Technical Corrections for Lender and Development Company Loan Programs

SBA issued Notice 5000-17008 on October 13, 2017 announcing the issuance of Standard Operating Procedure (SOP) 50 10 5(J), Lender and Development Company Loan Programs, effective January 1, 2018. Notice 5000-17028 highlights the technical corrections made to the SOP.

Highlights of the technical corrections include: 

Subpart A:

Chapter 3, paragraph II.C – Clarified which changes in CDC personnel require prior SBA approval and which  must be reported to OFA no later than 30 days after the change takes place.

Chapter 3, paragraph III.A – Clarified that a Board Member may submit evidence of a federal clearance (e.g., FDIC, OCC, Federal Reserve) from the individual’s current employer in lieu of a fingerprint card (FD-258) or Electronic Fingerprint Submission when the Board Member is required to submit SBA Form 1081.

Chapter 3, paragraph III.A –Clarified that a Loan Committee member must submit fingerprints with the completed SBA Form 1081 only if the individual answers “yes” to question numbers 10a, 10b, 10c, 11a, and/or 11b on the SBA Form 1081.  In addition, the individual also may submit evidence of a federal clearance (e.g., FDIC, OCC, Federal Reserve) from the individual’s current employer in lieu of a fingerprint card (FD-258) or Electronic Fingerprint Submission.

Subpart B:

Chapter 2, paragraph II.D.8 – Clarified the revised franchise procedures concerning, among other things, Applicants that operate under multiple agreements and the procedure for submitting applications involving franchise or similar agreements.

Chapter 2, paragraph II.E – Clarified the guidance concerning the Lender’s certification that the Applicant does not have credit available elsewhere on reasonable commercial terms without the SBA guaranty.

Chapter 2, paragraph II.H – Clarified the requirements that individuals be either Co-Borrowers or Guarantors in certain change of ownership transactions. 

Chapter 2, paragraph III.A.11 – Added examples of supporting documentation necessary in connection with the submission of the Religious Eligibility Worksheet (SBA Form 1971) to determine the eligibility of a business with religious aspects. 

Chapter 4, paragraph I.C – Clarified the minimum equity requirements for start-up businesses and change of ownership transactions by providing definitions of “start-up business” and “total project costs.”

Chapter 4, paragraph II.B – Clarified the collateral requirements for 7(a) Small Loans to require a lien on the Applicant’s fixed assets, including real estate, up to the point that the loan is fully secured. 

Subpart C:

Chapter 1, paragraph IV.C – Clarified the Borrower’s contribution for Projects involving a Limited or Special Purpose Property. For any business (including affiliates) that has an outstanding debenture for a Project involving a Limited or Special Purpose Property, for each subsequent Project involving a Limited or Special Purpose Property, the borrower must contribute at least 20%.

Chapter 1, paragraph IV.C –The full list of examples of Special Purpose Properties was reinserted, with the exception of “Clubhouses” and “Museums,” which have been removed from the list.  Also clarified that SBA may determine that other properties meet the Limited or Special Purpose Property definition set forth in Chapter 1, Paragraph III of Subpart C.

Chapter 1, paragraph IV.C –Clarified that in cases of a Project that will finance both a New Business and a Limited or Special Purpose Property, the number of outstanding debentures for a Project involving a Limited or Special Purpose Property will not increase the percentage of the borrower’s contribution beyond 20%.

Chapter 2, paragraph II.D.8 – Incorporated the same clarifications noted above in Subpart B, Chapter 2 regarding the revised franchise procedures.

Chapter 2, paragraph II.E – Clarified the guidance concerning the CDC’s certification that the Applicant does not have credit available elsewhere on reasonable commercial terms without the SBA guaranty.

Chapter 2, paragraph III.A.11 – Incorporated the same clarifications noted above in Subpart B, Chapter 2 regarding supporting documentation for eligibility determinations for businesses with a religious aspect. 

Chapter 7, paragraph I.A – Clarified that, for eligible Energy Public Policy Projects, the outstanding Gross Debentures issued for a small business concern, including its affiliates, may not exceed $16,500,000 in the aggregate.

Users are advised to fully read SOP 50 10 5(J) to ensure understanding of all changes which are effective January 1, 2018.