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Attorney Spotlight |
| David 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 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 Guaranty Fees
By Katie G. O'Brien, Esq.
| Katie G. O'Brien, Esq. |
A lender must pay the Small Business Administration ("SBA") a Guaranty Fee for each loan it makes under the SBA's 7(a) program. This fee is based on the guaranteed portion of the loan. Beginning January 1, 2011, the maximum amount that the SBA will guarantee to any one Borrower and its affiliates is $3,750,000, unless the loan is approved under a program which specifically permits higher amounts. Moreover, the maximum guaranty percentage is 85% for loans of $150,000 or less and 75% for loans which exceed $150,000.
Since the maximum loan amount under the 7(a) program increased to $5,000,000 this year, many lenders have begun splitting larger loans into smaller loans (less than $2,000,000) which are often easier to sell on the secondary market. Therefore, there has been an increase in multiple 7(a) loans to the same borrower at or about the same time. When lenders make multiple loans to one borrower, or their affiliates, which are approved within 90 days of each other, the loans will be treated as if they were one loan for purposes of determining the guaranty percentage and the amount of the guaranty fee.
When a 7(a) loan is approved by the SBA, the SBA automatically calculates the guaranty fee for that loan. But this automatic calculation does not take into account required changes in the fees because of multiple loans being made to the same borrower. When multiple long-term loans are approved to the same borrower or their affiliates within 90 days, a lender must calculate the guaranty fee (and the guaranty percentage) manually per the calculation below.
- Loans of $150,000 or less - guaranty fee is 2% of the guaranteed portion
- Loans of $150,001 to $700,000 - guaranty fee is 3% of the guaranteed portion
- Loans of $700,001 to $5,000,000 - guaranty fee is 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% of the guaranteed portion over $1,000,000
If there is a difference between the automatic calculation provided by the SBA and the manual calculation performed by a lender, the lender must report the difference to the Central Processing Center or the local SBA office. For example, if a lender has split a $2,600,000 project into a $2,000,000 loan and a $600,000 loan, the guaranty fees "automatically calculated" in the Loan Authorization will be incorrect.
The Loan Authorization's automatic calculation would be generated as follows:
- $2,000,000 loan -
- The loan has a 75% guaranty so the guaranteed portion is $1,500,000 (the amount on which the calculation is based).
- The guaranty fee for the first $1,000,000 is calculated as 3.5% of $1,000,000, which equals $35,000.
- The guaranty fee for the remaining $500,000 is calculated as 3.75% of $500,000, which equals $18,750.
- So the total guaranty fee for the $2,000,000 loan is $53,750 ($35,000 plus $18,750).
- $600,000 loan -
- The loan has a 75% guaranty so the guaranteed portion is $450,000.
- The guaranty fee is calculated as 3% of $450,000, which equals $13,500.
- Therefore, based on the automatic calculation in the Loan Authorization, a lender would pay the SBA a guaranty fee in the total aggregate amount of $67,250 for both loans.
If, however, a lender performs a manual calculation, the guaranty fee would be calculated as follows:
- Both loans should be combined into one aggregate amount of $2,600,000 for purposes of calculating the guarantee fee.
- The guaranteed portion for both loans remains the same as in the automatic calculation above, or $1,950,000 (75% guaranty).
- The guaranty fee for the first $1,000,000 is calculated as 3.5% of $1,000,000, which equals $35,000.
- The guaranty fee for the remaining $950,000 is calculated as 3.75% of $950,000, which equals $35,625.
- Based on a manual calculation, the total guaranty fee is $70,625 ($35,000 plus $35,625).
The lender is responsible for the full guaranty fee of $70,625, rather than the incorrect automatic calculation of $67,250 which is automatically generated in the SBA Authorization. It is a lender's responsibility to notify the SBA of the additional fees owed to SBA. If there is a conflict between the fees stated in the Authorization and the statutory amount authorized at the time the loan is approved, the statutory amount will govern.
With the increasing amount of multiple loans being made to the same borrower, it is important for lenders to keep these regulations in mind. For more information on SBA regulatory and statutory issues, contact Katie at 267.470.1207 or kobrien@starfieldsmith.com.
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| Did you know... |
...that Starfield & Smith, P.C. is retained by lenders nationwide to consult on SBA eligibility and compliance matters?
For more information about these and other services Starfield and Smith, P.C. provides its lender clients, call us at (215) 542-7070.
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Seminars and Events |
SBA Loan Guarantees: Current Purchase Issues and Complexities
Presented by David Starfield and Christopher Evans Date: August 3, 2011 Time: 1:00 PM - 2:30 PM EDT Location: Live Audio Conference
For more information, click here
Extended Training Course: SBA Eligibility Hot Topics
Presented by Ethan Smith
Date: August 8, 2011
Time: 1:00 PM - 5:00 PM
Location: Fort Worth, Texas
Mid America Lender's Conference The Worthington Renaissance Fort Worth Hotel
For more information, click here
Break Out Session:
Handling SBA Loan Closings (7(a) & 504)
Presented by Ethan Smith Date: August 9, 2011 - 1:30 PM -2:30 PM and
August 10, 2011 - 11:00 AM - 12:00 PM
Location: Fort Worth, TX
Mid America Lenders Conference
The Worthington Renaissance Fort Worth Hotel
For more information, click here
Extended Training Course: Lender Oversight and Liquidation/Guaranty Purchase Process
Presented by Ethan Smith
Date: August 10, 2011
Time: 12:15 PM - 3:15 PM
Location: Fort Worth, Texas
Mid America Lender's Conference The Worthington Renaissance Fort Worth Hotel
For more information, click here
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