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Attorney Spotlight |
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David W. Starfield
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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.
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Best Practices: Guaranty Purchases
and the Materiality Standard
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Ethan W. Smith, Esq. |
SBA lenders that are facing loan defaults are often daunted by the SBA guaranty purchase process. Much of this uncertainty results from lenders' lack of familiarity with the guaranty purchase process utilized by the National Guaranty Purchase Center ("NGPC") in Herndon, VA. In addition to the unfamiliarity with the process, lenders are often concerned about the standard of review that is employed by NGPC personnel in conducting their purchase reviews. Of particular concern to lenders is how to address deficiencies that they identify in their files, and how to assess the magnitude of these deficiencies in determining how best to proceed.
The standard of review employed by the NGPC is one of "materiality." Simply put, the NGPC will only recommend repairs or denials of the SBA guaranty for deficiencies that are "material" in nature. But what does "material" mean to the SBA? Based upon conversations with Agency personnel, a deficiency is "material" if it caused or significantly contributed to the cause of the loss to the lender and/or the SBA. Some examples of material deficiencies would be: failing to obtain the proper lien position on collateral; failing to properly verify the financial records and tax returns of the borrower and/or seller; failing to maintain hazard insurance on collateral that is subsequently destroyed; failing to perform a timely site visit after default where collateral is removed by the borrower or damaged; and other similar types of deficiencies. Non-material deficiencies would include: failing to obtain an acknowledged collateral assignment of life insurance, where the insured did not die; failing to perfect a lien on collateral that has declined in value; failing to maintain hazard insurance on collateral that was not destroyed; and other "no harm - no foul" events. Although the application of the materiality standard seems quite straightforward, there is one critical nuance that lenders must keep in mind in analyzing their loan files.
Specifically, lenders must remember that the SBA does not apply the materiality standard to eligibility determinations. For questions of eligibility, SBA employs a strict compliance standard, instead of a material compliance standard. This means that from the SBA's standpoint, any deviation from the eligibility guidelines, however small, renders the loan ineligible, resulting in a recommendation for a complete denial of the guaranty. In some instances this standard is easy to comply with: i.e. size standards; eligible types of businesses; personal resources. In these situations it is usually quite easy to see what side of the eligibility line your loan falls on. Other eligibility determinations are less clear, such as franchise/jobber/license eligibility determinations. The subjective nature of a franchise eligibility analysis begs the question of whether a PLP lender should ever perform such an analysis on its own, since the chances that the SBA may reach a different conclusion as to the franchise's eligibility is quite high. Until the SBA implements a materiality standard for franchise eligibility reviews, the only way for lenders to ensure that their non-registry franchise loans are eligible, is to submit them under General Processing.
Whatever the issue, it is critical that lenders be precise and exacting in making eligibility determinations as the standards are so strict (strict compliance, not material compliance), the margin for error is so razor thin, and the consequences of an incorrect determination are so dire. By employing the correct compliance standard in making eligibility determinations, lenders can preserve and protect the SBA guaranty and avoid denial recommendations.
For more information on SBA guaranty preservation and guaranty purchase reviews, contact Ethan at esmith@starfieldsmith.com, or 215-542-7070.
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WE'VE MOVED!

Starfield & Smith, P.C.
is at a new address:
1300 Virginia Drive
Suite 325
Fort Washington, PA 19034
Phone, Fax and emails are unchanged
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 | Seminars and Events |
SBA Lender Leadership Summit
Presented by: NAGGL
Date: February 16th - 17th, 2011
Location: Henderson, NV
For more information, click here.
This event is sold out. For more information, please contact NAGGL.
Fundamentals of SBA Lending:
Documenting, Closing & Funding the SBA Loan
Presented by: Lorman Education Services Date: March 23rd, 2011 and again on March 24th, 2011 Time: 1:00 pm - 2:30 pm EST Location: Webinar For more information about and to register for the March 3rd webinar, click here. For more information about and to register for the March 24th webinar, click here.
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Starfield & Smith, P.C.Pennsylvania Office 1300 Virginia Drive, Suite 325 | 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 Purchase
Regulatory Compliance | Franchise Consultation
Business Consulting
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This email is an advertisement from Starfield & Smith, P.C. and is subject to this disclaimer.
© 2009-2011 Starfield & Smith, P.C. All Rights Reserved |
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