably have bottom line growth this year in the double digits. That growth doesn't show in the schedule of investment. So if you actually get multiples on those things versus the modest the valuations, we think this is a very attractive vehicle for shareholders. Without this capital [rate], I would not have sat in front of the types of investors that are going to show up as holders, of people that can actually make major investments, provide capital, and help us grow the business.

So we thought this was a great transaction. Although it certainly took long time to get here, we are really happy that the legal department, the accounting department persevered to be able to get the thing through. And I think it's going to turn out to be a great event for our shareholders.

Okay. If I could just switch gears for a second, you talked about your selectivity, and how 98 out of 100 referrals get turned down. I was just kind of curious how that -- can you maintain that selectivity and still be able to function well in those platforms? Does that have -- how does that impact on those platforms?

Couple of things, number one, what we found in lending is if you are professional and you get the clients quickly, and you tell them no quickly, there is no problem saying no. It is when you sort of -- by the way, in our process we don't tell them to go home, fill out forms, and come back. We do telephonic interviews. So we say no fairly quickly, based upon what I will call just a five season general credit.

A couple of things that we are going to be doing. We are picking up some interesting agent programs, where we are going to do the assembly, and lay off the risk to other funders that want to work with us, which we are excited about. That is going to broaden our menu, and I don't think it's going to be a great income generator, but it's going to help us close a lot of our other business. But in addition to that, being the largest non-bank lender for a couple of years in a row, we think we are gaining some good speed in a international TV campaign. We think we have new alliance partners in the pipeline that should add to the number.

So we think we're going to continue to grow the gross numbers of referrals. We do not think we are going to be able to cut into credit. Ultimately, down the road, not a 2015 thing, but down the road we will have other non-SBA programs. We may do something with the SBA 504 program, which it generates great high rates of return, rolling components get sold out sooner than later.

So those are the things that we are looking to do, and we are very well-positioned to grow the business lending segment. And very importantly versus other BDCs, we are really a direct lender. When I say that, we are not buying packaged loans, we are not buying loans from brokers. We actually speak to the end customer directly, and structure the opportunity, first of all business owner. And we feel pretty good about where we are in the ability to grow the lending business without cutting into credit.

All right, Barry. Thank you.

Frank DiLorenzo, Singular Research.

Thank you. Good afternoon. Switching gears, could you talk a little bit about the visibility you have going into the holiday quarter for your electronic processing segment? And also related to that business, how you see yourselves going forward strategically with a lot of the changes going on in the online space from Apple Pay to Google Wallet and Amazon, how that might impact your business longer-term? Thank you.

Frank, it is fair to say that the payments business, particularly over the last couple of years has gotten more and more competitive. And in order to be a double-digit grower, particularly on the revenue side which is where we want to be. We are currently double-digit grower on the bottom line, not so much on the revenue side. You have got to have the most cost-effective solutions, but most importantly, they have got to be technologically state-of-the-art. And that is why the press release that we put out this morning with respect to SEQR is really a big deal.

There is two, well, there is one particular player that is well-known, sort of in the wireless area, MCX and obviously, Apple Pay. But the issue with Apple Pay, is Apple Pay uses a credit card. So the great thing about Apple Pay is you have got the fingerprint identification on the phone, which is very valuable in being able to utilize the phone. But at the end of the day, you are using a credit card. Because you're using a credit card, the merchant effectively cost is in excess of interchange on the Visa and MasterCard.

There is an entity in a market called MCX that is putting a product which is consortium of all the major retailer, Home Depot, Target, Walmart, and they are basically going to be using ACH and debit to avoid the costly interchange. So the value proposition to the merchant, which is important because in order to use the mobile wallet and grow in payments, you have got to make the merchant happy, and you got to make the consumer happy. So on the merchant side, it is reduce costs. Apple Pay doesn't do that, okay? Yes, it might reduce costs slightly to Walmart, but compare that with reducing costs to anybody in our market. Okay? It's convenience, and they have done that, it is security through the use of a fingerprint ID, but on costs, they haven't done much.

The other aspect to these devices are the loyalty and the rewards and the data. So our deal with Seamless and SEQR, using our gateway and our informational switch gives the consumer and the merchant, point programs, discounts, all sorts of data information, if the merchant wants for marketing. And most importantly, the consumer wants discounts and breaks. We are able to do that, because we don't have interchange. So that's one of the growth areas.

The other growth area is using tablet-based POS. We have a great relationship with Rebel, one of the leading players in this space. To go into a merchant, and be able to give them, and fit them with hardware, software and the ability to take payments using a mini iPad or an iPad, very, very valuable at a lower cost than the current micros to the [low cost] system is very valuable. That is where we see ourselves in the market, competing head-to-head, where we get good top line and bottom-line growth in the business.

Okay. Appreciate that. Separate question regarding web hosting and design that has been fairly weak. Are you considering different options longer-term, whether it be spinning that off, selling some of the assets, or even partnering to see if you can turn that around and stabilize that business? Do you have options there, are you actively considering? Thank you.

Thanks for the question. My employees that work in that segment love that question, because [demands] that on a [regular] basis. But the reality of it is and I have said this on other calls, we have been down that road with lending. Lending looked like it was the albatross of the year in 2009 and 2010, and we managed to ride the cycle out, turn it around and grow it. When you look at the Gartner and the Forrester surveys relative to cloud computing, and you look at small business owners, that have towers under their desk and servers in their closet, this is growth business.

So the reality of it is, we will do a much better job of executing on the strategy, getting the message out there to the customer base, and we don't have any intention of discarding this business at this point in time. With that said, I also say to my employees, my staff and everybody else, we are all good for a year. After that, you are on your own, myself included.

So we outperform, we got to turn the ship around, but there is tremendous value in the business. We have been in the business 11 years, and by the way that business historically, it carried this Company and did a great job. We have got great employees, we have great staff. They are extremely hard-working, very loyal. And we will get that fixed. It's just a matter of time.

Thanks for your time.

Thank you.

Casey Alexander, Gilford Securities.

Good afternoon. Thanks for taking my question, and congratulations on your capital raise. The pro forma post offering NAV, did that -- were you including the greenshoe in with that calculation?

Yes, sir.

Okay, great. How -- clearly -- I am not sure -- this is not your traditional BDC. When you look at the Small Business Finance side of the business, how volume -- can you give me some color as to how volume sensitive the earning of the business are, and your feeling about its degree of economic sensitivity as well?

Sure. I think that we are more sensitive to volume, than we are to having a 1% GDP or 0.5% GDP versus a 2% to 2.5%. I feel very good about our underwriting. When you look at the risk share, where losses occur pro rata, across the government guarantee participation certificate, which is the government's risk para our [insured] participation certificate, we have a pretty good balance there. So I am not overly concerned that with a slightly weaker economy, we are going to blow this 25% cumulative default rate that we have in our model, which is really the risk on the balance sheet. It is the uninsured loan participation right?

Now relative to the concept of the volume, historically before this capital raise of $31 million gross dollars, we really had to manage the capital, manage our borrower relationships. And it was a little bit like, the air traffic controller of Laguardia airport, lending up your loan fundings. This gives us more access to capital, the ability do larger, more frequent securitizations, and presumably at our expectation is a lower cost. The first securitization I think we cleared like 5.75% yield. I think the last one was approximately 3.5%. We think we are going to get better at this in the next transaction in our future.

So I am not overly concerned about the increase in volume, and the ability to use some of these dollars to grow our marketing presence, and expand our position as a small business authority. I will tell you that there been non-bank lenders in the history of the 7(a) market that have done $1 billion worth of loans, so that's not out of our realm. I don't expect that to happen anytime soon, but clearly there is growth potential for us in the market place.

Okay. That's great. Thank you. When you talk about -- with your customers that you talk to them directly and you structure the opportunity, can you explain to me what you mean by structure the opportunity? Because it also sounds like every deal comes out with the flowing rate 6% coupon, floating rate off of prime. What is the structuring element of the opportunity?

Great. Let me explain what we do differently versus what number one, other non-bank lenders do and what banks do. So what other non-bank lenders do, is they have 5 to 10 underwriters and they wait for what is known as a BDO or business development officer to bring them a fully packaged 7(a) loan. That fully packaged 7(a) loan, that BDO knows the exact underwriting guidelines, knows the box, skews the financial projections, tells the borrower to hide the assets amongst the kids and in trust, and makes sure that one of the two spouses is judgment proof, and get 2 to 3 points to do that transaction.

That's what our competitors do. So what we do? Most independent business owners, they don't -- they just know they need money. They don't know whether they need a revolver. They don't know whether they need a term loan. We do have a accounts receivable line of credit and factoring business, so we do provide revolvers collateralized by receivables, a real nice haircuts. It's a great business for us. And going forward, we will able to expand the menu. Most likely we will lay off other types of credits to third parties, but the reality of it is we will assemble that loan.

When I use the term we structure, we speak to the borrower. We use real projections. We know where all the personal assets are, the multiple guarantors are. When I say we structure the loan, we put the loan together, and don't allow the borrower to structure against us, from a credit perspective. Does that make any sense?

Okay. I have to -- forgive me, as somebody who is more proficient in a traditional BDC, we are used to seeing assets that are valued with the help of third parties. And you had some of these OPCOs that you have, you are showing valuation that appear to be extremely modest compared to the comps. Who helped you set that those valuations for establishing NAV? Was that set by an approval process by the Board? Or was there a third-party valuation firm that came in, and helped you set appropriate valuations? How did you go about that process?

We use a third-party valuation firm that is, although I am not allowed to say their name, it is top three largest recognized valuation firm in the BDC market. That is number one. And we actually recently used them to update, before we did this transaction. The Board determines those valuation, in conjunction with help by management, but the Board signs off on these valuations, and does it every single quarter, and meets religiously, and goes through a very extensive analysis which looks at public comps, as well as discounted[ cash flow] analysis and [foreign] projections.

On the lending side, let's talk about the beauty of these uninsured loan participations that are averaging $150,000. So we do securitizations. They clear the market at a yield spread with credit enhancement, and it's the same structure. So do we value our uninsured participations? We jack the default rate up to a very high rate. We use the normal severity rate, and then we spread it at about 175 to 180 basis points above where the securitized transactions are done.

Right.

So the point being, if I went to a bank today and said I have got a portfolio of $100 million worth of loans, and one in four loans are going to bad. And you are going to [lose over] the term, and you're going to lose 30% of your of every loan that [goes bad]. And it's still going to yield you 430 basis points over your cost of funds floating-rate without a cap, do you think that would clear the market? And the reality of it is the valuation on that versus figuring out what a $15 million or $30 million loan that has got -- it's a cash flow loan based upon financials and projections, I have got to tell you, I like our valuations, and our valuation method which is based upon real capital markets execution, diversification, [lower of] large numbers and structured better.

Great. Thank you very much for taking my questions. I appreciate it.

All right. Thank you for the questions. Good ones.

(Operator Instructions)

Chris Doucet, Doucet Asset Management.

Hey Barry. Congratulations to you and your team on an excellent quarter.

Thank you, Chris.

Just a couple of questions, most of my questions a been answer by previous callers. Just out of curious -- I was going to ask you this question offline, but I will ask you online. Were you happy with the capital raise, given the fact that you had to do it at such a large discount to the net asset value?

Sometimes you have to get a little pain to move to the next step. And the reality of it is, yes, I think we would have certainly preferred to that higher price. I think there is no shareholder that doesn't want to hear that. On the other hand, the distribution that we got, particularly from institutions was fantastic. And we had to unfortunately cut people back, not being able to give people everything that they wanted in the deal by a significant amount.

And we realized to a certain degree this is our coming out party as a BDC. And one of the things, I am 55 years old, and I have been in the finance business for over 30 years. One thing I have always learned is, you've got to get people a good deal, and then you keep coming back. So I think that giving people a good deal with a discount to NAV, and a high-yield and a special dividend on top, it iss going to wind up paying dividends.

We are looking at how our stock is trading. It is up about 1 point since the transaction. It's really just trading very well. So we are very happy with the way the stock has performed, and we think that JMP and Ladenburg did a real good job in the transaction. And we just appreciated the -- we had over 40 institutions that met with us in a period of five days. And we had great retail participation, and we are real happy with how this has worked out.

Would you be amenable to doing future capital raises at a discount to the net asset value?

Chris, that is one of my favorite questions. (Laughter). Would we be amenable? To answer that question, we do not like selling shares below NAV. Nobody does. I think -- what we have to do is look at her business, and determine whether or not the capital will be accretive to all shareholders. And I am amazed that the misused term of dilution that has occurred from time and time again, about dilution, dilution, dilution.

Look first of all, if I am diluting anybody, I am diluting myself, all that's with the G not a D. So I strongly prefer not to dilute myself. And the other thing to is, just from alignment of interest standpoint, personally I don't really make my money on just getting bigger, or by giving myself a bigger base and bonus. My money is very much in line with the shareholders. It is made by stock share appreciation and increase dividends. That is really where my head is at. So from my perspective, we are going to do what makes sense.

I think the market is going to recognize that we are delivering, and we are looking forward to that discount of evaporating. However, the reality is, we -- the other internally managed BDCs are 1.5 times -- this is just my opinion and it is biased -- not just because they are a better company than we are, they are just bigger. So is getting bigger requires that we take a little bit more pain, well, we are going to have to look at that when it comes. That's the answer the question hopefully.

Okay, and Barry, another question. If you did $75 million in SBA 7 loans in the fourth quarter, can you kind or walk me through or give me an idea of what your balance sheet would look like at the end of the quarter, and how much availability you might have remaining on your warehouse line?

Interesting question. Well, one thing I think that is important, let's just assume -- and this is just a guess -- let's assume we do securitization sometime in the quarter just as an example. We will then clean out the warehouse line, okay? It gets cleaned it out. Then let's assume that happens, oh, in two weeks. So let's look at one month from December.

I have got $25 million in governments, that's creates $8 million of uninsureds approximately, right? (Multiple Speakers -- inaudible). About $8 million of uninsureds So if I hold the governments, because now I have got the cash, right? So I might as well hold the governments and not sell them, right? Now I got -- I am sitting on the cash, so I might as well put the cash into the government 6% floating-rate, right? So right now, my Capital One Bank line is at zero.

Okay. So --

When we do a securitization historically, we have cleaned out everything. So there is no loan that we have, that is not in a securitization. By the way, that is good evidence I think of the quality of our loans.

And so your non-recourse debt would go from $100 million to $108 million, is that how it works?

It is about $100 million. I think you are looking at that at about the end of September, is that right?

Yes.

So let's assume -- well, yes, the reality of it is, let's just go back to that securitization again. Let me just think for a second there. Now I think --

I can ask you the question off-line, Barry.

it's kind of technical because you are creating -- if you do the securitization, you are creating more securitization, right? And you are cleaning out the Capital One Bank line. So the Capital One Bank line basically goes down to zero. And then your [cloak] question is in this fantasy example, how much is next securitization which I couldn't talk about anyway.

Okay. Switching gears, just the second, and somebody touched on this question a little earlier in the call? Would there be a third-party evaluation firm evaluating the various OPCOs every single quarter, or just once year for NAV purposes? Or do they just give you a metric, and you just apply your EBITDA to it every quarter, and come up with your NAV? How is that going to work?

I think right now given we just did one, I think you can think about us maybe within the next six months, doing it again.

Okay, thanks, Barry. I will step back in the quarter, in the call. Thanks.

Thank you.

Mickey Schleien, Ladenburg.

Can you hear me okay?

Yes, I can hear you loud and clear. Sure.

So just a follow-up. In listening to your presentation, I am just curious with us large 7(a) distribution channel that you have, you must end up with borrowers who have a pretty good degree of success and grow, and eventually could get to the size where a more traditional SBIC, SBA guaranteed debenture program would work for them. Is that something that you are considering doing?

It certainly is, Mickey. It is in the registration statement. You would probably know what the current debenture rate is, but I would think it is somewhere around 2.5% maybe, interest only for 10 years. Does that sound right?

Well, all-in with the fees, it is a little closer to 4%, a but it's still quite cheap. It is fixed rate 10 year money.

Okay. So the current structure all-in, loaded in is 4%. So I think what's important Mickey is that if we do go that route, we are not -- we don't want to buy syndicated loans on private equity deals or leveraged buy-outs from Wall Street. That is not our thing. However, we see a lot of business opportunities, not only from businesses in the existing portfolio. We are tapped out on the SBA loan at $5 million. We see a lot of business opportunities in excess of that $7 million, $10 million, $12 million. That is where we may look to utilize the SBIC funding and put that type of money to work. And as you know, that doesn't count towards your leverage test. So it's really nice, raising a nice enhancer down the road.

Are you actively working on that process, or at this point is just a consideration for something down the road?

When I said, we have started, we have had internal discussions. We made a decision that we want to proceed on it. We are known to the SBA. In our history we have fund over 130 equity and debt investments to private companies. So we think we are qualified, but we are in the very early stages. And I wouldn't say it is something that you would see in 2015, but you may see it in 2016.

Okay. I understand. Fair enough. Thanks for that.

Thank you. This closes our Q&A session for today. I will turn it back to management for closing remarks.

Thank you, operator, and I really want to thank everybody. We put this call together quite late, trying to figure out when the closing was going to happen, and timing the earnings and everything. So I really appreciate the lots of people attending and the great questions that certainly made this an interesting call for everybody. So thank you very much, have a good evening work

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.