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SBA 504 Q&A: Verifying Use of Loan Proceeds
Q: What documentation is required by the Small Business Administration (SBA) to verify use of 504 loan proceeds?
A: Use of proceeds documentation has become a hot button for the SBA over the past few years. As such, SOP 50 10 5(K), effective April 1, 2019, now addresses these requirements in detail.
SOP 50 10 5(K) now spells out the fact that the Certified Development Company (CDC) must certify that project costs were paid in full, project proceeds were used in accordance with the loan authorization, and that each party has contributed their required amounts to the project. It then goes into further detail as to how this should be documented.
Sufficient evidence per SOP (K):
• Purchase of Land and/or Building: Settlement statement, or equivalent, showing the amounts paid and whether paid by the borrower of from the third party, or interim lender, proceeds.
• Construction or Renovations:
• Copy of construction contract and all change orders;
• Evidence of each progress payment and final payment of the project reflecting cumulative costs and source of payment (i.e., borrower, third party or interim lender);
• In the event of an approved construction escrow account, copies of paid invoices and a copy of the cancelled check made payable to the borrower and the designated contractor; and
• Copy of mechanic’s lien releases, if applicable.
• Debt Refinancing: Copy of the transcript of the account and settlement statement.
• Professional Fees and Other Miscellaneous Costs: Settlement statement or copies of the paid invoices and cancelled checks or evidence of wire transfers.
Per SOP (K): No funds should be paid directly to the borrower unless the CDC obtains evidence of the borrower’s payments (cancelled checks and paid invoices).
Florida First Capital endeavors to collect draw documentation as the draws are being made, throughout the project, so that use of proceeds verification can stay up to date and any needs lists can be sent in a timely manner. This allows for faster and more efficient debenture funding when the time comes.
If you have a question you’d like our SBA 504 loan experts to answer, email us at info@FloridaFirst.com or call 850.681.3601 or toll-free at 800.504.LOAN.