As we wait for the long awaited technical updates to SOP 50 10 7, we’ve been relying on the 5/10/2023 version. And we’ve been making do, taking the still applicable parts of SOP 50 10 6, supplementing them with SBA policy notices, and checking with our new friend Mr. Do-What-You-Do. While the industry is mostly aware of major changes such as those affecting affiliation and credit-elsewhere requirements, I’m sure you’ll agree that it’s been an interesting time.
Wait! Is something missing? Now is a good time to scan through the new SOP for changes you might have missed. One thing that’s missing might have escaped your attention: It’s the change to policy regarding “indirect marijuana businesses.” Society seems to be increasingly tolerant of marijuana, so we might have expected some change to the SOP. But federal law hasn’t changed. Since the sale of marijuana is still illegal, lending to a business that sells it is still prohibited (SOP 50 10 7 p. 18).
What has changed is that lending to a business selling pipes or paraphernalia that might be related to marijuana is no longer prohibited as it was in SOP 50 10 6, pp. 144-145. Yep. The prohibition is all gone. In short, a business such as Dobie’s Doobies may now be an eligible borrower. If Dobie’s sells the paper, SBA can finance the business. But if Dobie’s sells the marijuana, SBA will not finance them. They’re violating federal law.
While that might not open tons of new lending opportunities for you, the previous prohibition was far reaching and included businesses that provided services or sold equipment to testing services, or installed grow lights or hydroponic equipment to a Direct Marijuana Business or even provided legal or accounting services to businesses “associated with.” a Direct Marijuana Business (SOP 50 10 6 pp. 144-145). During the life of their loans, SBA borrowers were prohibited from leasing to businesses that could be supporting or facilitating any illegal activity “such as a marijuana dispensary” (SOP 50 10 6 p. 166).
That’s all changed. Our Recommendation. If your loan policies or loan agreements incorporated these requirements, you should consider whether you wish to retain them. Of course you may choose to keep them but if so, you’ll have to enforce them equally for all your SBA borrowers. And importantly, you’ll no longer be able to point to SBA as the reason for these requirements in your policy. You’d be on your own. Forewarned is, as they say …