Talk about a wake-up call. It’s 5 o’clock in the morning and my phone rings. It’s Cynthia calling. She’s a new loan officer with her CDC. Cynthia got straight to the point:

CYNTHIA. Richard, sorry to call you so early. I tossed and turned all night, worried about how to complete SBA Form 1244 for an SBA 504 loan. Here’s my problem: The business is owned by a whole bunch of folks. I’ve got two people who each own 22%; three who each own 19%; and seven people who each own 3%. And each owner is married. I am trying to figure out who has to provide personal financial statements and tax returns. Can you help me?

ME (Yawning). Cynthia, your CDC is on the East Coast, and I’m in Colorado. On Mountain Time. So 7 a.m. for you is 5 a.m. for me. I’ll get a cuppa Joe – or two – and call you back after the sun comes up. Meantime, grab your copy of SOP 50 10 7.1.

Fast forward: Good morning, Cynthia. Now, to help you out: Please go to page 319 of the SOP where the contents of a 504 application are listed. Take a look at the very first item. Regarding Form 1244, it states that the application “… must list all Beneficial Owners of at least 20% of the Applicant, and the Beneficial Owners of at least 51% of the Applicant.”

CYNTHIA. Sure does. Now what the heck does that mean?

ME. Now, turn to page 358 where it defines a Beneficial Owner as a person who owns a concern, directly or indirectly. Their ownership interest may even be held by another entity.

ME. Let’s say they have an ownership interest in an entity that has an ownership interest in an applicant. Cut to the quick! They have a beneficial ownership interest in the applicant. And if they own 20% or more of either the EPC or OC, the SBA requires they be listed on the 1244. And that means we need a copy of the last federal tax return they filed.

CYNTHIA. Not two or three years of personal taxes?

ME. Now, flip to page 320 where it states that just the one return along with a personal financial statement and a personal credit report are required.

So we know we must list the two people who each own 22%. That covers ownership of 44% of the applicant. But we cannot stop there because the SOP requires that we list the Beneficial Owners of at least 51% of the applicant. That means we need to list at least one other owner.

CYNTHIA. So we must find at least one other owner to guarantee the loan?

ME. Nope. Just because we are required to list an owner doesn’t mean that the owner must guarantee the loan. Only those who own 20% or more are required by SBA to guarantee. Of course, the CDC can add others it deems necessary. And if other owners wish to guarantee the loan, there are pens awaiting them. But the SOP does not require their guarantees.

CYNTHIA. Thanks. That clears up a lot.

ME. You’re so welcome. I usually end these calls by saying, “Call me any time.” For you, that means after sunrise in Colorado! Also, it’s nice to speak with you, but you can always contact me thru JRB’s website, Contact JRB.

Richard Jeffrey, Senior Associate
CDC/504 Program