SBA Moves to Make CDC 504 ALP Pilot Program Permanent

SBA Moves to Make CDC 504 ALP Pilot Program Permanent
October 24, 2024
By Bob Coleman

The SBA Accredited Lender Program for CDCs grants Certified Development Companies (CDCs) the ability to underwrite, approve, close, and service ALP Express pilot loans under $500,000.

Today’s Federal Register notice proposes to make the program permanent.

To qualify for the ALP designation, a CDC must demonstrate substantial compliance with criteria that include having experienced, well-trained, and qualified loan officers knowledgeable about SBA’s lending policies and procedures for the 504 loan program. This includes having at least one loan officer with three years of direct 504 loan experience.

From the notice:

ALP Express “covered loans” have performed well. An E-Tran enhanced fraud risk management system upgrade is in place. The processing time for ALP Express loans was reduced significantly from an average of 5 days to 2.3 days (with one loan processed in 3 hours). The SBA Office of Credit Risk Management (OCRM) has reviewed the quality of ALP Express Pilot 504 loans and found they present low risk to the 504 portfolio. The SBA reviewed the following data related to ALP CDCs and their use of ALP Express authority under the Economic Aid Act, using the same evaluation criteria for the ALP Express Pilot:

Q — How do the default rates of ALP Express loans compare with similarly sized loans not processed and serviced using this authority?

Since the implementation of the ALP Express Pilot program (June 27, 2022) through the end of June 2024, SBA has approved 1,994 ALP Express Pilot loans for a total dollar amount of $579,958,000 with no defaults reported. At the same time, SBA approved 4,581 non-ALP Express loans for a total dollar amount of $1,391,408,000 with no defaults reported.

Q– Did ALP Express loan approvals and servicing turn times improve, resulting in enhanced customer service?

Currently, the average approval processing time of ALP Express loans is 2.3 business days, one day less than regular 504 loan applications. The fastest approval processing time recorded during the ALP Express Pilot program has been three hours. The average processing time is calculated based on loan volume and the number of loan officers available at the SBA loan center processing 504 loans at the time of application. This is compared to the standard five business days processing time for 504 new loan applications at the SBA loan processing center, which during the pandemic had increased up to 10 business days due to the 504 loan volume surge and the Section 1112 payment impact.

CDC’s Authorities

Under the ALP Express Pilot, SBA delegated to ALP CDCs the authority to make the final decision with respect to the applicant’s creditworthiness on ALP Express Pilot Loans. SBA continued to be responsible for reviewing each 504 loan to ensure that it meets all loan program requirements for program eligibility, and the risk management E-Tran enhancement provided a tool to assist with fraud detection and prevention. SBA proposes to make these increased authorities permanent for loans that meet ALP Express eligibility criteria. SBA is not proposing any additional changes to current ALP Express underwriting, servicing, or closing authorities as established by the ALP Express Pilot Program. SBA’s Office of General Counsel and the Office of Credit Risk Management noted the top five lender oversight findings of the closed ALP Express loans were minor and resolved promptly. Based on the excellent performance of this cohort of the 504 loans portfolio, there has been low risk to the national portfolio due to the implementation of the ALP Express Pilot. ALP CDCs appear to have used their delegated authority as prudent lenders. Of all ALP Express approved loans since inception of the pilot through June 30, 2024, none are in default or in liquidation.

SBA also delegated to ALP CDCs the authority to approve certain servicing actions after closing on ALP Express Pilot Loans (though ALP CDCs were still required to notify the appropriate SBA servicing center of their approval of any servicing action on ALP Express Pilot Loans). Finally, SBA delegated to ALP CDCs the responsibility to undertake all actions necessary to close the ALP Express Pilot Loan and Debenture in accordance with the expedited loan closing procedures applicable to a Priority CDC and with 13 CFR 120.960. SBA is proposing to make these increased authorities permanent for loans that meet ALP Express eligibility criteria. CDCs use these delegated authorities to approve certain servicing actions after closing. SBA has not found issues with the ALP Express loan cohort performance or risk that have become a concern and prompted SBA to reconsider the increased delegated authorities.

In their own discretion, ALP CDCs may decide not to exercise their delegated authority with respect to an ALP Express Pilot Loan and may instead submit the loan to SBA under non-delegated procedures. ALP CDCs may not use their ALP Express authority to service a loan that was approved under non-delegated authority that could have been made as an ALP Express Pilot Loan. In addition, PCLP CDCs may decide to process an ALP Express Pilot Loan under their status as an ALP CDC instead of as a PCLP CDC, thereby not requiring the CDC to comply with Loan Loss Reserve Fund requirements for that loan. SBA is proposing to make these increased authorities permanent for loans that meet ALP Express eligibility requirements and the Loan Loss Reserve Fund requirements for PCLP CDCs that process ALP Express Loans under their status as an ALP CDC instead of as a PCLP CDC.

In making, closing, servicing, or liquidating an ALP Express Pilot Loan, CDCs were required to follow all Loan Program Requirements under the 504 Loan Program. This included the loan closing and disbursement procedures in SOP 50 10 7.1 and the servicing and liquidation requirements in 13 CFR 120.535, 120.536, 120.540, 120.842 and 120.960, as well as SOP 50 55. SBA does not propose any changes to these responsibilities in making the increased authorities available to ALP CDCs under the ALP Express Pilot delegations of authority permanent.

Lender Oversight

ALP CDC oversight procedures shall continue to follow the requirements set forth in 13 CFR part 120, subpart I and SOPs 50 53 (Lender Supervision and Enforcement) and SOP 51 00 (On-Site Lender Reviews and Examinations). The SOPs can be found on the SBA website. ALP CDCs will be monitored both for performance and other risk characteristics as well as for compliance with the requirements of the ALP Express Pilot Program. The ALP CDC must maintain compliance with the requirement that it only makes ALP Express Pilot Loans in an amount of $500,000 or less, along with all other loan program requirements. ALP CDCs also will be subject to 13 CFR 120.1400 through 120.1600 and the provisions of SOP 50 53 concerning supervision and enforcement. SBA does not propose any changes to these responsibilities in making the increased authorities available to ALP CDCs under the ALP Express Pilot delegations of authority permanent.