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IN THE SPOTLIGHT
| Jessica L. Conn, Esq. |
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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.
ADMISSIONS:
* Pennsylvania * New Jersey * New York
MEMBERSHIPS * Pennsylvania Bar Association * NAGGL * NADCO To read more about Jess, click here. |
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FEATURED ARTICLE 
Best Practices: NEW SBA Change of Ownership Rules
By: Ethan W. Smith, Esquire
| Ethan W. Smith, Esquire |
On July 1, 2013, SBA released a revision to SOP 50 10 5(E) that revised and clarified SBA's requirements for financing change of ownership transactions with SBA guaranteed loans. Prior to this revision, SBA had restricted SBA financing for change of ownership transactions that were structured as stock purchases where the stock (or ownership interest) of the selling shareholder(s) was being purchased by an individual or individuals. The new rules lift this restriction and greatly simplify the requirements governing change of ownership transactions for SBA lenders.
The new guidelines allow for a change of ownership to be achieved through an asset purchase, a stock purchase or a stock redemption[1]. The revised language of the SOP provides for two basic scenarios in which a change of ownership can occur: (1) a change of ownership between existing owners; and (2) a change of ownership that results in a "new" owner.
A change of ownership between existing owners may be accomplished either through a stock purchase or a stock redemption. Whether structured as a purchase or redemption, the remaining owners must own 100% of the stock at the completion of the transaction. If structured as a purchase, the individuals acquiring the stock, and the company whose stock is being acquired, must be co-borrowers on the loan. If structured as a redemption, the business whose stock is being redeemed must be the borrower and the remaining owners may be either co-borrowers or guarantors.
A change of ownership resulting in a new owner may be structured as either a stock purchase or an asset purchase. If structured as a stock purchase, 100% of the stock may be purchased either by an entity or an individual who is not an existing owner of the business. If the purchaser of the stock is an individual, then the individual and the target must be co-borrowers on the loan. If the purchaser of the stock is an entity or if the transaction is structured as an asset purchase, then the business being acquired may be a co-borrower on the loan. Generally, lenders should consider making the target business a co-borrower when the transaction is structured as a stock purchase, but it is unlikely that a seller in an asset purchase would ever consent to being obligated on the purchaser's loan. As the SBA's language is not mandatory, this should not present any structuring issues for lenders.
Lenders must also ensure that the business will not attempt to deny liability for lack of consideration on debts where it is a co-borrower with the purchasers of the stock. As this analysis varies by state, lenders should consult counsel to ensure the enforceability of the loan documents. If the borrower denies liability on these grounds, the SBA may not honor the guaranty.
The amendments to the change of ownership provisions of the SOP 50 10 5(E) should facilitate change of ownership transactions financed with SBA loans, especially those structured as stock purchases. However, lenders should be mindful of the SBA's new requirements to ensure that they do not jeopardize the guaranty. For more information on SBA's new change of ownership guidelines, contact Ethan esmith@starfieldsmith.com or at 215.542.7070.
[1] For purposes of this article, all purchases or redemptions of the ownership interest of an entity will be referred to as "stock" transactions, acknowledging that the particular facts of a transaction may require a transfer of membership interest, partnership interest, or other interest that is not technically "stock".
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EVENTS & SEMINARS 
Protecting the SBA Guarantee Start to Finish
Date: Wednesday, August 28, 2013
Time: 2:00 pm EST
Location: Webinar
For more information about this event and/or to register, click here.
Date: September 11, 2013 through September 13, 2013
For more information about this event and/or to register, click here.
Date: November 5, 2013 through November 7, 2013
For more information about this event and/or to register, click here.
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WHAT OUR CLIENTS SAY...
David Lucht / Chief Risk Officer / Live Oak Banking Company
Starfield & Smith is our go-to law firm for issues regarding SBA Repurchases or Compliance. Their knowledge of the SBA, in terms of the people, processes, and policies is unparalleled. The more complex the issue, the more this firm shows their value. We use them both on the closing side, as well as for helping us on Ten-Tab matters. Our main point of contact at the firm, Ethan Smith, in particular is just an exceptionally bright attorney. I whole-heartedly endorse them for any work that involves the SBA programs. They are simply recognized as the expert in that area of law.
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