SBA Express Loans
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Transcript of SBA Express Loans
SBA Express LoansSOP 50 10 6
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Eligibility that applies to ALL 7(a) loans
1. Operating Business2. Organized for Profit
3. Located in the United States (including territories and possessions)
4. “Small” under SBA Size Requirements5. Demonstrate the Need for Desired Credit
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Ineligible Businesses • Non-profit businesses
• Businesses engaged in lending
• Passive businesses
• Life insurance companies
• Businesses located in a foreign country or owned in whole or in part by undocumented aliens
• Businesses selling through a pyramid plan
• Businesses engaged in legal gambling activities
• Businesses engaged in any illegal activity
Some of these may be eligible under limited circumstances, please see SOP 50 10 6, section starting on page 141 for more details.
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Ineligible Businesses
• Businesses that restrict patronage or have discriminatory hiring practices
• Government-owned entities (excluding Native American Tribes)
• Loan proceeds for religious activity
• Businesses engaged in SBA loan packaging
• Equity interest by SBA lender or associates in applicant concern
• Businesses providing prurient sexual material
• Prior loss to government
• Delinquent federal debt
• Business primarily engaged in political or lobbying activities
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Ineligible Businesses
• Speculation
• Small business lending company (SBLC)
• Coastal Barrier Islands
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Other factors that impact eligibility
• Character Determinations
This is determined by the SBA form 1919 that is completed by the borrower at time of application
Discussion starts on page 152 of the SOP 50 10 6
• Businesses owned by non-US citizens
This is also determined by the SBA form 1919 that is completed by the borrower at time of application.
Discussion starts on page 157 of the SOP 50 10 6
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Uses of Proceeds(page 161 of SOP 50 10 6)
• Acquire land
• Improve a site• Purchase one or more existing
buildings
• Convert, expand or renovate one or more existing buildings
• Construct one or more new buildings• Finance a lender’s OREO
• (the six uses outlined above are subject to the Occupancy and Leasing Requirements described on page 164 of the SOP 50 10 6)
• Acquire (by purchase or lease) and install fixed assets
• Refinance certain outstanding business debts
• Inventory
• Supplies
• Raw materials (including WIP)• Working capital
• Revolving lines of credit
• Farm enterprises
• Change of ownership
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Restrictions on Uses of Proceedspage 163 of SOP 50 10 6
• A purpose that does not benefit the applicant small business
• Payments, distributions, or loans to an associate of the applicant
• Refinancing debt owned to an SBIC or a New Markets Venture Capital Company
• Floor plan financing
• Investments in real or personal property acquired and held primarily for sale, lease, or investment
• Payment of delinquent taxes
• To finance the relocation of the applicant out of a community if there is a net reduction of 1/3rd of its jobs
• To pay any creditor in a position to sustain a loss causing a shift to SBA of all or part of a potential loss from an existing debt.
• Any use restricted by 13 CFR 120.201, 120.202 and 120.884.
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Other Core Requirements for 7(a) Lending
• Ethical Requirements
• Debarment, Suspension, and Exclusion (SAM.GOV)
• 7(a) Loan Program Fees
• 7(a) Loan Program and Use of Agents
• Guaranties
• IRS Tax Transcript/Verification of Financial Information
• Insurance requirements
• Historic Properties
• Environmental Policies and Procedures
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Beginning on page 169 of SOP 50 10 6
SBA Express Loans
• Lenders may not use SBA Express for any pilot program without SBA authorization
• Disabled Assistance Loans are not eligible for Express financing• Loans to an ESOP are not eligible• Loans to a cooperative are not eligible• Loans involving a Single Employer 401(k) plan, including a ROBS plan
unless the only investment held by the 401(k) plan is the equity in the applicant business are not eligible
• Loans involving a Multiple-Employer 401(k) plan are not eligible• Pollution Control Program Loans are not eligible• CAPLines program is not eligible
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Restrictions on SBA Express Loans (page 275 of the SOP 50 10 6)
Express Loan Terms and Conditions
• Maximum Express loan amount: the maximum aggregate loan amount is $350,000 (temporary cap of $1,000,000 expires on 12/31/2020)
• Maximum loans to businesses with affiliates-affiliates are combined as if they are a single business
• Maximum loan amount for multiple loans approved within 90 days of each other (the “90 Day Rule”)-this applies both to the maximum gross amount limit of $5,000,000 as well as to guaranty fee calculation.
• Maximum SBA Express guaranty percentage is 50%
• Currently there is a guarantee-fee waiver for veterans and their spouses
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Page 276 of SOP 50 10 6
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Express Loan Maturitiesmaturity date must be established in the note and cannot exceed the period of the guaranty
• Lines of Credit
• May not exceed 10 years including the term-out period
• Revolving loans of more than 12 months must be structured with a term-out period that is not less than the draw period.
• May be established as renewable each year. Lender may not charge a renewal fee.
• Revolving loans with maturities of 12 months or less do not have to have a term-out period, but be very careful here
• Term Loans
• Working capital or inventory loans and the financing of intangible assets must not exceed 10 years
• If IRS asset class useful life supports 15 years or more, the loan term for equipment, fixtures, or furniture loans may be 15 years
• RE loans may not exceed 25 years (unless there is a construction component)
• TI loans may not exceed 10 years (unless there is a construction component-that cannot exceed 12 months)
• Mixed purpose loans can either blend maturity or go with majority of loan funds
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Interest Rates$50,000 or less (gross loan amount)-rate cannot exceed Prime + 6.5% (variable)
More than $50,000-rate cannot exceed Prime + 4.5% (variable)
• Fixed* or variable
• Prime rate in effect on first business day of the month
• Lender may use the same base rate of interest it uses on similarly-sized non-SBA loans, as well as its established change intervals, payment accruals, etc.
• Frequency of change
• Range of fluctuation• Fixed rates are as follows: $25,000 or less up to P + 8; $25,001-$50,000 up to P + 7;
$50,001-$250,000 P + 6; and over $250,000 P + 5
• Ceiling and floor (if any)
• Default interest rates if these are charged for similarly-sized non-SBA loans (as long as it does not exceed SBA maximum)
• Amortization-SBA does not allow balloon payments
• Fixed and variable rate combinations are allowed
• Interest rate swap contracts are allowed
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Credit Standards
• Lender must wait a minimum of 12 months before approving an Express loan for any SBA application that has been submitted to the LGPC (Loan Guaranty Processing Center in Citrus Heights) that has been: withdrawn by the Lender; screened-out, or declined. However, any application that did not receive an acceptable credit score under the 7(a) Small Loan procedures (currently 155) may be withdrawn prior to submission through E-Tran or SBA One and may be processed under SBA Express.
• SBA Express loans are processed only via an SBA Express Lender’s delegated authority. The Lender is responsible for eligibility determination, credit analysis, and loan structure.
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Processing
50 10 6 page 285
Credit Standards con’t
• Credit elsewhere applies-Lenders must not make an SBA Express loan that would be available elsewhere on reasonable commercial terms
• Credit analysis must demonstrate that there is a reasonable assurance of repayment (cash flow, not collateral)
• Prudent lending applies and must be similar to those processes and procedures that are used for the Lender’s similarly-sized non-SBA guaranteed commercial loans.
• Business credit-scoring models are allowed if also used for similarly-sized non-SBA-guaranteed commercial loans.
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Underwriting
Credit Standards con’t
• The credit decision is left to the business judgment of the Lender (ie-whether to approve bankruptcies or require an injection)
• If an injection is required, then the injection verification must also match what the Lender does for similarly-sized, non-SBA guaranteed commercial loans.
• Lenders must also address franchise, license, dealer, or similar agreements as well as management agreements.
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Underwriting con’t
Credit Standards con’t
• Loans of $25,000 or less-no collateral is required
• Loans over $25,000-follow same requirements as similarly-sized, non-SBA guaranteed commercial loans
• Insufficient collateral is NOT a reason for decline
• Commercial RE-please see appraisal requirements starting on page 288 of SOP 50 10 6
• Non-commercial RE or RE securing a personal guaranty-SBA does not have specific appraisal requirements
• Other fixed assets-if greater than net book value, an appraisal is required
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Collateral
Credit Standards con’t
• Change of Ownership-determining the value of a business is key. Refer to the section starting on page 290 of SOP 50 10 6. This specifies both appraisal and business valuation requirements.
• Lender must compare the seller’s financial information to the seller’s IRS transcripts to ensure the accuracy of the information
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Collateral con’t
Application Documentation
• The following documentation is required:
1. SBA form 1919 completed by applicant, principals and key employees
2. SBA form 1920 completed by lender
3. Credit memo that addresses all credit standards for SBA Express
4. SBA authorization (find that at: Express_-_Export_Express_Loan_Authorization_FINAL.pdf (sba.gov))
5. Franchise addendum (if applicable)
6. Copies of all notes, security agreements, etc. for any refinanced debt
7. USCIS status verification (if applicable)
8. Promissory note
9. Personal guarantees
10. Disbursement documentation
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Contents of Lender’s Application for Guaranty
Becoming an Express Lender
• Keep a list of SBA training that you and your staff have received
• Be prepared to document twenty small commercial loans of $350,000 or less in your portfolio as of most recent fiscal year end
• Contact your local district office to obtain the current Lender Nomination form
• TIP-Express loans count toward the 10 SBA loans minimum before being considered for PLP status
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Process for requesting Express authority
Express Lending
Advantages
• Reduced number of forms
• Streamlined processing
• Reduced cost
• Borrower friendly
• Companion LOCs
• Competitive advantage
Disadvantages
• Reduced guaranty
• Specialized approval, servicing and liquidation & monthly reporting
• LOCs not saleable to secondary market
• Term loans are saleable, but guaranty/premium is reduced
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