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FREE RESOURCE: SBA SOP 50 10 5 (A) Revision Summary - 7(a) version
(now on our website)
Effective March 1, 2009, SBA came out with a revision to the SOP 50 10(5) A which made some changes to the version released last August (see Information Notice 5000-1092). There are several changes we want to bring to your attention. Also, as a service to the SBA lending community, we have posted an updated summary and index of the SOP 50 10 in its most updated version on our website (www.sbaAccess.com) - see the tab called Job Aides and Resources.
Some of the most impactful changes (with version 5 A) include - with SOP page # references:
Page 88 Franchise Information Assistance - If the Agreement which the lender is processing is the same as listed on the Registry, the lender may process the application relying on the Registry to determine the acceptability of the Agreement. If SBA has required an addendum, per a footnote, the lender must obtain an executed addendum to show compliance with the requirement. (Proof of FTC registration has been omitted as a documentation requirement with version 5 A). If there has been a material change, the certification should be forward to the SBA Franchise counsel (not the SBA loan processing center). A review of the Agreement and all related documents is required as if not listed on the Registry. - (change per version 5 A).
Page 98 Passive Businesses - Hotels, motels, trailer parks (i.e., RV parks), campgrounds, or similar types of businesses are eligible if more than 50% of the business's revenue for the prior year is derived from transients who stay for 30 days or less at a time. Mini-warehouses, office suites, shopping centers, flea markets, and mobile home parks, are not eligible unless they provide sufficient services. Sufficient services shall be deemed to exist when more than 50% of the business's revenue for the prior year is derived from the services provided rather than from rental income.
(Three factors were listed in SOP 50 10 5 A outlining how to determine if there are sufficient services to determine eligibility for a passive business - break down of revenues).
Page 105 Form 912 - If the District does not clear the 912 and the application is placed on hold for further investigation: the subject individual must submit a Form FD 258, SBA Fingerprint Card and a finger print check must be requested (the character evaluation/name check option was deleted with version 5 A). The processing will remain on hold until results are received at which time the application will either proceed or be declined.
Page 133 Refinancing - SBA guaranteed loans may be used to refinance the following types of debt:
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Long term debt structured with a demand note or balloon payment;
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Debt with an interest rate that exceeds the SBA maximum interest rate for the processing method being used
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Credit card debt
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Debt that is over-collateralized based on SBA’s collateral requirements
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Revolving lines of credit (short term or long term) where the original lender is unwilling to renew the line or the applicant is restructuring its financing in order to obtain a lower interest rate or longer term;
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Debt with maturity that was not appropriate for the purpose of the financing (e.g., a 3 year term loan to finance a piece of equipment with a useful life of 15 years); and
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Debt that is not identified above but the Lender believes no longer meets the needs of the small business applicant. (Applications under this subparagraph may only be processed through Standard 7(a) procedures).
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When long term debt is refinanced, the new installment amount must be at least 20% less than the existing installment amount(s).
Page 139 Change of Ownership – Limitations on Goodwill financing:
Added language with Information Notice 5000-1096 (dated 2/27/09):
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For loan applications where the request for 7(a) financing of goodwill exceeds the limits set in SOP 50 10 5 (A) because the buyer and/or the seller are unable to finance the amount of goodwill that exceeds the SOP limit, the lender may submit the application to the Standard 7(a) Loan Guaranty Processing Center for SBA’s consideration (non-PLP). The submission must include additional information including: a detailed explanation as to the circumstances that prevent the seller and/or buyer from meeting the SOP requirements for financing of the balance of goodwill.
Page 181 Business Valuations – determining the value of a business (not including real estate which is separately valued through an appraisal) is the key component to the analysis of any loan application for a change of ownership. An accurate business valuation is required because the change of ownership will result in new debt unrelated to business operations and create “blue sky” or goodwill.
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If the amount being financed (including 7(a), 504, seller or other financing) minus the appraised value of real estate and/or equipment being financed is $250,000 or less, the lender may perform its own valuation of the business being sold.
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If the amount being financed minus the appraised value of real estate and/or equipment is greater than $250,000 or there is a close relationship between the buyer and seller, the lender must obtain an independent business valuation from a qualified source. (qualified source is defined).
Also, in the latter pages of our resource document, we have developed an Index by Topic and Program to help lenders navigate the SOP more readily (starting on page 16). Take a look at this job aide and we bet you will find it will become a valuable tool for you and your staff. Providing tools and job aides, which supplement your written SBA policies and procedures, is a good idea to take the “curves out of the road” of your internal process and can make government lending more efficient and “doable”. We have developed (and continue to develop) several such job aides for our clients (eligibility templates, flow charts, checklists, cheat sheets, indexes, etc.) . If this is something you would like assistance with, please let us know and we will put together something customized for you and your team.
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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