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Tip of the Week
Remember to Properly Document Recovery Act Loans
Last week SBA issued a new Information Notice number 5000-1134 "Recovery Act Loan Documentation Requirements and Restrictions". While it is addressed to All SBA Employees (SBA protocol), all SBA 7(a) and 504 lending partners are effectively on notice with the requirements and restrictions. This particular notice serves as a reminder to all lenders who participate with SBA under the Recovery Act of 2009 regarding Policy Notices and Federal Register Notices. It seems that early reviews by SBA's Office of the Inspector General (OIG) have found documentation related deficiencies when reviewing Recovery Act Loans.
In order to properly document Recovery Act loan files, SBA reminds lenders and CDC's to make sure that their loan files contain specific documentation in the following areas - these are NEW certifications (requirements) specifically for Recovery Act loans:
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Borrower certification of hiring practices for 7(a) Loans with the Increased Guaranty: Prior to first disbursement on a 7(a) loan with the increased guaranty, lenders must require that the Borrower and any Operating Company certify that they have not been determined by the Secretary of Homeland Security or the Attorney General to have engaged in a pattern or practice of hiring an alien, recruiting an alien or referring an alien for a fee for employment in the United States, knowing that the person is an unauthorized alien.
This certification is in addition to the existing disclosure requirement on SBA Form 912, Statement of Personal History. This certification is only required on loans with an increased guaranty and must be retained in the loan file. EVERY file must contain this new borrower certification!
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Reimbursement of Borrower Fees for 7(a) and 504 Loan Guarantees: If borrowers had already paid a fee on eligible 7(a) loans and 504 loans approved by SBA on or after February 17, 2009 and before March 16, 2009, lenders and CDC's were sent fee refunds from SBA, which they must use to reimburse borrowers. Lenders and CDCs must document borrower receipt of the refund and be prepared to produce such documentation to SBA upon request. Appropriate forms of documentation regarding fee reimbursement may include wire transfers or cancelled checks. EVERY loan file must contain these documents!
The information notice goes on to remind lenders of new restrictions that the Recovery Act legislation imposes as follows:
SBA loan guaranties funded with Recovery Act funds may not be made available to businesses primarily engaged in these activities or to businesses that intend to use guaranteed loans for the acquisition, construction, renovation or other purposes that include restricted uses.
Documentation for acceptable uses of Recovery Act funds includes the following items:
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Certification that no funds will be used for a restricted use: Lenders and CDCs must certify on the applicable eligibility questionnaires and checklists that loan proceeds will not be used for a restricted use. All applicable eligibility questionnaires and checklists for the 7(a) and 504 programs have been modified to include an additional statement to this effect and must be retained in the lender's or CDC's loan file.
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Certification of uses for working capital funds: If an applicant receives a working capital loan, prior to first disbursement, the lender must require the Borrower and any Operating Company to certify that no funds from the working capital loan will be used for restricted purposes. This certification must be retained in the lender's or CDC's loan file.
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Credit memorandum and certification for projects with restricted uses: If an applicant will receive a loan to acquire, construct or renovate an existing facility that also has a golf course or swimming pool, for example, then:
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the lender or CDC must document in the credit memorandum that the use of proceeds does not include financing the restricted use and document the other resources that cover the financing of this component; and
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prior to first disbursement the lender or CDC must require the Borrower and any Operating Company to certify that alternate funding (which may come from the borrower's equity) has been obtained to pay the costs allocable to the acquisition, construction or renovation of the golf course or swimming pool.
The credit memorandum and the certification must be retained in the lender's or CDC's loan file.
If you are due for an onsite review by SBA, be aware that this is a current "hot button" and reviewers will be specifically looking for the various certifications and credit underwriting documentation requirements that apply specifically to Recovery Act loans. While we are currently in an interim period between exhaustion of available funding for the Recovery Act loans under current legislation, it seems possible that new legislation may pass early in the New Year that renews these provisions. It might be a good idea to continue with this documentation protocols so as not to commit an error of omission if and when the Subsidy Act provisions are extended. For easy access to the Information Notice referenced in this article, click here to free resources on our website.
Take the Right Approach
Karen McHugh and Brian Burke
SBA Access ©2009 - All Rights Reserved
All content is copyrighted and unauthorized use is strictly prohibited. If you would like to quote any part of this text, email bburke@sbaaccess.com or kmchugh@sbaaccess.com for permission.
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