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Attorney Spotlight |
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David W. Starfield, Esq. |
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: SBA Standby Agreements
By Ethan W. Smith, Esq.
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Ethan W. Smith, Esq. |
In certain circumstances, an SBA lender may need to obtain a Standby Creditor's Agreement in connection with its SBA loan closing. Typically, Standby Agreements provide for the deferment of payments on either seller debt or debt owed to the principal(s) of the borrower in order to accomplish one of two goals: (1) for credit related reasons such as deferring payment on debt to improve the cash-flow for underwriting purposes; or (2) to qualify debt as equity injection. Regardless of the reason for the Standby Agreement, the SBA has certain requirements regarding these agreements that Lenders should keep in mind when processing and closing its SBA guaranteed loans.
SOP 50 10 5(C) sets forth the guidelines for Standby Agreements on page 212. The SOP states:
"...Lender may use SBA Form 155 or its own Standby Agreement Form. A copy of the note must be attached to the standby agreement... Standby Creditor must subordinate any lien rights in collateral securing the Loan to lender's rights in the collateral, and take no action against Borrower or any collateral securing the Standby Debt without lender's consent" (emphasis added).
While these requirements are relatively brief, they are very important, as the failure to follow these guidelines could lead to a recommendation for a repair or denial of the SBA guaranty in a default scenario. The implementation of a few best practices will help protect a lender from this liability.
First, revision C to the SOP mandates that a copy of the standby note must be attached to the Standby Agreement. Often when the standby debt is shareholder debt or other debt that is owed to the principal of the business, there is not a note to evidence the debt which only exists on the applicant's financial statements. In such event, the borrower must create a note and provide a copy to the lender.
Second, regardless of the reason for the Standby Agreement, the note should contain language that reflects the standby provisions, or, at the very least, makes reference to the fact that the note is subject to the provisions of the Standby Agreement. By including this language in the standby note, any future third party purchaser or assignee of the standby note will be placed on notice of the standby provisions, making it easier for lender to enforce these provisions against such third parties in the future, if necessary.
Third, while the SBA requires the standby creditor to subordinate its lien rights to lender's lien, SBA form 155 does not contain any subordination language. It is therefore incumbent on the lender to have the Standby Creditor sign a separate subordination agreement in addition to Form 155, or to use its own form that includes the necessary subordination language. Lenders should be mindful that if they use their own forms, that these forms must satisfy all of the Standby Agreement requirements set forth in the Loan Authorization.
By employing these best practices when dealing with SBA Standby Agreements, Lenders will avoid unnecessary and costly litigation as well as recommendations for repairs or denials of the SBA guaranty. For more information on Standby Agreements or other SBA documentation or closing issues, contact Ethan at 267-470-1186, or at [email protected].
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| Did you know... |
...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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| Seminars and Events |
Recent Developments in SBA Lending
Advanced SBA Loan Documentation and Closing
Presented by: NAGGL
Instructors: David W. Starfield
Date: May 2nd, 2011
Location: Atlanta, GA - NAGGL SBA Lending Technical Conference
For more information, click here.
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