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SBA Releases New SOP Guidance for the 504 Loan Program

Sep 2020

The Small Business Administration (SBA) has issued Standard Operating Procedure (SOP) 50 10 6 for lender and certified development company (CDC) loan programs, including the 504 program. The new SOP becomes effective Oct. 1, 2020.

Participants must continue to use SOP 50 10 5(K) for SBA 504 applications submitted through Sept. 30, 2020.

Highlights to this SOP update include, but are not limited to, the following:

• In many areas of the new SOP, additional information from existing regulations has been incorporated -- no new guidance is provided; the SBA is simply providing more details from existing regulations in the SOP for ease of reference.
• Revised the guidance for fingerprint background checks to incorporate electronic processing.
• Added a chapter with guidance for special transaction structures such as Eligible Passive Company/Operating Company, Employee Stock Ownership Plans, cooperatives, and 401(k) plans including Rollover as Business Start-ups (ROBS) plans.
• Included additional guidance on the eligibility of businesses with activities related to hemp and/or cannabidiol (CBD).
• Private flood insurance will be accepted; however, it must meet the same requirements as the standard National Flood Insurance Program (NFIP) policy.
• Incorporated guidance that increased the estimated value of the project property from $250,000 to $500,000 as the threshold that triggers the requirement for appraisals on collateral secured by commercial real property.
• To reduce process time for historic property reviews, introduced new SBA Form 2481, “Historic Property Borrower Certification,” which allows the borrower, co-borrower and/or operating company, as applicable, to self-certify for projects involving property or site acquisition where the borrower, co-borrower and/or operating company has no intention of altering, renovating, rehabilitating, restoring and/or demolishing any part of the property or site.
• Increased from $150,000 to $250,000 the threshold loan amount to determine whether the environmental investigation must begin with an environmental questionnaire or a records search with risk assessment for loans where there is not a North American Industry Classification System (NAICS) code match to an environmentally sensitive
• Clarified that, when determining whether credit is available elsewhere, SBA Lenders may not cite the applicant’s inability to meet the SBA lender’s or third party lender’s conventional credit score policy as the sole reason that credit is not available elsewhere.
• Updated the eligibility of businesses owned by non-U.S. citizens. These businesses may be eligible only if the business is at least 51% owned and controlled by U.S. citizens or those who have lawful permanent residence status from U.S. Citizenship and Immigration Services.
• Businesses engaged in promoting religion are no longer automatically ineligible. If an applicant will use loan proceeds to fund religious activities, the SBA lender must submit completed SBA Form 1971 and receive final Agency approval prior to submitting the application. The SBA will determine whether loan proceeds may constitutionally be used in the manner intended by the applicant.
• Clarified the guidance related to prior loss to the government and delinquent federal debt by separating the requirements into two paragraphs and revised both paragraphs for additional clarity. Specifically, clarified that the prior loss rule only applies to debt incurred by a business and not loans to individuals (e.g., student loan debt).
• Added guidance regarding the certification that the third party lender must make in its commitment letter with respect to projects involving debt refinancing with or without expansion; on life insurance for calculating amount of insurance and term required; and on the processing methods and submission of applications to the SBA.

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