First of a two-part overview of this Notice. Stay tuned for Part 2 in the new year.
Want some great holiday reading? How about a 14-page SBA Procedural Notice? My first reaction on receiving Procedural Notice 5000-862692 was to reach for the Alka Seltzer. Long, complex notices tend to produce heartburn.
After all, nobody expects a notice like this to be easily digested and readily implemented. Yet because it affects both 504 and 7(a) loan programs, and is effective immediately, I made a pot of herbal tea and went to work.
First of all, this notice isn’t as daunting as it appears. It’s really a “two-fer.” Part 1 deals with changes and updates to various procedural guidelines for SBA 7(a) and 504 loan programs. Second, and in a major change that will affect clean energy projects, this notice clarifies that both 7(a) and 504 loans can be used with C-PACE financing. At JRB, we’re reviewing this clarification and will provide a thorough review, AKA Part 2 after the first of the year.
Changes and Extensions to Procedural Guidelines. Several previously published notices are extended for two years or until the next SOP 50 10 update:
• Notices affecting borrowers in leased space;
• 7(a) equity requirements for complete buyouts and partial change of ownership;
• 7(a) loans to refinance same institution debt;
• Loan maturity for 7(a) loans for a complete change of ownership;
• Adoption of the alternative size standard for 7(a) loans;
• Removing the cap on energy public polity loans;
• Updating former “912 issues.”
Included too, are changes to 504 Debt Refinancing projects (which in turn caused several procedural notices related to 504 Debt Refinancing to be rescinded). These changes were extended for another two years, or until a new SOP is issued.
If you’ve been an SBA lender for the last year or two, it’s likely, you’re familiar with these changes and might relax knowing they have been extended for a while.
Updates Affecting 7(a) and 504 Loans. The Notice specifies that, if the landlord will reimburse the borrower for the cost of improvements, the SBA lender must apply the same procedures to reimburse the borrower for the cost of improvements as it does for similarly-sized, non-SBA guaranteed loans. The ubiquitous “Do What You Do.”
Further, spouses with no ownership interest in the business are not required to disclose their own personal financial resources unless they’re co-owned with the borrowing spouse. Methods other than tax transcripts for tax verification of financial data in small projects are now allowed.
The notice also allows extended loan maturity options for changes of ownership; updates requirements for placing liens on vehicles; clarifies requirements for changes of ownership and business valuations; simplifies bid requirements for DIY construction: revises language for clarity and multi-step ownership changes; and issues guidelines for refinancing merchant cash advances, factoring agreements, and non-amortizing credit facilities.
And this notice updates certain sections of the SOP affecting notification requirements for refinancing existing 7(a) or 504 loans: changes the Appraisal requirements for non-arm’s length transactions and codifies alternative sources for verifying seller’s revenue when IRS data is unavailable.
Ready? Read!
Richard Jeffrey
Senior Associate
richard@jrbrunoassoc.com
www.jrbrunoassoc.com
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