|
|
|
|
 |
 Attorney Spotlight |
 |
|
David W. Starfield
David is the co-founder and Managing Partner of Starfield & Smith, P.C., a law firm specializing in SBA and government guaranteed commercial lending, SBA regulatory issues and general business consulting. David has been actively involved in SBA lending and has been helping lenders to document, close, service and liquidate SBA loans for over 20 years. In his practice, David represents and assists numerous small businesses and hundreds of lenders that participate in SBA's lending programs. David's skill as an attorney is of the highest caliber. Martindale-Hubbell gives David its highest rating of "AV" for his legal skill and ethics. His peers have repeatedly voted him a "Super Lawyer" in Philadelphia magazine . David uses these skills on a daily basis to represent the interests of small businesses and the lenders that extend capital to the small business community.
In addition to his law practice, David devotes countless hours to the National Association of Government Guaranteed Lenders ("NAGGL") as a developer and instructor for several of NAGGL's most popular courses, as a member of NAGGL's Technical Issues Committee, as a regular contributor of articles and insights to NAGGL's monthly newsletter, as a member of the District III Liaison Committee and as a frequent lecturer and moderator of roundtable discussions on the latest SBA lending and regulatory issues. Additionally, David serves on NAGGL's Board of Directors, as one of two non-lender members of the Board, and has been honored for his contributions to the industry by being named NAGGL's Instructor of the Year and being asked to serve on NAGGL's Executive Committee.
David was very involved working directly with the U.S. Small Business Administration assisting with the re-write of the SOP 50-10, and is currently devoting time to assisting the Agency with the revisions to the SOP 50-51. David frequently travels to Washington, DC in his capacity as a NAGGL Board Member and as a small business owner, to assist the Agency and Congress in developing policies and proposals to advance the interests of SBA lenders and improve the delivery of financial assistance to small businesses.
Back to Top |
|
|
 |
EQUITY INJECTION: DOCUMENTING 401(k) ROLLOVERS
By Annie C. Johnson |
When an applicant's equity injection comes from a 401(k) rollover, the 401(k) plan (the "Plan") purchases the stock of the borrowing entity. If the Plan owns at least 20% of the borrowing entity's stock, SBA regulations require the Plan to provide a guaranty. The problem is that by definition, a 401(k) plan cannot provide a guaranty under IRS regulations. Therefore, a formal waiver of the guaranty requirement is needed. Under the SOP 50 10(5), lenders are no longer required to obtain a guaranty waiver from the SBA. Nevertheless, lenders still must obtain and review the same waiver documentation previously required.
The following scenarios are ineligible for a guaranty waiver:
-
The Plan purchases the stock of an EPC.
-
The Plan owns 100% of the borrowing entity's stock.
-
The borrowing entity is an S-corporation.
Provided none of the ineligible scenarios exists, lenders must next verify the following:
-
All shareholders (individuals and Plan) must pay the same price per share.
-
All principals must provide a full unlimited guaranty.
-
All beneficiaries of the Plan must provide a full unlimited guaranty.
-
An individual's guaranty must be secured, if possible, when the loan is not otherwise fully secured.
The final piece of documentation lenders must obtain is an opinion letter from ERISA counsel containing the following:
-
A description of the Plan that owns at least 20%;
-
The Internal Revenue Code ("IRC") citation describing the Plan;
-
The IRC citation explaining why the Plan cannot take on any liabilities;
-
A statement of how the Plan got to be or will be "qualified;"
-
If the Plan is already qualified, counsel must provide IRS documentation.
-
If the Plan will be qualified in the future, counsel must state:
-
When application was made to the IRS;
-
Counsel's opinion that the Plan will comply with the IRC and ERISA regulations;
-
Upon final determination from IRS, lender will receive a copy of the approval.
An IRS qualified 401(k) rollover will not incur early withdrawal penalties. If an unqualified retirement account were to purchase the shares of the borrowing entity, it would incur hefty early withdrawal penalties. The IRS would likely assess such penalties within the first loan year and potentially cause a loan to default. Because the 401(k) funds comprise the borrower's equity injection, this early default could jeopardize the SBA guaranty. In order to preserve the SBA guaranty and facilitate the success of their borrowers, lenders must diligently document 401(k) rollovers. For more information on 401(k) rollovers used for equity injection, contact the author at ajohnson@starfieldsmith.com or (215) 542-7070. |
|
Did you know... |
...that Starfield & Smith, P.C. is on facebook? Become a fan of Starfield & Smith, P.C. on facebook to receive updates, articles, and news pertaining to SBA and lending related topics. Just click on the badge to the right to get started!
Have questions that you'd like to post to an open forum? Ask them in our discussion board and get opinions from us and our other fans!
|
|
Seminars and Events |
|
Ask the Lawyers--
Avoid Closing & Documentation Pitfalls
When: December 8, 2009
Time: Noon-1:30 pm CST
Fee: $245 for Members, $395 Non-Members, $145 Govt
Starfield & Smith Instructor: David Starfield
David Starfield provides expert guidance and practical tips on how to avoid common pitfalls when closing and documenting SBA loans.
- Insurance (Hazard, Life, Title)Equity Injection and Allocation of Proceeds
- Landlord Waivers
- Franchises and Jobber Agreements
- Overcoming an SBA Recommended Repair or Denial
Download a registration form here. Register online by clicking here.
|
|
David Starfield of Starfield and Smith, P.C. (center) talks with Karen G. Mills, SBA Administrator (left) and Tom Burke, Senior Vice President of SBA Lending for Wells Fargo (right) at the NAGGL annual conference in Phoenix, AZ in October, 2009. | |
|
|
|
|
Starfield & Smith, P.C.
Pennsylvania Office
501 Office Center Drive, Suite 350 | Ft. Washington, PA 19034
phone: (215) 542-7070 | fax: (215) 542-0723
Minnesota Office
1516 West Lake Street, Suite 303 | Minneapolis, MN 55408
Loan Documentation | Closing | SBA Guaranty Repurchase
Regulatory Compliance | Franchise Eligibility
Business Consulting
|
| This email is an advertisement from Starfield & Smith, P.C. and is subject to this disclaimer.
© 2009 Starfield & Smith, P.C. All Rights Reserved | |
|
|
|
|
