January 29, 2020
By Caity Witucki
Contributing Editor, C-Suite Wednesday
C-Suite Wednesday – Corporate Governance Rule Changes that Affect CDCs
During the SBA Office of Financial Assistance Connect Call on Tuesday, January 14th, OFA team member, Rosemarie Drake, introduced the Corporate Governance Rule changes that went into effect on January 3, 2020. This rule streamlines and modernizes CDC corporate governance requirements while opening up more opportunities for CDC lending.
Here are some of the important changes that affect CDCs:
- A CDC may now apply to make a 504 loan outside of its area of operations if the CDC has previously assisted the business or its affiliates.
- The dollar threshold that triggers the requirement for an annual audit has been raised from $20 million to $30 million. CDCs with portfolios of less than $30 million may now submit financial statements reviewed by an independent certified public accountant in accordance with GAAP rather than audited financial statements in their annual reports.
- PCLP CDCs are now permitted to maintain only 1% of the current principal amount, instead of the original principal amount, in its LLRF after the loan is seasoned 10 years. However, the CDC may not use a declining balance methodology for any debenture that has been purchased or if OCRM has notified the CDC that it has failed to adhere to program requirements regarding debenture.
- The required number of directors serving on a CDC’s board has been reduced from 9 to 7 and the provision recommending no more than 25 directors has been removed. 13 CFR 120.818 also now clarifies that Directors and Board members must live and work in the CDC’s State of Incorporation or LEA and the requirement limiting directors with commercial lending experience to less than 50% of the board has been removed.
- CDCs are now permitted to contract with another CDC for marketing, packaging, processing, closing, serving, or liquidation functions if it is pre-approved by OFA, the CDCs are in the same SBA region, they are only providing assistance to one CDC per state, and they are not providing assistance to another CDC in its state of incorporation or in any state in which the CDC has multi-state authority.