SBA Lending Matters Newsletter
A Word from Arne

Recently I spent a delightful day at the SBA Loan Guaranty Processing Center in Citrus Heights, CA.  It’s always great to put names and faces together, and my interaction with Center Director Frank Pucci and his staff was very insightful -- and beneficial.

In addition to meeting the SBA staff, we wanted to talk about how we can work even more effectively with the agency and formulate methods to ensure that our clients always continue to receive the first-class excellence they should expect from H&M.  Here are some of the items we reviewed (-- good news on all fronts!).

  • New electronic application submission procedures. We now submit SBA applications electronically on behalf of our client institutions. This is significant, because E-Tran submissions greatly accelerate the application process.
  • New SBA business valuation procedures. These give H&M the ability to perform most business valuations for our clients – again, making the application task more streamlined.
  • New program changes effective January 1. To improve product delivery, the SBA recently enacted several program changes. Now, loans of $350,000 or less are being processed (more efficiently!) under the Small Loan Advantage track. Loans in excess of $350,000 will continue to be approved using the current underwriting standards.
  • New clarifications. The SBA has cleared up the fog surrounding several items, including collateral values, equity requirements, and life insurance. These updates will not affect H&M customers. We’ll continue to make sure that all the SBA loan applications we prepare are compliant with the latest requirements.

Congratulations to Triumph Bank. It’s always an event to celebrate when one of our clients is recognized for its small business lending efforts – by the SBA or other organizations. Triumph Bank in Memphis, TN has received the FY2013 “Top Dollar” Community Bank of the Year award for SBA’s Tennessee District. This locally owned institution generated $8,239,000 in new SBA loans during the last fiscal year. Our congratulations to Jeff Yearwood and his staff for a job well done!

If we can help your institution achieve star status, or simply supply an answer to an SBA question or issue, don’t hesitate to call on us at Holtmeyer & Monson. We love serving our nation’s community financial institutions.

Featured Article

Best Practices: Avoiding Businesses with an Associate of Poor Character under the new SOP 50 10 (5)(F)
By: Kimberly A. Rayer
http://www.starfieldsmith.com

A crucial step in determining whether a Borrower is eligible for SBA financing is to identify every owner, general partner, officer, director, managing member, owner of 20% or more of the equity of the Borrower, Trustor, and any person who is the day to day manager of the business operations of a Borrower (collectively, the “Subject Individual”) and determine whether such Subject Individuals are of good character. The revised SOP 50 10 (5)(F) took effect on January 1, 2014 (“New SOP”), retains many of the prior requirements for vetting Subject Individuals, but provides new guidance which allows delegated lenders and SBA Field Officers to clear certain “912 Issues” that may arising when vetting Subject Individuals for good character.

Generally, the SBA defines poor character as anyone who is incarcerated, on probation, on parole, who is currently under indictment for a felony or a crime of moral turpitude, or who is presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction. See 13 CFR §120.110 (n).

Once the Subject Individuals are identified, a lender must have each of the Subject Individuals answer questions 1, 2 and 3 on the new SBA Form 1919, Borrower Information Form, as follows:

  1. Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction?
  2. Have you been arrested in the past six months for any criminal offense?
  3. For any criminal offense – other than a minor vehicle violation – have you ever: 1) been convicted; 2) plead guilty; 3) plead nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?

The Subject Individual must reveal all offenses even if he or she believes their record is sealed, expunged or otherwise unavailable. If the Subject Individual’s answers “yes” to question 1, then the Borrower is not eligible for SBA financing.

However, if the Subject Individual answers “yes” to question 2 or 3, but is not under indictment, parole or probation, then SBA Form 912, Statement of Personal History, must be completed and the lender should obtain a complete understanding of each circumstance that the Subject Individual describes on Form 912. If the Subject Individual discloses a felony arrest, a Fingerprint Check is required and a Fingerprint Card (FD 258) must be completed. If the Subject Individual discloses a past misdemeanor, the background check may either be a Name Check or a Fingerprint Check.

Regardless of whether the past offense was a felony or a misdemeanor, the lender must submit the complete 912 package to the local SBA field office before loan processing can proceed. The field office will send the complete 912 package to the Office of Inspector General/Office of Security Operations (OIG/OSO) at SBA Headquarters. Typically submitting a SBA Form 912 to the OIG/OSO means that the SBA Loan application remains on hold until the “912 Issue” is cleared.

However, under the New SOP, the SBA is giving lenders with delegated authority and SBA Field Officers the power to clear certain 912 Issues if the information disclosed on the SBA Form 912 meets one of the following criteria:

  1. A single minor (misdemeanor) offense or arrest; OR
  2. Up to three minor offenses (arrests and/or convictions at one time or separately), concluded more than 10 years prior to the date of the SBA application; OR
  3. A Prior Offense cleared by the Director, Office of Financial Assistance (D/FA) or designee on a previous application where no other offenses have occurred since the previous application was cleared by the D/FA or designee. This clearance is only valid for six month from date of issuance.

Allowing lenders to have more control over vetting and clearing Subject Individuals of minor offenses is a great step to streamlining the SBA loan process. However, with great power comes great responsibility. It’s crucial that lenders fully vet each Subject Individual and be sure that all information is revealed on SBA Form 912. If a lender learns post-disbursement of a discrepancy between what was disclosed on SBA Form 912 and the results of the Name or Fingerprint check conducted by the OIG/OSO, it may find out too late that its Borrower was not eligible for SBA Financing and it may be without an enforceable SBA guaranty.

For more information on the new SBA Form 912 process, please contact Kimberly A. Rayer, Esq. at 215.542.7070 or at mailto:[email protected].


Regulatory Corner

New SBA Changes and the Lender Credit Memo
As of January 1, SBA SOP 50 10 5(7) made the Lender Credit Memo contents much more critical to the loan application process. These key items must now be included: 1. Detailed loan structure description; 2 . Verification business cash flow supports repayment; 3. Detailed description of the business; 4. Global debt service coverage analysis (per EBITDA) with legitimate adjustments;  5. Detailed operating projections; 6. Owner/Guarantor analysis; 7. Discussion of tax verifications; 8. Detailed determination of the pro-forma business balance sheet;  9. Detailed discussion of equity adequacy. Items such as debt refinancing, business acquisition, and franchise eligibility are to be addressed o a case-by-case basis. The Lender Credit Memo must be generated as part of the lender approval process, and we are happy to help our clients prepare it. Please call your Holtmeyer & Monson representative for additional details.

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SBA Hot Topic
Delegated lenders (PLP, CLP, PCLP, SBA Express Lender status) must now access the Credit Alert Interactive Verification Reporting System (CAIVRS) to see if applicants have a delinquent Federal debt or a prior loss, and are thus ineligible for SBA loans. H&M may not access CAIVRS, but we gladly assist clients in this process. SBA Express loans are most impacted.

 

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