Keeping track of changes in SBA lending programs is one of the more interesting things we do at JRB.  It’s one important way we’re much more than back office support for our clients. They expect us to advise them of regulatory and program changes and assess how they’ll affect their SBA loan programs.

Take the Rural Initiative Pilot Program. Read all about it in the Federal Register (83 FR 34021-34022) where it was posted on July 19, 2018. In a nutshell, the Rural Pilot allows a CDC to lend in a community defined as “rural” anywhere in the region where the CDC is incorporated. The program waives the restrictions on the authority of CDCs to make 504 loans outside their areas of operations.

What does this mean for SBA lending? Under the Rural Pilot, a CDC based in Missouri can make loans in any rural area in Federal Region VII, say Iowa.  And vice-versa: A CDC based in Des Moines, Iowa can make a loan in any rural area in Missouri.

Where’s the catch? The Missouri CDC might also have the authority to make loans anywhere in Arkansas, which is in Region VI.  But because the CDC is based in Missouri (Region VII), the ability to make loans in Arkansas doesn’t give them the ability to make loans in rural New Mexico. Why? Because New Mexico is in Region VI and the Missouri CDC is headquartered in Region VII.

Make sense? It’s complicated! Unlike a Multi-State CDC, a CDC making a loan under the Rural Pilot won’t be required to have a separate loan committee for the state where the rural project is located. But to close the loan, they’ll be required to have an attorney licensed to practice in that state.  And they won’t be able to use Expedited Closing unless that attorney is an SBA Designated Attorney licensed in the state where the 504 project is located. Finally the CDC won’t have to “demonstrate” that it can adequately fulfill its servicing and other program responsibilities before making the rural loan. But of course, it will have to do that!

One last thing from SBA. You know that SBA has a definition of “Rural Area” that it uses for determining if a project meets a 504 Program Public Policy Goal.  That definition is still valid. But to determine if an area is in a rural area for the purposes of the Rural Initiative Pilot Program, SBA uses a different definition, based on the US Census data.

For the SBA Rural Lending Initiative only. “SBA relies on data from the US Census Bureau to determine whether the small business applicant is located in a rural or urban county. Loans with a project address in a county the US Census Bureau has defined as – ‘Mostly Rural’ or ‘Completely Rural’ will be treated as rural loans. Loans with a project address in a county defined as ‘Mostly Urban’ will be treated as urban loans. View the Census Bureau’s County Classification Lookup Table or read more about their urban-rural classification.”

The Rural Initiative Pilot Program is effective until July 19, 2020. Take advantage!

Richard Jeffrey
Associate, CDC/504 Programs