Final rules for SBA regulations have been falling lately as frequently as April showers. And just as April showers bring May flowers, the final rules taking effect in mid-May will ultimately produce an updated SOP containing procedures to implement the regs.

The two most recent final rules are projected to significantly reshape the scope of SBA lending. We covered the first, published in the Federal Register on April 10, in last week’s eBulletin. It detailed many changes to affiliation and other regulations for SBA’s 504 and 7(a) programs effective May 11. The second, published in the Federal Register on April 12, involved Removal of the Requirement for a Loan Authorization and the Moratorium Rescission on Small Business Lending Companies, effective on May 12.

No more Loan Authorizations? You are very close to having written your last Loan Authorization. So far this has resulted in more “GASPS” than any of the new items. I know it’s shocking to think of it being eliminated entirely, but many of the details in Authorizations come from Credit Memos or entries made in the underwriting process. Therefore, they are already captured electronically. Although beginning May 12, “Authorization” will be an anachronistic term (except for loans approved by SBA prior to that date), SBA will continue to provide a means for memorializing each loan’s terms and conditions.

Small Business Lending Companies. What are these you might ask? SBLCs are non-depository institutions authorized by SBA to only make loans pursuant to 7(a) loans and loans to Intermediaries in SBA’s Microloan program. And since SBLCs can make loans, they can also be the TPL for 504 loans.

Over the years SBA has authorized a dozen or so SBLCs, granting them licenses to make SBA loans. I believe there are 14 SBLCs to date. They are not regulated by state regulatory agencies, FDIC or the like. They are supervised by SBA. [1]

On a cold, snowy January day about 40 years ago SBA imposed a moratorium on licensing new SBLCs. Now the Agency has removed that moratorium, and will admit three new SBLCs in the first year after the rule becomes effective. SBA is also creating a new type of SBLC, a “Community Advantage SBLC” to provide financing on non-predatory terms in those markets where there are capital market gaps. All current CA Lenders, whether organized as for profit or not-for profit entities, that participated in the CA Pilot Program will be able to be licensed as CA SBLCs.

However, new CA SBLC applicants must have nonprofit status to qualify. CDCs, among other entities, may be licensed as Community Advantage SBLCs without having to create a separate entity. Further details (market requirements, loan sizes, minimum capital requirements, and loan loss reserve requirements) for CA SBLCs remain to be determined.

At JRB, we’re on the alert and will keep you updated over the coming weeks and months.

Richard Jeffrey
Senior Associate, CDC/504 Programs

[1] SOP 50 10 6 page 51.