exploring the new sop 50 10 5(f) and other new sba program initiatives western pennsylvania...

EXPLORING THE NEW SOP 50 10 5(F) AND

OTHER NEW SBA PROGRAM INITIATIVES

Western Pennsylvania Association of SBA-Guaranteed Lenders

March 12, 13 & 14, 2014

SBA LENDING UPDATE:

© 2014, Starfield & Smith, P.C.

Agenda:

SOP 50 10 5(F) – Lender and Development Company Loan Programs

Pending and recently enacted rule/policy changes affecting SBA lenders

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Definition of Good Standing Rewrite of Franchise Review Provisions Debarment Further Defined Changes to 912 clearance process ETran Submissions Only Refinance changes Credit Criteria different for two loan categories ($350,000 < >) Collateral policy: valuation methods and requirements for personally

owned assets Life insurance 147 Note and 148 Guarantee forms Application – 1919 and 1920 (replacing 4 and 4i)

Part ISOP 50 10 (5) (F) - Effective January 1, 2014

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Good StandingA lender must be in good standing with its state

regulator and Federal Financial Institution Regulator (FFIR) as determined by SBA. satisfactory financial condition (e.g., capital and liquidity) satisfactory small business credit administration and servicing

policies, procedures and practices. SOP 50 10 5(f) Subpart A, Chapter 1, II.C.c), pg. 7

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Franchises Re-write of Review of Franchise/License/Dealer/Jobber or

Similar Agreement provisions

Rely on Certification of Franchisor

SBA will assist PLP lenders determine if affiliation exists for those franchises not on Registry [email protected]

Although affiliation determination may be made by SBA on loans not on Registry, lender must still determine whether financing meets all other eligibility rules

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mailto:[email protected]

Get Executed Franchise Documents

If Lender disburses the proceeds without obtaining the necessary executed franchise documents, including any amendments and/or addendums, SBA may deny liability of guaranty.

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Gas Stations

Review Relevant Documents: Title Report (with copies of chain and Exceptions), Supply Agreements, Purchase DocumentsLook for: Repurchase Options, Impairment of

Collateral Value, Alteration of Lender/SBA’s rights (Subordination not sufficient)

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Business with An Associate of Poor Character

Subject Individual: Owner, partner, officer, managing member, owner of

20% or more, Trustor and day-to-day Manager Form 1919 – Questions 1, 2 & 3 If Yes to 1= Not Eligible If Yes to 2 or 3 = Find out more. Felony = Fingerprint Misdemeanor = Name Check or Fingerprint Send 912 to Field Office

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Business with An Associate of Poor CharacterYou can clear it!?! Maybe…PLP Lender or SBA Field Officer can clear the

following: Single minor misdemeanor offense or arrest; or Up to 3 minor offenses (arrests and/or convictions at

one time or separately), concluded more than 10 years prior to date of the SBA application; or

A prior offence cleared by D/FA on prior application – valid for 6 months

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Refinancing Change of Ownership Debt

NOW Reads:

g) Debt used to finance a change of ownership;

But comments says:

SOP 50 10 5 (F) Subpart B, Chapter 1, IV, E. 3.g), pg. 115

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Additional Refi ProvisionsRefinancing Same Institutions Debt – 36 month

look back - late beyond 29 daysBorrower or Lender can get evidence from prior

lender of SBA loan for refinance7(a) to refinance 504 Loan – Both TPL and 504 refinanced or TPL paid in full, part of larger transaction (GP only)

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Credit Criteria – Loan < $350,000 New policy: Loans $350,000 and under must be processed under SLA

Credit Score prescreening prior to submission of ETran application

If loan application does not receive an acceptable credit score, Lender may submit Standard processing or (if SBA Express Lender) an SBA Express Application via ETran for 50% guaranty.

Eligibility for SLA will continue to be based onpre-screening credit score and specified

mandatory credit evaluation including that applicant’s debt service and global cash flow ratio exceeds 1:1 on a historical or projected cash flow basis

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Credit Criteria – Loan < $350,000

Lender’s Credit Analysis:

History of business Management experience Debt Service Coverage Ration exceeds 1:1 Projected Cash Flow Ratio exceeds 1:1 Owner/Guarantor personal financial statements, consistent with similar non – SBA loans May use own credit scoring criteria Analyze strength of business – credit/ deposit behavior Verify tax returns Equity and pro forma debt to worth are acceptable based on Lender’s non-

SBA loan policies13


Credit Criteria – Loans > $350,000.00New policy: lender must—

Determine if repayment ability from business cash flow exists AND

Follow SBA-mandated credit evaluation criteria INCLUDING minimum debt service coverage ratio of 1.15:1 based on a historical and/or projected basis SOP Equity Injection requirements apply

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Credit Criteria – Loans > $350,000.00OCF/DS must be greater than 1.15 to 1.0 on

a historical and/or projected basis Operating Cash Flow (OCF) as earnings before interest, taxes,

depreciation and amortization (EBITDA) Debt Service is defined as required P&I payments on all business

debt inclusive of SBA loan proceeds

If not…………..

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Former Collateral RequirementsWith some sub-program specific exceptions, SBA

generally required “all available assets”

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New Collateral Requirements

For loans of $25,000 and less – no collateral required

For loans over $25,000 – Lien on all assets financed by loan proceeds still mandatory

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Collateral Requirements50 10 (5) (F)

At a minimum obtain a lien on the applicant’s fixed assets.

Lender may secure applicant’s trading assets (using a 10% current book value for the calculation) if it does so for similarly sized non-SBA-guaranteed commercial loans.

Loans between $25,000 to $350,000

Follow collateral policies and procedures that Lender has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans

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Fully Secured means all available assets with a combined net book value up to the loan amount.

Fixed Assets, then Trading Assets (10% of current book value) and then personal real estate (up to shortfall)

Loans between $350,000 to $5,000,000

SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.

Collateral Requirements50 10 (5) (F)

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New Collateral Requirements (Cont.) Liens on residence may be limited to150% of equity - if tax

implications from filing at higher amount Lien on personal residence still NOT required if equity less

than 25% Lien on jointly held R/E still required even if one spouse

has NO ownership interest in business – with limited guaranty required

No lien required if R/E wholly owned by non-owner spouse Lien on other personally owned assets, e.g., stocks, bonds, CDs, etc., NOT required

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Life Insurance New policy to allow lender to follow same policy that it

uses regarding life insurance for its unguaranteed commercial loans of similar size and type

But, expectation by SBA that, on loans over $350,000 processed under the regular 7(a) program, sole proprietors, sole member LLCs, etc. must obtain life insurance unless loan is fully secured If principal uninsurable, lender must obtain written documentation

from a licensed insurer

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Other SOP Changes 147 Note and 148 and 148L Full and Limited Guaranty

forms no longer mandatory – be careful Lenders forms must contain SBA required clauses

Applications – Forms 1919 (Borrower) and 1920SX (Lender) Elimination of 4 and 4i Must use E-Tran for processing ALL loans

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Other SOP Changes504 Loan program changes

Does not require credit reports on non-guarantor affiliates SBA can participate in Projects financed by obligations

exempt from local or state taxes Incorporates clarifications under 7(a) program (i.e.

franchise reviews), permissible debt refinancing and change of ownership

Eliminates wet signatures on personal financial statements, balance sheets and income statements, fed tax returns and aging AR reports

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Recent SBA Procedural NoticesFRANdata Unique Numbering System (FRUNS) –

Starting October 1, 2013 Must submit a FUNS number for all franchise loans through ETran Control No. 2000-840

7(a) and 504 Fees – Starting October 1, 2013 Guaranty and on-going fees to be waived for all loans under

$150,000 beginning 10/1/2013 For other loans, on-going fee going down from 55 to 52 basis

points Control No. 5000-1288

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OMB Circular A-129Credit Reporting Requirements (SOP 50 57 p. 30)Mandatory that lenders report SBA loans to a

commercial credit agency of Lender’s choice (quarterly)

OCRM will likely be looking for compliance in conducting its onsite reviews; and the position of NGPC is unclear

31 U.S.C.§3711Clarifying notice from SBA in process

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Other Important ChangesAffiliation and Personal Resources Proposed Rule - ?

Affiliation if ownership of 51% or more No negative control permitted

FDIC Lost Share Agreements – GuidanceSBA One – part of requirements for fiscal and transfer

agent contract (Colson) SBA Veterans AdvantageOCRM/OIG – Anticipated additional enforcement initiatives (which could lead to more lenders losing PLP status or being removed from program)

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IPERA Audits

OIG report on SBA’s failure to comply with the Improper Payments Elimination and Recovery Act (IPERA)

SBA agreed to implement a payment recapture plan for approved loans, both before and after closing.

What to do?

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Thanks! Any Questions?

Kimberly A. Rayer, [email protected]: 267-470-1208

1300 Virginia DriveSuite 325Ft. Washington, PA 19034P: 215-542-7070F: 215-534-9023

www.starfieldsmith.com

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1100 Lake Destiny RoadSuite 105Maitland, FL 32751P: 407-667-8811F: 407-667-0020


http://www.starfieldsmith.com/