Best Practices: Continued Analysis of Procedural Notice 5000-872764

As discussed in last week’s article “Recent 504 and 7(a) Program Updates”, effective September 30, 2025, SBA released Procedural Notice 5000-872764 (the “Notice”) amending certain provisions of SOP 50 10 8.  Last week’s article discussed SBA Business Expansion Clarification, Update to Upfront Fee Calculations for Working Capital Pilot Programs, Lien Recording and Secondary Market Sales and 504 Construction Loan Updates. This article continues the analysis of key changes to the SOP based upon the Notice.  For the full text of the notice, please visit Procedural-Notice-5000-872764.pdf.

Business Valuation Requirements for Loans to ESOPs

Except in certain circumstances, SOP 50 10 8 requires an independent business valuation to be performed for a change of ownership.  This requirement created difficulties for purchases involving Employee Stock Ownership Plans (“ESOPs”) as ESOP valuations need to account for, inter alia, plan documents, repurchase obligations and ESOP feasibility.  ESOP valuations need to comply with the Employee Retirement Income Security Act (“ERISA”) and IRS regulations and to determine that adequate consideration is paid for the stock.  To avoid inconsistency between lender obtained independent business valuations and ESOP valuations obtained by the parties, SBA has removed the requirement for a lender obtained independent business valuation in ESOP transactions and approved the use of “the valuation obtained by the ESOP that was made in accordance with ERISA specifications.”  This change creates clarity for all parties and reduces unnecessary expenses.

Update to MARC Program

The SBA has updated Appendix 13, 7(a) MANUFACTURERS ACCESS TO REVOLVING CREDIT (“MARC”) to clarify that lenders may not use their delegated authority to refinance same institution debt with a MARC loan.  PLP lenders must process all MARC loans through delegated authority with the exception of same-institution debt refinance, which must be submitted through non-delegated authority.  Lenders must avoid all situations involving possible conflicts of interest, so this change takes the evaluation out of the hands of lenders and places it with the SBA.

Updated Franchise Requirements for CDCs Under the 504 Loan Program

When processing franchise loans, the SBA now requires that prior to closing, the CDC must obtain the executed franchise agreement and copies of all documents that the franchisor requires the franchisee to sign.  The CDC must submit these documents to closing counsel and obtain closing counsel’s certification that the franchise documents are executed properly and comply with all SBA procedures and the SBA Franchise Directory.  This change requires that all franchise documents be obtained and reviewed for SBA compliance prior to closing, as opposed to prior to debenture funding.

The SBA continues to clarify the provisions of SOP 50 10 8 based upon feedback from lenders and CDCs, so lenders should continue to provide their feedback to SBA.  For assistance with SBA compliance matters, contact the attorneys at Starfield & Smith, PC at 215.542.7070 or visit us at www.starfieldsmith.com.