What’s that definition of insanity? “Doing the same thing over and over again but expecting different results.” That statement is attributed to Albert Einstein. I read the other day that Einstein never said it. Well, not exactly. Since the attribution is repeated over and over again, insanity might be crediting that quote to Einstein over and over again.

I kind of felt that way last Monday when I was dealing with what seemed to be an endless stream of  questions about signatures in the 504 application process. Recapping just three of many:

QUESTION #1.  A prospect was buying a business and thought it would make a great 504 loan. But there was a catch: Although the owner of the seller wouldn’t provide business tax returns, the CDC asked me to explain how sales tax records could be used in lieu of financial statements.

I told them frankly that they might be dead in the water without the tax returns. Yes, I know page 72 of SOP 50 10 7 allows sales tax records, but that’s when the project involves the acquisition of a division or a segment of an existing business, which a 504 project doesn’t do. The lender would have to obtain and verify the seller’s business tax returns or a sole proprietor’s Schedule C.

QUESTION #2. Another prospect had provided copies of a signed personal financial statement, but the CDC required an original signature. The CDC’s loan policy might require it, but SBA does not require original signatures. It’s right there in SOP 50 10 7, on page 311:

“Due to the certification on SBA Form 1244, original signatures from the Applicant are not required on the following:

Balance sheet, income statement, and Federal income tax returns (business or personal); ii. Aging of the accounts receivable and accounts payable listed; iii. Financial statements and/or Federal income tax returns for affiliated entities and subsidiary businesses; and SBA Form 413, Personal Financial Statement or CDC’s equivalent.”

QUESTION #3. A CDC called to say that it had to postpone funding a loan because the reliance letter for the environmental report was not signed. That’s something SBA will be looking for in the loan closing. In fact, not only is the letter to be signed by the environmental professional who provided the report, there must be no change – not even one –to the letter.1 So, CDC: Have them sign it, scan it, and send it back to you for submission to SBA.

Asking the same question over and over again and expecting a different answer might just be the definition of insanity, no matter who said what. But answering different questions? That’s what I call supporting 504 lenders. Bring ’em on!

Richard Jeffrey
Senior Associate, CDC/504 Program

1. “(Note: The Environmental Professional must always sign this letter above. If the Environmental Professional is employed or retained by an Environmental Firm, then an authorized representative of the firm must also sign below).” SOP 50 10 7 pg. 365