sba sop 50 10 5(e) 2012 06-12

The New SBA SOP 50 10 5(E)Key Updates for Lenders

June 12, 2012

Alison W. RindArnold D. Spevack

Lerch, Early & Brewer, Chtd.

www.lerchearly.com

© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

Overview

Dates & Documentation

Small Loan Advantage

Franchise Issues Cooperatives EPC Loans Debt Refinancing CAPLines Change of

Ownership Involving Stock

Interest Rate Policy on Variable Loans

Guaranty Fee Payment

Packaging & Other Fees

Post-Approval Modifications

504s Export Lending

Programs2


Dates & Documentation

3


Revision E Effective Date

Applies to all applications received by the SBA on or after June 1, 2012.

4


Related SBA Notices

5000-1239: key revisions E of SOP 50 10(5)

5000-1240: changes to Small Loan Advantage

5000-1241: revisions to Export Lending programs

5


SOP Online

To download a copy of the SOP, go to http://www.sba.gov/lender-documentation-tool?type=sops&order=field_sopno_value

Two versions Document with “tracked changes” shows what was updated in this recent revision

Document without tracked changes6

http://www.sba.gov/lender-documentation-tool?type=sops&order=field_sopno_value




RevisionsCredit Score Pre-ScreeningAfter Credit ScreenCredit AnalysisEquity Requirements


7

Collateral PolicyLife Insurance & Environmental PoliciesClosing & Disbursement



New version of prior adopted program

Pages 10 82-83 182-184 197 225-227

8


Revisions to SLA

9

All SBA

Lenders

Maximum loan size increased

Old: $250K

New: $350K

Revolving Lines of Credit

Credit scoring by SBA prior to loan approval


Change in Forms

10

Old Forms• S/RLA Forms (SBA Forms

2301 Parts A, B and C) • PLP Eligibility Checklist

(SBA Form 7)

New Forms• Forms used in the SBA

Express and Pilot Loan Programs (SBA Forms 1919 and 1920 Parts B and C)


SLA Revisions (con’t)

11

Your Form

SBA SLA Closing and

DisbursementProcedures and Documentation

SBA SLA Closing and


SBA SLA Closing and


SBA SLA Closing and


SBA SLA Closing and


Similarly Sized Non-SBA Closing

and Disbursement

Procedures and Documentation

=


Credit Score Pre-Screening

12

Consumer Credit Bureau Data

Business Bureau Data

Borrower Financials

Application Data

Current Minimum

Score:140


Credit Score Pre-Screening (con’t)

13

E-Tran

Submit

under SLA

Submit standard 7(a) loan app


If Credit Score is Not Acceptable

Lender may submit standard 7(a) loan app through LGPC or, if lender is SBA Express lender, an SBA Express application via E-Tran for a 50% guaranty

14


After Credit Screen – Non PLP

E-TranAdditional docs electronically to the Standard 7(a) Loan Guaranty Processing Center (LGPC) (Form 1919 plus any other forms

required based on a “yes” response to the 1919 (i.e., 912), Form 1920SX Parts B and C and lender’s credit memorandum)

15


PLP Lenders Submitting SLA Loans

E-Tran SBA will not conduct eligibility review prior to issuing loan number

Must retain loan file documentation - SBA will review

16


PLP Lenders Submitting SLA Loans (con’t)

Eligibility requirements for SLA same as Standard 7(a)

Apps that cannot be processed under lender’s PLP authority (e.g., include refinancing same institution debt) may be submitted using non-delegated procedures

17


Retain Copies of Documentation

Lender must retain copies of documentation in its loan file for all SLA loans whether submitted under delegated or non-delegated authority

18


Credit Analysis

SLA lenders must perform a thorough and complete credit analysis of applicant in order to ensure that loan is of such sound value as to reasonably assure repayment and this credit analysis must be documented in the loan file.

19


SLA Lender’s Credit Memo Must Include

20

SBA SLA Combination of Factors

for Underwriting & Credit Decisions

=









Similarly Sized Non-

SBACombination of Factors



Cash Flow Analysis

AdequacyDuration Dependability of cash flow/projected cash flow analysis

Owner/Guarantor analysis

21


Credit Scoring Criteria

22

Your CreditScoring Criteria =

SBA SLA

Business

Credit Scorin

g Model

Similarly Sized Non-SBA

Business

Credit Scoring Model


Lender’s Credit Decisions

Length of time/depth of management experience

Key account characteristicsVerify accuracy against tax data

Demonstrate ability to repay Debt service coverage >1:1 Cash flow coverage ratio >1:123


Equity Requirements

24



=



SBA SLA Equity & Pro-Forma

Debt to WorthEquity

Injection Required?





Similarly Sized Non-

SBAEquity & Pro-Forma

Debt to WorthEquity

Injection Required?


Collateral Policy

Not required to take collateral

Same policies & procedures as non-SBA

Must obtain lien on business assets

<$25K $25K-$350K

25

$250K+ collateralized by commercial real estate must comply with appraisal requirements

Lenders must use commercially reasonable and prudent practices


Life Insurance & Environmental Policy

For all SLA loans, lender will follow the environmental policies of SOP 50 10 5(E), Subpart B, Chapter 4, Paragraph III26

=SBA SLA Life

Insurance Internal Policy

Similarly Sized Non-SBA Life

Insurance Internal Policy


Closing & Disbursement

Same as similarly-sized non-SBA procedures and documentation

Must obtain collateral and meet conditions before disbursement

Option to use own note and guaranty forms27


Lender Must Ensure That Note

Is legally enforceable and assignable

Has a stated maturityIs not payable on demandIncludes specific language

28


InformationEligibility

Franchise Issues

29


Franchise Information

No changes to Franchise Registry process

When NOT on the Franchise Registry, must check the Franchise Findings List

Now lenders may (not must) go to the Franchise Findings List when franchise IS on registry

30


Franchise Eligiblity

Prohibits franchise agreement provision that requires sale of real property

Now allows agreement to require lease of real property on reasonable terms

31


Cooperatives

32


Cooperatives - Eligibility

Adds guidanceClarifies agricultural coop can be considered producer coop

Clarifies worker coop is eligible if meets all other SBA eligibility requirements

33


EPC Loans

34


EPC Loans

Common practice of loan proceeds to be used for multiple purposes

OC as co-borrower

35


Debt Refinancing

36


Debt Refinancing

Now allows refinancing of debt in personal name of owner used for business purposes

No change in how to document credit card debt in personal name

37


CAPLines

38


Debt Refinancing Under CAPLines

Only short-term revolving debt can be refinanced with working capital CAPLine

Refinancing of same-institution, SBA-guaranteed short-term revolving debt

Disbursement on Contract CAPLines39


Change of Ownership Transactions Involving Stock Purchases

40


Change of Ownership Transactions Involving Stock Purchases

Business required to be borrower

Cannot be made to an individual

If buyer is business entity and is aquiring/merging with selling business, buyer may use SBA-guaranteed loan41


Clarification of Interest Rate Policy

42


Clarification of Interest Rate Policy

Previous SOP allowed lender to delay but spread remained the same

Language inconsistent, so deleted

Now lender may change spread over base rate provided lender complies with SOP requirements

43


Payment of Guaranty Fee

44


Payment of Guaranty Fee

Submit electronicallyIncreases in loansExtensions of maturity

45


Fees for Packaging & Other Services

46


Fees for Packaging & Other Services

Lenders or 3rd parties permitted to charge a fee based on % of loan

Restrictions on fees

47


Fees

May not exceed 3% on loans ≤$50K

May not exceed 2% on first $1 million and an additional ¼% over $1 million (max fee of $30K)

Must be reasonable, customary and consistent

Must not be standard48


Fees (con’t)

Paid by lender to lender service provider may not be passed on

Direct costs of in-house counsel may be charged to borrower under certain circumstances

49


Post-Approval Loan Modifications

50


SOP Revisions Re Loans Not Closed/Fully Disbursed

Requests for post-approval loan modifications or notifications of unilateral actions submitted to LGPC

After loan is closed and fully disbursed, submitted to CLSC

If change is made using E-Tran Servicing, no further notification needed

51


Eligible 504 Project Costs

52


Eligible 504 Project Costs

Previously permitted purchase costs of land without building to be included in project costs

Now includes land with building that will be razed

Cost of destruction part of preparing land for new construction

53


504 Appraisal Requirements

54


504 Appraisal Requirements

Previously required appraisal to identify CDC and SBA as client/intended user

Removes requirement that CDC is identified

SBA still must be named

55


Export Lending ProgramsSBA Request for SOP [email protected] of SOP 50 53(A)Issuance of SOP 50 51 (4)

Additional Items

56

mailto:[email protected]


Speakers

57

Alison Rind is an attorney at Lerch, Early & Brewer in Bethesda, MD who represents commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government-guaranteed lending programs. Her experience crosses a broad spectrum of lending areas. In addition to government programs, she handles real estate and asset-secured loans, construction loans, foreclosures and loan workout arrangements. Her clients include large national and regional financial institutions as well as smaller community banks in the Washington, D.C., metropolitan area.

(301) [email protected]

http://www.lerchearly.com/team/alison-w-rind


Speakers

58

Arnie Spevack is an attorney at Lerch, Early & Brewer in Bethesda, MD who represents individuals, businesses, lenders and borrowers in financings, closings, negotiations and in the courts. Arnie's experience includes all aspects of commercial lending, as well as providing assistance in the acquisition, development, operation and management of office, retail and residential projects. An experienced creditor's rights attorney, Arnie assists both borrowers and lenders in workout negotiations and helps them refinance existing real estate mortgages and business loans.

((301) [email protected]

http://www.lerchearly.com/team/arnold-d-spevack

http://www.lerchearly.com/team/arnold-d-spevack


Speakers

59

Nicole Soraruf is an attorney at Lerch, Early & Brewer in Bethesda, MD who helps national, regional and local banks, credit unions and SBA lenders close loans, and works with real estate buyers, sellers, landlord and tenants in contract and lease negotiations.

(301) [email protected]

http://www.lerchearly.com/team/nicole-n-soraruf


For more information

60

Lerch, Early & Brewer, Chtd.3 Bethesda Metro Center, Suite 460

Bethesda, MD 20814(301) 986-1300

www.lerchearly.com

Thank you for your participation

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before

acting on any information contained herein.

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