When it comes to music, I’m by far more Classical than Country. Yet I couldn’t resist giving a Country Music twist to this situation a lender asked me about recently. There’s an SBA lesson here. I promise:

The two underwriters were arguing again. Here’s the situation: Don’s Fine Foods had applied for an SBA loan to expand its produce section. Don seemed to have provided a very complete package, He certainly should have, as he had previous experience with an SBA loan. But that previous SBA loan was causing an issue. Diane stormed up to Jolene’s desk and shook her finger accusingly.

DIANE. Jolene, Jolene, Jolene, Jolene! Your Credit Memo didn’t mention that Don still owed SBA on his previous loan. Now, we got a screen out and I have to re-underwrite the whole loan because of that.

JOLENE. Oh, Diane, I’m so surprised. I promise I didn’t know he still owed SBA money. In fact, he said he paid off that loan a long time ago See, here is his Schedule of Prior Government Financing. There’s the old SBA loan, and Don says he owes $0.

DIANE. Well, what’s with that?

And she picked up the email from SBA to make sure she read it correctly. Just then, Dolly, the chief underwriter walked in.

DIANE. Hello, Dolly! We’re at odds, here. Please settle this issue so we can get on with our day.

DOLLY. Let’s see SBA’s email. Now hold on! The email says that SBA settled the debt. That wasn’t the same thing as paying it off. When SBA settled, the outstanding balance was $118,000. SBA settled for $100,000 so there was an $18,000 loss that qualifies as a prior loss to the government. So before Don can apply for another SBA loan, he must pay the government $18,000 plus charges. You both know the rule: A loan applicant cannot have caused a prior loss to the government.

JOLENE. Wait a minute! What about a PPP loan? We’ve got tons of borrowers with PPP loans that have been forgiven. If a loan gets forgiven, isn’t that a loss? Doesn’t it have to be repaid before the applicant can apply for another SBA loan?

DIANE. Nope. Now I understand. Forgiveness wipes away that debt. These issues seem to be the same but they’re not. I see how you could get confused.

JOLENE. Oh, Diane! I promise I didn’t know the difference, and now I’ll know how to handle this issue in the future. Glad you understand how this happened.

Well, this little saga might not be ready for prime time at the Grand Ol’ Opry, but you get my drift.  I love answering questions from y’all. Keep ’em comin’! And for assistance with your 504 loan program you know to Contact JRB.

Richard Jeffrey
Senior Associate, CDC/504 Programs,
JRB Chief Underwriter