Well, it looks as though I’ve poked the SBA lender bee hive, and the lender bees are all a-buzz about Labor Service Areas. One lender told me that he was just with a bunch of other lenders who were all excited about “something called LSAs.” He asked what it’s all about.

Let me tell you, I was pretty excited when I first learned about LSAs too. I felt I’d discovered the Dead Sea Scrolls.

So, here’s the scoop. Each year, effective October 1, the U.S. Department of Labor issues its list of Labor Surplus Areas. These are states, counties or municipalities that have a two-year unemployment rate higher than an annually established threshold. The List was just published, and the threshold for FY 2024 is 6%. If an area is on the List, it’s an LSA. If not, it’s not.

The reason SBA lenders are talking about LSAs is that SBA’s size standards, both industry standards and alternative standards are increased by 25% when the Applicant agrees to use all of the financial assistance within a Labor Surplus Area. So to the revenue and employee ceilings listed in 13 CFR § 121.201, add 25%. For example, using industry standards:

  • Cheese manufacturers using SBA loans in an LSA are small if they have less than 1,562 employees (1,250 + 25%).
  • Finish carpentry contractors using SBA loans in an LSA are small if they have revenue of less than $23.75 million ($19 million +25%).
  • Using the alternative standards, both entities are small if they have a tangible net worth of $18.75 million and two full years of an average net income not exceeding $6.25 million.

Importantly, for 504 loans, an SBA project located in an LSA fulfills a Public Policy Objective. Therefore it doesn’t have to create or retain one job for every $90,000 of debenture or whatever the current metric is, or facilitate minority or women owned businesses, or be a manufacturer or exporter, and so on. If the project is in an LSA, that’s good enough.

Can a project’s LSA determination be rescinded? Nope. Once it’s determined that a project is in an LSA, that determination is irreversible. So what if the day after SBA approves the loan, some big old manufacturer moves to your community and creates a zillion new jobs? That’s nice. Even nicer, it has no impact on your loan approval. Don’t look back. You’re approved.

What’s more, if your community was not an LSA as of October 1 but then the biggest furniture manufacturer in town closes its doors and your community’s unemployment rate shoots up over the threshold or is projected to be  over the threshold for each of the next 12 months, it may qualify for  the “Exceptional Circumstance Consideration Provision” that allows a State Workforce Agency to submit a petition to ask for inclusion on the LSA list after it is published.

So under the Exceptional Circumstance Provision, adverse economic changes like a major plant closing or events like natural disasters within a civil jurisdiction or metropolitan area, states may  ask for inclusion on the LSA list. Even after the list is published, an area can be added to the List if that area’s unemployment rate was below the qualifying unemployment rate for the referenced period.[1]

And you don’t have to wait until the unemployment rate exceeds the threshold. You may qualify if your area’s unemployment rate will be greater than or equal to the Labor Surplus Area qualifying unemployment rate for each of the three most recent months or projected to be greater for each of the next 12 months.

Want the List? Send me an email. Now that’s what I’m talkin’ about!

Richard Jeffrey, Senior Associate
Head Underwriter

[1] State Workforce Agencies may submit petitions in electronic format to wright.samuel.e@dol.gov , or in hard copy to the U.S. Department of Labor, Employment and Training Administration, Office of Workforce Investment, 200 Constitution Ave NW, Room S-4231, Washington, DC 20210. Attention Samuel Wright.