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

The New
SBA SOP 50 10 5(E)
Key Updates for
Lenders
Alison W. Rind
Arnold D. Spevack
Lerch, Early & Brewer, Chtd.
www.lerchearly.com June 12, 2012

Overview
 Dates &  Interest Rate Policy
Documentation on Variable Loans
 Small Loan  Guaranty Fee
Advantage Payment
 Franchise Issues  Packaging & Other
Fees
 Cooperatives
 Post-Approval
 EPC Loans Modifications
 Debt Refinancing  504s
 CAPLines © Lerch, Early & Brewer,Export Lending
2  Chtd. 2012 www.lerchearly.com

Dates & Documentation

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

Revision E Effective Date

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


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

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 changes


Small Loan Advantage
Revisions Collateral Policy
Credit Score Pre- Life Insurance &
Screening Environmental
After Credit Screen Policies
Credit Analysis Closing &
Equity Requirements Disbursement


Small Loan Advantage

 New version of prior adopted
program
 Pages
 10
 82-83
 182-184
 197
 225-227

Revisions to SLA

All Revolving
SBA Lines of
Lenders Credit

New:
$350K
Old:
$250K

Maximum Credit scoring by SBA
loan size
increased prior to loan approval

Change in Forms
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)

Similarly Sized
SBA SLA Closing
Non-SBA SLA Closing
SBA Closing

=
SBA SLA Closing
and Disbursement
SBA SLA Closing SBA SLA Closing
and Disbursement
and Disbursement
Procedures and and Disbursement
and Disbursement and Disbursement
Procedures and and
Procedures and
Documentation Procedures
Procedures and Procedures and
Documentation
Documentation Documentation
Documentation Documentation


Credit Score Pre-Screening


Credit Score Pre-Screening
(con’t)

E-
Tran



Submit Submit standard
under SLA 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

After Credit Screen – Non PLP

 E-Tran
 Additional 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
15 memorandum) & Brewer, Chtd. 2012
© Lerch, Early www.lerchearly.com

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


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


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


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
19
the loan file.
© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

SLA Lender’s Credit Memo
Must Include

Similarly
SBA SLA
SBA SLA
SBA SLA SBA SLA
SBA SLA Sized Non-
Combination
Combination
Combination Combination
SBAfor
of Combination
ofFactors for = of Factors for
of Factors
ofFactors for
Factors for
Underwriting
Combination
Underwriting
Underwriting Underwriting
of Factors for
Underwriting
& Credit & Credit
& Credit & Credit
Underwriting
& Credit
Decisions Decisions
Decisions Decisions
& Credit
Decisions
Decisions

Cash Flow Analysis

 Adequacy
 Duration
 Dependability of cash
flow/projected cash flow analysis
 Owner/Guarantor analysis


Credit Scoring Criteria
Similarly
SBA Sized
SLA Non-
Busines
s Credit
= SBA
Busines
Scoring s Credit
Model Scoring
Model


Lender’s Credit Decisions

 Length of time/depth of
management experience
 Key account characteristics
 Verify accuracy against tax data
 Demonstrate ability to repay
 Debtservice coverage >1:1
 Cash flow coverage ratio >1:1


Equity Requirements

Similarly
Sized Non-
SBA SLA
SBA SLA
SBA SLA
SBA SLA SBA SLA
SBA
Combination
Combination
Equity &
Combination Combination
Equity for
&
of Factors for
of Pro-Forma
Factors for
Underwriting
Debt to Worth
= of Factors for
of Pro-Forma
Factors
Underwriting
Underwriting
Underwriting Debt to Worth
& Credit & Credit
& Equity
Credit & Equity
Credit
Decisions
Injection Decisions
Decisions
Decisions Injection
Required? Required?

Collateral Policy

<$25K $25K-$350K

 Not required to  Same policies &
procedures as
take collateral
non-SBA
 Must obtain lien
on business
$250K+ collateralized by commercial real estate must
assets
comply with appraisal requirements
Lenders must use commercially reasonable and prudent
practices

Life Insurance & Environmental
Policy
Similarly Sized
SBA SLA Life
Insurance = Non-SBA Life
Insurance
Internal Policy
Internal Policy

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

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 forms


Lender Must Ensure That Note

 Is legally enforceable and
assignable
 Has a stated maturity
 Is not payable on demand
 Includes specific language


Franchise Issues
Information
Eligibility


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
30franchise IS on registry

Franchise Eligiblity

 Prohibits franchise agreement
provision that requires sale of real
property
 Now allows agreement to require
lease of real property on
reasonable terms


Cooperatives


Cooperatives - Eligibility

 Adds guidance
 Clarifies agricultural coop can be
considered producer coop
 Clarifies worker coop is eligible if
meets all other SBA eligibility
requirements


EPC Loans


EPC Loans

 Common practice of loan
proceeds to be used for multiple
purposes
 OC as co-borrower


Debt Refinancing


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


CAPLines


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
39CAPLines© Lerch, Early & Brewer, Chtd. 2012 www.lerchearly.com

Change of Ownership Transactions
Involving Stock Purchases


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 loan


Clarification of Interest Rate
Policy


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
43complies with SOP requirements

Payment of Guaranty Fee


Payment of Guaranty Fee

 Submit electronically
 Increases in loans
 Extensions of maturity


Fees for Packaging & Other
Services


Fees for Packaging & Other
Services
 Lenders or 3rd parties permitted to
charge a fee based on % of loan
 Restrictions on fees


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 standard

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


Post-Approval Loan
Modifications


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
51Servicing, no further notification

Eligible 504 Project Costs


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
53construction

504 Appraisal Requirements


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

Additional Items
Export Lending Programs
SBA Request for SOP Suggestions
SOP50-10Modernization@sba.gov.
Issuance of SOP 50 53(A)
Issuance of SOP 50 51 (4)


Speakers
 Alison Rind is an attorney at Lerch, Early &
Brewer in Bethesda, MD who represents
commercial lenders in loan transactions and other
(301) 657-0750 commercial matters. These include participants
awrind@ in SBA and other government-guaranteed lending
lerchearly.com
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.

Speakers
 Arnie Spevack is an attorney at Lerch, Early &
Brewer in Bethesda, MD who represents
individuals, businesses, lenders and borrowers in
((301) 657-0749 financings, closings, negotiations and in the
adspevack@ courts. Arnie's experience includes all aspects of
lerchearly.com
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.

Speakers
 Nicole Soraruf is an attorney at Lerch, Early &
Brewer in Bethesda, MD who helps national,
regional and local banks, credit unions and SBA
(301) 657-0151 lenders close loans, and works with real estate
nnsoraruf@ buyers, sellers, landlord and tenants in contract
lerchearly.com
and lease negotiations.


For more information

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.


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

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