On December 26, 2023 SBA issued SBA Information Notice No. 5000-852422 which announced renewals and updates to certain SBA Forms. The most significant change is the issuance of a revised SBA 7(a) Borrower Information Form 1919. The new SBA Form 1919 conforms to changes in SOP 50 10 7.1 which requires an Applicant to make a number of certifications that lenders will rely upon in order to determine eligibility.
While the old SBA Form 1919 required 100% of ownership to be reflected, the new SBA Form 1919 requires only specific owners to be disclosed. The Applicant must identify (i) all entities that own at least 20% of the Applicant (as well as any natural persons that own those entities), and (ii) at least 51% of the Beneficial Owners. SOP 50 10 7.1 defines “Beneficial Owners” in Appendix 3: Definitions, as “A Person who owns a concern directly or indirectly through another entity.”
The new SBA Form 1919 combines and expands some of the questions that were included in the former SBA Form 1919. For example, the old SBA Form 1919 asked whether the Applicant was suspended or debarred from entering into a transaction with the Federal Government. The new SBA Form 1919 clarifies that if the loan is for an EPC/OC structure, the Applicant must disclose if either the EPC or OC suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in a transaction by a Federal agency. The Applicant also must disclose if an Associate of the Applicant is suspended or debarred. Additionally, the Applicant must disclose if it or an Associate are presently in bankruptcy. Keep in mind an “Associate” of a small business is defined in SOP 50 10 7.1 as: (a) an officer, director, owner of more than 20% of the equity, or key employee of the small business; (b) any entity in which one or more individuals referred to in paragraph (a) above owns or controls at least 20%; and (c) any individual or entity in control of or controlled by the small business (except an SBIC).
The new SBA Form 1919 removed questions about past criminal history and replaced them with a question on whether the Applicant or any Associate of the Applicant is presently incarcerated, on probation, on parole or presently subject to an indictment for a felony or any crime involving financial misconduct or false statement.
Instead of asking if the Applicant has any Affiliates, the new Form 1919 asks if the Applicant or any owner of the Applicant is an owner of another business. It asks the Applicant to list all such businesses and percentage of ownership and describe the relationship. This seems beyond the definition of Affiliate under SOP 50 10 7.1, which limits the definition of Affiliate to more than 51% of ownership in two companies with the same NAICS codes.
The new SBA Form 1919 also expands the question regarding litigation to the Applicant, any owner of the Applicant, or any business owned by them (Affiliates), and clarifies that legal action includes divorce. It also adds “lending activities, lobbying activities” to the list of activities that may have an eligibility restriction in question No.7.
The new SBA Form 1919 also significantly expands the certifications the Applicant must make to align with SBA’s new eligibility determination process and validation by SBA’s Risk Mitigation Framework in SOP 50 10 7.1. A few certifications are similar to those found in SBA’s Borrower’s Certification form, such as (a) the Applicant remaining current on all child support, (b) current on all taxes, (c) in compliance with Build America, Buy America Act and (d) not engaging in or leasing to or from any location that is engaging in any activity that is illegal under federal, state, or local law.
A few of the new certifications include the Applicant certifying that: (i) the Applicant, together with all affiliates, is small under the applicable small business size standard (13 CFR 121.201 and Section 3(a)(5) of the Small Business Act [15 U.S.C. 631 et seq] (ii) if applicable, the Applicant, the ESOP (or equivalent trust), and/or the 401(k) plan are in compliance with all applicable IRS, Treasury, and Department of Labor requirements and will comply with all relevant operating and reporting requirements and (iii) for any complete change of ownership which more than 90% of the purchase price is financed with Standard 7(a) loan proceeds(greater than $500,000), the remaining owner(s) certify that (Y) they have been actively participating in the business operation and (Z) held the same or an increasing ownership interest in the business for at least the past 24 months.
The Notice clarifies that while the information required for SBA Form 1919 must be inputted by the Lender into E-Tran, the lender should obtain and retain in its loan file an executed copy of the completed SBA Form 1919.
In addition to the issuance of the new SBA Form 1919, “SBA 7(a) Borrower Information Form,” The SBA updated SBA Form 2237, “7(a) Post-Approval Action Checklist” to reference the new SOP 50 10 7.1 and renewed without revision SBA Form 1971, “Religious Eligibility Worksheet.” It also eliminated SBA Form 1920, “Lender’s Application for Loan Guaranty.” Finally, SBA replaced SBA Form 2449, “Community Advantage Addendum (7(a) Pilot Program)” with the new SBA Form 3518, “Community Advantage Addendum – 7(a) CA SBLC”. Lenders should take the time to review the Notice and these updated forms carefully to make sure it is gathering and retaining the correct information from Applicants.
For any questions on the updated SBA Form 1919 or the new SOP 50 10 7.1, please contact Kim Rayer at krayer@starfieldsmith.com.
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