The first SOP I ever reviewed was thin, about 24 pages. We’ve had at least 16 versions since then, with new SOP 50 10 5 (K) coming in at a whopping 426 pages including the appendices. I get excited every time a new SOP is issued. As Forest Gump said, “You never know what’s in it until you open it up.” Let’s open it up.
We have until April 1 to implement the new SOP. Number of pages aside, many changes are straight forward or delete archaic references, and many are organizational in nature and primarily affect CDCs. Here’s a quick recap:
- CDCs are still required to have an Independent Loan Review, although this can now be done over two years, not annually.
- PSA Agreements between two CDCs cannot extend for more than five years and must have a transition phase leading to termination.
- Good news. You might be able to thin out your files given the new guidance for maintaining hard copy files. (See SOP 50 10 5 (K), Subpart A. Chapter 3: Certified Development Companies, B. 8. f. pg.56.)
- Loan committee members aren’t required have to have fingerprints taken unless they have answered “Yes” to the “questionable character” questions on Form 1081.
- “Opportunity Zones” have been added as a Special Geographic Area, increasing the average new job creation requirement to one for every $85,000 in those Zones. (FYI: Interactive maps of Opportunity Zones are on various websites, including https://eig.org/opportunityzones )
- The rules for “Green 504s” are somewhat tightened. There is no change for projects that replace or retrofit an existing building. Energy savings of 10% must be demonstrated. But for other projects (think new business), the minimum threshold for energy generated by renewable energy sources is now 15%, no longer 10%,
- A program change that will be substantially helpful is the elimination of required interim financing if the borrower is to occupy the building immediately. But hold on! The necessary forms haven’t been issued yet. Until then, it’s Interim Financing as usual. When the forms are issued, we’ll let you know.
- Specific evidence is now required to certify that project costs were paid in full and in accordance with the 504 Authorization. The required evidence is listed in 50 10 5 (K), Subpart C, Chapter 6: Closings, III. A. pg. 350. The list of evidence was not included in 50 10 5 (J). The list in the new SOP is handy to use even for loans authorized under a previous version.
Some changes affect 7 (a) and 504 programs. These address a range of new requirements affecting ETran, changes of ownership and adding a franchise to the SBA Franchise Determination list. Over the coming weeks JRB eBulletins will analyze major SOP changes with a focus on the 7(a) program.
In the meantime, open up that “box of chocolates” and go through the assortment!
Associate, CDC/504 Programs