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SpotlightAttorney Spotlight 
Jessica L. Conn, Esq.
Jessica Conn
Jessica practices business law with a focus on commercial lending and government guaranteed lending. In that capacity, she prepares and reviews loan files; and drafts and negotiates loan documents for conventional, SBA 7(a) and 504 loans. Jessica also counsels business entities with regard to entity formation, maintenance and dissolution; capitalization; employment contracts; intellectual property protection; and other general business matters.

Jessica graduated from Barnard College with a Bachelor of Arts in economics. She received a Juris Doctor from Fordham University School of Law. Jessica also holds a Masters of Law in Taxation from Villanova University School of Law.

Jessica is admitted to practice in Pennsylvania, New Jersey and New York. She is a member of the Pennsylvania Bar Association.
knowDid you know...
 

Compass

 ...that Starfield & Smith, P.C. can provide title insurance in Pennsylvania and New Jersey and can place title insurance nationally through its underwriting networks?

For more information about this and other services Starfield & Smith, P.C. provides its clients, please call Ethan at 215-542-7070 or by email at [email protected].
  
 
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FeaturedArticleBEST PRACTICES: LIMITED GUARANTEES
By Katie G. O'Brien, Esq.
 

Katie G. O'Brien, Esq.
Katie Web Photo

Because the SBA requires lenders to collateralize a loan to the maximum extent possible up to the loan amount (SOP 50 10 5(B), page 181), lenders often face situations in which they must require individuals to pledge available personal assets as collateral in an attempt to fully collateralize the loan.  When an individual alone or an individual and his or her spouse together own 20% or more of the borrowing entity, a lender must consider taking assets that are owned individually by either spouse, as well as assets owned jointly, as collateral to secure the loan, unless there is a legal impediment (such as an irrevocable trust with an independent trustee) to taking the spouse's individually-owned property as collateral (SOP 50 10 5(B), page 182). 

 

This requirement often leads to questions about whether a principal's spouse must guarantee the loan, and if so, whether the guarantee must be full or limited.  Most lenders are familiar with SBA's requirement that an individual who owns 20% or more of the borrowing entity must provide an unlimited full personal guarantee of the loan (13 CFR 120.160(a)).  But if that individual's spouse owns 5% or more of the borrowing entity and the combined ownership interest of both spouses is 20% or more, then the spouse must also provide a full personal guarantee (SOP 50 10 5(B), page 182).  If a spouse has no ownership interest in the borrowing entity, or owns less than 5%, a lender must still consider whether a limited personal guarantee of the spouse is necessary to perfect its lien on collateral.  If a lender's goal is to limit a spouse's guarantee to their interest in specific collateral securing the loan, the lender will have to choose between two applicable limitations in the SBA Form 148L, Unconditional Limited Guarantee: (1) the Collateral/Recourse Limitation or (2) the Community Property/Spousal Interest limitation.  So when should you use each option? 

 

If collateral is held in the name of both spouses, the Collateral/Recourse Limitation applies, and the SBA Authorization and guarantee should list all collateral securing the loan which is owned jointly by the spouse/limited guarantor.  This means that the spouse's guarantee is limited to the amount the lender obtains from the jointly owned collateral which is referenced in the guarantee. 

 

If the collateral is owned by both spouses, but is located in a community property state (California, Arizona, New Mexico, Texas, Washington, Idaho, Louisiana, Nevada and Wisconsin), lenders may be tempted to use the Community Property limitation in the SBA Form 148L, but this would not be correct because the goal is to perfect the lender's lien on the jointly owned collateral.  Because the Community Property/Spousal Interest limitation only serves to waive the spouse's inchoate community property interest, this may not be sufficient to properly perfect a lien on jointly owned collateral.  Accordingly, if the collateral is held in the name of both spouses, the Collateral/Recourse Limitation applies, despite the collateral being located in a community property state.

 

What if the collateral is held solely in the name of the principal guarantor?  If the collateral is located in a community property state and the guarantor is married, lenders will need the spouse's limited guarantee in order to properly perfect their lien on the collateral.  In these situations, the Community Property/Spousal Interest Limitation option applies because the lender needs the spouse to waive his or her community property or spousal interest in the collateral owned by their spouse.  In this situation, lenders must also consider whether or not to obtain the spouse's signature on any lien instruments for separately owned collateral.  In certain states, spouses must sign a deed of trust or mortgage, even if they have no ownership interest in the property in order to waive certain statutory or common law rights in the property, but in other states, spouses do not have to sign the lien instrument if the property is clearly separate property.  Lenders should consult legal counsel  when determining whether or not spouses should sign lien instruments on separately owned property.

 

Although the collateral may be owned individually by the principal guarantor or jointly by the principal guarantor and his or her spouse, it is important for lenders to require the appropriate spousal guarantees to properly perfect their security interest in the collateral.  Otherwise, the lender may face many difficult barriers to liquidation of the collateral in an event of default which could lead to a repair or denial of the SBA guaranty.     

 

For more information on limited guarantees and other SBA documentation and closing issues, contact Katie at [email protected] or (215) 542-7070.

 
SeminarsEventsUpcoming Seminars and Events
 
America East Conference for SBA Lenders
 
Presented by: U.S. Small Business Administration
Dates: August 29th - September 1st, 2010
Location: Portland, ME
 
David, along with a representative from the U.S. Small Business Administration, will facilitate a panel discussion on "Overcoming 7a Issues and Expediting the Process." This session will explore compliance with mandatory SBA regulations to insure success and profitability. With an ever changing 7a program and the need to carefully document lender files, it is critical to understand the way to make the SBA loan programs work for you.
 
Click here for complete conference details
Click here to register online  
 
Fundamentals of SBA Lending: Documenting, Closing and Funding the SBA Loan
 
Presented by: Lorman
Dates: September 9th, 2010
Time: 1:00 pm EST - 2:30 pm EST
Location: Webinar

SBA lending affords banks and other lending institutions with the opportunity to finance commercial loans to small businesses and, at the same time, secure a loan guarantee from the federal government. While the program can be quite profitable, it's not without its risks. Compliance with SBA regulations is mandatory to ensure success and profitability. With changes occurring to the program over the last year, it is critical to understand the new regulations and the way to make the SBA loan programs work for you.

Register online here.
Or call 1-866-352-9539
When registering, use priority code 15800 and discount code F2716129.
 
 SBA Guaranty Purchase Workshop
 
Presented by: Coleman
Instructor: Ethan W. Smith
Dates: September 14th, 2010
Time: 11:00 pm EST - 5:00 pm EST
Location: Herndon, VA
 
This workshop is structured so you will learn what SBA lenders must be doing in 2010 and beyond to maximize the successful process of their guaranty purchase packages. You will learn tips on how to submit a solid SBA guaranty repurchase package and how Lender's can sharpen their SBA guaranty purchase skills. 
 
You can find an agenda for this workshop here.
Register by mail or fax using this form.
 
Fundamentals of SBA Lending: Documenting, Closing and Funding the SBA Loan
 
Presented by: Lorman
Dates: September 21st, 2010
Time: 1:00 pm EST - 2:30 pm EST
Location: Webinar

SBA lending affords banks and other lending institutions with the opportunity to finance commercial loans to small businesses and, at the same time, secure a loan guarantee from the federal government. While the program can be quite profitable, it's not without its risks. Compliance with SBA regulations is mandatory to ensure success and profitability. With changes occurring to the program over the last year, it is critical to understand the new regulations and the way to make the SBA loan programs work for you.

Register online here.
Or call 1-866-352-9539
When registering, use priority code 15800 and discount code F2716129.
 
 
Presented by: NAGGL
Dates: September 22nd, 2010
Location: St. Louis, MO
 
On September 22, 2010, at the NAGGL SBA 7(a) Lender Training in St. Louis, Missouri, David Starfield will present the "Advanced SBA Loan Documentation and Closing" course. This session is designed to help lenders ensure that the documents they assemble comply with the SOPs, the loan authorization and sound lending practices. Topics will include key loan closing issues; tax, lien and judgment searches; third parties; loan modification issues; franchise agreements and affiliation issues; and more.
 
Register online here.

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