SBA Program Changes

The start of this year is also marked the beginning of a new SBA Standard Operating Procedure with SOP 50 10 5(F).  The new SOP allows all loans up to and including $350,000 to be processed like the “Small Loan Advantage” (SLA) Loans.  The standards of the SLA program are now applicable to all loans up to $350,000, whether the loan was an Express loan or a 7(a). These smaller loans require a credit memo that outlines the pre-screened credit score, shows a DSCR of 1:1 or greater, a global cash flow of 1:1 and also has verification of tax returns through the 4506-T.  The credit memo should show a determination that if the equity and proforma debt-to-worth are acceptable based on its policies and procedures for its similarly-sized, non-SBA guaranteed commercial loans.  If the lender requires an equity injection as part of its policies it must also do so for SBA loans.

All new SBA Guaranty request must be submitted via SBA’s E-Tran system.  Lenders can no longer submit their requests to the SBA by fax, email, or mail.  The E-Tran system also has to be used to develop a pre-screen credit score.  If the score is below 140, the only options are to request an Express loan guarantee, which has a lower guaranteed amount, or to provide documentation to the SBA for them to underwrite the loan and make their determination regarding the guarantee percentage they are willing to commit to. 

Larger loans over $350,000 must have a DSCR of at least 1.15:1 using EBIDTA.  Any debts that are refinanced must have a justification reason.  These must also include transcripts for each of the refinanced accounts that stretches back for the prior 24 months if the debt is not at your financial institution or 36 months if it is at your credit union. 

Collateral requirements for SBA loans have changed a little.  You must use commercial reasonable and prudent practices to identify collateral items.  The collateral should include a first security interest in the assets you are financing.  If you are refinancing existing debt, the loan should be secured with the same security and lien priority as the debt being refinanced. 

Loans under $25,000 are not required to have collateral.  Loans between $25,000 - $350,000 should follow the same collateral policies and procedures the lender has in place for its loans.  At a minimum, a lien on fixed assets should be taken.  Loans over $350,000 should be collateralized up to the maximum extent possible up to the loan amount.  If there is a collateral shortfall, the lender must take any available equity in personal real estate of the principals as collateral.  Available equity excludes personal residence with equity of less than 25%.  Any liens on personal real estate may be limited to the amount of the collateral shortfall. 

A loan is deemed fully secured if the adjusted net book values equal the assets original prices less any depreciation.  New machinery and equipment (M&E) maximum is 75% of cost.  Used M&E is 50% of Net Book Value or 80% of Orderly Liquidation Appraised Value.  Commercial real estate is limited to 85% of value.  Any residential or investment real estate is valued as the lender normally would if the loan was not guaranteed by SBA.  If there is a collateral shortfall, the lender must include any trading assets of the firm. 

The application process has changed slightly.  All business and personal financials can be dated within 180 days of the lender application or SBA Guaranty.  Personal financial statements still must be dated within 90 days. The applicant must complete SBA Form 1919 and the Lender completes Form 1920.  Form 4 and 4-I are not used.  Lenders have the option of using their own note and guarantee agreements rather than the SBA versions (SBA Forms 147, 148, and 148L). 

The pilot program of the Patriot Express has been deleted.  Fees have changed slightly with all loans of $150,000 and below having no up-front fee or on-going servicing fee.  Loans over $150,000 have no change in their up-front fee to the SBA and the on-going fee is reduced to 0.52%.  

If you have any questions, please contact us.  We have several helps for lenders on our website under the “commercial” tab with the SBA Program Overview and the SBA One Overview.