March 2019
Commercial Lending
New SOP Guidance for SBA 504 Loans Takes Effect April 1

Standard Operating Procedure (SOP) 50 10 5(K) for the Small Business Administration (SBA) 504 Loan Program becomes effective April 1, 2019.  The update provides additional guidance and incorporates revisions to conform to changes in SBA regulations and 504 Loan Program requirements.

SOP Revisions Impacting SBA 504 LendingFollowing is a summary of the policy changes for the 504 Loan Program including, but not limited to: revises guidance on credit elsewhere and borrower occupancy requirements; clarifies the franchise eligibility review process; updates the job opportunity requirements; adds the 25-year debenture and final rule on debt refinancing; and provides guidance on the eligibility of marijuana and hemp related businesses.

Users are advised to fully read SOP 50 10 5(K) to ensure understanding of all changes.

Escrow Closings (page 269): Adds guidance that when a project is to acquire an existing facility that the borrower will immediately occupy, the SBA may allow the use of escrow closings instead of requiring interim financing.  Note: Escrow closings with no interim financing will not be available for use until the SBA has announced that the necessary forms have been created and/or revised, as appropriate.

Franchise Review Process (page 279): Clarifies the franchise review process for applicants operating under multiple agreements, management agreements and the appeal process for decisions not to place a brand on the SBA Franchise Directory.

Credit Elsewhere (page 285): Revises guidance regarding the Certified Development Company (CDC) determination that the applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal, non-State or non-local government sources, including from the third party lender, without SBA assistance.

Also incorporates the policy change to increase the threshold for CDC review of liquidity from 10% to 20% of the equity of the applicant, their spouses and minor children, and the applicant itself (page 286).

Ineligible Businesses (page 288): Clarifies that residential facilities that do not provide healthcare and/or medical services are not eligible, and businesses that are licensed as nursing homes or assisted living facilities and provide healthcare and/or medical services are eligible.

Incorporates policy changes concerning marijuana and hemp related business (page 290).  Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.  Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.  Whether a business is eligible is determined by the nature of the business’s specific operations.

Also, consistent with the Agriculture Improvement Act of 2018, revises guidance concerning the eligibility of hemp-related businesses to state that a business that grows, produces, processes, distributes or sells products made from hemp is eligible (page 291).

Job Creation or Retention (page 309): Updates the job opportunity requirements to reflect current policy.  A 504 project must achieve at least 1 job opportunity created or retained per every $75,000 of project debenture ($120,000 for small manufacturers) unless one of the 15 community development or public policy goals is met.

Debt Refinance without Expansion (page 312): Updates the SOP to reflect current policy on permissible debt refinance without expansion.

Closing and Funding (page 321): Clarifies guidance that the closing and funding of a 504 loan must not take place until the borrower is occupying the required amount of the project property and the borrower is operating from the project property.

25-Year Debenture (page 341): Updates the SOP to include the 25-year debenture’s interest rate and maturity.

Energy Public Policy Projects (page 355): Updates eligibility criteria to be considered an energy public policy project.  Increases the amount of energy that a project must generate to at least 15% of the energy used by the applicant at the project facility.

The Florida First Capital professional staff stands ready to assist our commercial lending partners with navigating these changes as well as providing guidance on any aspect of the 504 lending process.

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at  Phone: 850.681.3601 or toll-free at 800.504.LOAN.