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Will the Proposed Elimination of SBA’s Personal Resource Test Conflict with SBA’s Credit Elsewhere Test?

February 25, 2013

Will the Proposed Elimination of SBA’s Personal Resource Test Conflict with SBA’s Credit Elsewhere Test?

A significant proposed change in SBA’s 7(a) and 504 loan program is a potential borrower will no longer be ineligible for having too many assets on their personal financial statement.

There is a lively discussion in the Coleman Small Business Lending Group about this proposal.

Many applaud the move and conclude stronger borrowers will lead to lower loan losses.

One issue raised by Starfield & Smith’s Ethan Smith is how will the industry reconcile the absence of a personal resource test with the credit elsewhere rule – the rule that states you must certify the loan is not available in the marketplace and can only be approved with the SBA guaranty. He mused this may potentially open lenders up criticism by the Monday morning quarterbacks in the Inspector General’s office.

However, Greg Poehlmann of 44 Business Capital summarized the discussion nicely, “ I think this would actually improve the overall credit quality of SBA deals by having stronger sponsors on ‘tougher’ deals to businesses that need a ‘hand up’ and not a ‘hand out’.”

Check out the discussion here.

 

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