Best Practices: Revised SBA Form 1919 Analysis: Part 2 – Applicant Business

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 divided in order to provide greater clarity to the questions and make the form more user friendly for borrowers.

Section I of the form relates specifically to the applicant business and is executed by an authorized representative of the business. This section begins with a grid requesting pertinent information about the business (e.g. contact information, business tax id number, primary/project addresses, tradename, etc.), which had not all been included in the previous version of the form. Unless explicitly requested during application, some of this information would not have otherwise been discoverable until a lender was in the due diligence stage of the lending transaction. This information is helpful to have at this early stage of the application process as it may impact checklist requirements and search orders. For lenders that were not otherwise requesting all of this information upfront, the grid may prove to be a good resource for a more efficient transition into the due diligence phase of the transaction.

While many of the questions contained in the prior version of Form 1919 remain, below are some of the more notable changes regarding the applicant’s business:

1. In the prior version of the Form 1919, the applicant was asked if the business is a franchise. The new version has expanded this question to read “does the Small Business applicant operate under a Franchise/License/Distributor/Membership/Dealer/Jobber or other type of Agreement.”
2. With respect to the eligibility of the business itself, the new Form 1919 now asks whether the Applicant derives any revenue from loan packaging.

SBA has now clarified that, in addition to the traditional franchise agreement, it requires a borrower to produce other licensing/distribution agreements that could trigger the requirement for an SBA franchise addendum. One agreement not mentioned in the form is a management agreement, which would not fall under the franchise analysis, but could require an affiliation analysis to be performed. Lenders should keep in mind that, to the extent borrowers are operating the business through a management agreement, such agreements should be reviewed even though they are not identified in Form 1919 as being required for an eligibility analysis. The second notable change is that SBA has also clarified that Applicants must disclose when revenue is obtained through loan packaging services as a part of the eligibility analysis. This was not previously an inquiry contained in the Form 1919 and its addition will help provide lender’s with information to assess eligibility. In addition to these modifications, the revised Form 1919 now asks whether the applicant or affiliates have applied for bankruptcy protection or are currently involved in a pending legal action. These questions will help the lender assess credit issues that would otherwise have not arisen until the due diligence phase of the lending transaction.

Lenders must ensure that Borrowers properly complete the required Form 1919s in order to perform a thorough eligibility and credit analysis. For more information regarding the revised Form 1919, please contact Jessica at jconn@starfieldsmith.com or at 267-470-1188.