Mais conteúdo relacionado Semelhante a Documenting, closing and funding the sba loan lerch early may 2012 (20) Documenting, closing and funding the sba loan lerch early may 20121. FUNDAMENTALS OF
SBA LENDING:
DOCUMENTING, CLOSING
AND FUNDING THE SBA
LOAN
Alison W. Rind
Lerch, Early & Brewer, Chtd.
www.lerchearly.com May 16, 2012
2. Overview
Overview of 7(a) Programs
Documenting SBA Loans
Closing & Funding SBA Loans
Servicing
2
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4. 7 (a) Loan Programs
Standard 7(a) Loan Processing
Certified Lender Program (CLP)
Preferred Lender Program (PLP)
SBA Express
PatriotExpress
Export Express
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5. I.B. Types of Processing
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6. 7 (a) Loans
Standard 7(a)/CLP Loans
Lender submits full credit analysis to SBA
SBA approves loan for both credit and
eligibility
Normal 6-10 day turnaround
PLP Loans and Express Loans
Must have preferred status
Lender approves loan for both credit and
eligibility
SBA approval normally received within 24 hours
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8. 7 (a) Lending
Proceeds may be used by eligible
businesses for following purposes:
Working capital
Furniture and fixtures
Machinery and equipment
Purchase and construction of land and building
Business acquisition
Refinancing of existing debt
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9. Guidance on 7 (a)
Debt Refinancing
Long term debt with demand note or balloon
payment
Revolving lines of credit (both short and long
term) where original lender is unwilling to renew
line or borrower is restructuring to obtain lower
interest rate/longer term
Debt with maturity not appropriate for purpose
of financing
Debt that does not fit other refinancing
categories, but which lender believes no longer
meets needs of borrower
However applications for this exception may be processed only through
9
standard 7(a) procedures.
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10. Change of Ownership
SOP provides that small business
applicant may use loan proceeds for
change of ownership
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11. Change of Ownership
100% purchase (“either an asset
purchase or a stock redemption”)
One or more existing owners are
redeeming stock of selling owner
resulting in 100% by purchasing
owners
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13. 7 (a) Eligibility
For profit
Operating business
Located in U.S.
Small
Must look at affiliates to determine size
Demonstrate need for desired credit
Credit not available elsewhere
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14. 7 (a) Ineligible Businesses (e.g.)
Nonprofits Businesses deriving
Financial businesses more than 1/3 income
engaged in lending from gambling
51% owned by non-US Pyramid sales
citizens or resident distribution plans
aliens Businesses engaged in
Passive (investment) illegal activities
businesses Speculative businesses
Life insurance
companies
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15. 7 (a) Ineligible Businesses (con’t)
Private clubs that limit Businesses that present
membership other than live performances of a
capacity prurient sexual nature
Businesses owned by or derive 5% of gross
persons of poor income through sales of
character/on products or services of
probation/parole a prurient natures
Franchises exhibiting Businesses that
affiliation with defaulted on federal
borrower loans or federally
assisted financing
resulting in a loss
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17. 7 (a) Standard Terms
Standard 7(a) and CAPLines 75%
guaranty (85% if loan ≤ $150K) net
loan amount: $5 million
SBA Express 50% guaranty,
maximum loan amount: $350K
Patriot Express 75% guaranty (85%
if loan ≤ $150K): $500K
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18. 7 (a) Maximum Maturity
Working capital and inventory: Up to 10 years
FF&E: 10 years unless useful life exceeds 10
years, then many be longer
Real Estate: Up to 25 years
SBA Express: 7 years if revolving line, including
term out
CAPLines: Up to 10 years (Builder CAPLine: 5
years)
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19. 7 (a) Interest Rates
Prime plus 2.75% (over $50K) or
LIBOR Equivalent (or optional peg
rate)
SBA Express Prime (LIBOR equivalent)
plus 4.5% (over $50K)
Fixed Rates published monthly
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20. Guaranty Fees & Annual Service Fees
Loan % of Guaranteed
Portion
≤$150K 2%
$150K-$700K 3%
$700K-$5M 3.5% up to $1M, then
3.75% over $1M
Short term loans .25%
Ongoing fee charges
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23. Underwriting
Lender must analyze each applicant
in commercially reasonable manner
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26. Adequacy of Collateral
All available collateral
Liens on residences
Assets owned by applicant’s spouse
Guaranties
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27. II.C. Appraisals & Environmental Policies
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28. 7 (a) Appraisals
When collateral is new construction or involves
substantial renovation, appraisal must estimate what
market value will be at completion of construction
Substantial renovation shall mean rehabilitation
expenses of more than 1/3 of purchase price or fair
market value at time of application
After construction is completed, lender must obtain
statement from appraiser of “as-completed” value.
If value is <90% of original estimated value,
appraiser must state reason for change in value, e.g.,
changes in market conditions or deviations from
original plans
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29. 7 (a) Business Valuation
If amount being financed minus appraised
value of real estate and/or equipment is
≤$250K, lender may perform own
valuation of business being sold
If amount being financed minus appraised
value of real estate and/or equipment is
>$250K or if there is close relationship
between buyer and seller, lender must
obtain independent business valuation from
qualified source
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30. CAPLine Collateral Requirements
Working capital lines
Borrowingbase
No borrowing base
Contract lines
Builder CAPlines
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31. SBA Express Collateral Requirements
<$25K: No collateral
>$25K: Follow same procedures as
lender for similar, non-guaranteed
loans
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32. Environmental Investigations
SBA requires lenders to submit
Environmental Investigation Reports to
SBA center processing an application
(except PLP)
Iflender is processing application under
preferred lender status, loan file must include
all necessary environmental reports
A Reliance Letter is required even if
Environmental Investigation Report is addressed
to lender
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33. II.D. Basic Loan Conditions &
Requirements
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34. SBA Authorization
Comply with all provisions
Insurance requirements
IRS transcripts
Standby agreements
Assignment of lien and landlord waiver
Construction loan provisions
Provisions for franchises
Provisions for CAPLines
Modifying authorizations
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35. Insurance
Hazard insurance
Evidence of Insurance on Acord Form 27
Builder’s risk
Liability insurance
Acord Form 25s
Business interruption
Worker’s compensation
Law and ordinance
Life insurance
Title insurance
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36. Landlord Waivers: Reason
In some states, landlords have lien rights
covering unpaid rent, superior to
recorded bank's liens on tangible
property of tenant located on leased
premises
Written landlord's waiver determines
priority of lien rights, controls access to
premises after default under lease, and
allows for orderly removal or sale of
collateral
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37. Difficulty of Obtaining Landlord
Waivers
Unless lease terms contemplate waiver, no
requirement on landlord to agree to anything
Failure to obtain landlord's waiver is usually not
deal breaker
Alternatives include requiring monthly proof
from borrower that rent is paid or decreasing
advance percentage to cover risk
Begin discussion with landlord early so problems
can be identified and resolved
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38. III.A. Collection & Review/Due Diligence
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39. Borrower’s Name, Authority
and Signatures
Determine exact name of borrower
Name used in a personal or business context
may not be borrower's full and legal name
In case of a corporate or partnership borrower,
establish authority of corporate officers or
partners, respectively, to enter into loan
transaction and to execute all loan documents
Use of incorrect/unauthorized name or signature
may jeopardize bank's ability to collect
defaulted loan or bank's rights in any collateral
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40. Also Verify
Each signatory of loan document is
who he or she purports to be
Person actually signs loan document
Patriot Act Concerns
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41. Collateral Due Diligence
Security Interest
Creation
Securityagreement
Proper parties
Importance of exact entity names
Importance of organizational situs
Perfection
Filing requirement
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42. Proper Perfection of
Security Interests
Crucial step in loan documentation
process
Protects against third party claims,
trustee in bankruptcy, other creditors
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43. Issues Re Proper Perfection
Does Article 9 apply?
What type of collateral is involved?
Who is debtor?
Is possession of collateral or filing required?
Where to file?
What should financing statement include?
How to retain perfection?
What impact of revised Article 9?
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44. When In Doubt
Because of technicalities involved in
correct content of financing statement
and severe consequences of error, seek
advice if any questions or uncertainties
arise
When in doubt, file. Unless cost of filing
is a factor, always file financing
statement
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45. III.B. Review of 3rd Party Reports
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46. Title Insurance: Coverage
Verify ownership of property
Verify authority of owner to grant lien lender
Identify liens, easements, covenants and other
encumbrances on property
Insure priority of deed of trust
Identify problems regarding property
boundaries and other issues shown by survey
Insure access to property
Insure marketability of property
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47. Title Commitment
Time to issue commitment
Cantake several weeks to complete title
search and issue commitment
Effective date of commitment
Lag in recording times
1 - 3 months or more
Gap coverage
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48. Exceptions from Coverage
Schedule B-2 of commitment
Easements, restrictive covenants,
deeds, etc.
Beware of restrictions on use of
property
Affirmative coverage
Endorsements to title policy
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49. Coverage Maintenance/
Enhancement – Endorsements Insure
Access: access from a particular public
road
Environmental liens: no liens securing
environmental cleanup costs
Comprehensive: any breaches of
covenants or violation of easements and
other encumbrances will not cause
termination of lien of deed of trust
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50. Title Instructions
If terms of loan are modified to increase
burdens on borrower, title update
should be obtained and title policy
endorsed (amended) to protect against
intervening liens
Counsel for bank will provide closing
instruction letter to title company that
tells title company what documents to
have executed and recorded and what
title policy must contain.
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51. Title Instructions
Failure of title company to follow written
instructions will give bank a claim
against title company for any losses
Always obtain insured closing letter from
title insurance company that will provide
for claim against title insurance company
if title agent fails to follow bank’s
written instructions with respect to closing
and disbursement of loan proceeds
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52. Surveys Generally Show
Visual image of property’s boundaries,
placement of buildings, fences and other
structures on property
Location of recorded and observed
easements and right of ways
Names and widths of streets and
highways abutting property
Monuments (markers) found or placed
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53. Surveys Generally Include
Character and location of walls, buildings and
fences within five feet of boundary lines
Encroachments by or onto adjoining property,
streets, easements, and record setback lines, and
driveways or alleys on or crossing property
Cemeteries and burial grounds disclosed in
process of surveying
Ponds, lakes, springs or rivers bordering on or
running through property
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54. Additional Survey Info
Location drawing (not really a
“survey”)
Boundary survey
ALTA/ACSM survey
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55. UCC Searches
Search records in jurisdiction of
borrower’s formation or each jurisdiction
of borrower’s residence, if an individual
What information may search reveal?
Name differences
Other creditors and lien holders
Problems regarding lien priority
Description of borrower’s assets
Whether lien subordination will be necessary
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57. Change of Ownership
In context of change of ownership, SBA takes
position that it cannot finance an individual's
acquisition of stock because such use of
proceeds would constitute payment or
distribution to or for benefit of acquiring
shareholder who is associate of small business
applicant.
Accordingly, SOP was revised to remove
provisions allowing for individuals to purchase
stock of a business if individuals executed
note on joint and several basis with business
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58. Collateral Conditions
Make sure borrower is or will be owner of
pledged collateral
What is borrower’s organizational structure?
Does guarantor own collateral to be pledged?
First lien in following business assets of borrower:
Equipment; fixtures; inventory; accounts; instruments;
chattel paper; general intangibles; machinery, except for
automobiles
Are there specific business assets to be listed?
Patents and copyrights
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60. Follow Up on Post-Closing Items
File reports
Verify insurance
Verify taxes
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62. SBA Servicing of Liquidation Actions
Pre-initial disbursement
Post-initial disbursement
Unilateral actions
SBA notification
E-TRAN
SBA approval needed
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63. Additional Resources
SBA Servicing and Liquidation Actions
7(a) Lender Matrix
http://www.sba.gov/sites/default/files/Matrix_
SBA Standard Operating Procedures
http://www.sba.gov/about-sba-
services/7481/24141
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64. Speaker
Alison Rind is an attorney at
Lerch, Early & Brewer who
(301) 657-0750 represents commercial lenders
awrind@ in loan transactions and other
lerchearly.com commercial matters. These
include participants in SBA
and other government-
guaranteed lending programs.
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65. For more information
Lerch, Early & Brewer, Chtd.
3 Bethesda Metro Center, Suite 460
Bethesda, MD 20814
(301) 986-1300
www.lerchearly.com
Thank you for your participation
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