SBA Loosens Policy of Matching Borrower’s Loan Term with Lease Term
By Bob Coleman
Coleman Report
SBA has changed its policy that the lender MUST obtain a lease to match the loan term. The new wording does not require this length of a lease.
Lenders no longer need to obtain this documentation.
The exception is unless the loan proceeds are “substantially” used for leasehold improvements and equipment attached to the leased real estate. Then the loan term must match the lease term (including renewal options.)
The other change is the lender may continue to waive the landlord’s waiver and an assignment of the lease, BUT, the borrower’s operating lease must equal or exceed the term of the loan.
The new SOP update to be inserted in page 37:
a. When the Borrower is operating in leased space and when a substantial portion of the loan proceeds will be used for leasehold improvements or a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate:
i. The SBA Lender must obtain a copy of the written lease between the Borrower and the landlord. For 7(a) loans, the lease term, including renewal options exercisable only by the Borrower, should equal or exceed the term of the loan. For 504 loans, the lease term must equal or exceed the term of the loan. An assignment of lease and Landlord’s waiver should be obtained.
ii. If the SBA Lender is unable to obtain the assignment of lease or landlord’s waiver, for both 7(a) and 504 loans, the lease term, including renewal options exercisable only by the Borrower, must equal or exceed the term of the loan. Additionally, the SBA Lender must document its file with the attempt to obtain the assignment and the landlord’s waiver and the reason(s) for not providing it.”
This replaces the following deleted section:
Responsibilities When the Borrower is Operating in Leased Space
2. Responsibilities When the Borrower is Leasing Space
a. The lease term, including renewal options exercisable only by the Borrower, must equal or exceed the term of the loan.
b. An assignment of lease and Landlord’s waiver should be obtained either when a substantial portion of the loan proceeds are to be used for leasehold improvements or a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate.
c. If the loan proceeds will finance existing or new improvements on a leasehold