Aug 29

Best Practices: The Current “State” of Affairs: Revisions to the SBA’s State Specific Requirements in the 2018 Authorization

On August 14, 2018, the Small Business Administration (“SBA”) released the new 7a Authorization Wizard for lenders to download. While the new Authorization contains numerous changes and additions from the 2011 version, this article highlights only the revisions and additions relating to state specific requirements.

In addition to complying with SBA and other federal regulations, 7a lenders must also comply with applicable state laws. For lenders financing deals outside of their geographical footprint, failure to properly investigate, understand and comply with state laws may cause issues during liquidation resulting in a potential repair or denial of the SBA guarantee. To protect the interests of the SBA and lenders, the SBA incorporates certain state-specific requirements in the Authorization that must appear in certain credit and security documents.

The 2018 Authorization adds the following mandatory language for Borrowers who are residents of Georgia, Oregon and Washington:

  1. Georgia: The following must appear in the Note if any borrower is resident of Georgia: “The undersigned borrower hereby waives the right to require the Holder of this obligation to confirm any foreclosure sale as a condition for taking action to collect on this note.”
  2. Oregon: The following must appear in the Note if any borrower is resident of Oregon:  “UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY [BENEFICIARY]/US CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY GRANTOR’S/BORROWER’S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY [AN AUTHORIZED REPRESENTATIVE OF BENEFICIARY]/US TO BE ENFORCEABLE.”
  3. Washington: The following language must appear in boldface ten-point type to the Note, Guarantees and other Credit Agreements if any borrower or guarantor is resident of Washington: “Oral agreements or oral commitments to loan money, extend credit, or to forbear from enforcing repayment of a debt are not enforceable under Washington law.”

Further, the 2018 Authorization makes a number of other changes to the state specific provisions that already exist under the collateral conditions section of the Authorization. These revisions are as follows:

  1. Arizona, Georgia, Kentucky, Wisconsin: whether the lender uses SBA Form 148/148L or the lender’s own form, the language was changed to cover all guarantees.
  2. Georgia: mandatory language for guaranty was updated.
  3. Missouri: a change due to an amendment to RSMO §432.047, effective August 28, 2013, added, “…or unexecuted…” before agreements in the first sentence.
  4. Idaho, Alaska, Washington: added mandatory provision for real estate collateral.

Ultimately, it is important for lenders to review the new Authorization boilerplate in comparison to their legacy loan documents to ensure those documents comply with the new requirements. Additionally, lenders should stay appraised of updates in state laws that require revisions to the lender’s loan documents for enforceability, even if the SBA has not yet incorporated language into the Authorization in effect at the time.

For more information on state specific revisions to the Authorization, contact Katherine Tohanczyn at 267.470.1187 or at ktohanczyn@starfieldsmith.com.