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SOP 50-10 (5)(C) Frequently Asked Questions

Dec 2010

Standard Operating Procedure (SOP) 50-10(5)(C) for 504 lender and certified development company (CDC) loan programs became effective on Oct. 1, 2010. Following are some of the more frequently asked questions about the updated SOP.

Q1. Maximum Loan Amount - On a $5.5 Million Debenture for a Small Manufacturer or Certain Energy Goals, It Appears This Section Applies to Each Project Rather Than Each Operating Company. Is a Small Manufacturer or Energy Project Permitted to Have More Than One $5.5 Million Debenture?

A1. Yes, the $5.5 million debentures for manufacturers and energy efficiency projects are based on the project rather than the operating entity so it is possible for one operating company to have more than one $5.5 million debenture.

Q2. Mini-Warehouses, Office Suites and Similar Businesses Have Been Deleted From the SOP - Are They Now Eligible Projects for the 504 Program?

A2. Yes, the Small Business Administration (SBA) changed its ruling for all “passive income” properties, those which rely on rental income and the owner controls both entry and exit. The passive income guidelines affected self-storage, mobile-home parks, office suites, flea markets, shopping centers and similar businesses. Previously, self-storage facilities were only eligible if more than 50% of the business revenue came from sources other than monthly rent.

Q3. SBA Form 912 - Is the SBA Looking for CDCs to Submit 912s for More Individuals?

A3. The SBA is looking for Form 912s on key individuals. For instance, if a hotel has an absentee owner the on-site general manager is key to the success of the organization, whether or not he/she has an ownership interest. In this case, a Form 912 will be required on the manager.

Q4. Residential Space - Can Mixed-Use Properties Where the Residential Space is 49% or Less of the Property Still Be Financed Under the New SOP (for example, a retail/office condominium that has an apartment unit on the second floor)?

A4. Mixed use properties, where the residential space is 49% or less of the total property, are still eligible. In addition, if the nature of the business requires a resident owner or manager to live on the property, the residential space cannot exceed 49% of the total property.

Q5. Borrowed Borrower Contribution - Can the Supplemental Information Form on Borrowed Equity Contribution in the Loan Application Be Excluded?

A5. No, the Supplemental Information Form must still be included in the application.

Q6. OREO - “The Use of Proceeds Attributable to Financing the Purchase of This Real Estate May Not Exceed the Liquidation Value or the Lender's Cost, Whichever is Less;” Why Isn't the Fair Market Value Used?

A6. This section was amended to coincide with the 7(a) loan program language. Using a fair market value for OREO properties is seen as a potential conflict of interest and the appearance of a bank bailout.

Q7. OREO - Can the Contract Price Be the Higher Value with the Borrower Making Up the Difference?

A7. Yes, the contract price can be more than the liquidation value or lender's costs with the borrower making up the difference either in personal resources or other financing.

Q8. File Retention - Why Do Prepaid Files Need to Be Kept for Nine Years and Liquidated Files Need to Be Kept for 10 years?

A8. This change coincides with the file retention guidelines the SBA must adhere to.

Q9. TPL Amortization - Is the Borrower's Signing of the Note Considered Consent to the TPL Amortization?

A9. No, a separate statement must be signed by the borrower consenting to the amortization prior to the debenture funding.

Q10. Public Policy Goal for Base Closures - What Type of Supporting Documentation Does the SBA's Sacramento Loan Processing Center (SLPC) Want to See if the Base Closure Occurred More Than 10 Years Ago?

A10. The SLPC is looking for a credible explanation on how the economy in the area is still suffering from a base closure that occurred over 10 years ago.

Click hereto access a complete copy of SOP 50-10(5)(C).

For more information about 504 loans in Florida, contact Florida First Capital by visitingwww.ffcfc.com, emailing us atinsider@ffcfc.comor calling 888.320.5504.