Ethan W. Smith, Esquire

The U.S. Small Business Administration's SOP 50 10 5(E) became effective on June 1, 2012. Because all new loan approvals after this date must comply with the terms of the new SOP, Lenders must quickly familiarize themselves with the more important changes to the SBA's policies and procedures. Following is a summary of the critical changes lenders should know: 

• Confirmation of Changes to the EPC Rule: the SOP incorporates the provisions of the SBA's direct final rule which became effective on May 17, 2012, which provides that when a loan is structured using an EPC/OC structure, an OC may use loan proceeds for purposes that an EPC may not, including, but not limited to working capital, business acquisition (including intangible assets), inventory purchase and other SBA eligible purposes, provided that the OC is a co-borrower on the loan.
• Change to Policy Regarding Legal Fees: the SOP was revised to allow lenders to pass through fees for in-house legal counsel, provided such fees are reasonable and customary, are incurred in connection with an SBA guaranteed loan, are for requested services actually performed, and the costs do not exceed those of outside counsel.
• Change to Policy on Agent Fees: the SOP drastically changes the Agency's policy on allowable fees that can be paid to Agents. The historical requirement that fees charged to Applicant's must be charged on an hourly basis has been altered to allow Agents to charge based on a percentage of the loan amount. The Agency has capped the percentage fees that can be charged by Packagers, Referral Agents and Lender Service Providers to Borrowers and Lenders at 3% for loans up to $50,000, and for loans over $50,000, 2% on the first million and .25% for all amounts over $1,000,000. There are still many questions regarding the meaning and impact of this change. NAGGL is seeking further clarification from the SBA.
• Change to Policy regarding Debt Refinancing: As discussed in last week's newsletter article, debt incurred in the personal name of the principal of the borrower is now eligible for refinance, subject to the requirements set forth in the SOP.
• Clarification to Change of Ownership Guidelines: The change of ownership guidelines requiring stock redemptions were clarified. Additionally, SBA added a provision that will allow a borrower to form an entity to acquire all of the stock of the selling business, which business would then be merged with the acquiring company.
• Small Loan Advantage Changes: The SOP incorporates changes to the Small Loan Advantage program, including: an increase in the maximum loan amount under this program to $350,000; setting forth the criteria an mechanism for credit scoring pre-screening of applicants; clarifying the credit criteria and analysis requirements; and confirming the collateral requirements for SLA loans.
• 504 Changes: the SOP was revised to allow the inclusion of short term debt for land acquisition that has a building that is to be razed as part of the project. Previously, only vacant land acquisition could be included. Additionally, SBA has removed the requirement that Appraisals be certified to the CDC, instead determining that certification to the SBA alone is sufficient.  

 (215) 542-7070.  

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