February 28, 2018

Best Practices: Revised SBA Form 1919 Analysis: Part 3 – Principals of the Business

by Jessica L. Conn

Pursuant to SBA Information Notice 5000-17007, effective October 12, 2017, SBA has issued a revised Form 1919. As mentioned previously, the form has been modified in order to provide greater clarity to the questions and make the form more user friendly for borrowers.

Section II of the form has been added for questions that specifically relate to the principals of the business. This section also now begins with a grid of information (e.g. address, place of birth) that will help lender to prepare a checklist and order searches. The creation of this section has provided clarity so that the individuals know exactly when a question requires information about the business or information about the individual. Both are critical to the eligibility analysis. In Section II, there are two notable questions that deviate from the old version of the Form 1919:

1. The prior version asked for place of birth, whether an individual was a US Citizen and whether an individual was a Lawful Permanent resident alien. In the new version, there is an opportunity to certify that the principal is not a US citizen or Lawful Permanent Resident, and if so, requires that the party specify its country of citizenship.

2. The old form asked whether the Applicant business had affiliates. The new form asks the same question in Section I and adds to Section II “Do you have any ownership in other businesses which would be defined as an Affiliate in the definition found on page 1?”

The addition of both of these questions will provide lenders with additional information pertinent to its analysis of eligibility, affiliation and size standards. One caveat with respect to the affiliation analysis is that the burden of this review is still on the lender, not the applicant. The question of whether a business is affiliated is a complicated one and the guidance provided in the instructions is limited. Lenders must be sure to investigate further, as needed, to ensure all affiliates are being reviewed and included in the analysis, regardless of the answer provided in this question by the principal. For example, if the individual’s tax returns revealed ownership in another business, but the Form 1919 was completed showing no affiliates, the Lender should obtain further details and make an independent determination of whether such business is affiliated with the applicant.

Section II now also contain questions regarding bankruptcy protection for the principal and any business controlled by the principal. Further, it asks whether there is any pending legal action against any of the foregoing parties, including pending divorces of individuals. These additional questions will help lender determine whether there is anything that will arise during the due diligence stage that may cause delays or result in additional credit analysis. Since the questions apply not only to the individual, but also to other business that may be deemed to be affiliated with the applicant, the lender is able to obtain information that may not even arise during the search phase of the due diligence review. Any pending law suits, including divorces, can give rise to delays as lenders must analyze how the suits could impact the business and collateral. Obtaining information about these suits up front should result in better efficiency.

It is also worth noting that while the Form 1919 is only required for owners of 20% or more of the applicant, pursuant to the technical corrections of SOP 50 10 5 (J), the liquidity of owners of 10% or more of the applicant, their spouses and minor children are now a part of a lender’s credit elsewhere determination. Accordingly, lenders should consider obtaining a personal financial statement on all owners of 10% or more of the applicant, their spouses and minor children at the application stage.

Lenders must ensure that all required Form 1919s are completed properly in order to perform a thorough eligibility analysis. For more information regarding the revised Form 1919, please contact Jessica at 267-470-1188 or at