Change of Ownership SBA 7(a) Regulations in the New SOP 50 10 7 — Webinar 6/28

The New SBA 50-10 7 Policy and Allowance of Partial Interest Financing
Wednesday, June 28, 2023 1:00 PM – 2:00 PM EDT
Dial +1 (562) 247-8422
Access Code: 452-731-421
Audio PIN: Shown after joining the webinar
Webinar ID: 855-010-555

Featuring Scott Gabehart, BA, MIM, CBA, CVA, BCA
Certified Business Appraiser
Certified Valuation Analyst
Business Certified Appraiser
BizEquity, LLC

This webinar will discuss the following topics:

1) Elevation of the “change of ownership” loan amount NOT subject to independent appraisal from $350K to $500K (great majority of SBA loans are under $500K)

2) SBA is amending restrictions on borrowers using Standard 7(a) [or 7(a) Small and SBA Express] loan proceeds to effect partial changes of ownership to assist small businesses and to expand pathways to ownership, i.e. minority interests may now be bought and sold via SBA-guaranteed financing. Page 98 of the new SOP includes: Additional feedback from the SBA is being sought as to the manner in which such “minority interests” are to be valued, i.e. it must be determined if and how so-called “discounts” for lack of control and for lack of marketability are to be applied.

3) Rule changes may allow for the entry of “fintech” companies as Small Business Lending Companies (SBLC’s) A notice (Information Notice 5000-846818, Community Advantage Small Business Lending Company Conversion) to accept new lender applications in the Small Business Lending Company (SBLC) program. This will also allow the existing program to provide loans to an expanded number of small businesses. SBA will accept applications beginning June 1 until July 31. SBA will name up to three new SBLCs.

4) SBA is removing the provisions on affiliation arising from management and control, franchise or license agreements, and identity of interest. SBA is revising § 121.301(f)(1), ‘‘Ownership,’’ to remove the principle of control of one entity over another absent ownership over that entity when determining affiliation (unless operating in same 3 digit NAICS code).

5) SBA is anticipating that the final rule will allow SBA Lenders to use a credit scoring model and that this will increase the number of small loans approved while generally decreasing the length of time required to process a loan. Not all lenders will use credit scoring, and those that do will limit credit scoring to small loans.

6) SBA revised guidance to state that all 7(a) Small Loan applications will begin with a screening for an SBSS Score. If the Applicant receives an acceptable SBSS Score, the Lender will close and disburse the loan in accordance with the same processes and procedures it uses for its similarly-sized, non-SBA guaranteed loans. FICO®LiquidCredit® Small Business Scoring ServiceSM (FICO® SBSSSM score) is one of the main business credit scores lenders may use. The FICO SBSS score ranges between 0 to 300, with 300 being the highest score. A higher score indicates lower risk. The U.S. Small Business Administration (SBA) requires lenders to use this score to pre-screen certain SBA 7(a) loans:

Current minimum SBSS scores:
7(a) Small Loans: 155
Community Advantage: 140
Express Bridge Loan Pilot Program: 130

7) Change to underwriting guidelines (from list of specific factors to three general factors). SBA Lenders will be required to underwrite SBA loans in the same manner in which the SBA Lenders underwrite their similarly-sized, non-SBA guaranteed commercial loans.

8) SBA is amending the process for reconsideration after denial of a loan application or loan modification request in its 7(a) and 504 Loan Programs to provide the Director, Office of Financial Assistance, with the authority to delegate decision making to designees (same authority granted to SBA Administrator at sole discretion).

9) The longstanding moratorium on the establishment of new “Small Business Lending Companies” (SBLC’s) has been rescinded.

10)The SOP removes the personal liquidity of the business owners from consideration as a possible source of funding – which means that the door has been opened for individuals with substantial personal resources to qualify for SBA-backed loans.

11)Character Determinations and Loans to Businesses with Associates who have Criminal Background: Revised the guidance on loans to businesses with Associates who have criminal backgrounds to conform to regulatory updates to 13 CFR §120.110(n). Removed the requirement to complete Character Determinations for these individuals.

12)SBA removed the prohibition using loan proceeds for religious activities and removed the requirement for SBA Lenders to complete SBA Form 1971, “Religious Eligibility Worksheet”.

Download Full White Paper from Scott Gabehart

Register for the free webinar

Wednesday, June 28, 2023 1:00 PM – 2:00 PM EDT
Dial +1 (562) 247-8422
Access Code: 452-731-421
Audio PIN: Shown after joining the webinar
Webinar ID: 855-010-555