SUBPART AGail H. HeplerRPeyton212008-06-04T14:54:00Z2008-08-11T17:45:00Z2008-08-11T17:45:00Z1136120775888Small Business Administration6465182091018811.0000SOP 50-10(5)Lender and Development Company Loan ProgramsU.S. Small Business AdministrationOffice of Financial AssistanceSOP 50 10 (5)PAGE PAGE 2Effective Date: August 1, 2008 TABLE OF CONTENTSSUBPART A …………………………………………………………………………… 7 PURPOSE OF THIS SUBPART ……………………………………………………… 7CHAPTER 1 - 7(A) Lenders ……………………………………………………………… 7 1. THE 7(A) LOAN PROGRAM …………………………………………………… 72.BECOMING A 7(A) LENDER …………………………………………………… 7HOW SBA OVERSEES 7(A) LENDERS ………………………………………… 15 TYPES OF 7(A) LENDERS ……………………………………………………… 19 a. Certified Lenders Program………………………………………………… 19 b.Preferred Lenders Program………………………………………………… 24 c.SBA Express Program……………………………………………………… 35 d.Pilot Loan Programs……………………………………………………….. 46CHAPTER 2 – SMALL BUSINESS LENDING COMPANIES ………………………… 51A SMALL BUSINESS LENDING COMPANY .......................................... …….... 51PROCESS FOR APPLYING TO BECOME AN SBLC …………………………… 51CHAPTER 3 – CERTIFIED DEVELOPMENT COMPANIES ..…………………………. 54 THE 504 LOAN PROGRAM ……………………………………………………… 54BECOMING A CDC ……………………………………………………………… 54 PROCESS OF APPLYING TO BECOME A CDC ………………………….……. 61 SBA OVERSIGHT OF CDCS …………………………………………………….. 625.TYPES OF CDCs ………………………………………………………………….. 67Priority CDCs………………………………………………………………. 67Accredited Lenders Program (ALP)...……………………………………… 70Premier Certified Lenders Program (PCLP)……..………………………… 726. AREA OF OPERATIONS ………………………………………....…………………76Case-by-case ........................... …………………………………………….. 76Local Economic Area (LEA) Expansion .......................... …………………. 76Multi-State Expansion .......................... ……………………………………. 78SUBPART B ………………………………………………………………………………. 81PURPOSE OF THIS SUBPART …………….................…………………………………. 81CHAPTER 1 – GENERAL DESCRIPTION OF THE 7(A) LOAN PROGRAMS …........ 81 1. VARIOUS DELIVERY METHODS.....…………………………………………. 81 2. USE OF LOAN PROCEEDS................................................................................... 81 3.SUMMARY OF DELIVERY METHODS AND PILOT LOAN PROGRAMS…………………………………………………….……................81 4. CHARTS DESCRIBING VARIOUS SPECIALIZED PROGRAMS AND REQUIREMENTS..................................................................................... 82 5. SPECIAL PURPOSE LOANS.............................................................................. 87 6. DEFINITIONS APPLICABLE TO THE 7(A) LOAN PROGRAMS.................. 87 CHAPTER 2 – ELIGIBILITY FOR 7(A) GUARANTY ………………………………… 88INTRODUCTION …………………………………………………………………88SUMMARY OF ELIGIBILITY REQUIREMENTS …………………………….. 88ELIGIBILITY REQUIREMENTS ……………………………………………….. 89 a.Must be Organized for Profit.........................................................................89 b.Must be Small under SBA Size Requirements .............................................89 c.Must Demonstrate a Need for a Guaranty on the Loan ................................96 d.Ineligible Types of Businesses .....................................................................100 e.Businesses Owned by Non-US Citizens ..................................................... 116 f.The Eligible Passive Company Rule .......................................................... 119 g.Special Requirements for loans in the National Register of Historic Places 122 h.Additional Requirements for Pilot Loan Programs .................................... 122 i.Additional Eligibility Requirement for SBLCs ...........................................124 j.Additional Eligibility Requirement for EWCP .............................................124 k.Additional Eligibility Requirement for CAPLines .......................................124 4.ELIGIBLE USE OF PROCEEDS............................................................................ 126CHAPTER 3 – LOAN TERMS & CONDITIONS …………………………………….137MAXIMUM LOAN AMOUNTS ………………………………………………… 137MAXIMUM GUARANTY AMOUNTS ………………………………………… 140LOAN MATURITIES …………………………………………………………… 142INTEREST RATES ……………………………………………………………… 145SBA GUARANTY FEES ………………………………………………………... 151OTHER FEES ……………………………………………………………………. 157PROHIBITED FEES ………………………………………………………………161DISCLOSURE OF FEES AND LENDER EXPENSES …………………………..161AGENTS ……………………………………………………………………………162WHO MAY CONDUCT BUSINESS WITH SBA ……………………………… 165CHAPTER 4 – CREDIT STANDARDS, COLLATERAL AND ENVIRONMENTAL POLICIES…………………………………………………………………………………168 CREDITWORTHINESS/CREDIT UNDERWRITING ……………………….… 168COLLATERAL ………………………………………………………………….. 174ENVIRONMENTAL POLICIES AND PROCEDURES ……………………….. 182CHAPTER 5 – LOAN AUTHORIZATION ………………………………………..……..191 BASIC LOAN CONDITIONS ……………………………………………….……191INSURANCE REQUIREMENTS …………………………………………………192IRS TAX TRANSCRIPT/VERIFICATION OF FINANCIAL INFORMATION…194STANDBY AGREEMENTS ………………………………………………………196ASSIGNMENT OF LEASE AND LANDLORD’S WAIVER ……………………196CONSTRUCTION LOAN PROVISIONS …………………………………………197SPECIAL PROVISIONS FOR FRANCHISES ……………………………………199CERTIFICATION REGARDING CHILD SUPPORT …………………………….199SPECIAL PROVISION FOR CAPLINES …………………………………………199CHAPTER 6 – SUBMISSION OF APPLICATION FOR GUARANTY …………………200CONTENTS OF LENDER’S APPLICATION FOR GUARANTY ………………200WHERE TO SUBMIT APPLICATION FOR GUARANTY………………………209CHAPTER 7 – POST-APPROVAL MODIFICATIONS, LOAN CLOSING & DISBURSEMENT……………………………………………………………………….211POST APPROVAL/PRE-DISBURSEMENT REQUESTS FOR CHANGES …….211PAYMENT OF GUARANTY FEE ………………………………………………..212LOAN CLOSING AND DISBURSEMENT ………………………………………212CHAPTER 8 – POST-DISBURSEMENT, SECONDARY MARKET, SECURIZATION ANDLENDER REPORTING (SBA FORM 1502) ………………………………….………… 226POST-DISBURSEMENT CHANGES …………………………………………….226SECONDARY MARKET FOR SBA GUARANTEED LOANS ………………... 226SECURIZATION AND OTHER CONVEYANCES …………………………….. 227LENDER REPORTING ………………………………………………………….. 227SUBPART C ……………………………………………………………………………... 236 PURPOSE OF THIS SUBPART ….............…………………………………………... 236CHAPTER 1 – GENERAL PROVISIONS ……………………………………………… 236PURPOSE OF THE 504 CERTIFIED DEVELOPMENT COMPANYLOAN PROGRAM................................................................................................... 236 2.CREDIT STANDARDS ……………………………………………………………236HOW A 504 PROJECT IS FINANCED ………………………………………… 238CHAPTER 2 – ELIGIBLITY ………………………………………………………………242INTRODUCTION …………………………………………………………………242SUMMARY OF ELIGIBILITY REQUIREMENTS ………….………………… 242ELIGIBILITY REQUIREMENTS..………………………………………………. 243CHAPTER 3 – COLLATERAL, APPRAISALS AND EVIRONMENTAL POLICIES… 279COLLATERAL ……………………………………………………………………279APPRAISAL REQUIREMENTS ………………………………………………… 281ENVIRONMENTAL POLICIES AND PROCEDURES ………………………… 282CHAPTER 4 – LOAN APPLICATION PROCEDURES AND CONTROLS… ………… 291CDC’S 504 APPLICATION ………………………………………………………291MINIMUM DEBENTURE AMOUNT ……………………………………………291SUBMITTING THE APPLICATION …………………………………………… 291CHAPTER 5 – LOAN CONDITIONS/AUTHORIZATION REQUIREMENTS ………. 294AUTHORIZATION ……………………………………………………………… 294MODIFYING THE AUTHORIZATION ………………………………………… 301 CHAPTER 6 – CLOSINGS ………………………………………………………………303RESPONSIBILITY FOR CLOSING THE 504 LOAN DEBENTURE …………303THE CLOSING PACKAGE ……………………………………………………. 303SPECIFIC RESPONSIBILITIES AND PROCEDURES FOR CLOSING AND POST-CLOSING ACTIVITIES…………………………………………………. 304 USE OF CONSTRUCTION ESCROW ACCOUNT .......................... …………307CHAPTER 7 – DEBENTURE PRICING & FUNDING ……………………………… 308PRICING A 504 DEBENTURE ...................... …………………………………308FUNDING THE DEBENTURE ………………………………………………… 311CHAPTER 8 – ALLOWABLE FEES …………………………………………………… 313ALLOWABLE FEES THAT A 504 BORROWER MAY BE CHARGED …… 313FEES FOR OTHER SERVICES …………………………………………………314CHAPTER 9 – BORROWER’S DEPOSIT, DEBENTURE POOLS AND POST-DISBURSEMENT ISSUES …………………………………………………… 316 RULES GOVERNING THE BORROWER’S DEPOSIT ……………………… 316DEBENTURE POOLS ………………………………………………………… 316MISCELLANEOUS ………………………………………………………………316POST-DISBUREMENT ISSUES ……………………………………………….. 317APPENDIX 1 – RESTRICTIONS ON FOREIGN CONTROLLED ENTERPRISES.........318APPENDIX 2 – ENVIRONMENTAL DEFINITIONS.........................................…......... 322APPENDIX 3 – ENVIRONMENTAL RELIANCE LETTER .........................................327APPENDIX 4 – NAICS CODES OF ENVIRONMENTALLY SENSITIVE INDUSTRIES 329APPENDIX 5 – REQUIREMENTS PERTAINING TO GAS STATION LOANS ……… 331APPENDIX 6 – SBA ENVIRONMENTAL INDEMINIFICATION AGREEMENT …….335APPENDIX 7 – CAPLINES PROGRAM DOCUMENTS…………………………………356 SUBPART ASBA LENDER AND CERTIFIED DEVELOPMENT COMPANYPARTICIPATION REQUIREMENTSPURPOSE OF THIS SUBPARTThis subpart contains the requirements for lenders and Certified Development Companies (CDCs) to participate in SBA lending programs. This subpart also explains the different levels of delegated status SBA grants to lenders and CDCs, as well as how lenders and CDCs maintain their participating status with SBA. Finally, this subpart gives a brief overview of how SBA oversees its participating lenders and CDCs. CHAPTER 1 7(a) LendersTHE 7(A) LOAN PROGRAMa. The 7(a) Loan Program is authorized by section 7(a) of the Small Business Act and is governed by the regulations outlined in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=34011c22d86267717d127e00166f2940&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" Part 120 of Title 13 of the Code of Federal Regulations (CFR) b. This multi-purpose business loan program is administered as a deferred participation program where SBA guarantees a portion of the loan made by a Lender. The Lender initiates the loan to a small business and, if the SBA agrees to guaranty the loan, the Lender funds and services the loan. In the event of default, the lender conducts the work-out or the liquidation efforts and the Lender and SBA share in the loss, if any, in accordance with the percentage guaranteed by the SBA.c. Definitions applicable to this subpart can be found in 13 CFR 103.1, 105.201, 120.10, 120.420 and 120.802. BECOMING A 7(A) LENDERa.The following lenders may apply to participate with SBA as a 7(a) lender: Federally Regulated Lenders;Non-Federally Regulated Lenders; State regulated lenders without federal deposit or share insurance protection;Farm Credit Administration system lenders; andSBA Regulated Lenders (Small Business Lending Companies).b. The following lenders may not apply to participate with SBA as a 7(a) lender: (1) SBA-licensed Small Business Investment Companies (SBICs); and (2) Certified Development Companies (see 13 CFR 120.852). c.Process to Become a 7(a) Participating LenderFederally Regulated Lenders(i) An institution that has federal deposit or share insurance protection and is a State or National bank, a State or Federally-chartered thrift institution or a State or Federally-chartered credit union contacts, in writing, the SBA field office serving the geographic area where the lender’s principal office is located to request to be a participating lender. With the exception of State-chartered credit unions, these institutions automatically comply with the Agency’s examination and supervision requirements. (ii) When a State-chartered credit union applies to become a participating lender: the SBA field office must contact the Office of Credit Risk Management (OCRM) and ask for a written determination by OCRM regarding the State’s level of regulatory supervision and examination. The District Counsel must review the application to determine that the credit union has the authority to apply for participation with SBA and, specifically, that the person who submitted the application has the authority to act on behalf of the credit union. Applications submitted on behalf of a credit union by a Credit Union Service Organization (CUSO) or Lender Service Provider (LSP) are unacceptable. (iii) The lender’s written request to participate must include a statement that it is in good standing with its primary regulator and the Lender must disclose any formal or informal enforcement actions or agreements within the past 2 years. SBA will determine if the enforcement actions or agreements will render the lender unacceptable for 7(a) participation. If there are any enforcement actions or agreements the application must be forwarded to the Office of Capital Access (OCA).(iv) The SBA field office must determine whether the lender meets the requirements of 13 CFR 120.410 to be a 7(a) participant. If the field office determines that the lender meets these requirements, it may enter into a Loan Guaranty Agreement with the lender. Both parties will execute a Loan Guaranty Agreement (Deferred Participation), SBA Form 750, and/or a Loan Guaranty Agreement (Deferred Participation) for Short-Term Loans, SBA Form 750B.(2)Non-Federally Regulated Lenders(i) Non-Federally Regulated Lenders (NFRLs), including State regulated lenders without federal deposit or share insurance protection (such as Business and Industrial Development Companies (BIDCOs)) and Farm Credit Administration system lenders (such as the Federal Land Bank and Production Credit Associations) must file an application (in duplicate) containing the information and documents specified below with the SBA field office serving the geographic area where the lender’s principal office is located. (ii) The lender’s application must include:(a)Lender’s name, address, telephone number and email address;(b)A copy of lender’s Articles of Incorporation and by-laws certified by an appropriate officer;(c)Amount of the lender’s capital and additional paid-in capital;(d)The lender’s proposed geographical area of operations;(e)A list of officers, directors, associates and holders of 10 percent or more of any class of the lender’s capital stock. “Associates” are defined in 13 CFR 120.10. (f)A copy of the most recent audited financial statements on any entity, other than natural persons, holding 10 percent or more of any class of the lender’s stock. (g)An organizational chart showing the relationship of the lender to any Associates.(h)A copy of “Statement of Personal History,” SBA Form 1081, for each person listed under above item (e).(i)An explanation of the lender’s policies and procedures, including loan origination, servicing, and liquidation. (j)A certification that the lender will not be engaged primarily in financing the operations of an Affiliate, as defined in 13 CFR 121.103.(k)A copy of the State or Federal statute or regulations governing the lender’s operations, including those pertaining to audit, examination and supervision of the lender. Each lender bears the burden of demonstrating that it is subject to continuing supervision by a State or Federal regulatory authority satisfactory to SBA.(l)A copy of the latest report covering the examination of the lender, if such report can be released to SBA. If the report cannot be released or the lender is newly formed and has not been examined by its primary regulator include a statement to that effect. (m)A copy of the most recent audited financial statements of the lender.(n)A copy of the license, if any, issued to the lender by a regulatory authority.(o)A certified copy of a Resolution of the Board of Directors designating the person(s) authorized to submit the application on behalf of the lender. (p)A copy of a satisfactory opinion of independent counsel that the lender complies with applicable Federal, State, and local laws in the formation and organization of the company, and with appropriate Federal and/or State security laws; and is chartered to conduct its business in the proposed operating area. (“Independent Counsel” is counsel that is not an “Associate” of the lender under 13 CFR 120.10.) (iii) Once submitted to the SBA Field Office, SBA must perform the following steps in evaluating the lender’s application: (a)Review and comment on the sufficiency of all of the requested items in the application. (b)Comment on the qualifications of the lender, including SBA’s participation requirements in 13 CFR 120.410; and(c)Make a recommendation to approve or decline the lender’s application.(iv) The SBA Field Office must keep a copy of the application and submit the original of the application along with its recommendation to the Director, Office of Financial Assistance (D/FA).(v) The D/FA or designee, in consultation with the Director, Office of Credit Risk Management (D/OCRM), makes the final determination on the application and notifies the SBA Field Office. If the application is approved, the SBA Field Office executes an SBA Form 750 and/or SBA Form 750B, with the lender and sends a copy of the executed agreement to the D/FA. The D/FA or designee will create the electronic record of the lender.(3) SBA Regulated Lenders (Small Business Lending Companies)A Small Business Lending Company (SBLC) is a business concern authorized by the Administrator to make loans pursuant to section 7(a) and whose lending activities are not subject to regulation by any Federal or State regulatory agency. See Chapter 2 for guidance on becoming an SBLC. d.Loan Guaranty Agreement – SBA Form 750 and SBA Form 750BThe Loan Guaranty Agreement provides a basic framework for the responsibilities and duties of the lender and SBA when making, closing, and administering any individual SBA-guaranteed loan. (13 CFR 120.400) This agreement is subject to SBA’s rules and regulations as amended from time to time. SBA Form 750 governs loans with a maturity of 12 months or greater. A lender must execute this agreement prior to submitting any applications for guaranty to SBA. SBA Form 750B governs loans with a maturity of less than 12 months. If the lender intends to approve loans with a maturity of less than 12 months, it must also execute SBA Form 750B. e.Responsibilities of 7(a) lenders(1) In making SBA-guaranteed loans, 7(a) lenders:Submit applications for guaranty with all required forms, documentation and credit analyses, to the designated SBA processing center for review. Execute the Authorization, which is prepared by SBA.Close the loan in accordance with the Authorization, all policy and regulations.Maintain complete loan files.Service the loan in accordance with SOP 50 50 and regulations.Liquidate the loan in accordance with SOP 50 51 and regulations.Comply with SBA Loan Program Requirements for the 7(a) program, as such requirements are revised from time to time. (13 CFR 120.10.) SBA Loan Program Requirements in effect at the time that a Lender takes an action in connection with a particular loan govern that specific action. For example, although loan closing requirements in effect when a lender closes a loan will govern closing actions, a lender’s liquidation actions on the same loan are subject to the liquidation requirements in effect at the time that a liquidation action is taken. (13 CFR 120.180) SBA Loan Program Requirements, center contacts and other information can be found at HYPERLINK "http://www.sba.gov/aboutsba/sbaprograms/elending/index.html" http://www.sba.gov/aboutsba/sbaprograms/elending/.(2)To participate in the CAPLines Program:(i) For Standard Asset Based CAPLines, lenders must complete thexe “CAPLines:Lender Qualification Survey” Lender Qualification Survey Form (LQS-2) and be approved by the Standard 7(a) Guaranty Processing Center. The Center must review the LQS-2 to determine if the lender is qualified to participate in asset based lending.(ii) If a lender is approved for participation, the Center shall maintain the original LQS-2. (3) Preferences(i) A lender may not take any action in connection with an SBA-guaranteed loan that establishes a preference in favor of the lender. (13 CFR 120.411) (ii)A lender must not:(a) take any side collateral or guaranty that would secure only its own interest in a loan;(b) require a borrower to purchase certificates of deposit; (c) maintain a compensating balance not under the control of the borrower; (d) take a side loan which would have the effect of ensuring a risk-free or limited-risk investment on the participant’s share; or(e) have an SBA-guaranteed loan in a “piggyback” structure. Piggyback financing occurs when one or more lenders provide more than one loan to a single borrower at or about the same time, financing the same or similar purpose, and where SBA guarantees the loan secured with a junior lien position.  SBA does not consider a scenario where both loans are for working capital and the non-SBA guaranteed loan is secured only by working capital assets to be a piggyback structure. (iii) Under the following circumstances, a lender may make a side loan to purchase stock of the participant (as may be required by certain lenders such as Farm Credit Administration entities):(a)The enabling authority of the lender requires the purchase as a condition for making the loan.(b)The lender makes a separate side loan not guaranteed by SBA for the borrower to buy the stock or debentures. The side loan must be subordinated to the SBA loan, but the lender may hold a first lien on any stock collateralizing the side loan.(c)The interest to be charged on the side loan must not exceed the maximum rate of interest acceptable for SBA-guaranteed loans, and the maturity of the side loan must not be less than that of the SBA-guaranteed loan.(d) In the event of default, either on the side loan or the SBA-guaranteed loan, the lender may not take any action to collect or liquidate the side loan, except canceling or retiring the stock securing the side loan, until the SBA loan has been fully liquidated.(4)Ethical Requirements Placed On A Lender SBA lenders must act ethically and exhibit good character. (13 CFR 120.140) Conduct of a lender’s Associates and staff will be attributed directly to the lender. Lenders are required to notify SBA immediately upon becoming aware of any unethical behavior by its staff or its Associates. Examples of unethical behavior are found at 13 CFR 120.140.(i)Conflicts of Interest A lender or its Associates may not have a real or apparent conflict of interest with a small business or SBA. (13 CFR 120.140 and 13 CFR 105)(a)Factors that may indicate a conflict of interest Lender must exercise care and judgment in determining whether a conflict of interest exists and document the file in detail. SBA will not guarantee a loan if the lender, its Associates, partner or a close relative:1.Has a direct or indirect financial or other interest in the Small Business Applicant; or2.Had such interest within 6 months prior to the date of application.If the lender, its Associates, partner or a close relative acquires such an interest at any time during the term of the loan, SBA will void its guaranty.(b)Conflict of Interest Determinations 1.If one of the following individuals has a financial interest in the Small Business Applicant, the conflict of interest determination must be made by the xe “Standards of Conduct Committee” Standards of Conduct Committee at SBA Headquarters:(A)An SBA employee or their close relative (whether or not a member of their household) (13 CFR 105.204);(B)A former SBA employee, separated from SBA less than 1 year;(C)Individuals currently involved in the Small Business Development Company (SBDC) Program (coordinator, instructor, student, director, etc.) or members of their household;A member of Congress or a member of his/her household when the financial interest is 10% or more (13 CFR 105.301(b));An appointed official or an employee of the legislative or judicial branch of the Federal Government, a member of a Small Business Advisory Council, a Service Corps of Retired Executives (SCORE), or a close relative when the financial interest is 10% or more (13 CFR 105.301(c) and 105.302(a)); or Employees, not officers or directors, of community organizations such as certified development companies and microlenders or members of their household.2. The application may be processed by the appropriate processing center and, if appropriate, may be conditionally approved. The application then will be sent to the Standards of Conduct Committee at SBA Headquarters for the conflict of interest determination. The Standards of Conduct Committee will notify the processing center of its decision and the processing center will notify the lender. 3.Other Government Employees An applicant must submit a statement of no objection from the pertinent department or military service if an associate or a member of an associate’s household is an employee of another Federal Government department and is a GS-13, (or its equivalent) or higher, or holds the rank of Major or Lieutenant Commander (or their equivalent) or higher. (13 CFR 105.301)(5)Forward CommitmentsA forward commitment exists when a lender issues a commitment to a builder or developer to finance future sales of real estate. The SBA will not guarantee loans made by the lender to small businesses to purchase such real estate. This is a potential conflict of interest for the lender because of its predisposition to make SBA loans in order to honor their prior agreement with the builder or developer. Such loans are ineligible for SBA’s guarantee regardless of whether the lender gets a fee for issuing the commitment.(6)Advertising of Relationship with SBA (13 CFR 120.413) (i)Lenders may advertise their relationship with SBA, including identifying themselves as SBA participating lenders by placing the appropriate decal on the window of their lending institution. Lenders also may make factual statements concerning their participation and/or status with SBA such as “SBA Preferred Lender.” (ii) With the exception of displaying a window/building decal as noted above, lenders may not use the SBA logo in any manner in their advertisements, nor may they state or imply that the lender, or its borrowers, will receive any preferential treatment by SBA. 3.HOW SBA OVERSEES 7(A) LENDERSSBA oversees 7(a) lenders through: Loan and Lender Monitoring System (L/LMS) (1)L/LMS is an internal SBA data system that includes the use of predictive small business credit scoring. All SBA 7(a) loans with an outstanding balance are credit-scored quarterly. These data are aggregated, analyzed and evaluated to assess the credit quality of each individual SBA lender’s portfolio of SBA-guaranteed loans. SBA uses this information to monitor the performance of 7(a) lenders individually and in comparison to their peers. (2)Using SBA’s L/LMS system, SBA assigns all 7(a) lenders a composite rating. The composite rating reflects SBA’s assessment of the potential risk to the government of that 7(a) lender’s SBA portfolio. The specific performance factors which comprise the composite rating are published from time to time by SBA’s OCRM. In general, these factors reflect both historical 7(a) lender performance and projected future performance. SBA performs quarterly calculations on the common factors for each 7(a) lender, so 7(a) lenders’ composite risk ratings are updated on a quarterly basis. (3)SBA has established peer groups to minimize the differences that could result from changes in loan performance for portfolios of different sizes. The peer groups are based upon outstanding SBA dollars, and for 7(a) lenders they are:$100,000,000 or more$10,000,000 - $99,999,999$4,000,000 - $9,999,999$1,000,000 - $3,999,999$0 - $999,999 (with at least one loan disbursed in past 12 months)$0 - $999,999 (with no loans disbursed within the past 12 months)(4)SBA assigns a composite rating of 1 to 5 to each 7(a) lender based upon its portfolio performance, as reported in L/LMS. A rating of 1 indicates strong portfolio performance, the least risk, and requires the lowest degree of SBA management oversight (relative to other 7(a) lenders in its peer group). A 5 rating indicates weak portfolio performance, the highest risk, and requires the highest degree of SBA management oversight. ( HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-9442.pdf" 72 FR 27611, May 16, 2007)b. Lender Portal (1)SBA communicates lender performance to individual 7(a) lenders through the use of SBA’s Lender Portal (Portal). The Portal allows a 7(a) lender to view its own quarterly performance data, including its current historical composite risk rating, peer and portfolio averages. Portal data includes both summary performance and credit quality data. Summary performance data is largely derived from data that 7(a) lenders provide to SBA through SBA Form 1502 and 172 Reports, therefore, 7(a) lenders bear much of the responsibility for ensuring data accuracy. If a 7(a) lender reviews its performance components and finds a discrepancy with its records, the 7(a) lender should contact OCRM. (2)SBA 7(a) lenders with at least 1 outstanding SBA loan may apply for the Portal access. Currently SBA issues only one Portal user account per 7(a) lender. Submission of initial requests for a Portal user account must be submitted to SBA’s OCRM, and must include the following information:Request must be made by a senior officer with proper authority of the 7(a) lender (Senior Vice President or higher);Request must be sent via regular or overnight mail to the SBA’s OCRM at 409 Third Street, SW, Washington DC 20416, ATTN: Director, Office of Credit Risk Management;Request must be made using the 7(a) lender’s stationery;Request must include the user’s business card;The stationery and business card should include the 7(a) lender’s name and address;The request should include the following data:SBA FIRS ID Number(s);Account user’s name and title;Account user’s mailing address, telephone number and email address at the 7(a) lender;Requesting officer’s name and title; andRequesting officer’s mailing address, telephone number and email address at the 7(a) lender.(vii)Once SBA receives and approves the user’s request, SBA will forward the approval to SBA’s Portal contractor for issuance of a user account name and password. The Portal contractor will email the user his or her user name and password within approximately two weeks of account approval. The user can then access its data by logging into the SBA Lender Portal web page. Before accessing the Portal, lenders must agree to the terms of a Confidentiality Agreement which is found on the SBA Lender Portal web page. (viii) Lenders are responsible for complying with and maintaining the Portal user accounts and passwords as set forth in the Confidentiality Agreement on the Portal web page, and as published by SBA from time to time. Lenders are also responsible for timely informing SBA to terminate or transfer an account if the person to whom it was issued no longer holds that responsibility for the 7(a) lender. Lenders must take full responsibility for protecting the confidentiality of the user password and the 7(a) lender risk rating information and for ensuring the security of the data. c. Off-site monitoring and on-site reviews. (1)L/LMS provides performance information that allows SBA to monitor and conduct off-site reviews of all lenders. Off-site monitoring serves as the primary means of reviewing lenders with less than $10 million in SBA dollars outstanding although SBA may determine in its discretion to conduct on-site reviews of these lenders. SBA will contact the lender if the review detects performance issues or trends requiring further discussion. (i) For lenders with more than $10 million in SBA dollars outstanding L/LMS details historical and projected performance data: (a) for use in planning and conducting on-site reviews or examinations; (b) to assist in prioritizing on-site reviews or examinations; and (c) as a system to monitor lenders between on-site reviews or examinations. Additional information regarding on-site reviews and examinations can be found in SBA’s SOP 51 00. (ii) Additionally, in accordance with 13 CFR 120.414, a lender must allow SBA’s authorized representatives access to its SBA files to review, inspect and/or copy all records and documents relating to SBA guaranteed loans. (iii) Lender oversight fees. Lenders are required to pay SBA fees to cover the costs of examinations and reviews and, if assessed by SBA, other lender oversight activities.(a) The fees may cover: 1. the cost of conducting on-site safety and soundness examinations of an SBA Supervised Lender (SBLCs and NFRLs); 2. the cost of conducting an on-site review of a 7(a) lender; 3. the cost of conducting off-site reviews/monitoring of a 7(a) lender including the SBA-assessed charge based on the size of the lender’s SBA-guaranteed portfolio; and 4. any additional expenses that SBA incurs in carrying out lender oversight activities. (b) For the on-site examinations or reviews conducted under 1 and 2 above, SBA will invoice each lender for the amount owed following completion of the examination or review. For the off-site reviews/monitoring conducted under 3 above, and other lender oversight expenses incurred under 4 above, SBA will invoice each lender on an annual basis. 1. The invoice will state the charges, the date by which payment is due and the approved payment method(s). 2. The payment due date will be no less than 30 calendar days from the invoice date. SBA may waive the assessment of the fee under 3 for those lenders owing less than a threshold amount below which SBA determines that it is not cost effective to collect the fee. Payments that are not received by the due date shall be considered delinquent, and SBA will charge interest, and other applicable charges and penalties as authorized by 31 U.S.C. 3717. A lender’s failure to pay any of the fee components described above, or to pay interest, charges and penalties that have been charged, may result in a decision to suspend, limit or revoke a lender’s status as a participant. ( HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-8516.pdf" 72 FR 25194, May 4, 2007)Supervision and enforcementAn integral part of overseeing the 7(a) loan program is SBA’s authority to supervise and take enforcement actions as necessary. The D/FA has responsibility for the day-to-day management of lenders with an SBA risk rating of 1, 2 or 3. With the exception of servicing actions on individual loans which will be reviewed by OFA, the D/OCRM is responsible for day-to-day management, including approving delegations of program authority, of lenders with an SBA risk rating of 4 or 5. ( HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-8170.pdf" 70 FR 21262, April 25, 2005)The D/FA (either directly or through the Sacramento Loan Processing Center (SLPC)) and the D/OCRM will provide a recommendation prior to the approval of delegated lender authority by the appropriate SBA official. e.Suspension or revocation(1)SBA may suspend or revoke the authority of a lender to conduct 7(a) program activities, in accordance with 13 CFR 120.415.Examples of circumstances that may result in suspension or revocation under the above cited regulation include but are not limited to: (i) adverse changes in management; (ii) continuous or substantial failure to meet SBA Loan Program Requirements in management of the lender’s SBA portfolio of loans; or (iii) consistent failure to properly report on loan disbursements and status.(2)SBA will notify the lender of a proposed suspension or revocation as set forth in 13 CFR Part 134. The lender will be provided an opportunity to respond prior to final action. 4. TYPES OF 7(A) LENDERSCertified Lenders Program ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=226d3e354867cce31982d315616047db&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.4.217.23" 13 CFR 120.440) More experienced SBA lenders are granted a higher level of authority under the Certified Lenders Program (CLP) and receive expedited processing of loan applications. These lenders are designated as “CLP Lenders.” (1)Qualifications of a CLP LenderA CLP Lender must have:the ability to effectively process, close, service and liquidate loans; anda satisfactory performance history with SBA, including the submission of complete and accurate loan guaranty application packages;Packages demonstrate strong knowledge of SBA forms and procedures; andCredit analyses demonstrate solid working knowledge of SBA’s eligibility and credit criteria. (2)Process to become a CLP Lender or to renew CLP status ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=226d3e354867cce31982d315616047db&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.4.217.23" 13 CFR 120.441) A lender may request CLP status or a field office may nominate a lender. The lender may send a written request to its local SBA field office. The local SBA District Director will consider whether the lender meets the qualifications identified above in approving or renewing a lender’s CLP status.(3)Supplemental Guaranty Agreement (i)When CLP status is approved or renewed, the field office notifies the lender that it has been approved or renewed as a CLP Lender and sends a “Supplemental Guaranty Agreement, Certified Lenders Program (CLP), SBA Form 1186” signed by the District Director. The lender must sign and return the SBA Form 1186 to the field office before the lender’s CLP status is effective. When the signed SBA Form 1186 is received by the field office, it will notify the Loan Guaranty Processing Center (LGPC) of the approval or renewal of the lender’s CLP status. The term of CLP status may not exceed 2 years. (ii)If the District Director declines a request for initial CLP status or renewal, the lender may appeal to the D/FA, whose decision will be final. The D/FA will consult with the D/OCRM on each appeal. (4)Authority and ResponsibilitiesThe SBA’s business loan eligibility requirements, credit policy, and procedures contained in this SOP apply to all CLP loans. A CLP Lender must stay informed of and apply all of SBA Loan Program Requirements.(i)Eligibility Requirements for CLP Processing In addition to SBA’s general business loan eligibility standards, the following additional restrictions apply to CLP loans:(a) Loans not eligible for CLP processing:Any pilot program unless SBA specifically authorizes use of CLP for the pilot.Disabled Assistance Loan program (DAL);Energy Loans as described in §7(a)(12) of the Small Business Act (Note: This does not include loans where the Borrower is purchasing, installing or otherwise utilizing equipment designed for its energy conservation.);International Trade Loans; Qualified Employee Trusts (ESOP);Pollution Control program; CAPLines program; andExport Working Capital program (EWCP).(b) Additional xe “CLP:Restrictions” Restrictions Specific to CLP Existing SBA loan. If an applicant business already has an SBA loan, the lender may make the CLP loan only if the existing SBA loan is current.2. Reconsiderations of declined loan applications must not be submitted under CLP procedures, but may be submitted under Standard 7(a) procedures.(ii) Credit Analysis The lender must perform a thorough and accurate credit analysis of the applicant and include its analysis in its credit memorandum which shall be retained in the loan file. The lender’s conclusions must be thoroughly supported in the file.(iii) Application Procedure The CLP loan packages include the same forms and information as regular 7(a) loan packages. A CLP Lender must ensure that all required forms and submissions are complete and must prepare a draft of the SBA Authorization to include with the package. The loan package should be clearly marked “CLP” on the SBA 4-I and on the mailing envelope, fax cover or email subject line.(iv) SBA Processing Procedure The SBA reviewer relies heavily on the information the lender provides. For CLP loans, SBA still makes both credit and eligibility decisions about whether to guarantee the loan. If the lender’s presentation is not adequate for CLP processing, the LGPC may convert the application from CLP to regular processing.(v) Post Approval Responsibilities(a) Lender will notify SBA of the first disbursement by entry on SBA Form 1502 (1502). (b) tc “c.What Are the Servicing and Liquidating Duties of a CLP Lender? “ \l 3 XE "CLP:Servicing And Liquidating Duties" The CLP Lender’s servicing and liquidating responsibilities for CLP loans are set forth in SOPs 50 50 and 50 51.(5)Affiliation Issues/Change of Lender Status(i)If a CLP Lender makes a major change in its structure or organization, it must tell the SBA field office in writing. Major changes include:(a)Acquisition by another entity;(b)Merge into another legal entity;(c)A change of name;(d)Substantial changes in management;(e)Substantial changes in how the lender handles SBA loans; or(f)Take over or closure of the lender by a regulatory agency.If a CLP Lender continues as the legal entity that signed the CLP agreementand. . . (1) The CLP Lender changes its name. (2) The CLP Lender is acquired by another entity. The CLP lender survives as a separate legal entity. (3) The CLP Lender acquires another lender. The acquired lender does not continue as a separate legal entity. (4) The CLP Lender acquires another lender. The acquired lender continues as a separate legal entity. (5) The lender is closed or taken over by a regulatory authority. (6) The lender changes its operations so that it cannot process SBA loans as required by the CLP Program.Then . . .SBA records the name change. The lender’s CLP status is not changed. A new CLP agreement is not needed.SBA records the holding company name. The lender’s CLP status is not changed. A new CLP agreement is not needed.The acquired lender may make CLP loans as part of the CLP Lender.The acquired lender may not make CLP loans. The acquired lender may request CLP status.The lender’s CLP status terminates automatically. The SBA will suspend or revoke the lender’s CLP status.If a CLP Lender does not continue as the legal entity that executed the CLP agreement and . . . (1) The CLP Lender is merged into a non-CLP Lender. The original CLP Lender’s SBA operations are unchanged. (2) The CLP Lender is merged into another CLP Lender. (3) The CLP Lender is dissolved. Then . . . The original lender’s CLP agreement is no longer valid. The surviving lender must ask SBA to sign new Form SBA 750 and CLP agreements.The CLP Lender’s agreements with SBA for the merged lender are no longer valid. However, the merged lender can make SBA loans under the surviving CLP Lender’s agreement.The lender’s CLP status is terminated automatically.(6)Monitoring and reviewsSee Paragraph 3a through c of this Chapter for further information on monitoring and reviews.(7)Supervision and enforcementSee Paragraph 3d of this Chapter for further information on supervision and enforcement.(8)Suspension and revocationSBA may suspend or revoke a lender’s CLP authority in accordance with HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=698bfe404389c2f34343a7c27aecebbb&rgn=div8&view=text&node=13:1.0.1.1.14.4.217.25&idno=13" 13 CFR 120.442. b. Preferred Lenders Program (PLP) (13 CFR 120.450) The most experienced lenders are designated as PLP Lenders and delegated the authority to process, close, service, and liquidate most SBA guaranteed loans without prior SBA review. (1) The PLP LenderPLP Lenders are authorized to make SBA guaranteed loans, subject only to a brief eligibility review and assignment of a loan number by SBA. In addition, they are expected to handle servicing and liquidation of all of their SBA loans with limited involvement of SBA.(2)Qualifications for PLP ConsiderationIn making its decision to grant PLP status, SBA considers whether the lender has:(i) the ability to effectively process, close, service and liquidate SBA-guaranteed loans;(ii) the ability to develop and analyze complete loan application packages; and(iii) a satisfactory performance history with SBA. SBA also considers whether the lender shows a substantial commitment to SBA’s mission and a spirit of cooperation with SBA.(3)Process to obtain PLP status A lender must submit its request for PLP status to its local SBA office with a copy to the SLPC. For multi-state lenders, the request will go to the District where the lender is headquartered.The lender’s request should include:Legal name and address of lender;Legal name of any holding company of lender;Name, title, address, phone number, e-mail address and fax number for contact person at lender for nomination process;Lender’s Lead SBA Field Office (the SBA field office serving the area in which the lender’s headquarters is located); A copy of the lender’s SBA Form 750;If lender is or ever was a CLP Lender, state how long the lender has been CLP;If lender was previously a PLP Lender, an explanation of why the lender left the Preferred Lenders Program;A description of the lender’s history, organization, and management, including:When the lender was chartered;The location of any branch offices; andAny recent mergers or acquisitions;Personnel who will: be in charge of PLP loans for the lender and their experience with the lender, in the industry, and with SBA loans; and have PLP loan approval authority;Where and how PLP loans will be processed, closed, serviced and liquidated; A copy, if any, of the most recent written portfolio review of the lender; A letter from the lender: asserting that it is in good standing with its primary regulator; anddisclosing any formal or informal enforcement actions or agreements within the past two years. SBA will determine if recent enforcement actions or agreements will render the lender unacceptable for PLP. (ii)Field Office’s Nomination – will include:Lender identification number (FIRS number);The most recent available SBA statistics on lender’s loan volume, purchase charge off rates and trends, and currency rate for the last 3 years; andThe field office’s opinion of:The lender’s rapport with the field office;The lender’s commitment to SBA lending; andAn analysis of any repair or denial of liability situations with the lender.(iii)The SBA field office sends the lender’s request and the field office’s recommendation to the SLPC.(iv) The SLPC’s Role: The SLPC gathers the information relevant to a lender’s participation request, including the field office’s recommendation and the processing, servicing and liquidation centers’ written opinions of the lender’s ability to process, close, service, and liquidate SBA loans, as applicable. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision. (v) Upon approval, the SLPC notifies the lender and the SBA field office:That the nomination is approved; andThe length of the preferred status, not to exceed two years.(vi)The SLPC sends the lender a Supplemental Guaranty Agreement, Preferred Lenders Program (SBA Form 1347) signed by the Center Director on behalf of the D/FA. The lender must sign and return the SBA Form 1347 to the SLPC before the lender’s PLP status is effective.(vii) The SLPC sends the appropriate field offices copies of the approval letter. The SLPC will enter the effective term of the lender’s PLP status on the Partner Information management System (PIMS). This is an essential step for lenders processing PLP loans. (viii) If a lender is approved as a PLP Lender, it will automatically be approved as a CLP Lender. The SLPC will send the SBA Form 1186 to the lender for execution along with the SBA Form 1347. Once approved, a lender’s PLP and CLP status extends nationally (provided the lender complies with its lending charter). `(ix) Decline of PLP application: If the PLP application is declined, the SLPC notifies the lender and SBA field office with the reason for decline. The lender may re-apply for PLP status when it has overcome the reason for decline. To do so, the lender must file a request with the SLPC and must show how it has overcome the reasons for decline. The SLPC will review the request, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision. (4) Process for Renewal of PLP Status (13 CFR 120.451(e))(i)The SLPC automatically starts the renewal process just prior to the expiration of a lender’s PLP status. The SLPC asks for comments from the lender’s Lead SBA Field Office and the SBA’s servicing and liquidation centers. The comments should pertain to the lender’s most recent PLP term and must include:(a)Whether they recommend renewal;(b)If they do not recommend renewal, why not;(c)Whether the lender can process, close, service and liquidate SBA loans;(d)Changes in lender’s organization or management;(e)Any recurring denial of liability or repair situations with the lender;(f)Reasons for any unfavorable loan volume or repurchase rate data;(g)Identification of any areas of concern; and(h)An explanation of any discussions with the lenders that may have impact the PLP decision.(ii)The SLPC contacts the lender to obtain a statement from the lender that it is in good standing with its primary regulator. The lender must disclose any formal or informal enforcement actions or agreements during the lender’s most recent PLP term. SBA will determine if the enforcement actions or agreements will render the lender unacceptable for PLP. (iii)The SLPC gathers the information relevant to a lender’s renewal. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision. SBA considers whether the lender:(a)Can effectively process, close, service, and liquidate SBA loans;(b)Can analyze complete loan packages;(c)Has a satisfactory performance history with SBA;(d)Is in substantial compliance with SBA Loan Program Requirements;(e)Is in substantial compliance with the terms of its PLP agreement; and(f)Is an active PLP participant and has shown a commitment to SBA lending.(iv)Notification of Renewal The SLPC notifies the lender and Lead SBA Field Office that:(a)the renewal is approved; and(b)the term of the renewal. The SLPC sends the lender a new SBA Form 1347 signed by the SLPC on behalf of the D/FA. The lender must sign and return the SBA Form 1347 to the SLPC before the lender’s PLP renewal is effective. (v)CLP Status for PLP Lenders tc “c.How Do We Handle the Renewed PLP Lender’s CLP Status? “ \l 3The SLPC renews the lender’s CLP status to match the term of the lender’s PLP renewal. The SLPC sends the lender a new SBA Form 1186 signed by the SLPC on behalf of the D/FA. The lender must sign and return the SBA Form 1186 to the SLPC before the lender’s CLP renewal is effective. The SLPC sends copies of the renewed SBA Form 1186 to the LGPC. (vi)If Renewal is Declined tc “d.What Happens if We Don’t Approve the Renewal? “ \l 3The SLPC notifies the lender and Lead SBA Field Office of the reason(s) for decline of the PLP renewal. The lender may not make PLP loans after its PLP status expires. (If the lender’s PLP renewal is declined, the lender’s CLP status will not automatically terminate. If the lender’s PLP status is not renewed prior to the termination of its CLP status, then the lender must follow the procedures described above to request renewal of its CLP status from the local SBA field office.) The lender may re-apply for PLP status when it has overcome the reason(s) for decline. To do so, the lender must file a request with the SLPC and must show how it has overcome the reason(s) for decline. The SLPC will review the request, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision. (vii)Temporary Extension of PLP Status tc “e.Short-Term Renewals “ \l 3If a lender’s PLP status is expiring and SBA has not completed the renewal process, the SLPC may extend a lender’s PLP status for a short, interim period as determined by the D/FA, in consultation with the D/OCRM. (5)PLP/Export Working Capital Program Authority (i)Domestic lenders with an international lending unit may have concurrent approval to participate in SBA’s Export Working Capital Program (EWCP). This program includes the opportunity for experienced international trade lenders to apply for PLP status with its EWCP unit. Lenders with PLP-EWCP status are delegated the same level of authority to process, close, service, and liquidate EWCP loans as is granted to domestic lenders with PLP authority.(ii)SBA offers PLP status on EWCP loans to PLP Lenders through a request filed by the lender’s international unit for expansion of its domestic lending institution’s PLP authority. Application requests include the following elements:Legal name and address of lender;Address, city and state where lender’s international lending is performed;Name, title, telephone and fax numbers and e-mail address of the international lending unit’s primary contact;A copy of the lender’s SBA Form 750EX;Identification of the USEAC offices the lending unit works through on EWCP loans;A description of the lending unit’s experience in international trade lending, including its level of EWCP lending over the last 2 years, Export-Import Bank (“Ex-Im”) lending activity over the same two year period, and identification of any form of delegated lender status with Ex-Im Bank or other trade finance agencies;Identification of personnel in charge of EWCP lending, their experience in export trade finance for small concerns, and Documentation supporting the bank’s delegation of authority to the contact person filing this PLP expansion request.(iii) Completed applications should be directed to the D/FA or its designee at SBA. Applications will be distributed to staff within the Office of International Trade (“OIT”) for processing. OIT staff will be responsible for collecting information from OCRM on the current regulatory status of the lender’s domestic lending unit and to solicit comments from USEAC personnel on the international lending unit’s capabilities as a EWCP participant. The application along with the written recommendations from OCRM and OIT are routed to the D/FA for final decision. Lenders are notified by written letter from the OIT along with the name and address of the USEAC staff member assigned to the lender.(iv) All PLP-EWCP expansion approvals will be for a period not to exceed the existing term of the domestic lender’s PLP authority. The succeeding PLP renewal of the domestic lending unit will include a section on the lender’s EWCP lending, with comment requests from the SLPC directed to the OIT in the same manner as requests for comment from SBA loan servicing or loan liquidation Centers.Authority and Responsibilities (i) Eligibility Requirements: In addition to the SBA’s primary business loan eligibility standards set forth in Subpart B, Chapter 2 of this SOP, the following additional restrictions apply to PLP Loans.(a)Lenders may use PLP only for 7(a) loans. Lenders may not use PLP for any pilot program unless SBA authorizes use of PLP for the pilot.(b) Types of Loans Not Eligible under PLP – these types of loans are not eligible under PLP processing:1. Disabled Assistance Loans (DAL);2.Energy Loans as described in §7(a)(12) of the Small Business Act (Note: This does not include loans where the Borrower is purchasing, installing or otherwise utilizing equipment designed for its energy conservation.);3.Qualified Employee Trusts (ESOP);4.Pollution Control program; and5.CAPLines program.Revolving credits are not eligible for PLP except under the Export Working Capital program (EWCP) and then only if the lender has special authority from SBA to make PLP EWCP loans.(c) Types of Businesses Not Eligible for PLP The types of businesses not eligible under standard 7(a) also are not eligible under PLP. See Subpart B, Chapter 2 of this SOP. (ii)Additional Restrictions Specific to PLP (13 CFR 120.452).(a) Refinancing – See Subpart B, Chapter 2 of this SOP.(b) Lender may not process a loan under PLP procedures when a portion of the proceeds will be used for a prohibited purpose by assigning a zero percent of guaranty to the portion which is not PLP eligible.(c) Reconsiderations of declined loan applications. Reconsiderations of loans previously declined by SBA (regardless of the method by which they were originally processed) may not be processed under PLP, or any other processing method where the lender is given delegated approval authority.(d) Previous loss to government. A loan may not be processed under PLP if:The applicant business previously defaulted on a Federal loan or federally assisted financing that resulted in the Federal Government or any of its agencies or departments sustaining a loss in any of its programs; orAny of the owners, or those that control the applicant business, or any of its associates, previously owned, operated, or controlled a business which defaulted on a Federal loan (or guaranteed a loan which was defaulted) and caused the federal government or any of its agencies or departments to sustain a loss in any of its programs. This includes any compromise agreement with any such agency/department. This restriction applies whether or not SBA was involved in the previous loss.(iii)PLP Lenders’ Processing Responsibilities - (13 CFR 120.452(a))SBA’s business loan eligibility requirements, credit policy, and procedures apply to PLP loans. The PLP Lender must stay informed on and must apply all of SBA’s Loan Program Requirements. A lender may not submit the same loan guaranty request under more than one processing method. A lender also may not knowingly submit a loan guaranty request under PLP after the applicant has already submitted a request from a different lender.(a)Lender’s Eligibility Review 1. The SBA does not delegate to a PLP Lender authority to determine SBA loan eligibility. However, a PLP Lender must analyze a PLP applicant’s eligibility in the same way that SBA analyzes eligibility for a regular 7(a) loan applicant. The PLP Lender must keep in its loan file documentation supporting its eligibility analysis. For example, if a franchise is involved, the PLP Lender must review the Franchise Registry (www.franchiseregistry.com) to ensure the franchisor’s agreement continues to meet the SBA’s requirement that the franchisee’s opportunity for profit and risk of loss is commensurate with ownership. If the franchisor’s agreement does not appear on the Registry, the lender must review the agreement to ensure that it meets SBA’s requirements as set forth in chapter 2 of this SOP. 2. For a PLP loan, size of the applicant is determined as of the date of the lender’s approval of the loan. A PLP Lender may accept as true the size information provided by the applicant, unless credible evidence to the contrary is apparent.(b)Credit Analysis SBA has authorized PLP Lenders to make the credit decision without prior SBA review. The lender must perform a thorough and complete credit analysis of the applicant, establish that the loan is of such sound value as to reasonably assure repayment and document its analysis in the loan file. See Subpart B of this SOP for specific guidance on processing loan guaranty requests. (c)The AuthorizationPLP Lenders draft the Authorization without SBA review and execute it on behalf of SBA. The lender must make sure that all collateral and other requirements documented in the lender’s credit analysis are in each Authorization. The lender also must include all SBA-required authorization provisions. See Subpart B, Chapter 5 of this SOP.(d)Closing Requirements SBA closing requirements are the same for PLP loans as for standard 7(a) loans. The same SBA forms are required. The lender must obtain all required collateral positions and must meet all other required conditions before loan disbursement. SBA delegates to the PLP Lender responsibility for all pre-disbursement Authorization requirements in this SOP. The only actions that the lender may not take on a PLP loan are those specifically reserved to SBA. See Subpart B, chapter 5 of this SOP. After closing the loan, the PLP Lender does not send SBA any documentation, including disbursement information, except through the required periodic loan status reports (SBA Form 1502).(e)Servicing and Liquidation ResponsibilitiesSee SOPS HYPERLINK "http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_sop5050.pdf" 50 50 and HYPERLINK "http://www.sba.gov/tools/resourcelibrary/sops/index.html" 50 51, and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=226d3e354867cce31982d315616047db&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.4.218.26" 13 CFR 120.453 and 120, Subpart E for guidance. Change of Lender Status(i) Holding Companies A holding company may request an extension of PLP status from one of its lenders to another. The appropriate procedure depends on the legal structure of the lenders for which the holding company wants to have PLP status.If the lender seeking PLP status will retain its own legal status and charter within the holding company, PLP status cannot be extended. The lender can request PLP status on its own following the procedures set out above.If the lender seeking PLP status will be merged with another lender that already has PLP status, PLP status can be extended.See the chart below.(ii) Change of PLP Lender’s StructureIf a PLP Lender changes its structure or organization in any of the following ways, it must inform the SLPC in writing:The lender is acquired by another lender;The lender is merged into another legal entity;The lender changes its name;The lender substantially changes the management of its SBA business;The lender substantially changes how it handles SBA loans; orA regulatory agency takes over or closes the lender.An SBA field office that discovers any of the above circumstances also must immediately notify the SLPC in writing.(iii)Requests for New SBA Guaranty Agreements The lender may obtain: (a) a new SBA Form 750 from the SBA field office; and (b) new SBA Forms 1186 and 1347 from the SLPC. If a PLP Lender continues as the same legal entity that signed the SBA Forms 1347 (PLP) and 1186 (CLP) and. . .(1) The PLP Lender changes its name.(2) The PLP Lender is acquired by another entity. The PLP Lender continues as a separate legal entity.(3) The PLP Lender acquires another lender. The acquired lender does not continue as a separate legal entity. (4) The PLP Lender acquires another lender. The acquired lender continues as a separate legal entity.(5) The lender is closed or taken over by a regulatory authority.(6) The lender changes its operations so much that it cannot show that it handles SBA loans appropriately.Then . . .The SLPC records the name change. The lender’s PLP and CLP status is not changed. A new SBA Form 1347 (PLP) or SBA Form 1186 (CLP) is not needed.The SLPC records the holding company name. The lender’s PLP and CLP status is not changed. A new SBA Form 1347 (PLP) or SBA Form 1186 (CLP) is not needed.The acquired lender may make PLP loans under the PLP authority of the acquiring entity.The acquired lender may not make PLP loans. The PLP Lender may request an extension of its PLP status to the acquired lender.The lender’s PLP and CLP statuses automatically terminate. The SLPC notifies the lender and SBA field office(s) the lender may not make any more PLP loans. SBA will suspend or revoke the lender’s PLP status.If a PLP Lender does not continue as the legal entity that executed the SBA Forms 1347 (PLP) and 1186 (CLP) and . . .(1) The PLP Lender is merged into a non-PLP Lender. The original PLP Lender’s SBA operations are unchanged.(2) The PLP Lender is merged into another PLP Lender.(3) The PLP Lender is dissolved. It does not merge into another lender. Then . . . The original PLP Lender’s agreements with SBA are no longer valid. The surviving lender must ask SBA for new SBA Forms 750, 1186 and 1347.The original PLP Lender’s agreements with SBA are no longer valid. However, it can make SBA loans under the surviving PLP Lender’s agreements.Both PLP and CLP status terminate automatically. The SLPC notifies the lender and SBA field office(s) the lender may not make any more PLP loans.(8)Monitoring and reviewsSee Paragraph 3a through c of this Chapter for further information on monitoring and reviews.(9)Supervision and enforcementSee Paragraph 3d of this Chapter for further information on supervision and enforcement.(10) Suspension and revocationSBA may suspend or revoke a lender’s PLP authority in accordance with 13 CFR 120.455 c.SBA Express Program SBA Express was established as a permanent SBA program under P.L.108-447 signed into law on December 8, 2004. The program reduces the number of government mandated forms and procedures, streamlines the processing and reduces the cost of smaller, less complex SBA loans. The program allows lenders to utilize, to the maximum extent possible, their respective loan analyses, procedures, and documentation. In return for the expanded authority and autonomy provided by the program, lenders agree to accept a maximum SBA guaranty of 50 percent.(1) The SBA Express LenderSBA Express lenders can use their own application forms, internal credit memoranda, notes, collateral documents, servicing documentation, and liquidation documentation. In using their documents and procedures, lenders must follow their established and proven internal procedures used for their similarly sized non-SBA guaranteed commercial loans. (2)Qualifications for SBA Express Lender StatusLenders can find information about how to apply for SBA Express status on the SLPC’s website at HYPERLINK "http://www.sba.gov/aboutsba/sbaprograms/elending/slpc/plp/sba_slpc_request_express_statu.html" http://www.sba.gov/aboutsba/sbaprograms/elending/slpc/plp/sba_slpc_request_express_statu.html. (i)Existing SBA Lenders An existing SBA lender must demonstrate that it: Can effectively process, close, service, and liquidate SBA loans and has a history of acceptable currency, default rates, and loss rates;Is in compliance with applicable SBA Loan Program Requirements;Has been reviewed by and received a satisfactory review/examination from OCRM and has no major objections from the D/OCRM; Has been current in filing SBA required 1502 reports and in remitting required guaranty and servicing fees; Has at least an 85% currency rate on its SBA 7(a) loan portfolio for the last 3 complete fiscal years plus the elapsed portion of the current fiscal year to be approved for a 1 year term or a 90% currency rate to be approved for up to a 2 year term; For lenders regulated by one of the federal/state oversight authorities, is in good standing with its primary regulator by submitting a statement to that effect and by disclosing any formal or informal enforcement actions or agreements within the past 2 years (SBA will determine whether an enforcement action or agreement renders the lender unacceptable for participation in this program); Is not subject to any SBA enforcement actions; andHas not received a major substantive objection from its Lead SBA Office. (ii) For SBA lenders with less than 3 years of SBA lending experience/data, the Agency may consider performance over the period of time the lender has been an SBA lender, but will limit the lender’s initial term of participation to 1 year or less. Lenders that identify significant differences between the performance numbers developed by the lender and those developed by SBA (not related to a lack of accurate 1502 reporting) may contact the SLPC to resolve any differences. (iii) Lenders that do not currently participate with SBA A lender that does not currently participate with SBA must demonstrate that it: (a) Is in good standing with its primary federal/state regulator by submitting a statement to that effect and by disclosing any formal or informal enforcement actions or agreements within the past 2 years (SBA will determine whether the enforcement action or agreement renders the lender unacceptable for participation in this program);(b) Has at least 20 commercial or business loans for $350,000 or less at their most recent fiscal year end;(c) Has a history of acceptable currency, default rates, and loss rates on loans of $350,000 or less;(d) Ensures its primary SBA loan personnel have received appropriate training on SBA’s policies and procedures (such training could include SBA District Office training and/or trade association training that adequately addresses SBA’s regulations and Standard Operating Procedures, including SBA’s loan processing, servicing, and liquidation requirements); and(e) Has no major substantive objections from the D/OCRM. (3) Process to become an SBA Express LenderA lender may send a written request to the Director, Sacramento Loan Processing Center, 501 I St., Suite 12-100, Sacramento, CA 95814-2322 or fax a request to (916) 930-2406 with an information copy to its Lead SBA Office. As noted above, lenders not currently participating with the SBA must meet the Agency’s lender requirements as set forth in Paragraph 2.c.of this chapter and must become an approved SBA lender before participating in SBA Express. (An application for SBA Express authority may be made simultaneously with the application for SBA lender authority.) An SBA field office may nominate a lender for SBA Express status by sending a written nomination to the Director, SLPC. When an SBA field office nominates a lender for PLP status, it also may nominate the lender for SBA Express status. The SLPC gathers the information relevant to a lender’s participation request. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision. SBA may limit a new SBA lender to a yearly maximum of $25 million of SBA Express in its first year of participation. (4) Supplemental Guaranty Agreement If the lender’s request for SBA Express status is approved, the SLPC notifies the lender of the decision and sends the lender an SBA Express Supplemental Loan Guaranty Agreement to sign and return. The SLPC also sends the lender instructions for submitting SBA Express applications. The lender must sign and return the agreement to the SLPC before the lender’s SBA Express status is effective. (Agreements must be signed and returned to the Center within 60 days of receipt or a new application to the program will be required.) If the lender is a PLP Lender, the term of its SBA Express status, when possible, will be tied to the lender’s remaining PLP term.Lenders not currently participating in SBA’s loan programs that are approved for SBA Express will be limited to an initial SBA Express term of 1 year. (5) Decline of SBA Express StatusIf SBA declines a request for nomination for SBA Express status, the SLPC notifies the lender and Lead SBA Field Office of the reason(s) for decline of the request. The lender may re-apply for SBA Express status when it has overcome the reason(s) for decline. To do so, the lender must file a request with the SLPC and must show how it has overcome the reason(s) for decline. The SLPC will review the request, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision. (6) Renewals of SBA Express StatusThe SLPC will automatically start the renewal process a few months prior to the expiration of a lender’s SBA Express status. The SLPC will contact the lender and ask it for a statement that it is in good standing with its primary federal/state regulator and disclosure of any formal or informal enforcement actions or agreements within the past 2 years.The SLPC will also contact the lender’s Lead SBA Office and the SBA’s servicing and liquidation centers. The comments of those offices should pertain to the lender’s most recent SBA Express term and must include:(a)Whether they recommend renewal;(b)If they do not recommend renewal, why not;(c)Whether the lender can effectively process, close, service and liquidate SBA loans;(d)Changes in lender’s organization or management;(e)Any recurring denial of liability or repair situations with the lender;(f)Reasons for any unfavorable loan volume or repurchase rate data;(g)Identification of any areas of concern; and(h) An explanation of any discussions with the lenders that may have impact the SBA Express decision.The SLPC gathers the information relevant to a lender’s renewal. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision. Lenders that have participated in SBA Express for 2 years or more may be renewed in the program for a term up to 2 years, but SBA may renew for less than 2 years if lender or program circumstances warrant. Lenders participating in SBA Express for less than 2 years may be renewed in SBA Express for an additional year and may be renewed for up to 2 years thereafter. In renewing a lender and determining its renewal term for SBA Express, SBA will consider whether the lender: (a) Can effectively process, close, service, and liquidate SBA loans and has a history of acceptable currency, default rates, and loss rates;(b) Is in compliance with applicable SBA Loan Program Requirements (as defined in 13 CFR 120.10);(c) Has been reviewed by and received a satisfactory review from OCRM and has no major objections from the D/OCRM; (d) Has generally been current in filing SBA required 1502 reports and in remitting required guaranty and servicing fees; (e) Has a satisfactory performance history with SBA, including acceptable currency, default, and loss rates, including at least an 85 percent currency rate on their SBA 7(a) portfolio for the last 3 complete fiscal years plus the elapsed portion of the current fiscal year (lenders achieving at least an 85 percent currency rate may be renewed for up to a 1 year term, while lenders achieving a 90 percent currency rate may be approved for up to a 2 year term); (f) Is in good standing with its federal or state financial regulator and, if the lender has disclosed any formal or informal enforcement actions or agreements, whether those actions or agreements make the lender ineligible for SBA Express status; (g) Is not subject to any SBA enforcement actions; and(h) Has received substantive objections from its Lead SBA Office. The SLPC notifies the lender of SBA’s decision and, if the renewal is approved, the SLPC sends the lender a new SBA Express Supplemental Guaranty Agreement to sign. The lender must sign and return the agreement to the Center before the lender’s SBA Express renewal is effective. (Agreements must be signed and returned to the Center within 60 days of receipt or a new application to the program will be required.) If the renewal is declined, the lender will be notified of the reason(s) for the decline, and it may not make SBA Express loans after its SBA Express status expires. The lender may re-apply when it has overcome the reason(s) for decline. To do so, the lender must file a request with the SLPC and must show how it has overcome the reason(s) for denial. The SLPC will review the request, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision. (7) Authority and ResponsibilitiesSBA Express lenders may make SBA Express loans in any area of the country. SBA Express lenders must apply and comply with all of SBA’s Loan Program Requirements. (iii) Eligibility Requirements: In addition to the SBA’s primary business loan eligibility standards set forth in Subpart B, Chapter 2 of this SOP, the following additional restrictions apply to SBA Express loans.(a)Lenders may not use SBA Express for any pilot program unless SBA authorizes use of SBA Express for the pilot.(b)Types of Loans Not Eligible under SBA Express – these types of loans are not eligible under SBA Express processing:1.Disabled Assistance Loans (DAL);2.Energy Loans as described in §7(a)(12) of the Small Business Act (Note: This does not include loans where the Borrower is purchasing, installing or otherwise utilizing equipment designed for its energy conservation.); 3.Qualified Employee Trusts (ESOP);4.Pollution Control program; and5.CAPLines program.(c) Types of Businesses Not Eligible for SBA Express The types of businesses not eligible under standard 7(a) also are not eligible under SBA Express. See Subpart B, Chapter 2 of this SOP. (d) Additional Restrictions Specific to SBA Express Refinancing – See Subpart B, Chapter 2 of this SOP. 2.Lender may not process a loan under SBA Express procedures when a portion of the proceeds will be used for a prohibited purpose by assigning a zero percent of guaranty to the portion which is not SBA Express eligible.3. Reconsiderations of declined loan applications. Reconsiderations of loans previously declined by SBA (regardless of the method by which they were originally processed) may not be processed under SBA Express.4. Previous Submissions. A loan is not eligible for SBA Express if the SBA Express lender is aware that the application was previously submitted to SBA under any SBA program, except that the SLPC Director may waive this prohibition if the application was preliminary or incomplete when previously submitted or it has changed materially since the previous submission. 5. Previous loss to government. A loan may not be processed under SBA Express if:The applicant business previously defaulted on a Federal loan or federally assisted financing that resulted in the Federal Government or any of its agencies or departments sustaining a loss in any of its programs; orAny of the owners, or those that control the applicant business, or any of its associates, previously owned, operated, or controlled a business which defaulted on a Federal loan (or guaranteed a loan which was defaulted) and caused the federal government or any of its agencies or departments to sustain a loss in any of its programs. This includes any compromise agreement with any such agency/department. This restriction applies whether or not SBA was involved in the previous loss.(iv) SBA Express Lender’s Processing Responsibilities(a) Lender’s Eligibility Review1. SBA Express is a streamlined program, so complex or ambiguous eligibility issues should be processed using standard 7(a) procedures rather than through SBA Express. SBA grants SBA Express lenders increased responsibility for screening applicants and loans for SBA eligibility. SBA Express lenders must be fully familiar with SBA’s eligibility requirements as set forth in the SBA Loan Program Requirements and must screen all SBA Express applicants and loans to ensure they meet those requirements. 2. Lenders may rely, in many instances, on certifications provided by the Small Business Applicant, several of which are included in the SBA Express application documents. In the case of size, the lender may rely on information provided by the applicant at the date of application, unless the lender has credible evidence to the contrary. 3. Certain eligibility issues require additional lender review and/or verification. If, for example, a franchise is involved, the SBA Express lender must review The Franchise Registry (www.franchiseregistry.com) to ensure the agreement continues to meet SBA’s requirements. (See Subpart B, Chapter 2 of this SOP for further guidance on franchise eligibility.) Lenders must follow all standard 7(a) eligibility requirements and maintain appropriate documentation supporting their eligibility screening in the loan file. The lender also must ensure all required forms/information are obtained, complete and properly executed.4. SBA may authorize qualified lenders to analyze and fully determine an applicant’s eligibility for an SBA Express loan without submitting the Eligibility Checklist to SBA for its review and approval (“Eligibility Authorized Lenders”).Eligibility Authorized Lenders SBA Express lenders that want to become Eligibility Authorized Lenders must have: (I) Processed at least 25 SBA loans in SBA’s most recent fiscal year; (II) Received a positive recommendation for eligibility authority from the SLPC and the appropriate CLSC; (III) Been reviewed by OCRM and have received an acceptable rating from the D/OCRM in its most recent review;(IV) Received no major substantive objection from the D/OCRM; and (V) No outstanding substantive SBA enforcement actions. (B) Lenders with eligibility authority must use that authority to process all their SBA Express loans. Lenders may consult with SBA regarding a loan’s eligibility prior to submitting the request for an SBA loan number by e-mail to the SLPC at SBA Express_Eligibility_Questions@sba.gov or to SBA’s franchise mailbox at franchise@sba.gov. As noted above, complex eligibility issues should not be processed through SBA Express. (C)Eligibility Authorized Lenders must certify in their request for an SBA loan number that the applicant and the loan meet the Agency’s eligibility requirements. In making that certification, the lender acknowledges complete liability for the loan if it later comes to the attention of SBA or the lender that the applicant or loan was ineligible.(D)Eligibility Authorized Lenders have the option to use SBA’s Eligibility Checklist ( HYPERLINK "http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html" SBA Form 1920SX Part C) which would be maintained in the lender’s loan file but not sent to SBA. If the lender does not use SBA Form 1920SX, Part C the lender must maintain appropriate documentation supporting its eligibility determination in its loan file. (E)Application for eligibility authority.(I) To apply for eligibility authorization, a lender may send a written request to the Director, Sacramento Loan Processing Center with an information copy to its Lead SBA Office. The SLPC will contact the lender’s Lead SBA Office and the appropriate SBA CLSC for information on the lender’s proficiency in making eligibility determinations. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision. (II) The lender’s initial authorization to make eligibility determinations will extend until its next SBA Express renewal date and will coincide with that date thereafter. Eligibility authorization will be conferred for the term of participation in the SBA Express program, although the D/FA or designee may confer that authority for a shorter period. (III)Lender must execute a separate Supplemental Guaranty Agreement (SBA Express) for Eligibility Authorized Lenders. (F) Renewal of eligibility authority.(I) Renewal of eligibility authority will be based on the lender’s: 1. Proficiency in making SBA eligibility determinations; 2. Receiving a positive recommendation for eligibility authority from their Lead SBA Office; 3. Having been reviewed by D/OCRM and receiving an acceptable rating from the D/OCRM in its most recent review;4. Having received no major substantive objection from the D/OCRM; and 5. Having no outstanding substantive enforcement actions. (II) The SLPC will automatically start the renewal process a few months prior to the expiration of a lender’s eligibility authority. The SLPC gathers the information relevant to a lender’s eligibility authority renewal. The SLPC performs an analysis, makes a recommendation and sends it to the appropriate SBA official who makes a decision and notifies the SLPC. The SLPC then informs the lender of SBA’s decision.(III) If the SLPC declines the lender’s request for initial approval or renewal of eligibility authority, the lender will be notified of the reason(s) for the decline. If the lender’s request for renewal of eligibility authority is declined, the lender must submit the Eligibility Checklist with each request for a loan number and can no longer certify to the applicant’s or loan’s eligibility. If the lender wants to apply for reconsideration of this decision, it must file a request for reconsideration with the SLPC and must show how it has overcome the reasons for decline. The SLPC will review the request for reconsideration, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision.5. Lenders Without Eligibility Authority(A) Lenders without eligibility authority must carefully review and screen SBA Express applicants and loans to ensure they meet SBA’s eligibility requirements before transmitting to the SLPC the SBA Express guaranty request, eligibility checklist and supplemental information sheet. (B)Lenders without eligibility authority must ensure all required forms/information are obtained, complete, and properly executed. Appropriate documentation must be maintained, including adequate information to support the eligibility of the applicant and the loan, in the lender’s loan file. Credit Analysis1. SBA has authorized SBA Express lenders to make the credit decision without prior SBA review. The credit analysis must demonstrate that there is a reasonable assurance of repayment. The lender is required to use appropriate, prudent and generally accepted industry credit analysis processes and procedures (which may include credit scoring), and these procedures must generally be consistent with those used for its similarly sized non-SBA guaranteed commercial loans. Lenders that do not use credit scoring for their similarly sized non-SBA guaranteed commercial loans may not use credit scoring for SBA Express. Lenders must validate (and document) with appropriate statistical methodologies that their credit analysis procedures are predictive of loan performance, and they must provide that documentation to SBA upon request. In addition, the credit scoring results must be documented in each loan file and available for SBA review. 2. Lenders must not make a SBA Express loan which would be inconsistent with SBA’s “credit not available elsewhere” standard (see Subpart B, Chapter 2 of this SOP), i.e., lenders must not make an SBA guaranteed loan that would be available on reasonable terms from either the lender itself or another source without an SBA guaranty. 3. The credit decision, including how much to factor in a past bankruptcy or whether to require an equity injection, is left to the business judgment of the lender. Also, if the lender requires an equity injection and, as part of its standard processes for non-SBA guaranteed loans verifies the equity injection, it must do so for SBA Express loans. (Lenders must adhere to the requirement that owners of 20% or more must inject equity into the business above certain thresholds. See Subpart B, Chapter 2 of this SOP, regarding the Utilization of Personal Resources.) While the credit decision is left to the business judgment of the lender, early loan defaults will be reviewed by SBA pursuant to SOP 50-51.(c)Application Documents and Authorization 1. The SBA Express lender is responsible for ensuring all required forms/information are obtained, complete, and properly executed. After the loan is closed, the lender must continue to apprise SBA of certain critical performance data as well as changes in certain basic borrower information, such as trade name and address. See Subpart B, Chapter 6 of this SOP. 2. The lender completes the SBA Express Authorization without SBA review and signs it on behalf of SBA. SBA does not require that this form be provided to the borrower. See Subpart B, Chapter 5 of this SOP.(v) Closing, Servicing and LiquidationThe SBA Express lender must close, service, and liquidate its SBA Express loans using the same reasonable and prudent practices and procedures that the lender uses for its non-SBA guaranteed commercial loans. (vi) Affiliation issues/Change of Lender StatusWhen a holding company with a PLP subsidiary requests an extension of PLP status to a non-PLP subsidiary, it may also request SBA Express status for the non-PLP subsidiary. The nomination or request must include documentation that the lender has met the SBA Express participation requirements set forth above.(8)Monitoring and reviewsSBA uses the L/LMS system to assess SBA Express lenders quarterly through the composite risk rating. In addition, those SBA Express lenders with outstanding SBA balances of $10 million or more are also reviewed on-site, in accordance with SOP 51 00. See Paragraph 3a through c of this Chapter for further information on monitoring and reviews. (9)Supervision and enforcementSee Paragraph 3d of this Chapter for further information on supervision and enforcement. (10)Suspension or revocationSee Paragraph 3e of this Chapter for further information on suspension and revocation. d.Pilot Loan Programs(1) The Patriot Express Pilot Loan InitiativeSBA developed the Patriot Express Pilot Loan Initiative to support the entrepreneur segment of the Nation’s military community (including spouses). This initiative uses streamlined documentation and processing features similar to SBA Express. The specific features of the program, including but not limited to applicant eligibility, maximum loan amounts and guaranty percentages, are set forth in Subpart B of this SOP. (i)Becoming a Patriot Express Lender(a)Existing SBA Lenders1. Lenders that currently participate in the SBA Express or PLP programs are automatically eligible to make Patriot Express loans after they have executed the Patriot Express Supplemental Guaranty Agreement. 2. Lenders that do not currently participate in the SBA Express or PLP programs may request Patriot Express/SBA Express authority. An existing SBA lender must demonstrate that it meets the criteria to participate in SBA Express set forth in Paragraph 4.c.(2) above. 3. How To Request Patriot Express StatusAn SBA lender (or field office on behalf of an SBA lender) may send a request to participate in writing to the Director, Sacramento Loan Processing Center 501 I St. Suite 12-100, Sacramento, CA 95814-2322 or fax a request to (916) 930-2406 with an information copy to its Lead SBA Office. When a lender (or field office on behalf of an SBA lender) requests or extends SBA Express and/or PLP status, it also may request Patriot Express status. When a holding company with a PLP subsidiary requests an extension of PLP status to a non-PLP subsidiary, it also may request Patriot Express status for the non-PLP subsidiary. The nomination or request must include documentation that the lender has met the Patriot Express participation requirements. If the lender’s request is approved, the SLPC will send the lender a Patriot Express Supplemental Loan Guaranty Agreement to be signed by the lender. The Supplemental Guaranty Agreement is found at Supplemental Guaranty Agreement (see appendix 1 in the Patriot Express Program Guide) Agreements must be signed and returned to the SLPC before the lender’s Patriot Express status is effective. (Agreements must be returned within 60 days of receipt or a new application to the initiative will be required.) (b) Lenders Not Currently Participating In SBA’s Loan Programs1. Lenders not currently participating with the SBA must meet the Agency’s lender requirements as set forth in Paragraph 2 of this Chapter and must become an approved SBA Express or PLP lender before participating in Patriot Express. (An application for PLP/SBA Express/Patriot Express authority may be made simultaneously with the application for SBA lender authority. See paragraph 2 of this Chapter.) In order to become an approved SBA Express or PLP lender, the lender must demonstrate that it meets the criteria set forth in Paragraph 4c(2) (SBA Express) or Paragraph 4b(2) (PLP) of this Chapter.2. How To Request Patriot Express StatusThe process is the same as stated above for existing SBA lenders. Lenders not currently participating in SBA’s loan programs that are approved for Patriot Express will be limited to an initial Patriot Express term of 1 year, after which SBA will review their performance.SBA may limit a new SBA lender to a yearly maximum of $25 million of Patriot Express authority in its initial year of participation. (ii) Renewing Patriot Express Lender StatusThe SLPC will automatically start the renewal process a few months prior to the expiration of a lender’s Patriot Express status. The SLPC will contact the lender and ask for a statement that it is in good standing with its primary federal/state financial regulator and disclosure of any formal or informal enforcement actions or agreements during its previous Patriot Express term. The SLPC will also contact the lender’s Lead SBA Office and the SBA’s Servicing and Purchase Centers for information on the lender’s proficiency; its currency, loss, etc. rates; its adherence to SBA policies and procedures; and other information. The SLPC gathers the information relevant to a lender’s renewal, analyzes it, and sends it with a recommendation to the appropriate SBA official, who reviews the renewal, makes a final decision, and forwards that decision to the SLPC.Lenders that have participated in Patriot Express for 2 years or more may be renewed in the initiative for a term up to 2 years, but SBA may renew for less than 2 years if lender or program circumstances warrant. Lenders participating in Patriot Express for less than 2 years may be renewed in Patriot Express for an additional year and may be renewed for up to 2 years thereafter. In renewing a lender and determining its renewal term for Patriot Express, SBA will consider whether the lender meets the criteria set out in Paragraph 4c(6) of this Chapter. The SLPC notifies the lender of the SBA’s decision and, if the renewal is approved, the SLPC sends the lender a new Patriot Express Supplemental Guaranty Agreement to sign. The lender must sign and return the agreement to the SLPC before the lender’s Patriot Express renewal is effective. (Agreements must be signed and returned to the SLPC within 60 days of receipt or a new application to the initiative will be required.) If the renewal is not approved, the lender will be notified as to the reason(s), and it may not make Patriot Express loans after its Patriot Express status ends. The lender may re-apply for Patriot Express status when it has overcome the reason(s) for decline. To do so, the lender must file a request with the SLPC and must show how it has overcome the reason(s) for decline. The SLPC will review the request, make a recommendation and send it to the appropriate SBA official for a final Agency decision. The SLPC will notify the lender in writing of SBA’s final decision. (iii) Authority and ResponsibilitiesPatriot Express lenders have all of the same authority and responsibilities set forth in Paragraph 4c(7) of this Chapter. (iv)Monitoring and Enforcement SBA uses the L/LMS system to assess Patriot Express lenders quarterly through the composite risk rating. In addition, those lenders with outstanding SBA balances of $10 million or more are also reviewed on-site, in accordance with SOP 51 00. See Paragraph 3a through c of this Chapter for further information on monitoring and reviews. (v)Supervision and enforcementSee Paragraph 3d of this Chapter for further information on supervision and enforcement. (vi)Suspension or revocationSee Paragraph 3e of this Chapter for further information on suspension and revocation. (2)Export Express Pilot Loan ProgramThe Export Express Pilot Loan Program is designed to help SBA meet the export financing needs of small businesses too small to be effectively met by existing SBA export loan guaranty programs. It is generally subject to the same loan processing, making, closing, servicing, and liquidation requirements as well as the same maturity terms, interest rates, and applicable fees as the SBA Express Loan Program. Any differences between the Export Express requirements are set forth in the appropriate section of this SOP. (For example, certain uses of loan proceeds are allowed under Export Express that are not allowed under SBA’s other lending programs. See Subpart B, Chapter 2.) (i) Becoming an Export Express Lender(a) Lenders provided SBA Express authority may also make SBA Export Express loans. (b) To retain or renew Export Express authority, SBA Express lenders must:1. Effectively process, make, close, service, and liquidate Export Express loans;2. Maintain satisfactory performance history with respect to Export Express loans, including acceptable default and currency rates;3. Remain in substantial compliance with applicable SBA Loan Program Requirements; 4. Have received no major substantive objections regarding renewal from the field office(s) covering the territory where the lender generates significant numbers of Export Express loans; and5. Received acceptable review results on the Export Express portion of any SBA administered lender reviews. (ii)SBA will generally grant lenders Export Express loan authority for a term that coincides with the lender’s SBA Express term, unless the D/FA or designee determines a shorter term is appropriate. (iii)Monitoring and reviewsSBA uses the L/LMS system to assess Export Express lenders quarterly through the composite risk rating. In addition, those lenders with outstanding SBA balances of $10 million or more are also reviewed on-site, in accordance with SOP 51 00. See Paragraph 3a through c of this Chapter for further information on monitoring and reviews. (iv)Supervision and enforcementSee Paragraph 3d of this Chapter for further information on supervision and enforcement. (v)Suspension or revocationSee Paragraph 3e of this Chapter for further information on suspension and revocation. (3)Community Express Pilot Loan Program[RESERVED]CHAPTER 2SMALL BUSINESS LENDING COMPANIESA SMALL BUSINESS LENDING COMPANY (“SBLC”) IS: HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=a33e6cb15ce56ef7fdbf83f77d725142&rgn=div8&view=text&node=13:1.0.1.1.14.4.219.32&idno=13" 13 CFR 120.470 authorized by the Administrator to make loans pursuant to section 7(a);regulated, supervised and examined solely by SBA; subject to additional SBA regulations specific to SBLCs regarding the formation, capitalization, and enforcement actions; and subject to all other 7(a) regulations specific to loan processing, servicing and liquidation. 2.PROCESS FOR APPLYING TO BECOME AN SBLCa.SBA regulations restrict the issuance of the SBA lending authority to operate as an SBLC to 14 entities. To become an SBLC, an entity must purchase one of the existing lending authorities from a current SBLC. b.The private parties negotiate a purchase and sale agreement which includes the terms and conditions related to the sale. c.A written request by the selling SBLC to the D/FA for approval of a transfer of ownership and control by the entity transferring the SBA lending authority becomes notice to SBA of the intent to transfer. The written request should include:(1) the name and address of the acquiring concern; and(2) the name of the acquiring concern’s primary contact.d.The acquiring concern must file a request for transfer in duplicate with the D/FA addressing each of the following elements:The Legal name, address, telephone, facsimile and email address of the acquiring concern;Identification of the form of organization of the proposed SBLC along with stamp-filed copies of the concerns articles of incorporation or limited liability company operating agreement;Identification of the proposed SBLC’s capitalization including the form of ownership, the identification of all classes of equity capital and proposed funding amounts, rights and preferences accorded to each class of stock or members interest (including voting rights, redemption rights, and rights of convertibility) and conditions for transfer, sale or assignment of these interests;The proposed SBLC’s geographic area of operation;Identification of all officers, directors, limited partners, members and all other parties that propose to hold an equity interest of at least 10% of the economic interest in any class of stock, limited partnership interest or members interest in the concern.An organization chart showing the relationship of the proposed SBLC with all related associates and affiliates within the organization.A copy of the SBA Form 1081, Statement of Personal History for each individual and entity identified in (5) above.Proof of fidelity insurance coverage as detailed in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=a33e6cb15ce56ef7fdbf83f77d725142&rgn=div8&view=text&node=13:1.0.1.1.14.4.219.32&idno=13" 13 CFR 120.470(a)(10). A comprehensive business plan that details:the nature of proposed operations, including the organizational units involved in sourcing, evaluating, underwriting, closing, disbursing servicing and liquidating small business loans in the organization;the level of prospective lending activity for the first three years of operation;the identification of all sources of capital used to finance lending operations; and a projected balance sheet, income statement and statements of cash flows three years forward, along with the related interest rate, default and prepayment assumptions. The plan projections should be assembled under three different operating scenarios: normalized activity, activity assuming a 30% reduction in projected lending, and activity based on a 50% reduction in projected lending.(10)All documents associated with any type of external financing expected to be undertaken by the proposed SBLC;(11)A written statement from an authorized official of the acquiring concern certifying that the SBLC will not be primarily engaged in the financing the operations of an affiliate as defined in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=247d18298768437f2d1a3057dae73d57;rgn=div5;view=text;node=13%3A1.0.1.1.15;idno=13;cc=ecfr" \l "13:1.0.1.1.15.1.263.3" 13 C.F.R. 121.103. (12)The most recent audited financial statements of the acquiring concern if it has been in operation for more than one year, or the audited financial statements of the acquiring concern’s parent company.(13)A certified copy of a board, limited partners, or members resolution specifying the individual(s) or officials granted the authority by the organization to submit this SBLC application;(14)A written opinion of independent counsel that addresses:whether the acquiring concern is duly formed and organized and in good standing; whether the acquiring concern is qualified to enter into this transaction; andthe qualifications of the individual or official to submit the application.(15)A certification by the acquiring concern that it is in full compliance with all federal, state, and local laws.e.The D/FA will provide written notification to the acquiring concern that SBA will not object to the transfer of the lending authority. Included with this letter will be all applicable SBA Form 750 agreement(s) for execution and return to OFA. Note: Lender participation in specific SBA programs such as PLP and SBA Express will be considered separately. CHAPTER 3CERTIFIED DEVELOPMENT COMPANIESTHE 504 LOAN PROGRAM a. The SBA 504 Loan Program is an economic development program offering a financing package that stimulates private sector investment in long-term fixed assets to increase productivity, create new jobs, and increase the local tax base. The stimulus is provided by making long-term, low down payment, reasonably priced fixed-rate financing to healthy and expanding businesses which have the highest probability of successfully creating new jobs and competing in the world marketplace. b. Certified Development Companies (CDCs) are non-profit corporations certified and regulated by the Small Business Administration to package, process, close, and service 504 loans. 504 loans are issued through a partnership with Certified Development Companies (CDC) and private sector, third party lenders. There are a small number of for-profit CDCs that have been grandfathered into the current 504 program. The provisions of this SOP apply to the non-profit and the for-profit CDCs in accordance with the terms of the regulations. c. Terms and definitions specific to the 504 program can be found at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.228.3" 13 CFR 120.802BECOMING A CDCa. A CDC must provide evidence of the following in its application HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.228.4" 13 CFR 120.810: (1)Non-Profit Status HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.6" 13 CFR 120.820 - A CDC must be a non-profit corporation and must:Be in good standing in the State in which the CDC is incorporated; Be in compliance with all laws, including taxation requirements, in the State in which the CDC is incorporated and any other State in which the CDC conducts business; andProvide a copy of their IRS tax exempt status.(2)Area of Operations HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.7" 13 CFR 120.821– The Area of Operations is the state of the CDC’s incorporation.(3)CDC Membership HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.8" 13 CFR 120.822 – A CDC must have at least 25 members who actively support economic development in their area of operations. Members are responsible for electing the Board of Directors of the CDC. The Members must represent the following 4 Membership groups: Government organizations; Financial institutions (lenders);Community organizations such as chambers of commerce, foundations, trade associations, colleges, universities, or small business development centers; and Businesses in the Area of Operations. (4) Other Membership requirements are:CDC membership must meet annually. Membership meetings require a quorum to transact business. A quorum must be present for the duration of the meeting. SBA defines a quorum as the presence of at least 51% (in person or by proxy) of the Members entitled to vote.No person or entity can own or control more than 10% of the CDC's voting membership.No employee or staff of the CDC can qualify as a member of the CDC for the purpose of meeting the membership requirements. (5)CDC Board of Directors HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.823 - The CDC must have a Board of Directors chosen from the membership by the members. In addition: There must be at least 3 of the 4 membership groups represented on the Board. No single membership group shall control the Board.No person who is a member of a CDC's staff may be a voting member of the Board except for the CDC manager. At least 1 member other than the CDC manager must possess commercial lending experience.The Board must meet at least quarterly and shall be responsible for CDC staff decisions and actions.A quorum shall require at least 5 Directors authorized to vote. The Board meetings require a quorum to transact business. A quorum must be present for the duration of the meeting.SBA allows interim vacancies on the Board of Directors to be filled by a majority of the remaining Board members. Any person filling an interim vacancy must stand for election at the next Annual or Special meeting of the members, whichever comes first.If a new Board position is created, it must be filled by a vote of the members at the next Annual or Special meeting of the members.When the Board votes on SBA loan approval or servicing actions, at least 1 Board Member with commercial loan experience acceptable to SBA, other than the CDC manager, must be present and vote. There must be no actual or apparent conflict of interest with respect to any actions of the Board.The CDC Board of Directors may delegate management functions to an Executive Committee. The Executive Committee must meet the same requirements as the Board of Directors. (6) Committees HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.823(a) – The Board may establish a Loan Committee comprised of members of the CDC who may or may not be on the CDC’s Board of Directors. The Loan Committee reports to the Board, and members must include:At least 1 member with commercial lending experience acceptable to SBA;All members of the Loan Committee must live or work in the Area of Operations of the State where the 504 project they are voting on is located;No CDC staff may serve on a Loan Committee;A quorum must have at least 5 committee members authorized to vote; The CDC's Board must ratify the actions of any Loan Committee; andThere must be no actual or apparent conflict of interest with respect to any actions of the Loan Committee.For multi-state CDCs there must be a separate Loan Committee for each state into which the CDC expands. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=f6478aff989d4a43addb5afb9b2f9c1b&rgn=div8&view=text&node=13:1.0.1.1.14.8.229.9&idno=13" 13 CFR 120.823(b) (7)CDC Staff HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.824 - A CDC must have:Full-time professional management, including an Executive Director (or the equivalent) managing daily operations.A qualified full-time professional staff to market the 504 program, package and process, close and service loans.CDCs may obtain, under written contract, professional services, but the CDC must have:At least one full-time, salaried professional employee to manage the CDC that is employed directly. A CDC may petition SBA to waive the requirement of the manager being employed directly if: Another non-profit with the same Area of Operations as the CDC and with economic development as one of its principal activities will contribute to the management of the CDC; orThe petitioning CDC is rural and has insufficient loan volume to justify having management employed directly by the CDC. SBA must pre-approve professional service contracts with the exception of accounting and legal services. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.824(b)-(f)The contract must: demonstrate that the CDC is not a shell for another entity as a result of the contract;not diminish the responsibility of the Board of Directors for the operations of the CDC;state that the CDC’s Board of Directors specifically acknowledges and retains the ultimate responsibility for all loan approvals and loan servicing actions, HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR §120.823, and that such responsibility must be carried out independently of any control by the Contractor;state that no contractor or associate of the contractor may be a voting or non-voting member of the CDC’s Board of Director;clearly state the:contract is for services performed; description of services that the contractor will perform;payment is for services actually rendered;compensation must be broken down by individual if more than one person is being compensated under the contract; a description of each individual who is providing services under the contract, whether the individuals are specifically named in the contract;sources of compensation for services; rate of compensation for all parts of the contract except servicing must be stated at an hourly rate. The servicing portion may be based on a percentage not to exceed the amount authorized by the regulations. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.248.79" 13 CFR 120.971(a)(3)basis for its determination that the fees are customary and reasonable for similar services in the area ;additional compensation from CDC fee income such as multipliers or bonuses are not permitted; andcontract payments for professional services should not exceed 75% of the CDC’s 504 processing and servicing income;include a provision that allows the CDC to terminate the contract with written notice (usually a 30 to 60 day notice) without penalty at anytime prior to the expiration date of the contract; state the term of the contract and cannot be open-ended; state that all compensation paid to the contractor will be paid by the CDC and that the contractor cannot charge the borrower for the same services;state that the contractor is prohibited from requiring a 503/504 applicant or borrower to purchase other services from the contractor as a condition of the contractor’s performing CDC staff or management functions;A Board of Director’s Resolution must accompany the contract and contain a statement:that the contract is in compliance with HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=25edbf82c11079ad866435aa418ee40a;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.824 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.11" 120.825 and SBA Loan Program Requirements;of understanding that the contract is subject to pre-approval and yearly review by SBA; andof understanding that submission of the contract with the Annual Report is required.(iv)Financial Ability to Operate HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.11" 13 CFR 120.825A CDC must be able to sustain its operations continuously, with reliable sources of funds (such as income from services rendered and contributions from government or other sponsors). Any funds generated from 504 loan activity by a CDC remaining after payment of staff and overhead expenses must be retained by the CDC as a reserve for future operations or for investment in other local economic development activity in its Area of Operations. b.Basic Operating and Ethical Requirements for CDCs(1) A CDC must operate in accordance with all SBA Loan Program Requirements. It must supply to SBA current and accurate information about all certification and operational requirements, and maintain all records and submit all reports required by SBA. 13 CFR 120.826 and 13 CFR 120.830(i) Audited financial statements must be prepared by an independent CPA or independent accountant in accordance with Generally Accepted Accounting Principles (GAAP) for CDCs with 504 loan portfolio balances of $20 million or more; or at a minimum a review by an independent CPA or independent accountant in accordance with GAAP for CDCs with 504 loan portfolio balances of less than $20 million. (ii)For further guidance on the preparation of the annual report, refer to the Operational Review Guide for the Annual Report and the Operational Review Example Format. Within 60 days of receipt of the CDC annual report, the SBA field office must forward a copy to the Director/Loan Programs Division (D/LPD) along with the field office’s analysis and review of the annual report and a CDC operational review. If the annual report is incomplete, the SBA field office must notify the CDC in writing and within 30 days of receipt of SBA’s notice, the CDC must resubmit a complete annual report. (2) Regulations regarding the ethical requirements for CDCs may be found at 13 HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.1.190.12" CFR 120.140 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.234.27" 13 CFR 120.851.(3) Restrictions regarding CDC participation in SBIC and 7(a) programs may found at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.234.28" 13 CFR 120.852.The CDC’s place of business:must be accessible and open to the public during regular business hours with an adequate staff to perform normal business transactions;may be located with a sponsoring organization if it is clearly evident to the public that the CDC is a separate entity; and must have a separately listed telephone number; and at least one qualified professional staff member available full-time as described in paragraph 2.a.(7) above. CDC Loan files:All loan case files and collateral documents must be either at the principal office of the CDC or maintained in a manner acceptable to SBA that permits their immediate access. A CDC must provide, at its own expense, documents or copies when requested by SBA. The CDCs maintaining computer-stored documents must ensure that the documents are actual reproductions of original documents. File Retention Guidelines:Inquiries, partial applications, withdrawn applications, and applications turned down by the CDC or SBA must be kept for 2 years after notification of incomplete application, withdrawal, or decline. After 2 years, the files may be destroyed.General correspondence must be kept for 1 year. Case-specific correspondence should be filed in the case file. Paid off loan files (including the original application file, servicing file and closing file), must be kept for 2 years after the loan has been paid in full. Files from liquidated loans (including the original application file, closing and servicing files), must be kept for 2 years after the loan has been charged off. CDC financial and organizational records: The CDC must maintain its own financial records including books of account and minutes of all meetings of members, stockholders, directors, executive committees, and other officials. The CDC financial reports furnished to SBA must contain complete disclosure of matters relevant to the act and regulations. Records and documents which are the basis for or related to its financial statements or loans must be maintained in a manner that permits their immediate availability. All organizational files must be accessible to SBA. CDC fiscal year: The CDCs choose their own fiscal year. The CDC must notify its Lead SBA Office of any change. c. Operational changes the CDC must report to SBAAny changes in a CDC’s address, telephone number, officers, directors, professional staff, bylaws, or articles of incorporation must be reported to its Lead SBA Office not later than 30 days after the change takes place. “Statements of Personal History,” (SBA Form 1081), complete personal resumes, and fingerprint cards (FD 258), must be filed on new officers, directors, and professional staff as required in paragraph 3.a. below. The CDC must submit notice of all changes to its Lead SBA Office by certified mail or other form of delivery from which a receipt of acceptance is obtained. All changes are subject to post-approval by SBA. If the CDC works with multiple SBA district offices, the CDC is responsible for updating all SBA offices about any changes in the CDC’s name, address, telephone number and professional staff. CDC legal name changes must be submitted to the D/LPD for prior approval. After approval, the CDC must send a copy of the board resolution authorizing the change and a copy of the Amendment to the Articles of Incorporation approved by the State acknowledging the legal name change to all the appropriate SBA field offices, the SLPC, appropriate SBA CLSC, the National Guaranty Purchase Center, and to the D/LPD. The Lead SBA Office will notify Central Servicing Agent (CSA). Note: the CDC must use its legal name, not a “dba” name on all correspondence. Within 10 business days of the date a CDC becomes a party to litigation or other legal proceedings, it must submit a written report, by certified or overnight mail, to its Lead SBA Office and must notify all appropriate SBA field offices. The report must describe the proceedings, the CDC’s identity and relationship to other parties involved. Once proceedings are terminated by settlement or final judgment, the CDC must promptly advise SBA of the terms. Any change affecting the perception of the CDC’s “good character” must be reported immediately to the CDC’s Lead SBA Office. d.Other CDC Services HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.13" 13 CFR 120.827A CDC may provide a small business with assistance unrelated to the 504 loan program as long as the CDC does not make such assistance a condition of the application for a 504 loan. A CDC is subject to HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=5a00d28a0f107a0d8803e94780040712&rgn=div5&view=text&node=13:1.0.1.1.3&idno=13" 13 CFR Part 103 when providing such assistance.e. Minimum Level of Activity and Restrictions on Portfolio Concentrations HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.14" 13 CFR 120.828A CDC must have at least 4 approvals during 2 consecutive fiscal years, and the portfolio must be diversified as to type of business.f.Job Opportunity Average 13 CFR 120.829(1) A CDC must maintain the required average of one Job Opportunity per an amount of 504 loan funding as specified by SBA from time to time in the Federal Register and must indicate in its annual report the Job Opportunities actually or estimated to be provided by each Project.(2) A CDC is permitted two years from its certification date to meet this average. If a CDC does not maintain the required average, it may retain its certification if it justifies to SBA's satisfaction its failure to do so in its annual report and shows how it intends to attain the required average.3. THE PROCESS OF APPLYING TO BECOME A CDC a.The Application 13 CFR 120.810 The Application for Certification as a Certified Development Company, SBA Form 1246, outlines the requirements for an application. The following documents must accompany the application: Membership list of persons/entities organized by membership groups;Board of Directors List organized by membership groups and accompanied by SBA Form 1081, Statement of Personal History, for each Board Member (any Board member that answers “yes” to questions numbers 9, 10a, 10b, or 10c on SBA Form 1081 must also submit fingerprint cards); Plan of Operation - a narrative describing the applicant’s ability to package, process, close and service the loans. In addition, the plan should identify the applicant’s financial and legal capacity and identify how it plans to market the 504 program and the geographic area it plans to serve;Organizational Chart;List of all officers and paid employees of the CDC (including all contracted staff and contractors performing loan packaging, processing, closing and servicing for the CDC) accompanied by a completed SBA Form 1081 for each officer and paid employee and fingerprint cards for paid employees and contractors (any officer that answers “yes” to questions numbers 9, 10a, 10b, or 10c on SBA Form 1081 must also submit fingerprint cards);Certificate of Incorporation;Articles of Incorporation;By-Laws, which must include the regulatory requirements regarding Membership and the Board of Directors;Board Resolution authoring the CDC’s creation;(10) Financial statements and projections demonstrating the CDC’s financial ability to operate.b. Where to Apply (1) The CDC submits an original and one copy of the application to the SBA field office serving the proposed Area of Operations. If there is more than one field office serving the proposed Area of Operations, the CDC submits its application to the field office where the CDC will be headquartered. The field office will review the application and forward all SBA Forms 1081 and fingerprint cards to OIG. If the application is complete and eligible, the field office will forward to the appropriate SBA official for a final decision: the application; copies of SBA Forms 1081 with attachments; a notation that the SBA Forms 1081 and fingerprint cards have been forwarded to OIG; and its recommendation. (2) Decline at the Field Office: If the field office declines a CDC application, it will notify the CDC in writing outlining the reasons for decline and the CDC’s rights of appeal, with a copy to the appropriate SBA official. The CDC applicant has 60 days to send an appeal to the field office for action by the next higher authority.(3) Final Decision – SBA will send a letter to the CDC applicant notifying it of the decision with a copy to the appropriate SBA district director.c.Probationary Period for a New CDC 13 CFR 120.812(1) Newly certified CDCs will be on probation for a period of two years. Shortly before the end of the probationary period, to apply for permanent status the CDC must provide the field office with:A current Membership List; A current Board of Directors List; A list of all members of all committees; Current By-Laws, including any amendments; andCurrent Articles of Incorporation, including any amendments.(2) The field office must obtain comments from the SBA processing and servicing centers as to the quality of the CDC’s processing and servicing. The field office must include the centers’ comments and its own comments on the CDC’s closing in its recommendation to the appropriate SBA official. (3) SBA will consider failure to apply for permanent status before the end of the probationary period as a withdrawal from the 504 program. If the CDC withdraws, it must transfer all funded and/or approved loans to another CDC approved by SBA.(4) The CDC must have appropriate personnel attend industry training in credit analysis, 504 packaging, closing and servicing within 1 year of certification.4.SBA OVERSIGHT OF CDCSa. CDCs must submit to SBA the reports listed in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=083708f8df5b3c7e9e606c7ae1be2fbf&rgn=div8&view=text&node=13:1.0.1.1.14.8.229.16&idno=13"13 CFR 120.830b. SBA oversees CDCs through: (1) Loan and Lender Monitoring System (L/LMS): L/LMS is an internal SBA data system that includes use of predictive small business credit scoring. All SBA 504 loans with an outstanding balance are credit-scored quarterly. These data are aggregated, analyzed and evaluated to assess the credit quality of each individual SBA lender’s portfolio of SBA loans. SBA uses this information to monitor the performance of CDCs individually and in comparison to their peers.(ii) Using SBA’s L/LMS system, SBA assigns all CDCs a composite rating. The composite rating reflects SBA’s assessment of the potential risk to the government of that CDC’s SBA portfolio performance. The specific performance factors which comprise the composite rating are published from time to time by SBA’s Office of Credit Risk Management (OCRM). In general, these factors reflect both historical CDC performance and projected future performance. SBA performs quarterly calculations on the common factors for each CDC, so CDCs’ composite risk ratings are updated on a quarterly basis. (iii) SBA established peer groups to minimize the differences that could result from changes in loan performance for portfolios of different sizes. The peer groups are based upon outstanding SBA dollars, and for CDCs they are:$100,000,000 or more$30,000,000 - $99,999,999$10,000,000 - $29,999,999$5,000,000 - $9,999,999$0 - $4,999,999(iv) SBA assigns a composite rating of 1 to 5 to each CDC based upon its portfolio performance, as reported in L/LMS. A rating of 1 indicates strong portfolio performance, the least risk, and requires the lowest degree of SBA management oversight (relative to other CDCs in its peer group). A 5 rating indicates weak portfolio performance, the highest risk, and requires the highest degree of SBA management oversight HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-9442.pdf" . 72 FR 27611.(2) Lender Portal (i) SBA communicates CDC performance to individual CDCs through the use of SBA’s Lender Portal (Portal). The Portal allows a CDC to view its own quarterly performance data, including its current historical composite risk rating, peer and portfolio averages. Portal data includes both summary performance and credit quality data. Summary performance data is largely derived from data that is provided to SBA through the Central Servicing Agent. If a CDC reviews its performance components and finds a discrepancy with its records, the CDC should contact OCRM. (ii) CDCs with at least 1 outstanding SBA loan may apply for the Portal access. Currently SBA issues only 1 Portal user account per CDC. Submission of initial requests for a Portal user account must be submitted to SBA’s OCRM, and must include the following information:(a) Request must be made by a senior officer of the CDC with proper authority (Senior Vice President or higher);(b) Request must be sent via regular or overnight mail to the SBA’s OCRM at 409 Third Street, SW, Washington DC 20416, ATTN: Director, Office of Credit Risk Management;Request must be made using the CDC’s stationery;Request must include the user’s business card;The stationery and business card should include the CDC’s name and address;The request should include the following data:SBA FIRS ID Number(s);Account user’s name and title;Account user’s mailing address, telephone number and email address at the CDC;Requesting officer’s name and title; and Requesting officer’s mailing address, telephone number and email address at the CDC.(g) Once SBA receives and approves the user’s request, SBA will forward the approval to SBA’s Portal contractor for issuance of a user account name and password. The Portal contractor will email the user his or her user name and password within approximately two weeks of account approval. The user can then access its data by logging into the SBA Lender Portal web page. Before accessing the Portal, lenders must agree to the terms of a Confidentiality Agreement, which is found on the SBA Lender Portal web page.(h) CDCs are responsible for complying with and maintaining the Portal user accounts and passwords as set forth in the Confidentiality Agreement on the Portal web page, and as published by SBA from time to time. CDCs are also responsible for timely informing SBA to terminate or transfer an account if the person to whom it was issued no longer holds that responsibility for the CDC. CDCs must take full responsibility for protecting the confidentiality of the user password and the CDC risk rating information and for ensuring the security of the data. HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/E7-9442.htm" 72 FR 27611, May 16, 2007(3) Off-site monitoring and on-site reviews L/LMS provides performance information that allows SBA to monitor and conduct off-site reviews of all CDCs. Off-site monitoring serves as the primary means of reviewing CDCs with less than $30 million in SBA dollars outstanding although SBA may determine at its discretion to conduct on-site reviews of these CDCs. SBA will contact the CDC if the review detects performance issues or trends requiring further discussion. (i) For CDCs with $30 million or more in SBA dollars outstanding L/LMS details historical and projected performance data:(a) for use in planning and conducting on-site reviews or examinations; (b) to assist in prioritizing on-site reviews or examinations, and (c) as a system to monitor CDCs between on-site reviews or examinations. Additional information regarding on-site reviews and examinations can be found in SBA’s SOP 51 00.(ii) Additionally, in accordance with 13 CFR 120.414 , a CDC must allow SBA’s authorized representatives access to its SBA files to review, inspect and/or copy all records and documents relating to SBA guaranteed loans. c. Supervision and EnforcementAn integral part of overseeing the CDC program is SBA’s authority to supervise and take enforcement actions as necessary. The D/FA has responsibility for day-to-day management of CDCs with an SBA risk rating of 1, 2, or 3. With the exception of servicing actions on individual loans which will be reviewed by OFA, the D/OCRM is responsible for day-to-day management including approving delegations of program authority of CDCs with an SBA risk rating of 4 or 5 HYPERLINK "http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-8170.pdf" . 70 FR 21262 d.Oversight and enforcement actions 13 CFR 120.854(1)SBA may take enforcement actions against a CDC if the CDC:(i)fails to receive approval for at least 4 loans during 2 consecutive years;(ii) fails to comply materially with SBA Loan Program Requirements;(iii) makes a material false statement or fails to disclose a material fact to SBA;(iv)performs actions with respect to the 504 loans in a commercially imprudent or unreasonable manner;(v) fails to correct a deficiency after receiving notice of same from SBA; or(vi) exercises poor behavior or takes actions undermining SBA’s management of the 504 program. (2)SBA may take enforcement actions against an ALP or PCLP CDC if the CDC:(i) does not continue to meet the requirements for eligibility; (ii) fails to follow SBA Loan Program Requirements; or(iii)fails to maintain a LLRF (PCLP only).(3)SBA identifies the types of enforcement actions in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.236.31" 13 CFR §120. 855. SBA, in its sole discretion, may require: (i)immediate suspension may be issued upon written notice when SBA determines that such action is necessary to prevent significant loss to SBA or significant impairment of program integrity;(ii)suspension or termination of the CDC’s authority to: (a) Participate in the 504 program or any pilot or other program within the 504 program; or (b) Perform any function under the program (processing, closing, servicing, liquidation or litigation).(iii)transfer of some or all of the CDC’s portfolio to another CDC; (iv)instruct the Central Servicing Agent (CSA) to withhold payments to CDC; or(v)for ALP or PCLP CDCs, suspension or termination of the CDCs authority to participate as an ALP or PCLP CDC. (vi) The term of any suspension will be determined by SBA in its sole discretion.(4) Enforcement Procedures HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.236.32" 13 CFR §120. 856 (i) For all enforcement actions other than immediate suspension, SBA will issue a written notice to the CDC:(a)identifying the proposed action;(b)outlining the reasons for the action; and(c)stating the term of the any suspension proposed.(ii)For immediate suspension, the written notice will contain the:(a)reasons for the action; and, if from a third party, the1.name of the third party, and2.documentation received from that party; or3.if there are compelling reasons not to release that information, a summary of same.(b) term and scope of the suspension. (iii)A CDC proposing an objection to the action must file a written objection to the D/FA or other person identified in the notice within 30 calendar days of its receipt of the notice from SBA as provided in 13 CFR § 120.856. (iv)Upon CDC’s request, SBA, in its sole discretion may extend the time to object.(v)If CDC timely files a written objection, SBA will (a)issue a written notice of decision to the CDC; and (b)for immediate suspension, .the notice must be issued within 90 days of receiving the objection advising if SBA is continuing with the suspension.(vi)SBA, in its sole discretion, may:(a)seek additional information; or(b)consider an untimely objection.(vii)SBA may then issue a notice of final agency decision.(viii)CDC may appeal the final agency decision in accordance with HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=7cb1e4f4d8083a6d1c2e99245f8143bc&rgn=div5&view=text&node=13:1.0.1.1.21&idno=13" 13 CFR Part 134. (5) Voluntary Transfer and Surrender of CDC Certification SBA regulations at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.236.33" 13 CFR 120.857 discuss the circumstances under which a CDC can voluntarily transfer and surrender its certification. 5.TYPES OF CDCsIn order for a CDC to apply for a change in status, the CDC must be in compliance with SBA Loan Program Requirements.Priority CDCs HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.228.3" 13 CFR 120.802Priority CDC status provides for expedited 504 loan closing. To request this status, the CDC must use the services of a Designated Attorney.(1)To become a priority CDC, a CDC must have:(i)At least one 504 closing attorney, designated as provided below;(ii)Adequate experience and expertise in 504 loan closings;(iii)A history of presenting complete and accurate closing packages;(iv)A qualified and knowledgeable staff; (v)A satisfactory working relationship with its Lead SBA Office; and(vi)Directors and officers’ liability insurance in form and substance satisfactory to SBA with:an endorsement covering CDC committees and staff engaged in the closing process; limits of at least $1,000,000/$1,000,000; a deductible not more than $10,000; and a declaration that SBA will receive at least 20 days prior notice of any lapse of coverage, failure to renew, or cancellation.The CDC must submit to SBA annually a certificate from its insurance carrier confirming this coverage.(2)Application Process (i) Application by the CDC(a) The CDC submits a written application to the Lead SBA Office. The application must address each of the items in the previous paragraph, the items identified in paragraph 3.a.(1), (2) and (5) above, and must include a copy of the CDC’s insurance policy or a certificate of insurance or declarations page showing:the amount of coverage; the amount of the deductible; the premium; and a declaration from the insurance company that SBA will receive the required 20-day notice of cancellation.(b) The Lead SBA Office forwards the application to the D/LPD with the recommendations of the district director, district counsel and other field offices, if applicable.(ii) Nomination by the Lead SBA Office(a) The Lead SBA Office sends a nomination to the D/LPD with a copy to the CDC. The nomination must be signed by the district counsel and the district director. The nomination should address all of the conditions above and include evidence of the required insurance coverage and the name of the Designated Attorney. (b) If the application contains both a request for Designated Attorney and a request for priority status, the Lead SBA Office should send the complete package to the D/LPD, who will forward the attorney information to Office of General Counsel (OGC).(iii)Notification to the CDCThe D/LPD will notify the CDC in writing of its approval and the attorney will receive a separate acceptance letter from OGC. (3)Designated Attorney is defined at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.228.3" 13 CFR 120.802 . To become a Designated Attorney, an attorney must submit evidence of:(i)A degree from a recognized law school;(ii)Membership in the bar of the state in which the attorney’s 504 closing practice is or will be primarily located;(iii)Professional malpractice insurance coverage:(a) with limits of at least $1,000,000/$1,000,000; and(b) a deductible not to exceed $20,000 for individuals and firms with 3 or fewer attorneys, $50,000 for law firms with more than 3 attorneys or $100,000 for large law firms with more than 25 attorneys.(c) Applicants may request a hardship exemption from the General Counsel with respect to the policy limits or the deductible. Policy limit reductions to $500,000/$1,000,000 will only be granted to sole practitioners and small firms of three or less attorneys, while deductible requirement waivers will only be granted to larger firms with a demonstrated, strong financial history.(d) Sole practitioners seeking a hardship waiver must state what their present annual premium is and what it would cost to get $1,000,000 with $20,000 deductible and $500,000/$1,000,000 with $20,000 deductible. All other relevant financial information should also be provided.(e) The attorney must deliver annually to the Office of General Counsel on or before July 1, a certificate from its insurance carrier confirming the existence of this coverage.(iv)Attendance of an SBAapproved 504 loan closing training course. Attorneys may fulfill this requirement at any time prior to designation or within 6 months after designation; and (v)Adequate expertise in 504 loan closings.(4)Process to request Designated Attorney status (i) The CDC nominates the attorney by submitting an application to the SBA field office in which the attorney’s practice is primarily located. An xe “504 Loans - Closings:Designated 504 Closing Attorney” application must include:(a)A submission on the attorney’s letterhead addressing each of the conditions in the previous paragraph;(b)A copy of the attorney’s malpractice insurance policy, or a certificate of insurance or declarations page showing the: 1. amount of coverage and deductible; 2. premium; and3.name of the attorney insured. (c) If the attorney requests a hardship exemption with respect to the insurance policy limits or a waiver of the amount of the deductible, the attorney must include the request with the application, supported by appropriate information including:1.The amount of the policy limits or deductible; and2. The current premium;3.The quote obtained for the increased premium;4.The size of the firm;5.The firm’s arrangement for covering the deductible, such as a loss reserve or escrow; and6.Evidence of the firm’s history and financial strength. Other Restrictions/Requirements A designated attorney cannot be: an employee of the CDC or of an associate of the CDC. on the board of the CDC, participate in its lending decisions, or otherwise be too closely associated with the CDC.An attorney may be a member of the CDC, but not an officer, provided SBA Counsel determines the attorney is not too closely associated with the CDC. SBA Counsel must consider the attorney’s relationship with the CDC including: The degree of control exerted by the attorney on the CDC’s decision-making;Any benefits accruing to the attorney through the attorney’s association with the CDC; andAny appearance of conflict of interest.(iii)The SBA field office forwards the application to the Office of General Counsel (OGC) with the recommendations of the district director, district counsel and other field offices, if applicable.(iv)OGC will notify the attorney that he/she has been accepted as a designated 504 closing attorney.Accredited Lenders Program (ALP)SBA may designate a CDC as an Accredited Lender. ALP-CDCs are accountable for thorough credit and eligibility analysis on loan applications and on servicing actions. The Agency relies on the ALP-CDC’s credit analysis in making the decision to guarantee the debenture and complete the documentation in a reduced timeframe. (1) Application for ALP status(i) A CDC may apply in writing to its Lead SBA Office providing all applicable information addressed in subparagraph (2) below. (ii) To be eligible for ALP status, a CDC must have permanent CDC status. SBA will consider the following factors:CDC staff experience; Number of 504 loans approved and size of portfolio;SBA-conducted oversight reviews must be current;Record of compliance with SBA Loan Program Requirements;Priority CDC status; andRecord of cooperation with all SBA offices, including field offices and SBA’s loan processing and servicing centers. (iii) See HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.231.20" 13 CFR 120.840 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.231.21" 120.841. (2) Lead SBA Office Review(i) The Lead SBA Office must review the ALP application and make a recommendation within 2 weeks of receipt of the CDC’s letter. The Lead SBA Office’s recommendation must include:(a)An evaluation, in conjunction with the SLPC and the appropriate CLSC, of the: 1. quality of the CDC’s loan packages;2. CDC staff’s knowledge of SBA policies and procedures;3. CDC staff’s credit analysis abilities;4. CDC staff’s capability and performance related to loan closing; and5. CDC staff’s servicing capability and performance. (b)Evidence that the CDC is in compliance with 13CFR 120.840 & 120.841; (c) A certified copy of the CDC's Board of Directors' resolution authorizing the application for ALP status (this is only required for new ALP CDC applications not for renewals);(d) Comments from the CDC and the Lead SBA office on any outstanding issues on the CDC’s most current CDC Management Report including:Any failed benchmarks;Any loans in the “90 day or more past due” category or in the “Catch-Up” category; andAny past due Annual Reports;(e) Verification that the CDC’s employees are either hired directly by the CDC or are under a contract that has been approved by SBA;(f) A copy of the contract and the Board of Directors (BOD) resolution must be provided (if applicable);(g) Verification that the CDC is in compliance with HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.10" 13 CFR 120.824, HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.11" 120.825 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.12" 120.826 ; (h) A copy of and an evaluation of the CDC’s current bylaws and articles of incorporation to insure that they are in compliance with the regulations; (i) Evidence of compliance with the requirements of a Priority CDC, including Board of Directors’ liability insurance and Designated Attorney requirements (see paragraph 5.a. above); and(j) Current list of the CDC’s Membership, Board of Directors, staff and any committees. (ii) The Lead SBA Office forwards the application and its recommendation to the appropriate SBA official for final determination. (3) Term of designationSBA will designate a CDC as an ALP-CDC for up to two years and may renew the designation for additional two year periods.(4) Renewal of an ALP-CDC’s designationNinety days prior to the end of the term, the CDC should apply in writing for renewal to the Lead SBA Office.  The application for renewal must address all of the requirements found at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.231.20" 13 CFR 120.840 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.231.21" 120.841 and submit the required items noted in paragraphs 4.b.(1) and (2) above.The Lead SBA Office will review the CDC’s application and Management Report and send its recommendation to the appropriate SBA official for final determination. (5) Recognition of ALP Status Between SBA OfficesOnce the CDC is approved as an ALP-CDC for a particular field office, it is an ALP-CDC for its entire Area of Operations.Oversight and Enforcement ActionsSee Paragraph 4 of this chapter above. c.Premier Certified Lenders Program (PCLP) Under the PCLP, SBA designates qualified CDCs as PCLP CDCs and delegates to them increased authority to process, close, service and liquidate 504 loans. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.232.25" 13 CFR 120.848 SBA also may give PCLP CDCs increased authority to litigate 504 loans. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.232.22" 13 CFR 120.845 Loans processed under PCLP are subject to the same loan terms and conditions as other 504 loans, but SBA delegates to the PCLP CDC all loan approval decisions, except eligibility. Application for PCLP StatusA CDC may apply in writing to its Lead SBA Office providing all applicable information set forth in paragraph 4.b.(1) and (2) above and the following: A certified copy of the Board of Directors' resolution authorizing the application for PCLP status (this is only required for new PCLP CDC applications not for renewals); and Evidence that the CDC: is in compliance with its Loan Loss Reserve Fund (LLRF) requirements; has established a PCLP processing goal of 50%; andhas a demonstrated ability to process, close, service and liquidate 504 and/or PCLP loans. (2)Lead SBA Office ReviewThe Lead SBA Office must review the PCLP application and make a recommendation within 2 weeks of receipt of the CDC’s letter. The Lead SBA Office’s recommendation must address the requirements and include the information stated in the previous paragraph.(ii) The Lead SBA Office sends the application and its recommendation to the SLPC. The SLPC reviews the materials and forwards the entire application including all supporting documentation with its recommendation to the appropriate SBA official for final determination.(3)Notification of PCLP StatusSBA will notify the CDC in writing of an approval or decline of a PCLP application. If the application is declined SBA will notify the CDC of the reasons for the decline. (4)Loan Guaranty Agreement Premier Certified Lenders Program (PCLP)Upon approval as a PCLP CDC, the SLPC will send the CDC a Loan Guaranty Agreement Premier Certified Lenders Program (PCLP) (SBA Form 2006). The CDC must sign and return the agreement before it can begin processing PCLP loans. (5)PCLP TermSBA will confer PCLP status for a period of up to two years. (6)Area of OperationsThe PCLP CDC may exercise its PCLP authority in its entire Area of Operations. (7) Loan Loss Reserve Fund (LLRF) (i) A PCLP CDC must establish and maintain a LLRF for its financings under this program. The LLRF will be used to reimburse the SBA for 10 percent of any loss sustained by SBA as a result of a default in the payment of principal or interest on a PCLP debenture. The obligation extends to reimbursement for any loss to SBA on a loan funded by the issuance of a PCLP Debenture. (ii) The PCLP CDC must grant SBA a first priority perfected security interest in its LLRF. The security interest in the PCLP CDC’s LLRF must be granted pursuant to a security agreement between the PCLP CDC and SBA. The security interest in the PCLP CDC’s LLRF must be perfected pursuant to a control agreement between the PCLP CDC, SBA and the applicable depository institution. (iii) When establishing a LLRF, a PCLP CDC must coordinate with its Lead SBA Office to execute and deliver the required documentation. SBA created a Control Agreement HYPERLINK "http://www.sba.gov/idc/groups/public/documents/adacct/tools_sbf_forms_2230.pdf" SBA Form 2230 and a Security Agreement HYPERLINK "http://www.sba.gov/idc/groups/public/documents/adacct/tools_sbf_forms_229.pdf" SBA Form 2229 that must be used in connection with the PCLP. If any changes to the agreements are required in order to meet local legal requirements, or if significant numbers of local lenders are adverse to executing the agreements, SBA field counsel must work with the OGC to make appropriate changes to the agreements. A fully executed original copy of the control and security agreements, as well as any applicable financing statements, must be provided to and retained by the lead SBA office.(iv) All documents must be satisfactory to SBA in both form and substance. SBA may require changes in, or supplements to, the documentation from time to time. If a depository institution will not enter into any agreement required by SBA or violates the terms of any such agreement, the PCLP CDC may not maintain an LLRF with that institution.(v) For further guidance on the LLRF, see the table at the end of this chapter and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.232.24" 13 CFR 120.847(8)Renewal of an PCLP-CDC’s designationThe SLPC automatically starts the renewal process just prior to the expiration of a CDC’s PCLP status. The SLPC asks for comments from the CDC’s Lead SBA Office and the SBA’s servicing and liquidation centers. SBA’s review will address all of the requirements found at HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.232.23" 13 CFR 120.846 and the items noted in paragraphs 4.c.(1) above. d. Oversight and Enforcement Actions See Paragraph 4 of this Chapter above. What Each PCLP CDC Must DoDeadline For ActivityEstablish LLRFs180 days after becoming a PCLP CDCContribute 50% of the required Loss Reserve for a PCLP DebentureWithin 5 business days after the PCLP Debenture is soldContribute an additional 25% of the required Loss Reserve for a PCLP Debenture1 year after PCLP CDC issues PCLP Debenture Contribute the final 25% of the required Loss Reserve for a PCLP Debenture2 years after PCLP CDC issues PCLP Debenture Pay SBA its Exposure on a PCLP Debenture in lieu of SBA’s withdrawal of amounts from the Loss Reserves (optional)10 days after the PCLP CDC and SBA determine the ExposureContribute to the Loss Reserve any difference between the required amount of Loss Reserves and actual Loss Reserves resulting from transfers, fees, or any other reason 30 days from the creation of the difference Pay SBA any difference between the Exposure on a PCLP Debenture and the Loss Reserves after SBA makes withdrawals from the Loss Reserves45 days after demand for payment by SBAReport to and reconcile with the lead SBA office any discrepancies between the Quarterly PCLP List of Required LLRF Deposits and its records45 days after the end of each quarter Submit to lead SBA office the Quarterly PCLP Summary of LLRF Balances45 days after the end of each quarterWhat Lead SBA Office Must DoDeadline For ActivityNotify Sacramento Loan Processing Center when a PCLP CDC meets LLRF initial establishment requirements30 days after it verifies complianceProcess requests for interest earned on LLRF or excess funds in LLRF 15 days after request by PCLP CDC, unless there is disagreement on entitled amount Transmit to each PCLP CDC the Quarterly PCLP List of Required LLRF Deposits15 days after the end of the quarterWork with PCLP CDCs to reconcile any differences in quarterly Loss Reserve calculationsWithin 45 days of the end of the quarterReview and approve the Quarterly PCLP List of Required LLRF DepositsWithin 60 days of the end of the quarterWritten notice to the PCLP CDC of SBA’s intent to transfer funds from the LLRFNo less than 3 days before effecting the transfer6.AREA OF OPERATIONSThere are 3 ways a CDC may process 504 loans outside its approved area of operation – they are:Case-by-case requests based on particular circumstancesExpanding based on a Local Economic Area (LEA)Becoming a Multi-State CDCa.Case-by-case HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.230.19" 13 CFR 120.839  (1) A CDC may apply to make a 504 loan for a Project outside its Area of Operations to the field office serving the area in which the Project will be located. The CDC must demonstrate that it can adequately fulfill its 504 program responsibilities for the 504 loan, including proper servicing. (2) The field office may approve the application if:The applicant CDC has previously assisted the business to obtain a 504 loan; orThe existing CDC or CDCs serving the area agree to permit the applicant CDC to make the 504 loan; orThere is no CDC within the Area of Operations.Local Economic Area (LEA) Expansion HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.230.17" 13 CFR 120.835  (1) A CDC may apply for expansion of its territory to include a Local Economic Area (LEA). An LEA is an area, as determined by SBA, that is:in a State other than the State in which an existing CDC, or an applicant applying to become a CDC, is incorporated, is contiguous to the CDC's existing Area of Operations, or the applicant's proposed Area of Operations, of its State of incorporation, and is a part of a local trade area that is contiguous to the CDC's Area of Operations (or applicant's proposed Area of Operations) of its State of incorporation.(2) Examples of a local trade area would include a city that is bisected by a State line or a metropolitan statistical area that is bisected by a State line.(3) A CDC that has been certified to participate in the 504 program may apply to expand its Area of Operations if it meets all requirements to be an Accredited Lender Program (ALP) CDC, as outlined elsewhere in this chapter, and demonstrates that it can competently fulfill its 504 program responsibilities in the proposed area.(4)Application Process(i) The CDC must submit the items listed below to its Lead SBA Office (13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.228.3" 120.802, Definitions).A list of the requested area(s) (e.g., a county, parish, incorporated city) in the contiguous state and information supporting how those area(s) meet the definition of a Local Economic Area ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.228.3" 13 CFR 120.802, Definitions).A certified copy of the resolution of the Board of Directors approving the proposed expansion; a copy of any changes to the articles of incorporation that are required; and a copy of any bylaw changes that are required (or a statement that no changes are necessary). CDCs are reminded that they may have to register as a “foreign corporation” in the state which contains the new territory.Documentation showing that the CDC currently meets the requirements of an ALP CDC. (This includes those CDCs that are ALP CDCs already.) (13 HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.231.21" CFR 120.841, Qualifications for the ALP and earlier in this chapter) In addition, the CDC’s attorney is to provide a written statement certifying that the CDC is operating in compliance with its articles and by-laws and is in good standing with its State of incorporation. A CDC’s attorney must review the CDC’s corporate documents and minutes of board and membership meetings before providing the certification.A summary of the qualifications and experience of any new professional staff who will be responsible for marketing, packaging, processing, closing, servicing, and if applicable, liquidating the loans in the expanded area as well as a complete 1081 and fingerprint card for each person. If the new employees will be provided under contract, submit a contract for their services that meets the regulations governing contracts. ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.10" 13 CFR 120.824) In addition, identify the CDC’s Designated 504 Closing Attorney who is licensed to practice in that jurisdiction. A copy of the CDC’s most recently published CDC Management Report demonstrating that: 1) the CDC’s portfolio passes at least 4 of the 5 SBA-established risk benchmarks; 2) all loan statuses (i.e. those items listed in the mid section of the report under status summary) are current or in compliance; 3) there are no loans listed under the “Loans 90 or More Days Past Due” category; and 4) there are no loans listed under “Loans in Catch-Up That Missed At Least 3 Consecutive Payments.” (If there are loans under Nos. 3 and 4, provide documentation for each such loan describing the actions taken to correct the deficiencies on those loans after the report was prepared and whether those efforts were successful for each of the relevant loans.) (ii)The Lead SBA Office will review the request and submit to Headquarters the following in the analysis of the request for an LEA expansion:Comments on whether the CDC is in compliance with SBA’s regulations and policies;Comments on whether the Lead SBA Office agrees that the areas requested meet the definition of a Local Economic Area;Confirmation that the Lead SBA Office has reviewed any new contracts to determine if they meet the requirements set forth in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.10" 13 CFR 120.824 and a note that the contracts have been approved by SBA; Comments on the CDC’s ability to manage an increase in loan servicing activity resulting from the expansion; and Any other pertinent comments regarding the CDC’s application or operations.The Lead SBA Office must solicit the comments of any other field office in which the CDC operates or proposes to operate as well as the comments of the processing and servicing centers. The Lead SBA Office must determine that the CDC is in compliance with SBA's regulations, policies, and performance benchmarks, including pre-approval and annual review by SBA of any management or staff contracts, and the timely submission of all annual reports. In making its recommendation on the application, the Lead SBA Office may consider any information presented to it regarding the requesting CDC, the existing CDC, or CDCs that may be affected by the application, and the proposed Area of Operations.The Lead SBA Office will submit the application, recommendation, and supporting materials within 60 days of the receipt of a complete application from the CDC to the D/FA, who will make the final decision. (iii)If the Lead SBA Office determines that the CDC LEA application is incomplete, it should inform the CDC in writing, identifying the information missing from the application. The Lead SBA Office also has full authority to decline a CDC’s expansion request. A letter outlining the reasons for decline and the CDC’s rights of appeal must be sent to the CDC with a copy to the D/LPD. The CDC has 60 days to appeal the decline to the Lead SBA Office for action by the D/LPD.(iv)The D/FA may consider any information submitted or available related to the applicant and the application. SBA will notify the CDC of its decision in writing, and if the application is denied, the reasons for its decision.Multi-State Expansion HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.230.17" 13 CFR 120.835  A CDC can expand by applying to be a Multi-State CDC provided the State the CDC seeks to expand into is contiguous to the State of the CDC's incorporation; the CDC demonstrates that its membership meets the requirements in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.8" 13 CFR 120.822 separately for its State of incorporation and for each additional State in which it seeks to operate as a Multi-State CDC; and the CDC has a loan committee meeting the requirements of HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.9" 13 CFR 120.823.(1)Application ProcessA CDC seeking to become a Multi-State CDC must apply to the Lead SBA Office where the CDC intends to locate its principal office for that State. The request must include: (i)  Demonstration that the state that the CDC seeks to expand into is contiguous to the state of the CDC’s incorporation.  [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.228.3" 13 CFR 120.802, Definitions](ii)  A listing of the 25 new members that meets the requirements contained in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.8" 13 CFR 120.822 (a). [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.230.17" 13 CFR 120.835(c)(2)](iii)  A listing of the new members of the loan committee that meets the requirements contained in HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.9" 13 CFR120.823. [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.230.17" 13 CFR 120.835(c)(2)] For loan committee members, provide HYPERLINK "http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_tools_forms_lender_1081.pdf" SBA Form 1081 for each member and if necessary fingerprint cards.(iv)  The address where the CDC’s principal office in the new state will be located and a copy of the lease if the space is to be leased [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.230.17" 13 CFR 120.835(c)].      (v)  A certified copy of the resolution of the Board of Directors (BOD) approving the expansion; a certified copy of any changes to the articles of incorporation that are required; and a certified copy of any bylaw changes that are required (or a statement that no changes are required). (vi)  After the CDC’s attorney has had an opportunity to review corporate documents and minutes of board and membership meetings, the CDC’s attorney is to provide a written statement certifying that the CDC is operating in compliance with its articles and by-laws and is in good standing with its State of incorporation. If registration as a foreign corporation is required, provide a copy of the registration.(vii)  Evidence that the CDC currently meets the requirements of an ALP CDC.  (This includes those CDCs that are ALP CDCs already.)   [13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.231.20" 120.840 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.231.21" 120.841, Qualifications for the ALP, and earlier in this chapter]. (viii)  A copy of the binder page of the Board of Directors’ current liability insurance or a Certificate of Insurance reflecting at least $1,000,000 Liability coverage and a deductible/retention of not more than $10,000. (ix)  The name of the designated attorney licensed to practice in the new state. Include proof that the designated status is current and provide a copy of the binder page of the attorney’s current malpractice insurance or a Certificate of Insurance reflecting at least $1,000,000 Liability coverage and a deductible/retention of not more than $10,000. The certificate must either contain the name of the designated attorney or provide it in an attachment. [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.231.21" 13 CFR 120.841(e)](x)  A copy of the CDC’s most recently published CDC Management Report demonstrating that: The CDC’s portfolio performance passes 4 of the 5 the SBA established risk benchmarks.All statuses are current or in compliance;There are no loans listed under the “Loans 90 or More Days Past Due” category;There are no loans listed under “Loans in Catch-Up That Missed At Least 3 Consecutive Payments.”  If there are loans under Nos. 3 and 4, then the CDC should explain what action has been taken, such as a deferment or a request that SBA purchase the debenture. The CDC’s Annual Report submission is current and the Annual Report is in compliance.(xi)  Provide a summary of the qualifications and experience of those loan officers who will be responsible for marketing, packaging, processing and servicing the loans in the expanded area.  If the loan officers are new employees, provide a complete 1081 and fingerprint card (as required) for each employee.  If the new employees will be provided under contract, submit a contract for their services that meets the regulations governing contracts [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.10" 13 CFR 120.824]. (2)Analysis by the SBA Office HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.230.18" 13 CFR 120.837 The Lead SBA Office conducts a review and comments on:(i)  Any previous experience with the applicant, including comments on the CDC’s ability to handle an increase in loan servicing activity including on-site servicing of an expanded geographic area. (ii) The CDC’s compliance with SBA's regulations, policies, and performance benchmarks, including the timely submission of all annual reports.(iii)  Compliance of any new contracts with SBA regulations [ HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=964abaa4d6fd901fb6f61577c2a531f9&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.8.229.10" 13 CFR 120.824].(iv)  Comments from other field offices that have dealings with the applicant, including Servicing Centers. (v)  Any other pertinent comments regarding the CDC’s operations. If the Lead SBA Office’s analysis determines that the CDC is in compliance with SBA’s regulations and policies governing CDCs, the district will, within 60 days of receipt of a complete request, forward the CDC’s application along with the Lead SBA Office’s analysis and recommendation to the D/LPD. If the Lead SBA Office’s analysis determines that the CDC is not in compliance with SBA’s regulations and policies governing CDCs, return the application to the CDC identifying the outstanding issues to give the CDC an opportunity to come into compliance. The DecisionThe D/FA may consider any information submitted or available related to the applicant and the application and will make the final decision. SBA will notify the CDC of its decision in writing, and if the application is denied, the reasons for its decision.Multi-State CDCs must maintain a separate accounting for each State of all 504 fee income and expenses and provide, upon SBA’s request, evidence that the funds resulting from its Multi-State CDC operations are being invested in economic development activities in each State in which they operate. HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=15aeb0a430fb98cb5fa46164af5bbe2e;rgn=div5;view=text;node=13%3A1.0.1.1.14;idno=13;cc=ecfr" \l "13:1.0.1.1.14.8.229.11" 13 CFR 120.825 If a CDC is approved to operate as a Multi-State CDC, the CDC's ALP, PCLP, or Priority CDC authority will carry over into every additional State in which it is approved to operate as a Multi-State CDC.SUBPART B SECTION 7(a) BUSINESS LOAN PROGRAMSPURPOSE OF THIS SUBPARTThis subpart contains the policies and procedures governing 7(a) business loan programs including standard 7(a), the Certified Lenders Program, the Preferred Lenders Program, SBA Express and the Agency’s Pilot Loan Programs. CHAPTER 1GENERAL DESCRIPTION OF THE 7(a) LOAN PROGRAMSSBA is an agency of the federal government that is authorized through the Small Business Act to guarantee loans made by lenders to eligible small businesses. ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=d335844f9a5d1becbca7fe809e5e9cac&c=ecfr&tpl=/ecfrbrowse/Title13/13cfrv1_02.tpl" 13 CFR Part 120)1.The agency guarantees loans through various delivery methods including:Standard 7(a) Loan ProcessingCertified Lenders Program (CLP)Preferred Lenders Program (PLP)SBA Express Pilot Loan Programs, which currently include:Patriot ExpressExport ExpressCommunity Express2. SBA loan proceeds may be used to finance any of the following: Working capital;Furniture and fixtures;Machinery and equipment;Purchase of land and building including construction and renovations;Business Acquisition, andRefinancing of existing debt.3. Summary of Delivery Methods and Pilot Loan ProgramsThe following charts summarize the various delivery methods for SBA’s lending programs, including Pilot Loan Programs. Effective Date: August 1, 2008page \* arabic1277(a) LOANS (except pilot loan programs)Standard 7(a), CLP, PLP, and SBA ExpressAttributeStandard 7(a) Certified Lenders Program (CLP)Preferred Lenders Program (PLP)SBA ExpressGeographic AreaNationwideNationwideNationwideNationwideBorrower Portion of SBA ApplicationSBA Form 4 plus required attachments. Same as Standard 7(a)Same as Standard 7(a). SBA Express forms (1919 and 1920 or 2238) require abbreviated information and no exhibits. Lender Portion of SBA ApplicationFull credit analysis by lender on Form 4-I. Submitted to SBA for its review prior to SBA approval. Eligibility Questionnaire may be completed by lender but is not required. Same as Standard 7(a)Full credit analysis by lender using Form 4-I. but not submitted to SBA prior to approval. Eligibility checklist must be completed by lender and submitted to SBA.Full credit analysis using lender’s own form, but not submitted to SBA prior to approval. Lender is delegated the credit decision and completes an eligibility checklist which is submitted to SBA. Some lenders are delegated the eligibility determination as well. Type of LoanShort-term (12 months) or Long-term loan (No revolving features.)Same as Standard 7(a)Same as Standard 7(a)Same as Standard 7(a) PLUS may be a Revolving Line of Credit Loan DecisionSBA approves the loan for both credit and eligibility.Same as Standard 7(a) Lender is delegated the credit decision and completes an abbreviated checklist for eligibility which SBA reviews. Lender is delegated the credit decision and completes an abbreviated checklist for eligibility which SBA reviews unless the lender is “eligibility authorized.”Target Processing time6 business days. 3 business days1 business day 1 business day Centralized ProcessingYes. Standard 7(a) Loan Guaranty Processing Center - Sacramento, CA and Hazard, KY. Complete review of credit and eligibility by SBA loan officersSame as Standard 7(a) except that analysis by SBA relies principally on the Lender’s analysis resulting in shorter review time by SBA.Yes. Sacramento, CA. Abbreviated review of eligibility checklist by SBA loan officers.Yes. Sacramento, CA. Abbreviated review of eligibility checklist by SBA loan officers, unless lender is eligibility authorized.E-tran AvailableNo, lender may submit by mail, fax and e-mailSame as Standard 7(a)Available. Available.Maximum loan amountsGeneral rule is gross loan amount limited to $2,000,000 per loan.SBA guaranty amount limited to $1,500,000 to one borrower (and any affiliates).Same as Standard 7(a)Same as Standard 7(a)Limited To $350,000 (gross) (including any outstanding SBA Express, Community Express, Patriot Express, and Export Express loans.)Percent of Guaranty 85% for loans of $150,000 or less.75% for loans over $150,000Same as Standard 7(a)Same as Standard 7(a)50% MaximumMaturityWC – 10 YearsF&F, M&E – Useful life Real Estate – 25 yearsSame as Standard 7(a)Same as Standard 7(a) Maximum 7 years for Revolving Lines of Credit including term out period. Otherwise, same as Standard 7(a).Maximum Interest Rates Prime + 2.25% for maturities under 7 years.Prime + 2.75% for 7years or more.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Same as Standard 7(a)Same as Standard 7(a) Loans $50,000 or less: Prime + 6.5%. Over $50,000: Prime +4.5%Collateral PolicyAvailable collateral (liquidation value) up to loan amount.Same as Standard 7(a)Same as Standard 7(a)$25,000 or less, no collateral required. Over $25,000, lenders may use their own collateral policies used for their non-SBA-guaranteed loans.SBA Guaranty FeesMaturity of 12 months or less = 0.25% Maturities over 12 Months Gross loan: $150,000 or less = 2.0% of guaranteed portion Gross loan: $150,001 - $700,000 = 3.0% of guaranteed portion Gross loan: $700,001 - 2,000,000 = 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000On-going guaranty fee = 0.494% (FY 2008)Same as Standard 7(a)Same as Standard 7(a) Same as Standard 7(a) SBA Prepayment PenaltyYes if term of loan is for 15 years or more and prepaid in first 3.Same as Standard 7(a)Same as Standard 7(a) Same as Standard 7(a) Lender Agreements with SBAAll lenders must execute Form 750. (and 750B for short term loans) Same as Standard 7(a)Same as Standard 7(a) PLUS Supplemental Agreement which must be renewed every 2 years. Same as Standard 7(a) PLUS Supplemental Agreement which must be renewed every 2 years. 7(a) LOANS (pilot loan programs): Community Express, Export Express, and Patriot Express ProcessAttributesCommunity Express (est. 1999.) - RESERVEDExport Express (est. 1999)Patriot Express (est. 2007)Eligibility RestrictionsRESERVEDApplicant must demonstrate that loan proceeds will enable them to enter a new export market or expand an existing export market. In addition, applicant must have been in operation, though not necessarily in exporting, for at least 12 months.Applicant must be owned and controlled (51 percent or more) by one or more of the following groups: veteran, active duty military participating in the military’s Transition Assistance Program (TAP), reservist or national guard member or a spouse of any of these groups, a widowed spouse of a service member who died while in service, or a widowed spouse of a veteran who died of a service-connected disability.Borrower Portion of SBA ApplicationForm requires abbreviated information and no exhibits.Form requires abbreviated information and no exhibits.Form requires abbreviated information and no exhibits.Lender Portion of SBA ApplicationForm requires abbreviated information and no exhibits. No credit review by SBA.Form requires abbreviated information and no exhibits. No credit review by SBA.Form requires abbreviated information and no exhibits. No credit review by SBA.Loan DecisionLender is delegated the credit decision and completes an abbreviated checklist for eligibility which SBA reviews.Lender is delegated the credit decision and completes an abbreviated checklist for eligibility which SBA reviews, unless the lender is eligibility authorized.Lender is delegated the credit decision and completes an abbreviated checklist for eligibility which SBA reviews, unless lender is eligibility authorized.Target Proc. time1 business day1 business day1 business dayCent. ProcessingYes. Sacramento, CA. Abbreviated review of eligibility checklist by SBA loan officersYes. Sacramento, CA. Abbreviated review of eligibility checklist by SBA loan officers, unless lender is eligibility authorized.Yes. Sacramento, CA. Abbreviated review of eligibility checklist by SBA loan officers, unless lender is eligibility authorized.E-tran AvailableAvailable.Available.Available.Maximum loan amountsLimited to $250,000 (gross) (including any outstanding SBA Express, Community Express, Patriot Express and Export Express loans.)Limited to $250,000 (gross) (including any outstanding SBA Express, Community Express, Patriot Express and Export Express loans.) Limited to $500,000 (gross) (including any outstanding SBA Express, Community Express, Patriot Express and Export Express loans.)Percent of Guaranty 85% for loans of $150,000 or less.75% for loans over $150,00085% for loans of $150,000 or less.75% for loans over $150,00085% for loans of $150,000 or less.75% for loans over $150,000Maximum MaturitySame as SBA ExpressSame as SBA ExpressSame as SBA ExpressMaximum Interest RatesRESERVEDSame as SBA Express.Same as Standard 7(a)Collateral PolicySame as SBA ExpressSame as SBA ExpressSame as SBA Express up to $350,000. Over $350,000, the lender must secure the loan with all available collateral.SBA Guaranty Fees(Multiply percentage times guaranteed amount, not gross amount.)Same as Standard 7(a) Same as Standard 7(a) Same as Standard 7(a) SBA Prepayment PenaltySame as Standard 7(a).Same as Standard 7(a).Same as Standard 7(a).Other Fees a Lender May ChargeRESERVEDSame as for SBA ExpressSame as for SBA ExpressLender Supplemental Agreement Community Express Supplemental Guaranty AgreementSBA Express lenders qualify for this program. No separate Export Express supplemental agreement is required.Patriot Express Supplemental Guaranty AgreementTechnical AssistanceLender must provide technical assistance.Provided by the USEACs.None required. However, SBA emphasized its existing technical assistance programs such as SCORE and the SBDCs as part of the overall Patriot Express initiative.4. The following two charts describe various specialized programs and their requirements. Applications for these programs cannot be processed under CLP, PLP, SBA Express or the Pilot Loan Programs except for EWCP which may be processed PLP.7(a) LoansInternational TradeAttributeInternational Trade Loan Program (IT)Export Working Capital Program (EWCP)Geographic AreaNationwideNationwideBorrower Portion of SBA ApplicationSBA Form 4 plus required attachments. Same as IT. Lender Portion of SBA ApplicationFull credit analysis by lender on Form 4-I. Submitted to SBA for its review prior to SBA approval. Additional eligibility requirements must be met. Identified in Eligibility Questionnaire (Standard 7(a) submission) or Eligibility Checklist (PLP submission).Same as IT.Type of LoanLong-term loan specifically for the acquisition, construction, renovation, modernization, improvement, or expansion of productive facilities or equipment to be used in the United States in the production of goods and services involved in international trade.Working capital loan. May be short-term (12 months or less) or long term up to a maximum of 3 years. It is the only SBA loan program that is permitted to finance a stand-by letter of credit.Loan DecisionSame as Standard 7(a) and PLP.Same as Standard 7(a) and PLP.Target Processing timeSame as Standard 7(a) and PLP.Same as Standard 7(a) and PLP.Centralized ProcessingYes. Standard 7(a) Loan Guaranty Processing Center - Sacramento, CA and Hazard, KY. Complete review of credit and eligibility by US Export Assistance Center (USEAC) SBA loan officers. USEACs located in multiple locations throughout the country sponsored by the Dept. of Commerce. For PLP submissions, centralized processing in the Sacramento LoanProcessing Center. Yes. Standard 7(a) Loan Guaranty Processing Center - Sacramento, CA and Hazard, KY. Complete review of credit and eligibility by USEAC SBA loan officers. USEACs located in multiple locations throughout the country.For PLP submissions centralized processing in the Sacramento Loan Processing Center. For Export Express, centralized processing in the Sacramento Loan Processing Center.E-tran AvailableNo, lender may submit by mail, fax and e-mailNo, lender may submit by mail, fax and e-mailMaximum loan amountsGeneral rule is gross loan amount limited to $2,000,000 per loan.SBA guaranty amount limited to $1,500,000 to one borrower (and any affiliates). However, if the IT loan is made in conjunction with another SBA-guaranteed Working Capital Loan, the combined SBA guaranteed portion may go up to $1.75 million BUT the IT loan (guaranteed portion) cannot exceed $1.25 million.General rule is gross loan amount limited to $2,000,000 per loan.SBA guaranty amount limited to $1,500,000 to one borrower (and any affiliates). However, if an IT loan is made in conjunction with and EWCP loan, the combined SBA guaranteed portion may go up to $1.75 million as long as the guaranteed portion of the IT loan does not exceed $1.25 million.Percent of Guaranty 85% for loans of $150,000 or less.75% for loans over $150,00090% up to a maximum $1.5 million guaranteed portion. (Gross limit for the 90 percent guaranteed amount would be $1.66 million)MaximumMaturityF&F, M&E – Useful life Real Estate – 25 years36 monthsMaximum Interest RatesSame as Standard 7(a)No SBA maximum, but SBA monitors for reasonableness.Collateral PolicyFirst lien on the fixed assets financed with the loan as well as other collateral available.First lien on export receivables being financed.SBA Guaranty Fees(Multiply percentage times guaranteed amount, not gross amount.) Same as Standard 7(a)Same as Standard 7(a)SBA Prepayment PenaltySame as Standard 7(a)Same as Standard 7(a)Lender Agreements with SBAAll lenders must execute Form 750.All lenders must execute Form 750 and Form 750 B for short term loans. 7(a) Loan Program - CAPLinesAttributeStandard Asset Based CAPLinesSmall Asset Based CAPLinesContract CAPLinesSeasonal CAPLinesBuilders CAPLinesGeographic AreaNationwideNationwideNationwideNationwideNationwideBorrower Portion of SBA ApplicationSame as Standard 7(a) PLUS must demonstrate ability to produce asset based borrowing documents PLUS SBA Form AB-4 Same as Standard Asset Based CAPLinesSame as Standard 7(a) PLUS produce a cash flow projection specific to each contract to be financed. Same as Standard 7(a) PLUS produce historical financial statements that demonstrate a seasonal financing pattern. Same as Standard 7(a) PLUS demonstrate successful performance on similar type construction PLUS produce a cash flow projection for project to be financed.Lender Portion of SBA ApplicationSame as Standard 7(a) PLUS must submit a specific calculation of applicant’s WC needs PLUSAB-4I Same as Standard 7(a) PLUS must submit a specific calculation of applicant’s WC needs PLUSAB-4ISame as Standard 7(a) PLUSmust submit a specific calculation of applicant’s WC needsSame as Standard 7(a) PLUSmust submit a specific calculation of applicant’s WC needsSame as Standard 7(a) PLUSmust submit a specific calculation of applicant’s WC needsUnique Eligibility RequirementsMust sell on credit and create receivablesMust sell on credit and create receivablesContract must permit lender to obtain an assignment of proceeds30-day zero balance each year is required.Borrower must have previous building experience of the same type. Speculative building but with documentation to support likelihood of sale.Type of LoanRevolving Line of Credit to finance short-term WC needs of the BorrowerRevolving Line of Credit to finance short-term WC needs of the BorrowerFinances direct costs associated with an assignable contract. May be revolving.Finances seasonal WC needs. May be revolving. Finances direct costs associated with building a commercial or residential structure for sale.Loan DecisionSBA approves the loan for both credit and eligibility.Same as Standard Asset Based Same as Standard Asset Based Same as Standard Asset BasedSame as Standard Asset BasedTarget Processing time6 business days. 6 business days. 6 business days. 6 business days. 6 business days. Centralized ProcessingYes. Standard 7(a) Loan Guaranty Processing Center Complete review of credit and eligibility by SBA loan officersYes. Standard 7(a) Loan Guaranty Processing Center Complete review of credit and eligibility by SBA loan officersYes. Standard 7(a) Loan Guaranty Processing Center Complete review of credit and eligibility by SBA loan officersYes. Standard 7(a) Loan Guaranty Processing Center. Complete review of credit and eligibility by SBA loan officersYes. Standard 7(a) Loan Guaranty Processing Center Complete review of credit and eligibility by SBA loan officersE-tran AvailableNo, lender may submit by mail, fax and e-mailNo, lender may submit by mail, fax and e-mailNo, lender may submit by mail, fax and e-mailNo, lender may submit by mail, fax and e-mailNo, lender may submit by mail, fax and e-mailMaximum loan amountsSame as Standard 7(a).Loan limited to $200,000.Same as Standard 7(a).Same as Standard 7(a).Same as Standard 7(a).Percent of Guaranty 85% for loans of $150,000 or less. 75% for loans over $150,00085% for loans of $150,000 or less. 75% for loans over $150,00085% for loans of $150,000 or less. 75% for loans over $150,00085% for loans of $150,000 or less. 75% for loans over $150,00085% for loans of $150,000 or less. 75% for loans over $150,000MaximumMaturity5 Years5 Years5 Years5 Years5 YearsMaximum Interest RatesPrime + 2.25%.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Prime + 2.25%.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Prime + 2.25%.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Prime + 2.25%.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Prime + 2.25%.Rates can be higher by 2% for loans of $25,000 or less; and 1% for loans between $25,000 and $50,000.Collateral PolicyFirst lien on Inventory and ReceivablesFirst lien on Inventory and ReceivablesAssignment of contract proceeds.First lien on seasonal Inventory and ReceivablesNo less than a second lien on real estate project.SBA Guaranty Fees(Multiply percentage times guaranteed amount, not gross amount.)Standard 7(a)Standard 7(a)Standard 7(a)Standard 7(a)Standard 7(a)SBA Prepayment PenaltyN/AN/AN/AN/AN/ALender Agreements with SBAAll lenders must execute Form 750 & 750B (short term loans) PLUS Lender Qualification SurveyAll lenders must execute Form 750 & 750B (short term loans) All lenders must execute Form 750 & 750B (short term loans)All lenders must execute Form 750 & 750B (short term loans)All lenders must execute Form 750 & 750B (short term loans)5. Special Purpose LoansCertain special purpose loan programs are subject to separate or special funding under SBA’s budget and these are:Disabled Assistance Loan (DAL)Loan Program for Low Income IndividualsThe Veterans Loan Program (not to be confused with Patriot Express)The 8(a) Participant Loan ProgramDefense Economic Transition Loan ProgramDefense Loan and Technical Assistance (DELTA)Check with the local SBA field office, the Standard 7(a) Loan Guaranty Processing Center (LGPC) or the Sacramento Loan Processing Center (SLPC) to see if these programs have been funded and are available.DEFINITIONS APPLICABLE TO THE 7(a) LOAN PROGRAMSThe definitions applicable to the 7(a) loan programs are set forth in 13 CFR 103.1 and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=6c4ef02dc5cf396d96b0054ba022f342&rgn=div8&view=text&node=13:1.0.1.1.14.0.186.4&idno=13" 120.10. CHAPTER 2ELIGIBILITY FOR 7(A) GUARANTY LOAN PROGRAM1. INTRODUCTIONThis section discusses the steps necessary to determine if a Small Business Applicant is eligible for an SBA guaranteed loan. The eligibility issues that apply to the lender or the structure of the loan are discussed elsewhere. Eligibility should be determined as early in the loan making process as possible. The small business must meet the eligibility requirements at the time of application and, with the exception of the size standard, must continue to meet these requirements through the closing and disbursement of the loan. A HYPERLINK "http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_eligibility_questionnaire.pdf" Standard 7(a) Eligibility Questionnaire has been created to assist those lenders that do not have delegated authority to identify eligibility issues. For delegated lenders, an Eligibility Checklist must be completed (unless the lender is “eligibility authorized). An example of one of these checklists is the HYPERLINK "http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_forms_1920c.doc" Eligibility Information Required for SBA Express and Patriot Express Submission.2. SUMMARY OF ELIGIBLITY REQUIREMENTS a.The Small Business Applicant must: ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.1.187.1" 13 CFR 120.100)(1)Be an operating business; (2)Be organized for profit;(3)Be located in the United States (includes territories and possessions);(4)Be small (as defined by SBA); and (5)Demonstrate a need for the desired credit. b.Lender must certify that credit is not available elsewhere on reasonable terms; ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.1.187.1" 13 CFR 120.101)c.The Small Business Applicant must show that the funds are not available from alternative sources, including personal resources of the principals; ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.1.187.1" 13 CFR 120.102)d.The following businesses are not eligible: ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.14&idno=13" \l "13:1.0.1.1.14.1.188.7" 13 CFR 120.110)(1)Non-profit businesses (for profit subsidiaries are eligible)(2)Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors;(3)Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies);(4)Life insurance companies;(5)Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify)(6)Pyramid sales distribution plans;(7)Businesses deriving more than one-third of gross annual revenue from legal gambling activities;(8)Businesses engaged in any illegal activity;(9)Private clubs and businesses which limit the number of memberships for reasons other than capacity;(10)Government-owned entities (except for businesses owned or controlled by a Native American tribe);(11)Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting;(12)Consumer and marketing cooperatives (producer cooperatives are eligible);(13)Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans;(14)Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude;(15) Businesses in which the lender or any of its Associates owns an equity interest;(16)Businesses which present live performances of a prurient sexual nature; or derive directly or indirectly more than de minimus gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature;(17)A business or applicant involved in a business which defaulted on a Federal loan or Federally assisted financing resulting in a loss to the government. A compromise agreement shall also be considered a loss;(18)Businesses primarily engaged in political or lobbying activities; and(19)Speculative businesses (such as oil wildcatting). 3. ELIGIBILITY REQUIREMENTS a. The Small Business Must be Organized for Profit.(1)All small business applicants must be organized for profit. Non-profit businesses are not eligible for SBA business loan assistance. (2) For-profit businesses owned by a non-profit business are eligible if they meet SBA’s other eligibility requirements. The non-profit affiliate must be included in the calculation of the size of the business. This may result in a determination that the for-profit entity is not considered small by SBA size standards and therefore not eligible. In addition, if the non-profit affiliate owns 20 percent or more of the for-profit business but cannot or will not guarantee the loan, the for-profit business is not eligible for SBA assistance. If the profits are used for the benefit of the non-profit rather than the for-profit business, the for-profit business is not eligible.(3) Documentation that may be reviewed to determine for-profit status: (i)Articles of Incorporation-- filed with Secretary of State or similar department in the state where the applicant is organized or conducts operations; (ii)Articles of Organization-- (for a Limited Liability Corporation (LLC)) filed with Secretary of State or similar department in the state where the applicant is organized or conducts operations;(iii)Corporate By-Laws and any amendments;(iv)Partnership Agreements; (v)Association By-laws; and(vi) Tax Returns.b.THE APPLICANT MUST BE SMALL UNDER SBA SIZE REQUIREMENTS ( HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" 13 CFR Part 121)(1) The applicant business alone (without affiliates) must not exceed the size standard for the industry in which the applicant is primarily engaged AND the applicant business combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher. (13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.263.3" 121.103 (definition of affiliation); HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.263.7" 121.107; and HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.265.10" 121.301) (2) The applicable size standards are increased by 25 percent when the applicant agrees to use all of the financial assistance within a xe “Labor Surplus Areas:25 Percent Size Differential”labor surplus area. Labor surplus areas are designated by the Department of Labor. (3) For most retail businesses, the applicant and its affiliates cannot exceed $6.5 million in gross sales averaged over the last 3 fiscal years.(4) For most wholesale businesses, the applicant and its affiliates cannot have more than 100 employees.(5) For most manufacturing businesses, the applicant and its affiliates cannot have more than 500 employees.(6) When size status of an applicant is determined: (13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=15163cafb7f32c9b4d08a3204bef5ee4&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.265.10" 121.302)tc “11.WHEN SIZE STATUS OF AN APPLICANT IS DETERMINED”The size of an applicant for SBA financial assistance is determined as of the date the application for such financial assistance is accepted for processing by SBA. Changes in the size of the business subsequent to the applicable date when size is determined will not disqualify an applicant for assistance, even if the financing resulted in the business becoming large. For the Preferred Lenders program and the SBA Express program, size is determined as of the date of approval of the loan by the lender.Pilot Loan Programs (presently Community Express, Export Express and Patriot Express) size is determined as of the date of approval of the loan by the lender.(7)Formal size determinations (13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=6c169c6c11c4ecd8a4f794255f82c991&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.265.12" 121.303) (i)By signing the application, a small business applicant is deemed to have certified that it is small under the applicable size standard. SBA or lender may request additional information concerning the applicant’s size based on information supplied in the application or any other source. A preferred lender or SBA Express lender may accept as true the size information provided by an applicant, unless credible evidence to the contrary is apparent. (ii)Prior to denial of eligibility based on size, a formal size or affiliation determination may be requested by a small business applicant, the SBA loan application processing office or a lender. The request must be made to the Government Contracting Area Director serving the area in which the headquarters of the applicant is located, regardless of the location of the parent company or affiliates. (8)Review of Franchise/License/Dealer/Jobber or Similar AgreementsThe discussion in this section applies to franchise agreements, license agreements, dealer agreements (with the exception of dealer agreements from new car manufacturers which are not reviewed for eligibility), jobber or similar agreements. A finding of eligibility under this section means that the agreement does not impose unacceptable control provisions on the Small Business Applicant which would result in affiliation. The fact that the agreement is eligible does not mean that the Small Business Applicant is eligible. (i)Affiliation can exist through:common ownership, common management, excessive restrictions upon the sale of the franchise interest, orcontrol by a franchisor either directly or through an affiliated entity or agent such that the franchisee does not have the independent right to both profit from its efforts and bear the risk of loss commensurate with ownership. (13 CFR HYPERLINK "http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=6c169c6c11c4ecd8a4f794255f82c991&rgn=div5&view=text&node=13:1.0.1.1.15&idno=13" \l "13:1.0.1.1.15.1.263.3" 121.103 (i))(ii)ReviewSBA requires, in all cases, a determination as to whether affiliation exists when the applicant has or will have a Franchise/License/Dealer/Jobber or similar agreement. Regardless of the title of the agreement, if the franchisor/licensor/dealer/jobber, etc. provides a product or service that is critical to the Small Business Applicant’s business operation and/or provides a trademark critical to the Small Business Applicant’s business operation, then the agreement and any related documents must be reviewed. (iii)Review and determination must be conducted by:SBA--for all loans processed through the LGPC, including CLP. Lender--for PLP, SBA Express, or any other expedited processing method.(iv)Franchise Information AssistanceLenders may contact SBA at franchise@sba.gov for information about franchise eligibility reviews. Please do not send franchise documents to this mailbox for review. (v)Registry of approved franchise/license/dealer/jobber or similar agreementsTo facilitate the review of these agreements, SBA has established a Franchise Registry (“Registry”) that lists approved franchise/license/dealer/jobber or similar agreements. SBA has previously determined that the agreements listed on this Registry are acceptable. Lender must ensure that the documents with the loan application are the same as the documents listed on the Registry. Lenders must follow the procedures set forth below to determine franchise program eligibility for a loan application. (a)Check HYPERLINK "http://www.franchiseregistry.com" www.franchiseregistry.com to determine if the agreement is listed.