May 8, 2013
Best Practices: SOP 50 57 Update: What Lenders Need to Know
by Jennifer Borra
On March 1, 2013 Standard Operating Procedure (SOP) 50 57 became effective, providing lenders with the new guidelines concerning 7(a) Loan Servicing and Liquidation. Since its issuance, SBA has reviewed feedback and made technical corrections to clarify this SOP. The full list of technical corrections are detailed in SBA Information Notice 5000-1276, effective 4/29/2013. This article will review some of the more important changes contained in that notice.
The initial version of SOP 50 57 stated it would cover loans after initial disbursement has been made. The notice indicates that this SOP will only govern loans after final disbursement has been made. For servicing actions after initial disbursement, but prior to final disbursement, lenders should still refer to SOP 50 10.
SBA further clarified in the notice that all SBA lenders, not just nationally-chartered and state-chartered lenders must service and liquidate their 7(a) loans in a diligent, commercially reasonable manner, consistent with prudent lending practices and SBA’s policies.
In furtherance of the new SOP’s guidelines, SBA included a hyperlink to the new 7(a) Lenders Servicing and Liquidation Matrix, which can be found here.
SBA modified its position on subordination to facilitate refinance of a senior loan. Previously, SBA recommended that the term of the refinanced senior loan equal or exceed the term of the original senior loan. The notice indicates SBA has deleted this requirement, providing borrowers the ability to refinance on more favorable terms, as long as the subordination will not adversely affect the priority of the lien securing the SBA loan.
The provisions concerning a release of a guarantor or co-borrower were further clarified to distinguish SBA’s guidelines for release for loans in regular servicing status, as opposed to the loans in liquidation status.
Regarding standby agreements, except those used for equity injection, SBA corrected a typo which initially stated that lenders should analyze borrower’s cash flow for past three months in determining whether to modify or terminate a standby agreement. The notice indicates that the analysis should include borrower’s cash flow for the past three years.
SBA re-wrote the introduction to the section on classifying loans in liquidation status and set forth when loans must be classified in liquidation status (such as upon acceleration) and the steps lenders should take thereafter.