Best Practices: SBA Financing for Acquiring an ESOP-Owned Business
SBA loan proceeds are frequently used to finance change of ownership transactions. Such change of ownership can be accomplished through either a stock purchase (or redemption) or through a purchase of all or substantially all of the assets of the seller’s business.1 The SBA Standard Operating Procedure 50 10 5(J) (“SOP”) Subpart B requires that ... Read More
Best Practices: False Claims Act Liability and the need to make a “CLAIM”
We have written previously on the Small Business Administration’s increased use of the federal False Claims Act (“FCA”) against lenders who fail to follow the SBA’s Standard Operating Procedures (“SOPs”) in considering and underwriting loans that have gone into default and for which the lender has subsequently requested the SBA to purchase the guaranteed portion ... Read More
Best Practices: Equity Injection Requirements for Business Expansions
Lenders extending Small Business Administration (“SBA”) loans have now been operating under SOP 50 10 5 (J) since January 1, 2018. As most SBA lenders are aware, SOP 50 10 5 (J) included substantive changes to the SBA’s equity injection requirements for loans involving start-up businesses and/or changes of ownership. For a full discussion of ... Read More
Best Practices: Updated Guidance on SOP 50 10(5)(J) #2
On April 3, 2018 SBA issued Policy Notice 5000-17057. It provides guidance on different matters related to SOP 50 10 5(J) which became effective on January 1, 2018. Two significant matters addressed in the Policy Notice are modifications to (i) Credit Elsewhere analysis for owners (their spouses and their minor children) of the Applicant and ... Read More
Best Practices: Express Loan Credit Underwriting Requirements
Section 4 on page 180 of SOP 50 10 5(J) confirms that SBA Express lenders have authority to make credit decisions for Express loans without prior SBA review. This authority can allow the lender to process such loan applications quicker than general 7(a) loans, but also opens the lender up to a more thorough review ... Read More
Best Practices: Documenting Equity Injection from Affiliates in 7(a) Loans
Recently, we have been asked if equity injection from an applicant’s corporate affiliate can come in the form of a gift. The short answer is no. In addition to income and gift tax implications beyond the scope of this article, getting cash out of a corporation rarely takes the form of a gift, unless it ... Read More
