As interest rates have been rising over the past year and a half, the Small Business Administration (“SBA”) wants to be sure that SBA borrowers understand when their interest rate will adjust. Therefore, effective May 1, 2017, the SBA now requires Colson to verify that every SBA note includes the date of the first rate adjustment in order for the loan to qualify for sale on the secondary market.
The SBA Standard Operating Procedure (“SOP”) identifies six elements to be disclosed in an SBA note associated with a variable interest rate loan. Page 132 of SOP 50 10 5(I), which became effective January 1, 2017, states:
Lenders have two (2) options methods to comply with this policy requirement:
If a lender does not have specific language in the SBA note for a loan that has already closed but not been sold on the secondary market, Colson will accept a loan modification to correct the SBA note language signed by the borrower and lender.
Lenders should also consider having the SBA Loan Authorization (“Authorization”) note terms include the additional language above clarifying the date of the first rate adjustment. If this language is not included in an Authorization that has already been approved by the SBA, then the lender should obtain a 327 action to revise the note terms.
Lenders who intend to sell their loans on the secondary market must take care that they are complying with current SBA regulations and guidance from the SBA. For more information regarding this topic, please contact Kristen at (407) 667-8811 or at kdickey@starfieldsmith.com.
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