Just a few months ago, the U.S. Small Business Administration ended Fiscal Year 2016 on a high note with loan volume up over the previous year. The agency also just rebranded its flagship 7(a) and 504 loan programs. Now that we’re about to turn the page on a new calendar year, the agency has two more changes:
- a new SOP 50 10 5; and
- a new Administrator selected by President-elect Trump.
SBA Lending Continues to Grow
Two months into FY17, SBA lending continues its growth trend. For the week ending December 2, approvals for the 7(a) loan program (now the SBA Advantage Loan Program) were at their highest level in six years. Year-to-date volume (October 1 through December 2) increased from $3.4 billion at this point last FY to $3.7 B, an increase of nearly 9 percent.
SOP 50 10 5(I) Effective Jan. 1, 2017
The updated SOP 50 10 5, version I, supersedes the current version (H) effective January 1, 2017, and is the ninth version of the policy document that lenders and Certified Development Companies must follow to qualify for an SBA loan. While version (I) contains new language for franchised businesses, the environmental requirements remain largely unchanged.
According to the SBA’s statement, SOP 50 10 5(I) replaces the current franchise review process with new guidance. Within the new language is an emphasis on the importance of identifying any environmental use restrictions recorded against a property:
- “If the Franchisee owns the real estate where the franchise location is operating, Franchisor may not record against the real estate any restrictions on the use of the property, including any restrictive covenants, branding covenants or environmental use restrictions.”
- “When assessing the adequacy of collateral, the lender must consider the impact that covenants and other restrictions recorded against the collateral may have on its value and marketability. The lender must document this analysis in the file. Examples of items to review include:
(a) Deed restrictions, covenants, easement provisions, reversionary interests, subordinations, leases and options, and other provisions that restrict the use of the property for the benefit of a third party; and
(b) Engineering Controls that require the small business concern or subsequent owners to install costly devices or structures such as extraction wells or subsurface barrier walls prior to constructing a building, remodeling, or otherwise improving the property.”
The updated information in the SOP will apply to all applications received by SBA on or after January 1, 2017.
New SBA Head: Linda McMahon
More changes are ahead for the SBA in the new year. President Elect Donald Trump selected Linda McMahon, cofounder/ex CEO of WWE and former U.S. Senate candidate from Connecticut, to serve as administrator of the SBA. An informal poll by the Coleman Report on what lenders think the new Administrator’s priorities should be revealed high interest in streamlining the loan regulations and improving systems to create faster turnaround times. EDR Insight will continue to monitor any changes in SBA lending policies after the transition to the new administration.
FOR MORE INFORMATION
- Red line version of the new SOP 50 10 5(I).
The policy contains the environmental policies lenders and CDCs must follow for a Records Search with Risk Assessment, and Phase I and Phase II environmental site assessments performed by a qualified environmental professional. The SBA’s NAICS Code list of environmentally sensitive industries triggering a Phase I requirement remains unchanged from the previous version and can be found in Appendix 4. The updated information in the SOP will apply to all applications received by SBA on or after January 1, 2017.
- SBA Information Notice 5000-1399 announcing issuance of the new SOP, dated November 22, 2016.
- EDR’s flowchart illustrates the tiered approach of an environmental investigation under the SBA’s environmental policy, an approach that has been widely adopted by lenders even for non-SBA lending.
- EDR Insight’s time-series look at SBA lending volume over the past five fiscal years (dollar volume and number of loans) appeared in our November brief.