IN THE SPOTLIGHT
| Jennifer Borra, Esq. |
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Jennifer focuses her practice on government guaranteed and conventional commercial lending transactions. She has substantial experience counseling clients in connection with:
* SBA 7(a) loan processing, documentation, closing and funding * SBA 504 loan processing, documentation, closing and funding * SBA franchise eligibility analysis * SBA rules and regulations * Guaranty repurchase matters * Conventional loan processing, documentation, closing and funding
Jennifer has also assisted small business clients with a wide variety of corporate governance and transactional matters such as:
* Entity formation * Purchase/sale of business * Lease agreements * Stock Purchase Agreements
ADMISSIONS:* Pennsylvania* New Jersey
To read more about Jen, click here.
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WHAT OUR CLIENTS SAY... Donald Tyson / Senior Vice President / The Bancorp Bank
When The Bancorp Bank made the strategic decision in 2009 to become a national SBA lender, our first call was to Ethan Smith at Starfield & Smith. I had worked with Ethan in deals where he represented the SBA lender and was impressed by the firm's capacity to handle a particularly complicated management buy-out with multiple layers of financing provided by multiple firms. This deal involved a credit line, an SBA term loan, a mezzanine loan, and private equity from multiple investors, not to mention an obstinate seller. The legal side of the deal could not have gone more smoothly. Bancorp's SBA team has been very successful and we have relied on the guidance of Starfield & Smith every step of the way. They work to earn our trust every day and we could not be more pleased with our relationship with them. They have a well earned national reputation for expertise in SBA lending that is unmatched.
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FEATURED ARTICLE
Best Practices: NEW Collateral Requirements under SOP 50 10 5(F)
By: Kristen G. Dickey, Esquire
| Kristen G. Dickey, Esquire |
With the release of the new SOP 50 10 5(F), effective January 1, 2014, comes significant revisions to the collateral requirements previously required by the SBA. The SBA is stepping away from the "all available collateral" rule with the recent changes.
Generally, under the new SOP, the SBA explains that with respect to collateral taken, lenders must use commercially reasonable and prudent practices to identify collateral items, which conform to procedures at least as thorough as those used for their similarly-sized non-SBA guaranteed commercial loans. Specifically, though, the SBA separates the requirements for "adequate collateral" into three (3) separate categories: (1) loans of $25,000.00 or less, (2) loans over $25,000.00 but less than or equal to $350,000.00, and (3) loans over $350,000.00.
Adequate Collateral
1. Loans of $25,000.00 loans or less
- Lender is not required to take collateral for loans of $25,000.00 or less.
2. Loans over $25,000.00 but less than or equal to $350,000.00
- At a minimum, the lender must obtain a lien on the applicant's fixed assets to SECURE the loan. Lender may also secure an applicant's trading assets (using 10% current of book value for the calculation) if it does so for similarly sized non-SBA guaranteed commercial loans.
3. Loans over $350,000.00
- Lender must collateralize the loan with fixed assets to the maximum extent possible up to the loan amount. If fixed assets do not FULLY SECURE the loan, the lender must take available equity in the personal real estate of the principals as collateral.
- Departure: Previously, other personally-held assets such as publicly-traded stocks, bonds, mutual funds, certificates of deposits and investment property not included in a retirement account could be pledged as collateral, if needed.
- Note: When an individual alone or an individual and his/her spouse together own 20% or more of the Small Business Applicant, the lender must consider as collateral available equity in the personal real estate that is owned individually by the applicant owner as well as available equity in personal real estate owned jointly. Real estate transferred to non-owning spouse within 6 months of loan application is not exempt.
- The SBA considers the loan "fully-secured" if the lender has taken security interests in all available fixed assets with a combined 'net book value' as adjusted up to the loan amount. See SOP 10 50 5(F) Subpart B, Chapter 4, Paragraph II.A(1)(f)
- Liens on a personal residence or investment property may be limited to the amount of the collateral shortfall.
- Departure: Previously, if the loan was not fully-secured, a lender was required to a take a lien for the full amount of the loan on secondary collateral even if the shortfall was a small fraction of the loan.
- As before, liens on a personal residence or investment property may be limited to 150% of the equity in the collateral, rather than the loan amount, if there are tax implications associated with the lien amount in the particular state where the lien is filed.
- SBA still does not require a lender to collateralize a loan to meet the "fully-secured" definition when the equity in the residence is less than 25% of the property's fair market value.
Lien Priority
- When loan proceeds will be used to purchase assets, a first security interest in those assets must be obtained.
- When loan proceeds will be used to refinance existing debt, the loan must be secured with at least the same security and lien priority as the debt that is being financed.
- Departure: Previously, the loan only had to be secured with the same security as the debt being refinanced. The SBA has clarified that the lien priority must also be the same.
- Note: It is unclear whether these lien priority requirements apply to loans of $25,000.00 or less.
While the SBA provides specific direction to lenders as to what constitutes adequate collateral, ambiguity still exists in the new SOP language. For example, a lender that would typically take a personal residence as collateral for a similarly-sized non-SBA guaranteed commercial loan even when there is minimal value in the real estate must do so pursuant to the new SOP. However, this lender may have difficulty reconciling its standard practice with the SOP provision that states the lender is not required to collateralize a loan to meet the "fully-secured" definition when the equity in the residence is less than 25% of the property's fair market value.
Lenders should take care in analyzing the collateral and ensure they are complying with the current regulations to secure the SBA guaranty. For more information regarding available collateral, please contact Kristen at 407.667.8811 or at [email protected].
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EVENTS & SEMINARS
*** TODAY ***
Date: October 9, 2013
Location: Webinar
For more information about this event and/or to register, click here.
"Advanced SBA Loan Documentation & Closing"
Instructor: David W. Starfield Date: November 4, 2013 & November 5, 2013
For more information about this event and/or to register, click here.
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