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SBA Lenders are well advised to consult SOP 50 10 early and often for SBA lending related matters, but a Lender who only consults SOP 50 10 may be missing the mark on significant SBA Loan Program Requirements that could expose the Lender to compliance risk.
Most SBA Lenders are well aware that SOP 50 10, Lender and Development Company Loan Programs, is a core reference for both the 7(a) and 504 lending programs. However, SOP 50 10 does not purport to be a one-stop-shop for all applicable SBA Loan Program Requirements. This has long been true, but the need for SBA Lenders to consult sources beyond SOP 50 10 has increased significantly. For example, beginning August 1, 2023 with the issuance of SOP 50 10 7, SBA moved the entirety of SOP 50 10 6, Part 1 out of SOP 50 10 and into the then-new SOP 50 56 1. This remains the case today under SOP 50 10 7.1.
SOP 50 56 1 contains the SBA’s participation guidance for 7(a) Lenders and Certified Development Companies (CDCs). Among other things, SOP 50 56 1 includes criteria for SBA Lenders to participate in SBA’s lending programs, how SBA Lenders maintain their participating status with SBA, a brief overview of how SBA conducts oversight of SBA Lenders, and various requirements regarding Lender financing and operations. SBA also added to SOP 50 56 1 requirements for Community Advantage Small Business Lending Companies, a new type of SBA licensee created with the sunset of the former Community Advantage Pilot Program.
A detailed discussion of all the requirements in SOP 50 56 1 is beyond the scope of this newsletter, but, by way of example, Lender’s should be aware that it includes a detailed discussion of Lender preference. SOP 50 56 1 includes prohibitions on specific Lender actions, including taking side collateral, requiring a borrower to purchase a Certificate of Deposit, or requiring a borrower to maintain a compensating balance not under the borrower’s control. An SBA Lender’s failure to adhere to these requirements is a potential source of compliance risk.
Advertising is another potential source of compliance risk. SOP 50 10 7.1 never mentions the word advertising, but SOP 50 56 1 includes a lengthy discussion clarifying SBA regulations concerning how Lenders represent their relationship with SBA. In addition, SOP 50 56 1 provides that the Lender’s use of the SBA logo on its website and how it represents its relationship with SBA may be reviewed as part of the Agency’s SBA Lender oversight activities.
Another example of requirements found in SOP 50 56 1 that are not discussed in SOP 50 10 7.1 is “major changes” in the Lender’s structure or organization, which require the Lender to execute a new Loan Guaranty Agreement with SBA. SOP 50 56 1 includes a list of examples of what SBA considers to be “major changes” requiring a new Form 750.
Again, the examples above are not intended to be an exhaustive list of SOP 50 56 1 requirements, nor is SOP 50 56 1 the only additional source of compliance risk. Rather, these examples are meant to emphasize the necessity of Lenders understanding SBA Loan Program Requirements found outside SOP 50 10 in order to avoid potential pitfalls and compliance risk.
Helpful Links:
SOP 50 56 1: Lender Participation Requirements
https://www.sba.gov/document/sop-50-56-1-lender-participation-requirements
If your lending institution has questions about compliance with SBA Loan Program Requirements, or other SBA lending matters, please contact us at SBAQuestions@JellumLaw.com.
This article is provided for general information and educational purposes only. It does not solicit, establish, or continue an attorney-client relationship. The contents should not be construed as legal advice or opinion. If the organization would like formal legal advice, our professional liability insurer (as well as the applicable attorney ethical rules) requires that we establish a formal attorney-client relationship. If you are interested in learning more about working with Jellum Law, please contact us at SBAQuestions@JellumLaw.com.
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