back

March 13, 2019

Best Practices: Changes to the 504 Loan Program under SOP 50 10 5(K)

by Janet M. Dery

SOP 50 10 5(K) will take effect on April 1, 2019. This article touches upon a few of the changes to the 504 Loan Program contained in Subpart C of the new version of the SOP. For a more detailed list of all the changes and clarifications, see SBA Information Notice 5000-19004 dated February 15, 2019.

Some of the changes in the new SOP include the addition of provisions contained in SBA Policy Notice 5000-17057 (the increase in the threshold review of liquidity from 10% to 20% for equity owners of the Applicant and the ineligibility of marijuana-related businesses) and SBA Information Notice 5000-17058 (the addition of the 25 year loan and debenture).  The current policy on permissible debt refinance without expansion published in the May 7, 2018 Final Rule on Debt Refinancing in the 504 Loan Program and the updated job opportunity requirements as published in 83 FR 55224 were also incorporated into this new version.

Many of the changes made to the 7(a) Loan Program in Subpart B have also been made to the 504 Loan Program in Subpart C. Those changes include: (i) the franchise review process for Applicants operating under multiple agreements, (ii) guidance on credit elsewhere determinations, (iii) the clarification that residential facilities that do not provide healthcare and/or medical services are ineligible, and (iv) if an Environmental Professional recommends a Phase II following the Transaction Screen, that the SBA Environmental Committee must approve an exception to policy in advance.

In addition to the clarification that the CDC must disclose 100% of the Applicant’s ownership on SBA Form 1244 and in E-Tran in order to submit a loan application, and making sure to identify each owner in the E-Tran system; language has been added requiring a CDC to request a modification to the Authorization for any adjustment to or change in the ownership of a Borrower, including a change in percentage of ownership. Additionally, a CDC may not unilaterally approve any adjustment to or change in the ownership of a Borrower, including a change in percentage of ownership, for 12 months after final disbursement on the loan.

Another revision of note is the update to the eligibility criteria for an Energy Public Policy Project, which allows for a $5,550,000 gross debenture limit for the project. Under 50 10 5(J), the project needed to generate “more than a de minimus amount” of the energy used by the Applicant at the project facility to qualify under one of the Energy Public Policy Projects allowed. De minimus was generally interpreted by the SBA to be 10%. Under this new version of the SOP, the project must generate more than 15% of the energy used by the Applicant at the project facility to be considered as one of these special projects.

For more information on the changes to the 504 Loan Program found in the new SOP, please contact Janet Dery at 267.470.1189 or at jdery@starfieldsmith.com.