May 13, 2014
By Gary Griffin
President & CEO
Capital Growth Solutions
Liz and I are just returning from the mid-year Technical Issues Conference for NAGGL (National Association of Government Guaranteed Lenders). The opening session was highlighted by Maria Contreras-Sweet, the new SBA Administrator. She is good and we are lucky to have her. Also met with Ann Marie Mehlum (Associate Administrator) at the Small Lenders Committee meeting and she is just as good. Both women have strong banking backgrounds. We are REALLY well represented. Below are the highlights with brief commentary:
1) Funding; at the current approval levels the program will run out of money in September. Ms. Contreras-Sweet already has a call into the White House to increase appropriations.
2) FCRA (Fair Credit Reporting Act); some congressmen are pushing to have this extended into SBA lending because “public” funds are being expended. Everyone agrees this is an awful idea and the Administrator has put this on top of her agenda for action.
3) SBA is considering eliminating the basis points charged for servicing beyond 120 days, which is how long they will pay the bank’s interest. In the meantime, these fees can run indefinitely, so QUICK action is always prudent. CANCEL any loans on which you do not intend to collect the guaranty if it is in liquidation.
4) NEVER disburse funds directly to a Borrower (exclusive of WC).
5) CPC (Care and Preservation of Collateral) Expenses will be paid ONLY with initial submission of 10-tab and with Wrap-up Report.
6) SBA is updating their website for additional security. In most cases now, you can directly submit financial data by an upload rather than “Send this File” (which is hosted by an outside vendor).
7) SBA One should be completed in the coming 12 months. This project has been on-going for some time now, and will completely automate the SBA application process in a “TurboTax” model. Great news for us, but may make application software vendors obsolete.
8) Upon liquidation, the bank can obtain forms post-closing which conform to the Authorization and SBA policy, as long as there has been no harm to the SBA (4506-T’s which don’t agree with the TR’s submitted).
9) A Lender CAN refinance debt from the seller of a business within 24 months that was not relative to the value of the business (“blue sky”).
10) RE owned by spouse does NOT have to be pledged if it has been owned 6 months prior to submission by a non-owner spouse.
11) Even though the Personal Resources Test has been eliminated by SBA, the Lender MUST explain why the excess liquidity will not be used in the project.
12) Personal RE MUST be pledged if loan is not fully secured, if there is “lendable” equity, defined as 25% of FMV. The Lender must research the value of the residence through available means to verify the values presented by the principals on the PFS.
13) SBA Policy of collateral is as follows (please use this when determining “fully secured”)(NOTE: these are NOT advance rates):
· New machinery and equipment may be valued at 75% of price minus any prior liens for the calculation of “fully-secured.”
· Used or existing machinery and equipment may be valued at 50% of Net Book Value or 80% with an Orderly Liquidation Appraisal minus any prior liens for the calculation of “fully-secured.”
· Real estate can be valued at 85% of the market value for the calculation of “fully-secured.”
· Fixed assets other than real estate can be valued at 50% of Net Book Value for the calculation of “fully-secured.”
· Trading assets may be used in order to avoid the need for personal real estate assets, but may not be utilized in lieu of other business assets. Should trading assets be necessary, they may be valued at 10% of current book value for the calculation of “fully-secured.”
14) Trade assets are AUTOMATICALLY available for a conventional LOC should the Lender desire.
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