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IN THE SPOTLIGHT
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David is the co-founder and Managing Partner of Starfield & Smith, P.C. 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, including the National Association of Government Guaranteed Lenders ("NAGGL"). 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 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 Region 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 (and its Executive Committee), and has been honored for his contributions to the industry by receiving NAGGL's Distinguished Service Award, NAGGL's Instructor of the Year award, and SBA's Financial Services Champion of the Year award for Eastern Pennsylvania.
ADMISSIONS:
- US Supreme
Court - Pennsylvania
- New Jersey
To read more about David, click here.
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FEATURED ARTICLE 
Best Practices: Change of Ownership Challenges
By: Ethan W. Smith, Esquire
SBA lenders sometimes face challenges when underwriting change of ownership loans. Specifically, lenders that are using an SBA 7(a) loan to finance a partner buyout (where one existing owner buys the ownership interest of another owner resulting in 100% ownership vesting in the purchaser) with intangible assets that exceed $500,000, may have difficulty in properly structuring their loan, especially if they want to process the loan under their delegated (PLP) authority.
SOP 50 10 5(H), Subpart B, Chapter 2, Subparagraph IV. H. 7. b. provides:
If the purchase price of the business includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks and agreements not to compete) in excess of $500,000, the borrower and/or seller must provide an equity injection of at least 25% of the purchase price of the business for the application to be processed under delegated authority. (Seller equity is defined as seller take-back financing that is on full standby (principal and interest) for a minimum of 2 years.)
Often times when this scenario arises, lenders question whether the purchasing owner's existing equity in the business can be used to satisfy the 25% "equity" requirement, or whether the purchasing owner must put "new" money into the transaction. Lenders generally agree that in order to give credit to the purchaser for its existing equity, the lender must have an SBA-compliant third party business valuation performed to substantiate the value of the purchaser's existing equity in the business.
SBA has provided additional clarification for this situation by providing guidance to NAGGL which states:
[The lender must determine whether] the business valuation [was] done pre-sale or proforma... [W]hile the purchasing partner may have 25% equity pre-sale, the additional leverage will alter the proforma balance sheet, which may result in less than 25% equity. If less than 25% proforma, additional investment by [the purchaser or seller] (to restore the 25% equity position) is necessary to avoid LGPC processing. If the proforma balance sheet contains equity of 25%, then there is no specific requirement in the SOP for "new "equity. The equity contribution of the borrower is his/her already invested capital equal to or greater than 25% to allow PLP processing.
Therefore, in addition to obtaining a business valuation to determine the value of the purchaser's existing equity in the business, the lender must also analyze the business' balance sheet on a proforma basis to ensure that the purchaser will maintain its 25% equity post-closing. Lenders that fail to properly assess and credit the equity of the purchasing owner in this situation risk improperly processing their loans under their delegated authority, thereby risking their loan guaranty.
For more information on processing change of ownership transaction under delegated authority, please contact Ethan at esmith@starfieldsmith.com or at 267-470-1186.
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SEMINARS & EVENTS
NAGGL Annual Conference
Presented By: NAGGL
Date: November 2, 2015 - November 6, 2015
Location: The Cosmopolitan of Las Vegas
** SOLD OUT **
How to get SBA to Honor Its Guaranty
Presented By: NAGGL
Instructor: Ethan W. Smith
Date: November 5, 2015
Location: The Cosmopolitan of Las Vegas
For more information about this event and/or to register, click here.
Advanced SBA Loan Closing & Documentation
Presented By: NAGGL
Instructor: David W. Starfield
Date: November 5, 2015 - November 6, 2015
Location: The Cosmopolitan of Las Vegas
For more information about this event and/or to register, click here. Closing and Funding the SBA Loan How to Get SBA to Honor Its Guaranty Presented By: NAGGL Instructor: David W. Starfield Date: November 16 - 20, 2015 Location: Stuart (West Palm Beach), FL For more information about this event and/or to register, click here. |
WHAT OUR CLIENTS SAY...
Linda K. Fernandez / VP Credit Administration SBA Department / Monterey County Bank
Starfield & Smith have been integral with assisting the bank with one of our largest guaranty purchases from SBA. Their team was able to utilize their SBA expertise and work directly with contacts to offer guidance to address specific concerns. Without the help of Starfield & Smith, it is unlikely that our bank would have been able to collect on the full guaranty on this loan. In addition, our costs incurred with their services was reimbursed 75%. We highly suggest that if you need assistance with your SBA portfolio, do not hesitate to contact them.
We had a great experience with your team!
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