February 20, 2019

Best Practices: Highlights of the new SOP 50 10(5)(K)

by Kimberly A. Rayer

On February 15, 2019, SBA issued SOP 50 10(5)(K) (“New SOP”) which will take effect on April 1, 2019. This article touches upon a few of the more substantive changes in the New SOP. For a more detailed list of all the changes and clarifications, see SBA Information Notice 5000-19004 dated February 15, 2019.
The New SOP has been much anticipated since it brings recent SBA guidance to lenders in line with several policy notices issued by the Agency. For instance, initially SOP 50 10(5)(J) provided that Lenders must consider the liquidity of owners of 10% or more of the equity of the Applicant. Based on feedback from SBA Lenders, SBA issued SBA Policy Notice 5000-17057 effective April 3, 2018, by which SBA increased the minimum percentage ownership at which owners are subject to personal liquidity consideration from 10% to 20%. The New SOP incorporates the Policy Notice’s standard for personal liquidity considerations on page 103.

The New SOP also provides guidance on how to determine eligibility for Applicants that operate under multiple agreements. All Applicant agreements that meet the FTC definition of a franchise must be listed on the Franchise Directory. If any of the Applicant’s agreements that meet the FTC definition of franchise are NOT on the Franchise Directory, then the Lender may not proceed. Furthermore, whether a Lender must obtain an SBA addendum will depend on whether or not the agreement is deemed critical to the Applicant’s business. An individual agreement or the aggregate revenue from multiple agreements will be deemed critical if they account for 50% or more of the Applicant’s revenue. See pages 96-97 of the New SOP for a more in-depth explanation.

SBA also modified some of its lending policies in the New SOP. Change of ownership debt that is not owed to a Seller must be in place for a minimum of 12 months (instead of 6 months) prior to refinancing under delegated authority.  See pages 132-133 of the New SOP. Note that the Seller debt refinancing rules have not changed, meaning that the Seller debt must be in place and current for a minimum of 24 months before it is eligible for refinancing.   While no additional guidance was given on whether “current for 24 months” means that regular payments must have been required and paid on the Seller debt for at least 24 months (i.e. a Standstill Period in a Seller Note does not equate to current payments), SBA officials have stated publically that is the intention of the policy.

Other noteworthy clarifications include the ability of lenders to make a 10 year loan for leasehold improvements plus adding a short period to reasonably complete the improvements (which may not exceed 12 months). See page 148. Another helpful clarification concerns SBA Form 159. See page 170. While a separate 159 must be executed by each Agent, multiple services performed by the same agent may be reported on one form.

The New SOP clarified that lenders must disclose 100% of the Applicant’s ownership on SBA Form 1919 and in E-Tran in order to submit a loan application. Each owner must be identified in the E-Tran system. See page 221 of the New SOP.

The New SOP also incorporates many recent policy changes for the 504 loan program, including, incorporating permissible debt refinancing without expansion and 25 year debentures. See pages 312 and 331. It also provides more guidance on Express, Export Express and Export Working Capital Lines of Credit. While the changes in the New SOP are welcomed by lenders as providing clarity on the SBA lending rules, the implementation of proposed rules on SBA Express, personal resources, Agent fees and affiliation, and the issuance of new oversight regulations, mean that more changes can be anticipated in the coming year.

For more information on all the changes found in the New SOP, please contact Kim Rayer at at 267.470.1208 or

For a detailed explanation on the changes to the New SOP, we recommend that you sign up for NAGGL’s webinar this Friday, February 22, 2019, offered by Jane Butler.