True or False? Archaeologists have found SBA’s very first SOP on Mount Ararat. Of course that’s false. It’s stuff and nonsense. I would know. I was there when SBA issued the first SOP. Well, almost.

I came across a copy of that first SOP a few years ago – all 13 pages of it – in Long Beach, California. Over the years, many things have changed: There are now 590 PAGES in SOP 50 10 6. It’s fun paging through that ancient copy and discovering how things have changed since that first SOP was issued. Some requirements have died entirely and others have been modified. Yet one requirement has endured through the ages: Credit Available Elsewhere.

From the beginning, SBA required demonstration that an SBA borrower couldn’t have obtained needed capital without SBA support. Believe me, I had nightmares about having to testify before the Senate Small Business Committee as to why I made an SBA loan to the richest man in the country. Not quite.

Still Looking Elsewhere. Regulations have changed since those days, yet the rules for Credit Elsewhere have been consistent since at least March, 2016, when SBA Information Notice 5000-1376 reminded us: “SBA requires lenders to identify, discuss and retain in each credit file the specific credit weaknesses(s) that substantiate this ‘credit unavailable elsewhere’ eligibility requirement.” SBA then published a list of specific credit weaknesses illustrating the point.

Believe it or Not. SBA lenders really liked the list. Soon they developed loan applications listing the five credit weaknesses. Relationship managers were advised to “Choose one” “Circle it in red.” “And that is your “Credit Not Available Test.”

Lenders printed flyers listing the five credit weaknesses, disseminating them throughout their commercial lending offices. Soon every lender and its referral source had dozens of flyers. Some lenders hired hawkers to stand on street corners crying “Get your red-hot Credit Elsewhere List here!” Excess capital was deployed for neon signs flashing the “Five Credit Weaknesses” atop skyscrapers, and plans were underway to include the five points in the next State of the Union Address.

Except, well…. You get my drift. SBA’s concept was that a lender would review its Credit Policy, identify a section of the policy that required SBA assistance for a specific loan, discuss why that was a credit weakness and memorialize it with a memorandum or at least a note to the loan file.

And that is still what SBA wants to see: No neon lights. No street barkers. Not even red circles. Just a loan file that identifies what section of conventional credit policy doesn’t allow the loan to be made, and a discussion of the credit weakness to insert in the loan file.

Credit Elsewhere. Looks like we’ll have it ’til the next millennium.

Richard Jeffrey
Senior Associate, CDC/504 Program
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