SBA Hot Topic Tuesday — SBA Eliminates SBA 504 Loan Open-Ended Indemnification
March 17, 2015
By Bob Coleman
Editor, Hot Topic Tuesday
In a major policy victory for new NADCO Chief Barbara Vohryzek, the adults in the room at SBA have concluded SBA will no longer require any documentation on open-ended indemnities on 504 loan applications.
Simply, SBA’s requirement was delaying loan closings and creating mounds of paperwork on an issue that has been described to me as a big-time stretch of the anti-deficiency act.
Says B, ‘I know I, and many of you, will breathe a heavy sigh of relief at the end of today. This solution has been many months in the making, and the result of the hard work of a lot of people at NADCO and many people at SBA. We are sincerely glad that the issue is resolved.’
SBA’s notice reads, ‘SBA’s Office of General Counsel has concluded that there are no legal impediments to SBA’s taking title to property that is subject to an open-ended indemnification provision. This conclusion is based on the determination that the potential costs of any such indemnifications are allowable under the Fair Credit Reform Act (FCRA), 2 U.S.C. 661-661f, and can be paid from the permanent, indefinite appropriation for credit accounts provided under FCRA. It follows that SBA would not violate the Anti-Deficiency Act or the Adequacy of Appropriations Act if the Agency were to take title to 504 project collateral subject to indemnification provisions. Therefore, as a matter of law, it is no longer necessary to continue the procedures provided in SBA Procedural Notice #5000-1327.