By Charles H. Green
In January, I reported on rumblings I had picked up on about yet one more revision to the Standard Operating Procedures (SOP) by the SBA, and voila, on April 30 Ann Marie Mehlum, the Associate Administrator for Capital Access, released an Information Notice announcing a revision, SOP 50 10 5(H). This version of the SOP will be effective and apply to all applications received by SBA on or after May 1, 2015.
If you’re feeling a little weary about changes to the SBA financing program rules, you deserve it–in fact you might be exhausted already. Participating lenders have been pummeled with nine SOP revisions or updates since President Obama took office in January, 2009. These changes have occurred under three different Administrators (out of five serving during these years) and have in toto made some significant changes to the lending programs.
Below is a brief outline of SBA’s summary of the primary areas which have been updated in this version. You can read their full statement in SBA’s Information Notice and download the new SOP 50 10 5(H) here.
1) Revised Language Regarding Lender Oversight Monitoring and Reviews
In Chapters 1 and 3, SBA revised the language discussing how SBA oversees 7(a) lenders and Certified Development Companies (CDCs). First, SBA incorporated changes in the risk-based review protocols for lenders and CDCs. Second, SBA removed the delineation between “on-site” and “off-site” reviews and related fees
2) Incorporated Regulatory Changes Made to the 504 Program Regarding CDC Affiliation, Corporate Governance and Insurance Requirements
In Chapter 3, SBA has incorporated the regulatory changes regarding CDC Affiliation that became effective March 21, 2014. SBA has also incorporated the regulatory changes to corporate governance and insurance requirements for CDCs that became effective April 21, 2015.
1) Clarified the Policies Regarding Debt Refinancing for 7(a) Loans
In Chapter 2, SBA has clarified the policies regarding debt refinancing for 7(a) loans. Formerly, the SOP stated that SBA guaranteed loan proceeds may not be used to refinance debt used to finance a loan purpose that would have been ineligible at the time it was originally made. SBA is clarifying this provision by adding language to explain that a lender may refinance debt originally used to finance a loan purpose that would have been ineligible at the time it was made, if the condition that would have made the loan ineligible no longer exists.
3) Modified Documentation Requirements for Export Express Loans
Also in Chapter 2, SBA has removed language regarding documenting only the first full disbursement on an Export Express loan for a general line of credit as it may cause confusion. For such loans, lenders must demonstrate that at least 70% of the line of credit was used for export purposes.
4) Updated Real Estate Appraisal Requirements for 7(a) Loans
In Chapter 4, SBA has updated the real property appraisal requirements to conform to changes recently made in the Uniform Standards of Professional Appraisal Practice (USPAP).
5) Updated Business Appraisal Requirements for 7(a) Loans
Also in Chapter 4, SBA is updating the requirements for a business appraisal in the 7(a) loan program. First, SBA changed its terminology from “business valuation” to “business appraisal” to align with the terminology used in the lending industry. Second, SBA is adding a new accreditation to the list of qualified sources to perform a business appraisal: Accredited Business Certified Appraiser (ABCA). Third, SBA is updating the business appraisal requirements for change of ownership transactions involving a Special Purpose Property.
6) Required Use of E-Tran for all 7(a) Loan Applications
In Chapters 4 and 6, SBA is revising the SOP to state that all 7(a) applications for guaranty will be accepted only via E-Tran. E-Tran capacity has been increased to accept larger files.
7) Modified Process for Delegated Lenders to obtain loan increase and decreases
In Chapters 4 & 7, SBA is simplifying the process by which delegated lenders obtain SBA consent to increases and decreases in loan amounts prior to final disbursement. Delegated lenders will now access E-Tran directly to obtain loan increases and decreases for loans submitted under their delegated authority.
1) Clarified Language Regarding Borrowed Contributions for 504 Loans
In Chapter 1, SBA has clarified the specific circumstances under which the borrower must obtain SBA written approval to pay the loan for its equity contribution at a faster rate than the 504 loan.
2) Updated Real Estate Appraisal Requirements for 504 Loans
As discussed above with regard to 7(a) loans, SBA has updated the real property appraisal requirements in Chapter 3 to conform to changes recently made in USPAP.
In Appendix 2 (Definitions) and Appendix 3 (Reliance Letter), SBA updated the most recent version of the Transaction Screen assessment report to ASTM E1528-14.
What do you think? Comment on this page or write me at Director@SBFI.org.