I’ll bet that when you saw the title of SBA’s recent Procedural Notice 5000-835230, effective 7/29/2022, you didn’t dive right in: “Guidance on 504 Appraisal Review to Update SOP 50 10 6 and Authorizing CDC Closing Counsel to Confirm Franchise Closing Documents Conform with SBA Franchise Procedures and the SBA Franchise Directory” doesn’t beg you to read on. So if you missed it, I don’t blame you.

Could a Notice with that title run on for pages ad infinitum? In fact, I often think that the only person who reads these documents in their entirety is the SBA staffer in charge of proofreading the Agency’s notices. Well, and me, of course. But then I begin every work day by reading the daily edition of The Federal Register. Turns out, this Notice is just two pages long, but it’s an important two pages:

Notice 5000-835230 revises the procedures detailed in SOP 50 10 6  (Part 2, Section C, Chapter 1, E. 2. b.i.b)i) pg 488), stating that if the appraised value of the commercial real estate is less than 95% of the estimated value, the debenture must be reduced or you have to get additional collateral or additional borrower contribution. This Notice reduces the 95% to 90%.

No, that doesn’t mean that the 504 program is now a 90% LTV program. The only time LTV comes into play for 504 loans is when you have a Refi without expansion. (SOP 50 10 6 Section C. Chapter 1, C. d. pg. 466) Now, if you have a project with an estimated cost of $1 million, but the appraisal comes in short at, say, $900,000, you do not need to adjust the loan or get additional collateral.

It’s not a huge change, but it benefits some deals, so we’ll take it.

Yet you may want to make sure that your closing attorney is aware of the rest of the Notice. Check out that title! Instead of submitting all the Franchise Closing Documents to District Counsel prior to funding, CDCs must now submit them to CDC Closing Counsel, who will certify to the legal sufficiency of not just the loan closing documents, but the Franchise Closing Documents.

Bottom line: CDC Closing Counsel may increase its fees to cover its increased workload. Making your closing attorney aware of this change will eliminate those nasty closing surprises.

Richard Jeffrey
Senior Associate, CDC/504 Program
Head Underwriter