Best Practices: Evaluating the Eligibility of Religious Small Business Applicants
While the vast majority of small businesses are eligible for loans through the U.S. Small Business Administration (“SBA”) 7a guaranteed loan program, a business may be ineligible because its activities or purpose is illegal, unconstitutional, or violates public policy. Under the SBA’s regulations and Standard Operating Procedures (“SOP”), a lender must determine if the business ... Read More
Best Practices: Documenting Equity Injection to Protect Your Guaranty
When a lender requires an equity injection under the terms of the SBA loan the lender is extending, it is imperative that the lender ensures that it is properly documenting the equity injection in accordance with SBA loan program requirements. In the event of an early default loan (one that defaults within the first 18 ... Read More
Best Practices: Eligible Uses of Proceeds for Renovations
The SBA limits what an eligible passive company (EPC) can do with SBA loan proceeds. An EPC must use loan proceeds to “acquire or lease, and/or improve or renovate real or personal property (including eligible refinancing) that it leases to one or more Operating Companies (OC) for conducting the OC’s business.” SOP 5010 5 (I), ... Read More
Best Practices: Understanding Homestead Exemptions and their Effect on Collateral
The Small Business Administration’s (“SBA”) Standard Operating Procedures (“SOP”) require lenders collateralize 7(a) loans greater than $350,000 to the maximum extent possible up to the loan amount. See SOP 50 10 5(I) at pg. 156. Accordingly, lenders “must take available equity in the personal real estate (residential and investment) of the principals as collateral.” Id ... Read More
Best Practices: Use of Proceeds Disbursement Considerations
One of the most important conditions in properly closing an SBA loan is making sure that the use of loan proceeds complies with the SBA Loan Authorization. It is the responsibility of the lender to ensure that proceeds are properly disbursed. If the Lender does not properly monitor all loan disbursements, a lender will be ... Read More
Best Practices: Calculating Rent under the EPC/OC Rule
Most lenders know the EPC/OC rules, but calculating the proper rent payment on an EPC/OC lease can be complicated. The SBA does not permit lenders to make SBA loans to passive entities, that is, entities that do not actually use or occupy the assets acquired or improved with loan proceeds. The one exception to this ... Read More