August 1, 2023 has come and gone, and SOP 50 10 7, Lender and Development Company Loan Programs, SOP 50 56 1, Lender Participation Requirements (replacement for SOP 50 10 6, Part 1), and SOP 50 57 3, 7(a) Loan Servicing and Liquidation are now effective.
While the new SBA 1919 forms are not yet available and technical corrections to the SOPs have not been issued, lenders must now process their loans under the new procedures set forth in the SOPs. The forms are supposed to contain certain certifications of the borrower and other revisions. The new procedures, in part, incorporate revisions to the SBA loan programs in accordance with the final rules on Affiliation and Lending Criteria for the SBA Business Loan Programs and the Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization (which became effective in May, 2023).
The decision on the removal of the requirement of the SBA Authorization was deferred until August 1, 2023, but it is now in effect. SOP 50 10 7 and 50 56 1 apply to all loan applications made to the SBA as of August 1, 2023, and SOP 50 57 3 applies to all servicing and liquidation actions occurring on or after August 1, 2023.
What does this mean for lenders?
Lenders must now follow the lending criteria as set forth in SOP 50 10 7, which in many instances includes a “do what you do” standard for similarly sized non-SBA guaranteed commercial loans.
The SBA has indicated that it will review a lender’s current credit and collateral policies for similarly sized non-SBA guaranteed loans when reviewing loans in the SBA loan portfolio. The problem many lenders are facing is that they do not have written policies related to these types of loans. This is because they may not make many of these types of loans on conventional terms and, if they have policies, many of the policies conflict with the SOP. While the SBA advises that less lenient requirements/policies set forth in SOP 50 10 7 are excepted from the “do what you do” requirements, there is no clear guidance yet from the SBA as to what is considered an acceptable policy.
To the extent a lender does not have a written policy for similarly sized non-SBA loans, it should work on a formal written policy which reflects its current credit and collateral standards and requirements for all similarly sized loans. With respect to the written policy, if a lender would not make a loan to a borrower under its current policies, but would do so with an SBA guarantee, it should identify the exceptions to demonstrate the need for credit, to the extent the policy complies with SOP 50 10 7 and the rules and regulations governing SBA loans.
Lenders are also concerned that without a Loan Authorization, the loan authorization may not incorporate all of the requirements a Borrower must satisfy prior to closing the loan if it relied on the terms and conditions set forth in the Authorization in the past. Now may be a good time for lenders to revise their commitment letters and loan documents to address all documentation required and certifications to be made. It is important to remember, that certain provisions set forth in the Authorization have been revised or superseded by SOP 50 10 7, so it is essential to incorporate only those provisions which currently conform with SOP 50 10 7.
While there may be legislation that will roll back some of the SOP and Rule revisions, until such time as the legislation is passed and implemented, the current SOPs and Rules will remain in full force and effect.