Best Practices: Secondary Collateral Real Property – Title Search or Title Policy?
The Small Business Administration (the “SBA”) generally expects lenders to obtain a policy of title insurance for primary collateral real property where SBA loan proceeds are being used to purchase real property or refinance a loan secured by real property. However, the SBA has no set requirements for title insurance, and lenders may not be ... Read More
Best Practices: Clarification of 25% Contribution in a Partner Buyout
As stated in the SBA Standard Operating Procedures (SOP), if the purchase price of a business includes intangible assets in excess of $500,000, the borrower (or seller, in the form a two year seller standby note) must contribute at least 25% of the purchase price of the business for the application to be processed under ... Read More
Best Practices: The “Art” of Ordering Public Records Searches
SBA Lenders often wonder about what public records searches they must order as part of their due diligence when processing an SBA loan. Unfortunately, the SBA does not specify any requirements for performing searches, instead specifying the requirements for collateral and underwriting and leaving it up to lenders to engage in “prudent lending” to fulfill ... Read More
Best Practices: Executed Purchase-Sale Agreements
Financing change of ownership transactions can present several unique challenges for lenders that are not part of loans for refinances or startups. From determining what searches are required to ensure the proper lien position, to dealing with the challenges posed by parties to the transaction whose timelines and expectations rarely align with those of the ... Read More
Best Practices: Collateral Securing Guaranties
Under Subpart B, Chapter 4, Section II of SOP 50 10 5(H), a lender must use commercially reasonable and prudent practices and procedures to identify property which may be collateral for its 7(a) loan, which practices and procedures are at least as thorough as those used by the lender for similarly-sized non-SBA guaranteed commercial loans ... Read More
Best Practices: Leasing Part of a Building Acquired with SBA Loan Proceeds
The SBA imposes occupancy requirements when loan proceeds include the purchase of an existing building or for new construction. These requirements are designed to ensure that the borrowing entity’s business is successful and that the loan proceeds benefit the borrower, rather than a third party. Accordingly, lenders must perform an analysis of the percentage of ... Read More
