NEWS UPDATE: U.S. SBA Officially Adopts $500,000 Appraisal Threshold

The agency’s action brings its appraisal threshold in line with federal bank regulators.

The U.S. Small Business Administration just announced an important change to its 7(a) and 504 loan program appraisal requirements, effective March 26, 2019. This development brings the SBA’s position in line with a policy adopted by Federal bank regulators last spring.

BACKGROUND

Nearly one year ago, the Office of the Comptroller of Currency, the Federal Reserve Board and the FDIC released a joint final rule that increased the appraisal threshold for commercial real estate transactions from $250,000 to $500,000. For commercial real estate transactions exempted from the appraisal requirement as the result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral. Based partly by an effort on the part of NAGGL, Congress passed legislation in December 2018 that amended the Small Business Act to bring the SBA’s appraisal policy in line with the new threshold in last year’s joint final rule.

WHAT’S CHANGING?

Under the SBA’s 7(a) program:

  • The SBA now requires an appraisal for all 7(a) loans greater than $500,000 secured by commercial real property to be completed by a State licensed or certified appraiser. Appraisals must be in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).
  • The SBA or the lender may require an appraisal for an SBA 7(a) loan in an amount equal to or less than $500,000, if such appraisal is necessary for appropriate evaluation of creditworthiness.
  • If an appraisal is not required, all lenders must obtain an appropriate evaluation of the commercial real estate securing the loan that is consistent with safe and sound banking practices.
  • Evaluations are not required to be performed in accordance with USPAP or by State licensed or certified appraisers but should be consistent with the Interagency Appraisal and Evaluation Guidelines and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions, issued by the Federal Banking Regulators.

Similar changes have been made to the SBA’s 504 program.

** NEW SOP 50 10 5 TAKES EFFECT NEXT WEEK **

In related SBA news, be aware that as of Monday, April 1, 2019, the SBA’s new SOP 50 10 5 version K takes effect and must be used for any loans under the 7(a) and 504 programs.

It is important to note that the Interim Guidance accompanying the SBA’s announcement (Notice 5000-19007), dated March 26, 2019 is effective immediately and “will control over any conflicting provisions in SOP 50 10 5(J), Lender and Development Company Loan Programs (currently effective), or SOP 50 10 5(K), Lender and Development Company Loan Programs (effective April 1, 2019).”

The SBA will incorporate permanent guidance on the new appraisal threshold in the next round of SOP 50 10 5 revisions.

FOR MORE INFORMATION