We’re well into Fiscal Year 2022, with loan reviews in full swing. At JRB, we’re certainly doing our share, and have been over the past couple months. So I thought it might be good to talk about questions I’ve heard about SBA Form 159, the Fee Disclosure and Compensation Agreement * As you might remember, this Form was revamped in September 2018, combining requirements for 7(a) and 504 loans. SBA Information Notice 5000-18012 spelled it out:
“SBA Form 159 is used by the 7(a) and 504 loan programs to collect information about Agents, the services they provide, compensation rendered, and who paid the compensation.”
Who completes and signs SBA Form 159?
As I’ve worked on clients’ loan reviews, I’ve had questions about whether the SBA lender should prepare Form 159 if the lender paid a broker’s fee. Answer: The SBA lender and the applicant prepare and sign the form if the lender paid the agent/broker, regardless of whether the applicant or the SBA lender paid the agent. If the applicant paid the agent, the agent must also sign the Form.
Best Practice. Some lenders have asked whether a broker compensated by the lender should sign Form 159. Quick Answer: While it seems that brokers aren’t required to sign, SBA encouraged a lender I worked with to have the broker sign the form as a best practice even if the lender paid the referral fee. So when in doubt, get the broker to sign. When SBA reviews the file, it’s never a good look to have signature lines without signatures!
Form 159 Fee Disclosures. Here’s a rundown of fees that must be reported and fees that aren’t required to be disclosed:
What fees must be disclosed?
- loan packaging services performed by the SBA lender or a third-party entity or individual, e.g., a Lender Service Provider (LSP) for 7(a) loans or a third party entity or individual operating under an SBA-approved Professional Services Contract for 504 loans who is acting as a referral agent or packager employed by the applicant;
- fees for financial statement preparation specifically for the loan application;
- fees for Consulting, Broker, or Referral Services paid by the applicant or the SBA lender (or to a Third-Party Lender for 504 loans).
What doesn’t require disclosure?
- fees a borrower pays an accountant for services performed in the normal course of business;
- attorney fees in connection with the closing of a 7(a) loan or a 504 loan;
- appraisal fees for a state-certified or state-licensed appraiser employed by the SBA lender to appraise collateral;
- fees paid to an LSP performing services for the lender under an SBA-reviewed LSP Agreement for a 7(a) loan or loan services performed for a CDC under an SBA-approved Professional Services Contract for a 504 loan;
- fees an SBA lender paid to an individual to perform a business valuation in connection with the loan;
- fees an SBA lender paid to an environmental professional to conduct an environmental assessment of the collateral;
- Commissions paid to a real estate agent for the sale of real estate.
Don’t let SBA Form 159 hang you up. On review, we can see how it protects applicants and SBA lenders. SBA Form 159:
- provides transparency for the applicant and the SBA lender regarding any fees charged in connection for the packaging and preparation of an SBA loan by any third party or the SBA lender;
- requires supporting documentation to include an itemization of work performed and the hourly rate and time spent on each activity if the fees exceed a particular threshold (currently $2,500);
- specifies that an agent may not be compensated by the SBA lender AND the applicant for the same service, protecting the applicant and the lender from being double charged;
- clarifies that if the SBA lender has employed an agent to perform approved services, that the expense CANNOT be passed on the Applicant.
And Remember! Agents employed by applicants or SBA lenders in connection with SBA loans must be verified through the System Awards Management’s Excluded Parties List System (SAM). Make it a practice to check this database as soon as possible where applicable.
As we say at JRB: Document. Document. Document. And of course keep the original signed SBA Form 159 in the file along with all documentation.
*Most current SBA Form 159 on SBA’s website. Quick Reminder: Remember to send Form 159 to SBA through CAFS by fax or email.