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March 16, 2011

Firm News for March: Best Practices: Updated PLP Eligibility Checklist

By: Christopher M. Evans, Esq.

With SBA Procedural Notice 8000-1196, the SBA announced that as of February 15, 2011, lenders participating in the Preferred Lenders Program (“PLP Lenders”) may now use the shorter and more streamlined loan application forms used in connection with the Small Loan Advantage Program (the “SLA Program”) for loans of $250,000.00 or less. That notice may also serve as a reminder to PLP Lenders that, in January 2011, SBA released an updated version of the PLP Eligibility Checklist (the “Eligibility Checklist”). The updated Eligibility Checklist includes reference to the SLA Program by PLP Lenders, but also incorporates many of the new conditions reflected in the most recent Standard Operating Procedures (the “SOP”), the SOP 50 10 5(C), which became effective on October 1, 2010.

Given that changes to the SOP often precede changes to forms such as the Eligibility Checklist, which contains certifications by the lender as to the accuracy of the information provided in the required statements, the updated Eligibility Checklist adds useful information regarding procedures lenders should use when a statement required by the Eligibility Checklist does not reflect a recent change in SBA policy. In those instances, lenders should 1) note “See Attached” next to the statement which does not reflect updated SBA policy and 2) attach a written explanation for each notation which outlines the updated SBA policy and which cites to the current SOP, SBA notice, regulation change, or statutory amendment. This helps lenders avoid inadvertently providing the SBA with false certifications, which could potentially have serious consequences.

Other notable revisions to the updated Eligibility Checklist include:

• Removal of provisions to certify guarantee percentages for Recovery Act loans;
• Reference to the SLA Program;
• Reference to the increased maximum loan amounts for standard 7(a) loans ($5,000,000.00);
• Reference to the increased aggregate guaranty amount of SBA portions of the subject loan and all outstanding 7(a) and 504 loans to the applicant business ($3.75 million);
• Change from an emphasis on an analysis of the “principals” of the applicant to an analysis of any “associates” of the applicant, including a certification that no loans were made to an associate of the applicant in order to finance the applicant’s equity injection;
• Clarification to the eligibility language specifically identifying businesses “owned by developers or landlords” that are not Eligible Passive Companies and businesses “primarily engaged in subdividing real property into lots and developing it for resale on its own account or in owning or purchasing real estate and leasing it” as ineligible;
• Clarification to the refinancing provisions to provide for an explicit prohibition on the refinance of debt originally used to finance a loan purpose that would have been ineligible for SBA financing at the time it was made;
• Affirmative statement in the refinancing provisions that “[e]xisting debt is one of the types of debt that may be refinanced with an SBA loan”;
• Allowance of loans under the International Trade Program (the “IT Program”) secured by a second lien on fixed assets financed with loan proceeds if the lender has determined that a second lien provides adequate assurance of repayment; and
• Changes to the language in the Lender’s Certification which require the lender representative to certify individually, as well as on behalf of the lender, that the information in the Eligibility Checklist is true and accurate and that the individual has exercised due diligence in verifying that information.

Regardless of which version of the PLP Eligibility Checklist is used, lenders must comply with the current SOP in effect at the time of the lender’s eligibility determination. The updated Eligibility Checklist may be found by clicking on the link below.

For more information on the updated PLP Eligibility Checklist or for other information regarding SBA lending issues, contact the author at cevans@starfieldsmith.com or 215-542-7070.
http://archive.sba.gov/idc/groups/public/documents/sba_homepage/tools_sbf_finasst_7plp.pdf