SOP 50 10 5(F) - Small Business Administration

[Pages:368]SOP 50 10 5(F)

Lender and Development Company Loan Programs

U.S. Small Business Administration Office of Financial Assistance

SOP 50 10 5(F)

TABLE OF CONTENTS

SUBPART A................................................................................................................................... 6 PURPOSE OF THIS SUBPART ............................................................................................. 6 Chapter 1: 7(a) Lenders .............................................................................................................. 7 THE 7(A) LOAN PROGRAM ............................................................................................... 7 BECOMING A 7(A) LENDER .............................................................................................. 7 HOW SBA OVERSEES 7(A) LENDERS ........................................................................... 14 TYPES OF 7(A) LENDERS WITH DELEGATED AUTHORITY .................................... 17

CHAPTER 2: SMALL BUSINESS LENDING COMPANIES................................................... 40 A SMALL BUSINESS LENDING COMPANY ................................................................. 40 PROCESS FOR ACQUIRING AN SBLC ........................................................................... 40

CHAPTER 3: CERTIFIED DEVELOPMENT COMPANIES ................................................ 43 SUBPART B................................................................................................................................. 70

PURPOSE OF THIS SUBPART ........................................................................................... 70 Chapter 1: GENERAL DESCRIPTION OF THE 7(a) LOAN PROGRAMS.......................... 71

VARIOUS DELIVERY METHODS ................................................................................... 71 USE OF LOAN PROCEEDS ............................................................................................... 71 SPECIAL PURPOSE LOANS ............................................................................................. 72 DEFINITIONS APPLICABLE TO THE 7(A) LOAN PROGRAMS.................................. 73 CHAPTER 2: ELIGIBILITY FOR 7(A) GUARANTY LOAN PROGRAM .......................... 74 INTRODUCTION ................................................................................................................ 74 SUMMARY OF ELIGIBLITY REQUIREMENTS............................................................. 74 ELIGIBILITY REQUIREMENTS ....................................................................................... 75 The Small Business Must be Organized for Profit. .................................................................. 75 The Applicant Must Be Small Under SBA Size Requirements................................................ 76 The Small Business Applicant Must Demonstrate a Need for a Guaranty on the Loan........... 84 Ineligible Types Of Businesses................................................................................................. 87 Businesses Owned by Non-US Citizens ................................................................................. 100 The Eligible Passive Company (EPC) Rule............................................................................ 104 Special Requirements For Loans Where Collateral May Be Included In The National Register Of Historic Places ................................................................................................................... 106 Additional Eligibility Requirement For SBLCs ..................................................................... 107 Additional Eligibility Requirement For EWCP ...................................................................... 108 Additional Eligibility Requirements For CAPLines............................................................... 108 ELIGIBLE USES OF LOAN PROCEEDS ........................................................................ 109 CHAPTER 3: LOAN TERMS AND CONDITIONS............................................................. 124 MAXIMUM LOAN AMOUNTS ....................................................................................... 124 MAXIMUM GUARANTY AMOUNTS............................................................................ 127 LOAN MATURITIES ........................................................................................................ 129 INTEREST RATES ............................................................................................................ 133 SBA GUARANTY FEES ................................................................................................... 139 OTHER FEES ..................................................................................................................... 144 PROHIBITED FEES .......................................................................................................... 149 DISCLOSURE OF FEES AND LENDER EXPENSES .................................................... 150 AGENTS............................................................................................................................. 151

Effective Date: January 1, 2014

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WHO MAY CONDUCT BUSINESS WITH SBA ............................................................ 153 CHAPTER 4: CREDIT STANDARDS, COLLATERAL AND ENVIRONMENTAL POLICIES ............................................................................................................................... 157

CREDITWORTHINESS/CREDIT UNDERWRITING..................................................... 157 COLLATERAL .................................................................................................................. 164 ENVIRONMENTAL POLICIES AND PROCEDURES................................................... 174 CHAPTER 5: LOAN AUTHORIZATION ............................................................................ 182 BASIC LOAN CONDITIONS ........................................................................................... 182 INSURANCE REQUIREMENTS...................................................................................... 183 IRS TAX TRANSCRIPT/VERIFICATION OF FINANCIAL INFORMATION ............. 185 STANDBY AGREEMENTS.............................................................................................. 187 ASSIGNMENT OF LEASE AND LANDLORD'S WAIVER .......................................... 187 CONSTRUCTION LOAN PROVISIONS ......................................................................... 188 SPECIAL PROVISIONS FOR FRANCHISES ................................................................. 190 CERTIFICATION REGARDING CHILD SUPPORT ...................................................... 190 SPECIAL PROVISION FOR CAPLINES ......................................................................... 190 MODIFYING THE AUTHORIZATION ....................................................................... 190 CHAPTER 6: SUBMISSION OF APPLICATION FOR GUARANTY ............................... 192 CONTENTS OF LENDER'S APPLICATION FOR GUARANTY.................................. 192 WHERE TO SUBMIT APPLICATION FOR GUARANTY ............................................ 198 CHAPTER 7: POST-APPROVAL MODIFICATIONS, LOAN CLOSING & DISBURSEMENT .................................................................................................................. 202 POST APPROVAL/PRE-DISBURSEMENT REQUESTS FOR CHANGES .................. 202 TRANSFER OF GUARANTY BETWEEN PARTICIPATING LENDERS .................... 203 PAYMENT OF GUARANTY FEE.................................................................................... 203 LOAN CLOSING AND DISBURSEMENT...................................................................... 203 CHAPTER 8: POST-DISBURSEMENT, SECONDARY MARKET, SECURITIZATION AND LENDER REPORTING (SBA FORM 1502) ............................................................... 224 POST-DISBURSEMENT CHANGES ............................................................................... 224 SECONDARY MARKET FOR SBA GUARANTEED LOANS ...................................... 224 SECURITIZATION AND OTHER CONVEYANCES ..................................................... 224 LENDER REPORTING ..................................................................................................... 225 SUBPART C............................................................................................................................... 233 PURPOSE OF THIS SUBPART ......................................................................................... 233 CHAPTER 1: GENERAL PROVISIONS .............................................................................. 233 PURPOSE OF THE 504 CERTIFIED DEVELOPMENT COMPANY LOAN PROGRAM ............................................................................................................................................. 233 CREDIT STANDARDS ..................................................................................................... 233 Definitions........................................................................................................................... 234 HOW A 504 PROJECT IS FINANCED ............................................................................ 235 CHAPTER 2: ELIGIBILITY.................................................................................................. 241 INTRODUCTION .............................................................................................................. 241 SUMMARY OF ELIGIBLITY REQUIREMENTS........................................................... 241 ELIGIBILITY REQUIREMENTS ..................................................................................... 242 The Small Business Must Be Organized for Profit................................................................. 242

Effective Date: January 1, 2014

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The Applicant Must Be Small Under SBA Size Requirements Applicable to 504 Financial Assistance ............................................................................................................................... 242 The Small Business Applicant Must Demonstrate a Need for the 504 Loan ......................... 250 Ineligible Types of Businesses................................................................................................ 253 Businesses Owned by Non-US Citizens ................................................................................. 266 The Eligible Passive Company Rule....................................................................................... 269 Special Requirements for Loans Where Collateral May Be Included in the National Register of Historic Places .................................................................................................................... 272 504 Program-Specific Eligibility Factors ............................................................................... 272 CHAPTER 3: COLLATERAL, APPRAISALS AND ENVIRONMENTAL POLICIES ..... 284

COLLATERAL .................................................................................................................. 284 APPRAISAL REQUIREMENTS ....................................................................................... 286 ENVIRONMENTAL POLICIES AND PROCEDURES................................................... 288 CHAPTER 4: LOAN APPLICATION PROCEDURES AND CONTROLS ........................ 295 CDC'S 504 APPLICATION............................................................................................... 295 MINIMUM DEBENTURE AMOUNT .............................................................................. 295 SUBMITTING THE APPLICATION ................................................................................ 295 CHAPTER 5: LOAN CONDITIONS/AUTHORIZATION REQUIREMENTS................... 298 AUTHORIZATION BOILERPLATE/WIZARD............................................................... 298 MODIFYING THE AUTHORIZATION ........................................................................... 305 CHAPTER 6: CLOSINGS...................................................................................................... 307 RESPONSIBILITY FOR CLOSING THE 504 LOAN AND DEBENTURE ................... 307 THE CLOSING PACKAGE............................................................................................... 307 SPECIFIC RESPONSIBILITIES AND PROCEDURES FOR CLOSING AND POSTCLOSING ACTIVITIES .................................................................................................... 308 USE OF CONSTRUCTION ESCROW ACCOUNT ......................................................... 311 CHAPTER 7: DEBENTURE PRICING & FUNDING ......................................................... 312 PRICING A 504 DEBENTURE ......................................................................................... 312 FUNDING THE DEBENTURE ......................................................................................... 315 CHAPTER 8: ALLOWABLE FEES ...................................................................................... 317 ALLOWABLE FEES THAT A 504 BORROWER MAY BE CHARGED ...................... 317 FEES FOR OTHER SERVICES ........................................................................................ 318 DISCLOSURE OF FEES AND EXPENSES ..................................................................... 319 AGENTS............................................................................................................................. 320 WHO MAY CONDUCT BUSINESS WITH SBA ............................................................ 321 CHAPTER 9: BORROWER'S DEPOSIT, DEBENTURE POOLS AND ............................ 323 RULES GOVERNING THE BORROWER'S DEPOSIT.................................................. 323 DEBENTURE POOLS ....................................................................................................... 323 MISCELLANEOUS ........................................................................................................... 323 POST-DISBURSEMENT ISSUES .................................................................................... 323 APPENDIX 1: RESTRICTIONS ON FOREIGN CONTROLLED ENTERPRISES................ 325 APPENDIX 2: DEFINITIONS................................................................................................... 328 APPENDIX 3: RELIANCE LETTER ........................................................................................ 334 APPENDIX 4: NAICS CODES OF ENVIRONMENTALLY SENSITIVE INDUSTRIES..... 336 APPENDIX 5: REQUIREMENTS PERTAINING TO GAS STATION LOANS .................... 338 APPENDIX 6: SBA ENVIRONMENTAL INDEMNIFICATION AGREEMENT ................. 340

Effective Date: January 1, 2014

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I. RECITALS .................................................................................................................... 340 II. DEFINITIONS ............................................................................................................. 340 III. REPRESENTATIONS AND WARRANTIES ........................................................ 343 IV. COVENANTS ............................................................................................................. 345 V. REMEDIATION ......................................................................................................... 346 VI. INDEMNIFICATION ................................................................................................ 347 VII. THIRD PARTY INDEMNITOR'S ELECTION TO PAY LOAN BALANCE .. 349 VIII. RELEASE AND WAIVER..................................................................................... 349 IX. SUBORDINATION .................................................................................................... 349 X. LOAN DEFAULT ........................................................................................................ 350 XI. GENERAL PROVISIONS ........................................................................................ 350 APPENDIX 7 ? CAPLINES PROGRAM DOCUMENTS ........................................................ 360 APPENDIX 8 ? Religious ELIGIBILITY Worksheet ............................................................... 367

Effective Date: January 1, 2014

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SUBPART A SBA LENDER AND CERTIFIED DEVELOPMENT COMPANY

PARTICIPATION REQUIREMENTS

PURPOSE OF THIS SUBPART

This subpart contains the requirements for lenders and Certified Development Companies (CDCs) to participate in SBA lending programs. This subpart also explains the different levels of delegated status SBA grants to lenders and CDCs, as well as how lenders and CDCs maintain their participating status with SBA. Finally, this subpart gives a brief overview of how SBA oversees its participating lenders and CDCs.

When the policy set forth in this Subpart does not adequately address the unique circumstances regarding a particular matter, an exception to policy may be approved by the Director of the Office of Financial Assistance (D/FA). For Export Working Capital Program (EWCP) and International Trade (ITL) loans, an exception to policy may be approved by the Director, International Trade Finance (D/ITF). For Export Express loans, an exception to policy may be approved by the D/ITF with the concurrence of the Director, Office of Credit Risk Management (D/OCRM). The D/FA or D/ITF may not approve an exception to policy if such exception would be inconsistent with a statute or regulation. A request for an exception to policy must be submitted to the Loan Guaranty Processing Center (LGPC) for 7(a) applications, including EWCP, ITL and Export Express loan applications, and to the Sacramento Loan Processing Center (SLPC) for 504 applications. The processing center will analyze the request and make a recommendation to the D/FA or D/ITF, as applicable or an individual acting in that capacity, who will make the final decision (with the concurrence of the D/OCRM for Export Express loans). The decision must be documented in the appropriate Agency loan file. This procedure may only be used in situations where a minor deviation from standard policy is necessary for the specific situation. Exceptions to policy will be considered on a case-by-case basis and the decision will only apply to the specific request.

Effective Date: January 1, 2014

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CHAPTER 1: 7(A) LENDERS

I. THE 7(A) LOAN PROGRAM

A. The 7(a) Loan Program is authorized by section 7(a) of the Small Business Act and is governed by the regulations outlined in Part 120 of Title 13 of the Code of Federal Regulations (CFR).

B. This multi-purpose business loan program is administered as a deferred participation program where SBA guarantees a portion of the loan made by a Lender. The Lender initiates the loan to a small business and, if the SBA agrees to guaranty the loan, the Lender funds and services the loan. In the event of default, the lender conducts the work-out or the liquidation efforts and the Lender and SBA share in the loss, if any, in accordance with the percentage guaranteed by the SBA.

C. Definitions applicable to this subpart can be found in 13 CFR ??103.1, 105.201, 120.10, 120.420 and 120.802.

II. BECOMING A 7(A) LENDER

A. The following lenders may apply to participate with SBA as a 7(a) lender:

1. Federally Regulated Lenders, including those lenders regulated by Federal Financial Institution Regulators (e.g., the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration, and the Farm Credit Administration); and

2. SBA Supervised Lenders:

a) Non-Federally Regulated Lenders (NFRLs), including State regulated lenders without federal deposit or share insurance protection; and

b) Small Business Lending Companies (SBLCs)

B. The following lenders may not apply to participate with SBA as a 7(a) lender:

1. SBA-licensed Small Business Investment Companies (SBICs);

2. Certified Development Companies (see 13 CFR ??120.852, except with respect to the Community Advantage Pilot Program); and

3. Bank holding companies

C. Process to Become a 7(a) Participating Lender

1. Federally Regulated Lenders

a) An institution that has federal deposit or share insurance protection and is a State or National bank, a State or Federally-chartered thrift institution or a State or Federally-chartered credit union contacts, in writing, the SBA field office serving the geographic area where the lender's principal office is located to request to be a participating lender. With the exception of State-chartered credit unions, these institutions automatically comply with the Agency's examination and supervision requirements.

b) When a State-chartered credit union applies to become a participating lender:

i. If the credit union has federal deposit or share insurance protection, it must send its application to the SBA field office servicing the geographic area where its principal office is located.

ii. If the credit union does not have federal deposit or share insurance protection, it must send to the SBA field office the items required in paragraph 2.b) below for Non-Federally Regulated Lenders.

Effective Date: January 1, 2014

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iii. The SBA field office must contact the Office of Credit Risk Management (OCRM) and ask for a written determination by OCRM regarding the State's level of regulatory supervision and examination.

iv. The District Counsel must review the application for legal sufficiency. As part of that review, District Counsel must determine that the credit union has the authority to apply for participation with SBA and, specifically, that the person who submitted the application has the authority to act on behalf of the credit union. Applications submitted on behalf of a credit union by a Credit Union Service Organization (CUSO) or Lender Service Provider (LSP) are unacceptable.

c) A lender must be in good standing with its state regulator and Federal Financial Institution Regulator (FFIR) as determined by SBA. For purposes of participation in the 7(a) program, SBA considers a lender to be in good standing with its state/FFIR if it has satisfactory financial condition and satisfactory small business credit administration and servicing policies, procedures and practices. Accordingly, the lender's written request to participate must include a written statement that to the best of its knowledge, the lender has satisfactory: i) financial condition (e.g., capital and liquidity); ii) small business credit administration policies, procedures, and practices that it continues to adhere to in its operations; and iii) small business servicing policies, procedures, and practices that it continues to adhere to in its operations. When reviewing good standing, SBA will look to see that a lender does not have significant deficiencies or weaknesses in these areas. "Significant" may be evidenced by the number or seriousness of the deficiencies, as determined by SBA in its discretion. SBA will verify any good standing statement where possible with public (e.g., Cease and Desist Orders and Call Reports) and/or non-public information from the lender's primary and/or other regulators.

d) The SBA field office must determine whether the lender meets the requirements of 13 CFR ??120.410 to be a 7(a) participant. If the field office determines that the lender meets these requirements, it may enter into a Loan Guaranty Agreement with the lender. Both parties will execute a Loan Guaranty Agreement (Deferred Participation), SBA Form 750, and/or a Loan Guaranty Agreement (Deferred Participation) for Short-Term Loans, SBA Form 750B. Once the SBA Form 750 is executed, the SBA field office will add the lender to the SBA Partner Information Management System (PIMS) which identifies the lender as an SBA participating lender.

2. Non-Federally Regulated Lenders

a) Non-Federally Regulated Lenders (NFRLs), including State regulated lenders without federal deposit or share insurance protection (such as Business and Industrial Development Companies (BIDCOs)) must file an application (in duplicate) containing the information and documents specified below with the SBA field office serving the geographic area where the lender's principal office is located. NFRLs are authorized by the Administrator to make loans pursuant to section 7(a) of the Small Business Act. NFRLs are subject to additional regulations specific to SBA Supervised Lenders (see 13 C.F.R. ?? 120.460-120.465) as well as all other 7(a) regulations specific to loan processing, servicing, and liquidation. NFRLs must have internal controls that meet the requirements set forth for SBLCs in Chapter 2, Paragraph 1.F.3 of this Subpart.

b) The lender's application must include:

i. Lender's name, address, telephone number and email address;

ii. A copy of lender's Articles of Incorporation and by-laws certified by an appropriate officer;

iii. Amount of the lender's capital and additional paid-in capital;

iv. The lender's proposed geographical area of operations;

Effective Date: January 1, 2014

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