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Upcoming Events
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WEBExpress
October 2 - Noon (Central)
Critical Steps in SBA Loan Liquidation
October 9 - Noon (Central)
Final Steps in SBA Loan Liquidation: Purchase & Charge-Off
(Both taught by Jane Butler)
Classroom Training
November 17-18
Indianapolis, IN
- SBA Loan Servicing and Liquidation
November 19
Indianapolis, IN
- Understanding How to Get SBA to Honor Its Guaranty
October 28-30
Annual Conference on Small Business Lending
NAGGL 30th Anniversary! Hyatt Regency
Huntington Beach Reservations: 800.233.1234 or click the image above Host hotel is sold out
OVERFLOW HOTELShorebreak Hotel
(Less than 1 mile from the Hyatt -- Shuttle Service provided) Rooms available Oct 26-30
Reservations: 877.744.1117
Hotel Cut-Off: October 10
Room Rate: City Courtyard View: $189/Partial Ocean View: $209/Waterfront View: $219
www.shorebreakhotel.com
CODE: 1410NAGG_001
................................................2015 - SAVE THE DATES February 17-18 - SBA Lender Leadership Summit (DFW Airport, TX)
March 23-26 - Classroom Training Courses (Long Beach, CA)
May 4-5 - Classroom Training Courses (San Antonio, TX)
May 5-7 - Technical Conference (San Antonio, TX)
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September Rates
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SBA LIBOR Base Rate = 3.16%
SBA FIXED Base Rate = 5.34%
Maximum Allowable Rates >
Prime Rate = 3.25%
SBA Peg Rate = 3.00%
[July 1-September 30, 2014] |
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Resources ... Click It to Get It
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 RELEVANT Daily News Stories |
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The News Flash is emailed by the National Association of Government Guaranteed Lenders to its members. Nothing may be reprinted in whole or part without written permission from NAGGL. All rights reserved. © 2014 NAGGL, Inc.
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Revisiting Pari Passu Liens
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Recently a lender received a loan application in connection with a $7.125 million hotel construction project. The applicant intended to inject $1.4 million into the project and was seeking financing for the remaining $5.725 million. The lender decided that the best way to provide the financing would be to couple a $5 million 7(a) loan with a $725,000 conventional loan. Because the lender was aware of SBA's prohibition against piggyback structures (defined below*), she wrote to NAGGL to ask whether SBA would allow that structure with the 7(a) loan and the conventional loan sharing the 1st position on the real estate and other collateral pari passu. While we believed that the loan could be made as proposed, because there is sometimes confusion about when pari passu liens are allowed, we contacted the policy experts SBA.
Our question touched off a lively back and forth among the NAGGL and SBA experts as we searched our collective memories and documents from various sources in an attempt to re-create the evolution of the agency's position on the pari passu issue.
What we found was that until late 2004, first by agency policy and then by brief legislative authority, SBA permitted piggyback structures in order to allow small businesses to access needed capital in excess of SBA's statutory maximum loan size. However, effective October 1, 2004, the legislative authority for what was called "combination financing" expired and SBA's practice of allowing piggyback structures was suspended indefinitely.
Over time the prohibition against piggyback structures was made permanent but some exclusions were carved out in order to continue to allow borrowers access to needed capital in amounts greater then SBA's maximum loan size. One of those exclusions is that "SBA does not consider a shared lien position with the lender (pari passu) as a piggyback structure SBA". [SOP 50 10 5(F), page 12] [Although not the topic of this article, please also note that 7(a)/504 combination financings are allowed as an exception to the piggyback prohibition.]
The final conclusion? The agency's history, via notices and other direction, permits a pari passu lien structure when an SBA guaranteed loan and a conventional loan are being made at the same time for the same or similar purpose.
Therefore, the proposed financing package for the hotel project would be eligible and the proposed pari passu lien structure would not be regarded as lender preference. The sole catch? When a lender is seeking a pari passu lien structure, the 7(a) loan cannot be processed using the lender's delegated authority but must be processed through the Loan Guaranty Processing Center (LGPC).
*Per SBA "Piggyback financing occurs when one or more lenders provide more than one loan to a single borrower at or about the same time, financing the same or similar purpose, and where the SBA-guaranteed loan is secured with a junior lien position or no lien position on the collateral securing the non-guaranteed loan(s)." [SOP 50 10 5(F), pages 11-12]
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Nomination of Gilberto de Jesús to Serve as Chief Counsel for Advocacy
The White House announced that President Barack Obama intends to nominate Gilberto de Jesús to serve as Chief Counsel for Advocacy, an independent office at the SBA. SBA Administrator Maria Contreras-Sweet immediately announced her support for his nomination and called for his swift confirmation by the Senate. The Office of Advocacy advances the views and concerns of small business before Congress, the White House, the federal agencies, the federal courts and state policy makers as it pertains to regulatory challenges. More >
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SBA Main Street Business Loan Data
NAGGL recently acquired SBA small business loan data in a huge (close to 334 MB) MS Excel file of data that covers 7(a) loans for calendar years 1990-1999 and calendar years 2000-April 2014; and for the 504 program, from calendar years 1990-April 2014.
A list of all data fields included in SBA's report is attached here and includes items such as delivery method (subprogram), NAICS codes, Franchise Codes, Loan Status, Charge Off Date, Gross Charge-off Amount, etc.
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NAGGL Gets Answers
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ESOP change of ownership, can shareholder remain in business
Q: I'm getting contradictory answers to this question and need clarification. We are looking at a 100% ESOP purchase and want to confirm that there are not any limitations on the shareholders whose stock will be purchased with the loan proceeds? Specifically that these individual(s) are not prohibited from continuing to stay and work in their current positions? (As with a business acquisition when the seller may not remain as an officer, director, stockholder or key employee.)
A: Although I was fairly certain that I knew the answer to your question, I forwarded it to SBA (with your identifying information deleted) hoping that I was wrong.
SBA has confirmed what I suspected: "IF the sellers have managing authority and/or are members of the ESOP, then they are considered Associates by definition in 13 CFR 120.10." Therefore, the sale would ineligible for 7(a) financing because SBA prohibits distribution of loan proceeds to associates. Per SOP 50 10 5(F) (page 110):
D. Business Loan Proceeds Restrictions
Loan proceeds may not be used for any of the following purposes (including the replacement of funds used or borrowed for any such purpose): (13 CFR §120.130)
1. Payments, distributions or loans to an Associate of the applicant except for compensation for services actually rendered at a fair and reasonable rate; . . .
In addition to the issue related to the use of loan proceeds, as you indicated in your message to NAGGL, SBA also prohibits the seller of a business from staying on after the sale. And, while the SBA expert did not address that part of my question, I was not able to find an except to that requirement for ESOP purchases, so I think that also would be a bar to the loan's eligibility. Per SOP 50 10 5(F), (page 118):
2. The seller may not remain as an officer, director, stockholder or key employee of the business. (13 CFR §120.130) (If a short transitional period is needed, the small business may contract with the seller as a consultant for a period not to exceed 12 months including any extensions.)
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Life insurance on owner in bankruptcy
Q: I have an SBA loan that the company filed Ch. 11 and we collected the SBA guaranty. The business is still operating but I received notice of non-payment of life insurance on one of the owners. Would you recommend we pay the insurance as care and preservation or let the insurance expire? The owners are unable to afford the premium which is why they are letting it expire.
A: SOP 50 57 (pages 65-66) provides SBA's requirements regarding maintaining life insurance after final disbursement of a loan:
D. Life Insurance
1. Modification of Requirement
The life insurance requirements in the Loan Documents should not be modified or terminated unless the reason for requiring the life insurance policy no longer exists.
2. Use of Escrow Account to Collect Premiums . . .
3. Continuation of Coverage
If an assignment of a life insurance policy is required by the Loan Documents and the Lender receives notice that the required payments have not been made, the decision whether or not to continue coverage should be based on prudent lending practices and made on a case-by-case basis. If coverage is continued, the cost should be treated as a Recoverable Expense.
4. . . .
As indicated in the cited guidance, when an obligor is no longer maintaining mandatory life insurance coverage SBA allows a lender to decide on a case-by-case basis whether allowing such coverage to lapse is prudent. In your situation, however, unless there is some reason why the life insurance should not be maintained, I think that generally SBA would expect you to continue the life insurance coverage, and would share with you any premiums paid to maintain that policy in force and effect. However, if you decide that it would be prudent to allow the policy to lapse, I would recommend that you contact the SBA office responsible for servicing the loan and attempt to get SBA to agree with that decision.
Finally, I would also suggest that you contact the bank counsel who is monitoring the bankruptcy proceedings to ask whether he/she thinks that, since life insurance is required as a condition of the loan, the authority overseeing the bankruptcy might allow you to enter a claim for the premium amount. My guess would be that the payment would not be approved, but your counsel is in the best position to advise you regarding that possibility.
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Job Bank
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**SBA Lender/BDO**
Spokane, WA
Contract SBA Closer
Nationwide
SBA Assistant II
Murray, UT
SBA Eligibility Specialist
Golden Valley , MN
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