sba lending update: exploring the new sop 50 … · other new sba program initiatives central texas...
TRANSCRIPT
EXPLORING THE NEW SOP 50 10 5(F) AND
OTHER NEW SBA PROGRAM INITIATIVES
Central Texas Assoc. of Guaranteed Government LendersFebruary 5 & 6, 2014
SBA LENDING UPDATE:
© 2014, Starfield & Smith, P.C.
Agenda:
n SOP 50 10 5(F)
n Pending and recently enacted rule/policy changes affecting SBA lenders
2
© 2014, Starfield & Smith, P.C.
n Definition of Good Standing
n Rewrite of Franchise Review Provisions
n Debarment Further Defined
n Changes to 912 clearance process
n ETran Submissions Only
n Refinance changes
n Credit Criteria different for two loan categories ($350,000 < >)
n Collateral policy: valuation methods and requirements for personally owned assets
n Life insurance
n 147 Note and 148 Guarantee forms
n Application – 1919 and 1920 (replacing 4 and 4i)
Part I
SOP 50 10 (5) (F) - Effective January 1, 2014
3
© 2014, Starfield & Smith, P.C.
Good Standing
pA lender must be in good standing with its state regulator and Federal Financial Institution Regulator (FFIR) as determined by SBA. n satisfactory financial condition (e.g., capital and liquidity)
n satisfactory small business credit administration and servicing policies, procedures and practices. p SOP 50 10 5(f) Subpart A, Chapter 1, II.C.c), pg. 7
4
© 2014, Starfield & Smith, P.C.
Franchises
p Re-write of Review of Franchise/License/Dealer/Jobber or Similar Agreement provisions
p Rely on Certification of Franchisor
p SBA will assist PLP lenders determine if affiliation exists for those franchises not on Registryn [email protected]
p Although affiliation determination may be made by SBA on loans not on Registry, lender must still determine whether financing meets all other eligibility rules
5
© 2014, Starfield & Smith, P.C.
Get Executed Franchise Documents
pIf Lender disburses the proceeds without obtaining the necessary executed franchise documents, including any amendments and/or addendums, SBA may deny liability of guaranty.
6
© 2014, Starfield & Smith, P.C.
Gas Stations
pReview Relevant
Documents: Title Report
(with copies of chain and
Exceptions), Supply
Agreements, Purchase Documents
pLook for: Repurchase Options, Impairment of Collateral Value, Alteration of Lender/SBA’s rights (Subordination not sufficient)
7
© 2014, Starfield & Smith, P.C.
Business with An Associate of Poor Character
pSubject Individual:
nOwner, partner, officer, managing member, owner of 20% or more, Trustor and day-to-day Manager
n Form 1919 – Questions 1, 2 & 3
n If Yes to 1= Not Eligible
n If Yes to 2 or 3 = Find out more.
n Felony = Fingerprint
nMisdemeanor = Name Check
or Fingerprint
n Send 912 to Field Office
8
© 2014, Starfield & Smith, P.C.
Business with An Associate of Poor Character
pYou can clear it!?! Maybe…
pPLP Lender or SBA Field Officer can clear the following:
n Single minor misdemeanor offense or arrest; or
nUp 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
n A prior offence
cleared by D/FA on
prior application –
valid for 6 months9
© 2014, Starfield & Smith, P.C.
Refinancing Change of Ownership Debt
p NOW Reads:
g) Debt used to finance a change of ownership;
p But comments says:
SOP 50 10 5 (F) Subpart B, Chapter 1, IV, E. 3.g), pg. 115
10
© 2014, Starfield & Smith, P.C.
Additional Refi Provisions
pRefinancing Same Institutions Debt – 36 month look back - late beyond 29 days
pBorrower or Lender can get evidence from prior lender of SBA loan for refinance
p7(a) to refinance 504 Loan –
Both TPL and 504 refinanced
or TPL paid in full, part of
larger transaction (GP only)
11
© 2014, Starfield & Smith, P.C.
Credit Criteria – Loan < $350,000p New policy: Loans $350,000 and under must be processed under SLA
Credit Score prescreening prior to submission of ETran application
p 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.
p 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
12
© 2014, Starfield & Smith, P.C.
Credit Criteria – Loan < $350,000
p Lender’s Credit Analysis:
n History of businessn Management experiencen Debt Service Coverage Ration exceeds 1:1n Projected Cash Flow Ratio exceeds 1:1n Owner/Guarantor personal financial
statements, consistent with similar non –SBA loans
n May use own credit scoring criterian Analyze strength of business – credit/
deposit behaviorn Verify tax returnsn Equity and pro forma debt to worth are acceptable based on Lender’s
non-SBA loan policies
13
© 2014, Starfield & Smith, P.C.
Credit Criteria – Loans > $350,000.00
pNew policy: lender must—nDetermine if repayment ability from business cash flow
exists AND
n Follow SBA-mandated
credit evaluation criteria
INCLUDING minimum debt
service coverage ratio of
1.15:1 based on a historical
and/or projected basis
n SOP Equity Injection
requirements apply
14
© 2014, Starfield & Smith, P.C.
Credit Criteria – Loans > $350,000.00
pOCF/DS must be greater than 1.15 to 1.0 on a historical and/or projected basisn Operating Cash Flow (OCF) as earnings before interest, taxes,
depreciation and amortization (EBITDA)
n Debt Service is defined as required P&I payments on all business debt inclusive of SBA loan proceeds
pIf not………….. à
15
© 2014, Starfield & Smith, P.C.
Former Collateral Requirements
pWith some sub-program specific exceptions, SBA generally required “all available assets”
16
© 2014, Starfield & Smith, P.C.
New Collateral Requirements
pFor loans of $25,000 and less – no collateral required
pFor loans over $25,000 –
Lien on all assets
financed by loan
proceeds still mandatory
17
© 2014, Starfield & Smith, P.C.
Collateral Requirements50 10 (5) (F)
p At a minimum obtain a lien on the applicant’s fixed assets.
p 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 andprocedures that Lender hasestablished and implementedfor its similarly-sized non-SBA-guaranteed commercial loans
18
© 2014, Starfield & Smith, P.C.
p Fully Secured means all available assets with a combined net book value up to the loan amount.
p 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 lendercollateralize the loan to themaximum extent possible up tothe loan amount.
Collateral Requirements50 10 (5) (F)
19
© 2014, Starfield & Smith, P.C.
New Collateral Requirements (Cont.)
p Liens on residence may be limited to150% of equity - if tax implications from filing at higher amount
p Lien on personal residence still NOT required if equity less than 25%
p Lien on jointly held R/E still required even if one spouse has NO ownership interest in business – with limited guaranty required
p No lien required if R/E wholly owned by
non-owner spouse
p Lien on other personally owned assets,
e.g., stocks, bonds, CDs, etc., NOT required
20
© 2014, Starfield & Smith, P.C.
Life Insurancep 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
p 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 securedn If principal uninsurable, lender must obtain written documentation
from a licensed insurer
21
© 2014, Starfield & Smith, P.C.
Other SOP Changes
p 147 Note and 148 and 148L Full and Limited Guaranty forms no longer mandatory – be carefuln Lenders forms must contain SBA required clauses
p Applications – Forms 1919 (Borrower) and 1920SX (Lender)n Elimination of 4 and 4i
n Must use E-Tran for processing
ALL loans
22
© 2014, Starfield & Smith, P.C.
Other SOP Changes
p504 Loan program changes nDoes not require credit reports on
non-guarantor affiliates
n SBA can participate in Projects financed by obligations exempt from local or state taxes
n Incorporates clarifications under 7(a) program (i.e. franchise reviews), permissible debt refinancing and change of ownership
n Eliminates wet signatures on personal financial statements, balance sheets and income statements, fed tax returns and aging AR reports
23
© 2014, Starfield & Smith, P.C.
Recent SBA Procedural Notices
pFRANdata Unique Numbering System (FRUNS) –Starting October 1, 2013n Must submit a FUNS number for all franchise loans through ETran
n Control No. 2000-840
p7(a) and 504 Fees – Starting October 1, 2013n Guaranty and on-going fees to be waived for all loans under
$150,000 beginning 10/1/2013
n For other loans, on-going fee going down from 55 to 52 basis points
n Control No. 5000-1288
24
© 2014, Starfield & Smith, P.C.
OMB Circular A-129
pCredit Reporting Requirements (SOP 50 57 p. 30)
pMandatory that lenders report SBA loans to a commercial credit agency of Lender’s choice (quarterly)
pOCRM will likely be looking for compliance in conducting its onsite reviews; and the position of NGPC is unclear
p31 U.S.C.§3711
pClarifying notice from SBA in process
25
© 2014, Starfield & Smith, P.C.
Other Important Changes
p Affiliation and Personal Resources Rule policy revisions –still under review – may be finalized before 1/1/2014n Affiliation if ownership of 51% or more
n No negative control permitted
p SBA One – part of requirements for fiscal and transfer agent contract (Colson)
p OCRM/OIG – Anticipated additional
enforcement initiatives (which could
lead to more lenders losing PLP status
or being removed from program)
26
© 2014, Starfield & Smith, P.C.
IPERA Audits
p OIG report on SBA’s failure to comply with the Improper Payments Elimination and Recovery Act (IPERA)
p SBA agreed to implement
a payment recapture plan
for approved loans, both
before and after closing.
pWhat to do?
27
© 2014, Starfield & Smith, P.C.
Thanks! Any Questions?
Ethan W. Smith, [email protected]
P: 267-470-1186
1300 Virginia DriveSuite 325Ft. Washington, PA 19034P: 215-542-7070F: 215-534-9023
www.starfieldsmith.com
28
1100 Lake Destiny RoadSuite 105Maitland, FL 32751P: 407-667-8811F: 407-667-0020
© 2014, Starfield & Smith, P.C.