The 2024-2025 Fiscal Year is almost here. At JRB, we begin looking for new federal notices affecting SBA loan programs right after Labor Day. In addition to SBA notices, other agencies issue notices that have an impact on SBA lending. The U. S. Department of Labor is one. Each year the Department issues its list of Labor Surplus Areas (LSA’s). The determination is effective October 1 through the following September 30. The new LSA List has been published.

Although areas designated as LSAs have a major impact on SBA lending, they’re often not understood by SBA lenders, and so are little used. We’ve worked to end all that over the past two years with our LSA eBulletins. Here goes:

LSAs are townships, cities, counties or states with an average civilian unemployment rate during the previous two calendar years of 20% or more above the average unemployment rate for all 50 states and Puerto Rico during the same 24 months.

Almost all SBA lenders know of SBA’s two ways of determining whether a business is small: The “Industry Size Standard” and the “Alternative Size Standard.” Yet occasionally I run into an SBA lender who still refers to 7(a) and 504 standards, but those disappeared soon after the Flintstones moved out of Bedrock.

Today, a business may not qualify as “small” under the Industry Size Standard, but it may qualify under the Alternative Size Standard. The former is rather complicated. The Alternative Size Standard is much simpler:

“The maximum tangible net worth of the applicant and its affiliates may not exceed $15 million and the average net income after Federal income taxes (excluding any carry-over losses) for the 2 full fiscal years before the application date may not exceed $5.0 million.1”

Now, the very next clause on the same page of the SOP1 is often overlooked by SBA lenders:

“The applicable size standards are increased by 25 percent when the Applicant agrees to use all of the financial assistance within a labor surplus area.”

Yes, it’s a good deal! If you’re in an LSA Area, you want to lend. Plus, you’re fulfilling a Public Policy Objective: No need 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. If your project is in an LSA, that’s good enough. Another plus: Once a project is determined to be in LSA, it doesn’t  lose eligibility no matter if the unemployment rate drops significantly.

 Check out the List: We’ll send you the latest copy. Contact JRB and request the LSA List.

I’m anticipating lender questions. Always happy to hear from you …

Richard Jeffrey
Senior Associate, CDC/504 Program
richard@jrbrunoassoc.com
www.jrbrunoassoc.com

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