SBA 7(A) Powerpoint

U.S. Small Business
SEED lender training 4-3-14
# 3 in 7a loans (3/21/14)
# 3 overall (7a & 504 combined) 3/21/14
As of 3/21/14 # 1 in loans $150,000 and less!
Break Out of MA lending by units, (3/21/14)
Export Express
GO Loans
Inter Trde
Other 7(a)
Patriot Express
Grand Total
SBA Fees in FY2014
thru 9/30/14
All SBA 7(a) Loans of $150,000 or less have:
Loans above $350,000:
NO Guaranty fee
NO on-going servicing fee for the lender
on-going servicing reduced to @.52basis points
As of 1/1/2014 ALL SBA Express loans to VETERANS
(Patriot Express expired on Dec 31st, 2013)
No guaranty fee up to $350,000
It Made a Difference!
 FY `13 – 73% of loans were <= $150,000
 FY `14 (thru 1/31) – 81% of loans are <= $150,000
FY `13
Through 1/31
FY `14
Through 1/31
FY 14 YTD: (10/1/13 - 2/21/14)
7(a) "Estimated " Borrower Fee Relief for loan sizes less
than = to $150K
$6.3M – US
$315K - MA
What is a SBA Loan?
It’s a Guaranty Loan
Lender disburses their dollars
Lender Services
Lender Liquidates
SBA’s guaranty offsets lender’s risk
“On SBA-guaranteed loans, the cash flow of the
Small Business Applicant is the primary source of
repayment, not the liquidation of collateral. Thus, if the
lender’s financial analysis demonstrates that the Small
Business Applicant lacks reasonable assurance of
repayment in a timely manner from the cash flow of the
business, the loan request must be declined, regardless
of the collateral available.”
Standard 7(a)Loan Processing Centers:
Located in Citrus Heights, California and Hazard, Kentucky:
Processes Standard 7(a), Small Lender Advantage and the Community Advantage loan
Sacramento Loan Processing Center:
Processes 504 loan programs
Commercial Loan Service Center
Located in Little Rock, Arkansas:
Services SBA loans for the eastern half of the United States, and handles liquidation of 504
loans, processing of guaranty purchase requests and the liquidation of defaulted loans made
under the SBA Express programs.
Loan Guaranty Purchase Center
Located in Herndon, Virginia
Processes requests to honor loan guaranties on 7(a) loans.
The Agency guarantees 7(a) Program Loans through various methods including:
1. Standard 7(a) Guaranty
a) Small Loans up to and including $350,000 ("Small Loan Advantage (SLA)")
b) Loans over $350,000 to $5,000,000
2. Certified Lenders Program (CLP)
a) Small Loans up to and including $350,000 ("SLA")
b) Loans over $350,000 to $5,000,000
3. Preferred Lenders Program (PLP)
a) Small Loans up to and including $350,000 ("SLA")
b) Loans over $350,000 to $5,000,000
4. SBA Express (delegated)
5. Export Express (delegated)
6. Community Advantage (Pilot Program)
a) Loans up to and including $250,000 (covered by a separate Community Advantage Participant Guide)
Eligibility Requirements
Be operated for profit
U.S. citizens or owners with verified “green card”
Not exceed SBA size standards
Owners must be of “good character”
Meet SBA’s “personal resource test”
Owners must possess management ability and have
experience in field.
Demonstrate repayment ability
Not engaged in lending, real-estate development,
investments or speculation
Ineligible Businesses
Certain business types are ineligible for SBA assistance.
A non-profit business
Primarily engaged in lending
A passive business owned by developers or landlords that do not actively use or
occupy the assets acquired or improved with the loan proceeds that is not an
Eligible Passive Company discussed below (e.g. shopping center)
A life insurance company (life insurance agents, however, may be eligible)
Located in a foreign country or owned by undocumented aliens
Selling through a pyramid or multi-level sales distribution plan
Deriving more than one-third of gross annual revenue from legal gambling
Engaged in any illegal activity
Restrict patronage for reason other than capacity
A government-owned entity (a small business owned or controlled by a Native
American tribe may be eligible if the business is a legal entity separate from the
Ineligible Businesses
Certain business types are ineligible for SBA assistance.
Principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs
A consumer or marketing cooperative (producer cooperatives may be eligible)
Earning more than 1/3 of its gross annual revenue from packaging SBA loans
Business with an associate who is incarcerated, on probation, on parole, or has been indicted for a
felony or a crime of moral turpitude
Business in which the Lender or any of its associates owns an equity interest
Business which presents live performances of a prurient sexual nature or derives more than 5
percent of its gross revenue from the sale of products or services, or the presentation of any
depictions or displays of a prurient sexual nature
Business that has defaulted, or has a principal who has defaulted, on a Federal loan or Federallyassisted financing resulting in the Federal government sustaining a loss, (unless waived by SBA for
good cause)
Primarily engaged in political or lobbying activities
Speculative in nature (such as a shopping center developer, oil wildcatting, or primarily engaged in
Eligible Use of Proceeds
SBA loans may be used to:
Purchase machinery, equipment, fixtures, buildings
and land for business;
Finance receivables and augment working capital;
Refinance existing debt - including credit card debt (with compelling
Finance seasonal lines of credit; and/or
Expand, renovate facilities;
Construct commercial buildings.
Change of ownership/purchase of a business
Most legitimate business purposes
Debt Refinancing Criteria
A lender may refinance an existing non-SBA
guaranteed loan or borrower debt from another
lender if: The existing loan no longer meets the
needs of the applicant
(for example if the current loan is a term loan
and a revolver is needed)
Requires “substantial benefit” to applicant
Looks to 10% improvement in monthly payments (P & I)
SBA requires copies of all notes that will be refinanced
Demand, interest only, balloon notes will automatically
meet substantial benefit test
Debt Refinancing Criteria
Home Equity Line of Credit (HELOC) or Credit Card Debt
that was used for business purposes.
The borrower must certify that the amount being refinanced was
used exclusively for business purposes and provide appropriate
documentation, such as a copy of the note and/or current loan
statement, to demonstrate that the debt was, in fact, used for
business purposes.
For example, a sole proprietor may demonstrate that the debt
was used for business purposes by providing a copy of the note
and documentation that shows the debt is reflected on the
business balance sheet and/or the interest deduction is reported
on the Schedule “C” not the Schedule “A” of the proprietor’s tax
return. If the interest deduction reported on the Schedule C
includes multiple debts, then the applicant must provide a copy
of the appropriate IRS Form 1098 related to the debt being
Refinancing Same Institution Debt
Refinancing an SBA Guaranteed Loan
Late is defined as any payment made 29 days beyond the due date or maturity
Transcript for past 36 months or life of loan (whichever is less) must be included
showing due dates & when payments were received as part of the credit analysis
Evidence must be retained in the file showing the existing lender was unwilling to
approve an increase in the loan amount or a second loan and/or the lender is
unwilling or unable to modify the current payment schedule
The Borrower or the new lender may obtain this documentation
Refinancing an existing 504 using 7a
A 7a loan can be used to refinance an existing 504 as long as it meets refi
requirements PLUS either:
Both the 3rd Party & 504 loan are being refinanced OR
The 3rd Party loan has been paid in full & the 504 needs to be refinanced as part of a
larger transaction to facilitate an expansion or renovation to the project property
504 pre-payment penalties CANNOT be waived
Ineligible Use of Proceeds
To repay delinquent IRS withholding taxes, sales taxes or similar funds held in
To provide or refinance funds used for payments, distributions, or loans to
Associates of the Applicant, except payment of ordinary compensation for
services rendered at a fair and reasonable rate.
Relocation of the business out of a community if there will be a net reduction of
one-third of its jobs or a substantial increase in unemployment in any area of the
country unless the relocation is for key economic reasons crucial to the applicant
and the benefits to the applicant and the receiving community outweigh the
negative impact on the community from which the applicant is moving.
Community improvements, such as curbs and sidewalks, in excess of 5 percent of
construction proceeds of this loan.
Real Estate Acquisition
If loan proceeds are to be used to purchase or
construct real estate, we look for “owner occupancy”
 Eligible small business must occupy 51% + of an
existing facility or
 60% of a newly constructed facility on day one, with
expansion to 80% in 10 years
Determination of Eligibility
Lenders should be guided by the Eligibility
Questionnaire which is part of the loan application
In doubt?
If you are comfortable, but not 100% sure…
Print the page from the SOP that lead you to your decision
and include it in the file.
Ask [email protected] Include their answer in the file.
Call us, we will research the SOP and reiterate its contents –
not make a determination.
Use conventional 7(a).
Credit Elsewhere
Acceptable factors that demonstrate an identifiable weakness in the credit or exceed policy
limits of the lender include, among others:
a) The business needs a longer maturity than the lender’s policy permits (for example, the
business needs a loan that is not on a demand basis);
b) The requested loan exceeds either the lender’s legal lending limit or policy limit regarding
the amount that it can lend to one customer;
c) The lender’s liquidity depends upon selling the guaranteed portion of the loan on the
secondary market;
d) The collateral does not meet the lender’s policy requirements;
e) The lender’s policy normally does not allow loans to new businesses or businesses in the
applicant’s industry; and/or
f) Any other factors relating to the credit that, in the lender’s opinion, cannot be overcome
except for the guaranty. These other factors must be specifically documented in the loan file.
The lender must certify that credit is not otherwise available by
signing the Lender Official block on the appropriate application
Financing-What does SBA look for?
Owners and operators w/ good credit & character
Feasible business plan
Management expertise and commitment necessary for success
Sufficient funds, including SBA guaranteed loan, to operate the
business on a sound financial basis
Adequate equity investment in the business
Sufficient collateral, however, SBA is a cash flow lender and not a
collateral lender.
Ability to repay the loan on time from the projected operating cash
Maximum Maturities
Based on intended use of proceeds
Inventory or Working Capital – 10 Years
 10 years
 Up to 25 years with documentation to support useful life
Real Estate – 25 years + construction period
Mixed Purpose
 Blended based on use of proceeds or
 Maximum for the largest asset class
7a Interest Rates
Loan Amount
Maximum Rate
Loans $25,000 or less
(Maturity less than 7 yrs.) Base Rate + 4.25%
Loans $25,000 or less
(Maturity over 7 yrs.)
Base Rate + 4.75%
Loans $25,001 to $50,000 (Maturity less than 7 yrs.) Base Rate + 3.25%
Loans $25,001 to $50,000 (Maturity over 7 yrs.)
Base Rate+ 3.75%
Loans over $50,001
(Maturity less than 7 yrs.) Base Rate + 2.25%
Loans over $50,001
(Maturity over 7 yrs.)
Base Rate + 2.75%
Express Rates
Loans $50,000 or less Prime + 6.5%
Loans $50,001 or more Prime + 4.5%
The rate used is the one in effect on the date SBA receives the
complete application.
For current rates, please visit
Current rates are also located on the For Lenders main page.
SBA Size Standard
Manufacturing from 500 to 1,500 employees
Wholesaling 100 employees
Services from $4.5 million to $32.5 million in average annual
Retailing from $6.5 million to $26.5 million
General construction from $6.5 million to $32 million
The 2010 Jobs Bill expands the number of businesses eligible
for SBA loans by increasing the alternate size standard to those
small businesses with less than $15 million in net worth and $5
million in average net income
Concerns and entities are affiliates of each other when one controls or has the power to control
the other, or a third party or parties controls or has the power to control both. It does not
matter whether control is exercised, so long as the power to control exists.
SBA considers factors such as ownership, management, previous relationships with or ties to
another concern, and contractual relationships, in determining whether affiliation exists.
Control may be affirmative or negative. Negative control includes, but is not limited to, instances
where a minority shareholder has the ability, under the concern's charter, by-laws, or
shareholder's agreement, to prevent a quorum or otherwise block action by the board of
directors or shareholders.
Affiliation may be found where an individual, concern, or entity exercises control indirectly
through a third party.
In determining whether affiliation exists, SBA will consider the totality of the circumstances, and
may find affiliation even though no single factor is sufficient to constitute affiliation.
~ page 92
SBA’s Tax Verification process is to determine if:
The Small Business Applicant filed business tax returns; and
The Small Business Applicant’s financial statements provided as part of the application agree with
the business tax returns submitted to the IRS.
Please note: for loans up to $350,000. verification must be done prior to loan submission
For a sole proprietorship, the lender must verify the Schedule C.
For a change of ownership, the lender must verify the seller’s business tax returns or a sole
proprietor’s Schedule C. Where there is an acquisition of a division or a segment of an existing
business, other forms of verification may be used in lieu of the 4506-T (e.g. Sales tax payment
If the business has been operating for less than
information for all years in operation.
3 years, lender must obtain the
Personal Financial Statement
 Can
use SBA 413 or lender form
 Must be less than 90 days old
 Must be submitted for all officers,
directors, principals and 20%
owners, spouses and children's
Liquid Resource Test
 Total
Financing Package (TFP) –
includes SBA loan(s), equity
injection, and any other financing
 Applies to each 20% owner
(including spouse and dependent
<$250,000 – 2 x TFP or $100,000 whichever is
the greater
>$250,001 < $500,000 – 1 ½ x TFP or $500,000
whichever is the greater
>$500,000 – 1 x TFP or $750,000 whichever is
the greater
Once the exemption is determined, it is
subtracted from the liquid assets. If the result is
positive, that amount must be injected into the
Liquid Assets Include:
Cash or Cash equivalents including: savings accounts,
CDs, stocks, bonds or similar assets
Cash surrender value of life insurance
DOES NOT INCLUDE: Retirement accounts or
closely held non-marketable stocks or equity in real
Good News!
Regulations Effective April 21, 2014:
• Personal Resource Test eliminated
(for both 504 and 7(a))
What Hasn’t Changed as of 1/1/14?
Loan guaranty amounts remain the same
Traditional 7a loans of $150,00 or less = 85%; greater than $150,000 = 75%
SBA Express loans 50%
Export Express loans of $350,000 or less = 90%; greater than $350,000 = 75%
Credit decisions are based upon the Borrower’s
ability to repay – SBA is a cash flow lender
Most eligibility rules stayed the same
Size standards haven’t changed (but don’t forget
about affiliates)
Most things…
What Has Changed?
All non-Express 7a loans of $350,000 or less will be
processed “SLA like”
Tax Transcript Requirement
DUNS Number - Recommended
Simplified Forms
Simplified Life Insurance Rules
Clarification provided for
- Debt Service Coverage
Ratio Requirements
- Credit Memo Requirements
- Collateral
- Debt Refinance
- Timing of 1502 Reporting
- Prior Loss to the Government
What has changed?
IRS Tax Transcripts must be reviewed PRIOR to submission
to Citrus Heights on all non-delegated lenders
All 7a loans will use Forms 1919 & 1920
No more Form 4 or Form 4-I
Lenders may use their own Note & Guaranty
prior to disbursement on delegated loans
Must be legally enforceable & assignable, have stated maturity & not be
payable on demand
Must include “SBA Language” re: interpretation & enforceability
If selling on the Secondary Market using Forms 147 & 148 is recommended
912 Only required when an issue is revealed on Form 1919
1502 Reporting to Colson begins as soon as a loan number
is issued.
If the lender uses its own note form, the lender must ensure that
the note is legally enforceable and assignable, has a stated
maturity and is not payable on demand. In addition, if the lender
uses its own note form, the note must include the following
language: “When SBA is the holder, this Note will be interpreted and
enforced under federal law, including SBA regulations. Lender or SBA
may use state or local procedures for filing papers, recording
documents, giving notice, foreclosing liens, and other purposes. By using
such procedures, SBA does not waive any federal immunity from state
or local control, penalty, tax, or liability. As to this Note, Borrower may
not claim or assert against SBA any local or state law to deny any
obligation, defeat any claim of SBA, or preempt federal law.”
If the lender uses its own guaranty form, the guaranty must include
the following language: “When SBA is the holder, the Note and this
Guarantee will be interpreted and enforced under federal law,
including SBA regulations. Lender or SBA may use state or local
procedures for filing papers, recording documents, giving notice,
foreclosing liens, and other purposes. By using such procedures,
SBA does not waive any federal immunity from state or local control,
penalty, tax, or liability. As to this Guarantee, Guarantor may not claim
or assert any local or state law against SBA to deny any obligation,
defeat any claims of SBA, or preempt federal law.”
Other SOP Changes
effective January 1, 2014
SBA 7a loan can be used to refinance an existing 504
Prepayment penalty & debt refi rules still apply
Financials are current if within 180 days (PFS 90 days)
must be dated & signed
All 7a requests submitted via ETRAN or electronically:
Supporting documentation can be submitted using ETRAN Document
upload or Send this File (remember to include the APP number if
sending via Send this File)
Email is NOT secure & has size limitations, so STRONGLY discouraged
for supporting documentation submission and not acceptable for
application submission
Loans must be submitted via e-tran
Loan submissions:
Standard 7(a), CLP, and CAPLines (non-delegated) applications must be sent
via E-Tran, or to the 7(a) Loan Guaranty Processing Center (“LGPC”)
1. Email: [email protected]
attachments less than 9 megabytes in size.
2. Website:
click on “Submit 7(a) Document Here” or “”
There will now be Minimum Credit Underwriting Standards
Separated Between:
Those Used on any Request for Guaranty Processed through
Standard, CLP, or PLP Procedures and for $350,000 or less.
Those Used on any Request for Guaranty Processed through
Standard, CLP, or PLP Procedures for more than $350,000
Express Loans – no changes made to program
SLA Moniker
Where the initials “SLA” are used in this SOP, it refers to
any loan up to and including $350,000 where the Request
for Guaranty is Processed through Standard, CLP, or PLP
The former SLA Underwriting Standards are the
Standards for Loans of $350,000 or Less
7(a) loans up to $350K
All Small 7(a), also known as SLA loan applications will be
credit scored by SBA prior to loan approval (or issuance of
a loan number if processed by a PLP lender).
The credit score is calculated based on a combination of
consumer credit bureau data, business bureau data,
borrower financials, and application data. (not be confused
with the Small Business Predictive Score (SBPS) used in
lender portal.
The minimum credit score is based on the lower end of the
risk profile of the current SBA portfolio and may be
adjusted up or down from time to time. The minimum
score will be posted on SBA website. The current minimum
SLA credit score is 140
Credit Scores Will Predict Risk More Accurately
and Simply Than Complex Underwriting
Small Business Credit Scores
Accurately Predict Purchase
Purchase Rates
by SBPS Score Band
FICO/D&B’s LiquidCredit scores use commercial
and consumer data to predict purchase risk.
FICO/D&B developed the suite using loan, lease,
and card data from lenders nationwide.
Below 140: 21%
Small business credit scores are compensatory.
Criteria do not have hard-cutoffs, and scores do not
always use all criteria or data sources.
This Score Suite is an IndustryStandard Decisioning Tool
Banks across the country use the suite for
evaluating borrower risk.
Under the new Small Loan Advantage, SBA will
only approve loans scored above 140.
Source: Dun & Bradstreet, Fair Isaac Corp.
Above 140: 3.7%
5% 3%
2% 2% 1% 1% 1% 0%
Source: SBA Loan/Lender Monitoring System.
Sample Users of Small Business Credit Scores
Large National Banks
Smaller Regional Banks
AgriLand Farm Credit Services (TX)
Huntington National Bank
Five Star (NY)
Glenview State (IL)
Rockland Trust (MA)
Associated Bank (WI)
Zions Bank
First Volunteer (KY/TN)
Bank of Idaho
Sovereign Bank
Union Bank of California
SBSS scores use commercial and consumer data to
predict purchase risk
Example Qualified Profile
Example Disqualified Profile
SBSS Score 178
SBSS Score 119
FICO score
# of inquiries
Average months in file
Etc.: Credit utilization
Utilization: 0. Delinquencies: 0.
Utilization: >75%. Delinquencies: 6.
% sat. trade lines
Time as current owner
More than 2 years
Less than 2 years
Total # suits
Etc.: Paydex, trade lines
Good paydex. 4 lines; 0 past terms.
Poor paydex. 1 line; avg. 60 days delinquent.
DDA total balance
More than $75k
Less than $75k
Time as current owner
More than 2 years
Less than 2 years
Principals’ combined net worth
More than $100k
Less than $100k
Etc.: Sales, employees, industry
Sales: >$500k. Employees: >2.
Sales: <$500k. Employees: 0. Mining industry.
Cash-to-assets ratio
Current ratio
EBIT-to-interest ratio
Source: Dun & Bradstreet, Fair Isaac Corp.
Before obtaining an SBSS score you must input information about the
small business borrower and small business principals into E-tran
Business Data Required
 Business legal name
 Business address
 Business phone
 Tax ID (EIN)
 DUNS number
Principal Data Required
 First name
 Last name
 Address
Required for each principal
owner with 20% or more
equity share of the applicant
small business
Once all required information is entered into E-Tran, the ‘Check Credit Score’
icon will appear
Note: An SBSS score can be generated by entering the above information into E-tran (as described in the successive
slides) however the loan cannot be submitted for an SBA loan number until the application is complete
Credit Memo
For Loans of $350,000 or Less
The lender’s credit memo must include:
With the exception of loans under $50,000, the small
business applicants global cash flow coverage is equal
to or exceeds 1:1 on either a historical or projected
cash flow basis. – does not have to occur year 1
Document in the loan file the definition or formula
used to calculate the global cash flow
Credit Memo
For Loans of $350,000 or Less
The lender’s credit memo must include:
Lenders must verify and reconcile the applicant’s financial
data against income tax data prior to submitting a request
for guaranty for a loan of $350,000 or less using Standard,
CLP, or PLP processing.
Prior to submission for all non delegated loans
Prior to disbursement for delegated loans
Credit Memo
For Loans of $350,000 or Less
The lender’s credit memo must include:
Lender must determine if the equity and the pro-forma
debt-to-worth are acceptable based on its policies and
procedures for its similarly-sized, non-SBA guaranteed
commercial loans.
If the lender requires an equity injection as part of its
policies it must do so for SBA loans.
Lender’s Analysis
Loans Over $350,000
For all Requests for 7(a) Guarantee of loans greater
than $350,000 processed through Standard, CLP, or
PLP procedures,
Lender’s analysis must demonstrate the Small
Business Applicant’s ability to repay the loan from
the cash flow of the business.
The Analysis should conclude that repayment ability
of the proposed SBA loan and all other debt
reasonably exists from the operating cash flow of
the business defined as earnings before interest,
taxes, depreciation and amortization (EBITDA);
Calculating Repayment
For Loans Over $350,000
Operating Cash Flow (OCF) is defined as
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA)
Determining EBITDA
For Loans Over $350,000
In order to determine EBITDA, the Lender must make
appropriate adjustments - Additions & Subtractions to
cash flow such as:
Unfunded capital expenditures;
Non-recurring income;
Expenses and distributions;
Distributions for S-Corp taxes;
Rent payments;
Owner’s Draw; and/or
Assessment of impact on cash flow to/from any affiliate business
Debt Service Coverage
For Loans Over $350,000
The small business applicant’s debt service
coverage ratio (OCF/DS) must be 1.15 to
1 or greater on a historical and/or
projected basis.
Credit Memo
For Loans Over $350,000
The Lender’s Credit Memo Must Include:
Analysis of historical cash flow that demonstrates total debt service
coverage including the SBA loan and other balance sheet debt; or
Analysis of projected cash flows, (start-ups and expansions) that
demonstrates total debt service coverage including the SBA loan
and other balance sheet debt, with detailed assumptions in support
of projections.
Spread of pro-forma Business Balance Sheet (current business
balance sheet + changes in assets and liabilities as a result of the
loan, other debt, any required equity injection and use of proceeds)
Ratio Calculations
For Loans Over $350,000
The Lender’s Credit Memo Must Include:
Ratio calculations (based on the pro-forma Balance Sheet
and historical and projected Income Statements) as
described in the SOP.
Ratio calculations (based on the pro-forma Balance Sheet and
historical and projected Income Statements) for the following
financial ratio benchmarks:
Current Ratio, Debt/Tangible Net Worth, Debt Service Coverage, and
other ratios the lender considers significant for the business/industry
(e.g., inventory turnover, receivables turnover, and payables turnover,
Analysis of working capital adequacy to support projected sales growth
in next 12 months
Equity Requirement for
loans in excess of $350,000
Amount of Equity
 Adequate equity is important to ensure the long term
survival of a business. The lender must determine if the
equity and the pro forma debt-to-worth are acceptable
based on the factors related to that type of business,
experience of the management and the level of
competition in the market area. The lender must include
in its credit analysis a detailed discussion of the required
equity and its adequacy.
Cash that is not borrowed
Cash is borrowed if;
Applicant can demonstrate repayment of this personal loan
from sources other than the cash flow of the business, the cash
injection may be considered equity.
Salary of business owner does not qualify
Any loan made to an individual for the purpose of providing an equity
injection into the business must be disclosed.
Lender’s credit analysis must address the impact on the personal and
business balance sheets and sources of repayment for such side loans.
If the SBA participating lender is providing the personal loan, the
lender must submit the application for guaranty through standard 7(a)
~ page 187
Equity Injection
Lenders must verify the injection prior to disbursing loan proceeds
and must maintain evidence of such verification in their loan files.
Verifying a cash injection requires the following documentation:
A copy of a check or wire transfer along with evidence that the check
or wire was processed showing the funds were moved into the
borrower’s account or escrow;
A copy of the statements of account for the account from which the
funds are being withdrawn for each of the two most recent months
prior to disbursement showing that the funds were available; and
A subsequent statement of the borrower’s account showing that the
funds were deposited or a copy of an escrow settlement statement
showing the use of the cash.
A promissory note, “gift letter” or financial statement is not
sufficient evidence of cash injection without corroborating evidence
consistent with paragraph above.
Loans Over $350,000
 Specific
requirements for debt service coverage
and EBITDA calculations have been added
 Operating Cash Flow defined as: earnings before
interest, taxes, depreciation and amortization
 Minimum debt service coverage must be 1.15 to
1 or greater
7a Underwriting& Credit Analysis
Loans of $350,000 or Less
Submit via ETRAN
Loan will be prescreened in ETRAN
If SCORE is not acceptable app Express or Loan Processing Center approval may
be used
Credit Memo includes:
Cash flow analysis reflecting ability to repay with a DSCR of 1:1 or better
History of the business, length of time in business & discussion of management
Loans of $50,000 or greater must show repayment ability based upon Global Cash
flow (GCF DSCR of 1:1 or better)
Analysis of business strength, deposits, credit history, etc.
Owner/Guarantor including PFS consistent w/non-SBA loans
Equity & pro-forma debt to worth must be acceptable based on lender’s policy for
non-SBA loans
Equity injection required consistent with lender’s non-SBA loans
Must collect and analyze business tax returns (verify with IRS prior to submission)
7a Underwriting
& Credit Analysis
Loans of more than $350,000
Submit via ETRAN
Loans will not be prescreened in ETRAN
Credit Memo includes:
Cash flow analysis reflecting ability to repay with a DSCR of 1.15:1 or better
Repayment analysis based upon historical cash flow or projections if business is new or expanding
History & nature of the business; length of time in business, management depth & industry
Assessment of repayment ability based upon EBITDA (Operating Cash Flow) divided by debt
service (12 months P & I payments including new loan
Adjustments to EBITDA should be made when necessary (unfunded cap. Expenditures; nonrecurring income; expenses & distributions; S-Corp taxes; rent; owner’s draw; impact of affiliates,
If using projections analysis of assumptions including reason for reduced expenses & revenue
Pro-forma balance sheet, ratio calculations (current ratio, debt/net worth, DSC, & any others
considered relevant)
Working capital analysis to support projected sales grown in next 12 months
Collateral adequacy assessment
Explanation and justification for debt refinancing
Lender rational for recommending loan approval
Collateral is NOT required for loans of $25,000 or less
Collateral is required on loans of more than $25,000 up to $350,000
with the lender following their own collateral policies & procedures
for non-SBA guaranteed loans BUT at a minimum the lender must
obtain a lien on the applicant’s fixed assets to secure the loan
Trading Assets MAY be skipped with the lender going directly to
personal real estate if trading assets are needed as collateral on a LOC
For loans in excess of $350,000 the loan must be collateralized to the
maximum extent possible UP TO THE LOAN AMOUNT
An SBA Guaranty CANNOT be used as a substitute for available
Express collateral has not changed. Banks must follow same policies as
non SBA portfolio.
When is a loan considered
“Fully Secured”?
Liquidation value of the collateral taken is equal to the loan amount
Adjusted Net Book Value = The Asset’s original price minus depreciation &
Senior Lien Amounts must be subtracted from the value calculating to
determine if Fully Secured
Lender must take the following until the “fully secured” mark is hit:
All assets acquired with proceeds
Any other fixed business assets
Business trading assets
Personal residential & investment property
New Equipment – 75% of net book value or 80% of orderly liquidation
appraised value
Used Equipment – 50% of net book value or 80% of orderly liquidation
appraised value
Commercial Real Estate – 85% of appraised value
Residential & Investment Real Estate – Lender’s normal valuation for non-SBA
guaranteed loan
Trading Assets – 10% of current book value & only must be taken if lender
does on similarly sized non-SBA guaranteed loans
Franchises &
Size Determination
The term “franchise agreements” refers to all franchise,
license, dealer, jobber or similar agreements
The two parties involved in any of those agreements are
referred to as “franchisor” & “franchisee”
The agreement cannot exert undo control over the
franchisee or an affiliation exists
Franchise Agreement Review & Determination
Loans processed through Citrus Heights except CLP – SBA Review
PLP, SBA Express, other delegated processing methods – Lender Review or
they can be submitted to [email protected]
Check to see if the franchise agreement has
been approved previously by the SBA Franchise Committee for
size/affiliation & control issues
If not on the Franchise Registry check the SBA Franchise Findings List
available at
Check For Prior Loss
or Debarment
Delegated lenders are responsible for accessing the records in
E-Tran to determine if any of the individuals or businesses
experienced a Prior Loss.
Lenders must check CAIVRS for borrowers
Individuals and entities suspended, debarred, revoked, or otherwise
excluded under the SBA or Government-wide debarment
regulations are not permitted to conduct business with SBA,
including participating in an SBA-guaranteed loan.
Lenders must check SAM for employees/agents
CAIVRS is used to determine if a loan applicant has a Federal
debt that is currently in default or foreclosure or has had a
claim paid by the reporting agency within the last 3 years.
Unless, you are sending the loan package to SLP for a decision,
you must pull a report and maintain in your file.
If you are not set up for CAIVRS, please contact me as soon as
possible for instructions on how to get access.
What To Enter To Receive A Report
Enter your User ID and Password into
the “pop up box.”
CAIVRS Prescreening is where you enter
the tax id numbers for the small businesses
(EIN) and the owners/guarantors (SSN).
Limit of 5 per inquiry screen.
Enter your Lender EIN number (tax id).
(Do not enter any dashes or spaces in
the EIN number.)
For SBA loans, your lender ID is your
company's tax ID (EIN), followed with a
capital "T". Enter your company's nine
digit Tax ID in the lender ID box, DO
immediately with a capital "T"
For the Agency, select Small Business
Press send.
What Do I Do With The CAIVRS
If the report results show no delinquent federal debt:
Print a copy and include it in your loan file.
If the report results do show a delinquent federal debt:
Print a copy for your loan file.
Call the phone number shown on the report.
Supply the information to the applicant.
Have the applicant get the debt resolved.
Have the applicant bring you verification, from the agency in question, that
the debt has been satisfied.
Keep the verification documents in your loan file.
Other Items of Note…
A “qualified source” is an individual who regularly receives
compensation for business valuations and is accredited by one of the
following recognized organizations:
1. Accredited Senior Appraiser (ASA) accredited through the American
Society of Appraisers;
2. Certified Business Appraiser (CBA) accredited through the Institute of
Business Appraisers;
3. Accredited in Business Valuation (ABV) accredited through the American
Institute of Certified Public Accountants;
4. Certified Valuation Analyst (CVA) accredited through the National
Association of Certified Valuation Analysts; and
5. Accredited Valuation Analyst (AVA) accredited through the National
Association of Certified Valuation Analysts.
Refinance of change of ownership debt no longer requires a valuation
Benefits to Express
Follows lenders’ own underwriting polices
 Can use a “credit score” model
 Can use credit cards to access the line of credit
Lenders are not required to take collateral for loans up to
Uses lenders own collateral policy for loans above $25,000
 Do not have to take personal residence
Express Activity (3/21/14)
Nationally: 51% of all loans approved
MA: 76% of all loans approved
Express Credit
SBA has authorized SBA Express, Export Express and
SBA Veterans Advantage to make the credit decision
without prior SBA review. The credit analysis must
demonstrate that there is a reasonable assurance of
repayment. The lender is required to use appropriate,
prudent and generally accepted industry credit analysis
processes and procedures (which may include credit
scoring), and these procedures must generally be
consistent with those used for its similarly sized nonSBA guaranteed commercial loans. Lenders that do not
use credit scoring for their similarly sized non-SBA
guaranteed commercial loans may not use credit scoring
for SBA Express or Export Express.
Veterans Advantage
SBA developed the SBA Veterans Initiative to support the
entrepreneur segment of the Nation’s military community
(including spouses). This initiative uses streamlined
documentation and processing features as SBA Express.
Must be processed thru ETRAN
Maximum Loan amount - $350,000
Guaranty 50%
Currently loan fees are waived for veterans up to $350K
Veterans Advantage
Eligibility for Veterans Advantage is limited to businesses that meet SBA’s standard eligibility
requirements discussed above and that are
or more owned and controlled by an
individual or individuals in one or more of the following groups:
Service Disabled Veterans
Soon to be discharged active-duty service members eligible for the
military’s Transition Assistance Program
Active Reservist and National Guard Members
Current spouses of any of the above
The widowed spouse of a service member or veteran who died during
service or of a service-connected disability
Veterans Advantage
Lenders must document in their loan file a borrower’s eligibility for Veterans
Advantage using the following DOD/DVA documentation, including the 51% ownership
by the above, and must present copies of that documentation with any request to SBA
to purchase:
a) Veteran: Copy of Form DD 214, which is provided for other than dishonorably discharged veterans.
b) Service-Disabled Veteran: Copy of Form DD 214 or documentation from the DVA that the veteran has been
determined as having a service-connected disability.
c) Service Member: DOD photo card (Geneva Convention Identification Card) and Form DD 2648 (active duty
service member) or Form 2648-1 (reserve component member).
d) Transitioning Active Duty Military Member: DD Form 2, "U.S. Armed Forces Identification Card (Active)," or
DD Form 2, "Armed Forces of the United States Geneva Conventions Identification Card (Active)" and, DD
Form 2648 (Active Duty Military member) or DD Form 2648-1 (Reserve Component member ).
e) Reservists and National Guard: DD Form 2, Armed Forces of the United States Identification Card (Reserve).
f) Current Spouse of Veteran: The veteran’s Form DD 214 and evidence of status as a current spouse.
g) Current Spouse of Transitioning Active Duty Military Member or Current Reservist/National Guard Member:
DD Form 1173, Department of Defense Guard Reserve Family Member Identification Card and evidence of
status as the current spouse.
h) Widow of Active Duty Service Member who died in service or Widowed Spouse of Veteran who died of a
service connected disability: Documentation from DOD or from DVA clearly showing this to be the case.
Export Express
The Export Express Program is designed to help SBA meet
the export financing needs of small businesses too small to
be effectively met by existing SBA export loan guaranty
programs. It is generally subject to the same loan
processing, making, closing, servicing, and liquidation
requirements as well as the same maturity terms, interest
rates, and applicable fees as the SBA Express Loan Program.
Increased Maximum Loan amount - $500,000
Increased Guarantee – 90% for loans of $350,000
or less - 75% for loans over $350,000 up to
Export Express
Additional Eligibility Requirements for Export Express
a) Must have been in operation, although not necessarily in exporting, for at least 12 full
months. However, applicants that have been in operation for less than 12 months are eligible if
both of the following conditions are met:
(1) The applicant’s key personnel have clearly demonstrated export expertise and substantial previous
successful business experience, and
(2) The lender processes the Export Express loan using conventional commercial loan underwriting
procedures and does not rely solely on credit scoring or credit matrices to approve the loan.
Evidence of compliance with both of these requirements must be retained by the lender in its file.
b) Small Business Applicants with operations, facilities or offices overseas, other than
those strictly associated with the marketing and/or distribution of products/services exported
from the U.S., are not eligible for Export Express, although they may be eligible for other
SBA 7(a) financial assistance.
c) Lender must maintain in its loan file information provided by the borrower as it
pertains to the use of proceeds for export development activities and its
projected impact on the borrower’s export sales along with an estimate of the
borrower’s export sales for the 12 month period following the date of the loan
Form 912
If your borrower has answered “yes” to any of the following questions:
Are you presently under indictment, on parole or probation?
Have you been arrested in the past 6 months for a any criminal offense or
Have you ever been convicted, plead guilty, plead nolo contendere, placed on
pretrial diversion, or placed on any form of probation, including probation before
judgment other than a minor vehicle violation?
If so
You will need to complete the 912 FORM
Form 912
If there is a “yes” response, the lender must take the following actions:
The lender must obtain a complete understanding of the reason(s) for the “yes” response and when necessary
for clarification, the lender must obtain additional written explanation from the Subject Individual to include the
(a) Date of the offense(s) including month, day and year. If the actual day is not known, include the month
and year.
(b) City and state or the county and state where the offense(s) occurred.
(c) The specific charge(s) [DUI, assault, forgery, robbery etc.] AND the level of the charge; (either a
misdemeanor or felony).
(d) Disposition of the charge(s). This may include but is not limited to the following:
(i) Any fines imposed;
(ii) Any class or workshop to be attended;
(iii) Any jail time served;
(iv) If applicable, the terms of probation (including evidence and dates of successful conclusion of the
probation); or
(v) Any other court conditions (such as registration as a sex offender).
(e) Assuming the court’s conditions have been met, the applicant should state that all conditions of the
court have been satisfied in his explanation and provide court documents evidencing that these conditions
were met.
(f) The borrower’s dated signature on the explanation.
Form 912
If the affirmative activity is not the 3 minor offenses over 10
years or 1 single misdemeanor as indicated in previous slide, the
lender cannot clear the application for processing, the Form 912
and any supporting documentation must be sent to the MA
District Office, which will forward it to the OIG/OSO for
Currently, SBA conducts two types of background checks: (1) a
Name Check, which requires a search of available records based
on a person’s name and social security number (SSN); and (2) a
Fingerprint Check, which searches available records based on the
person’s name and SSN plus a complete and legibly written FD258 Fingerprint Card.
These background checks can take from 6-8 weeks.
Aliens Form G-845
Aliens must provide their alien registration number on SBA Form 1919.
Lenders must obtain a copy of the individual’s USCIS documentation .
All lenders must register designated personnel with the SLPC at
[email protected] Please send name of lender, lending institution,
bank’s address and phone number to [email protected]
The SLPC will respond to such requests by providing instructions on how to complete
registration and to use the electronic verification process.
As required by USCIS, SBA will release information about the status of an alien to
lenders or other non-governmental entities ONLY when a signed and dated
authorization from the alien is attached to and submitted with the 845 on that alien
providing name, address and date of birth.
What documents do you need to send in?
FOR $350K and Under –Small SBALOANS
912 (criminal activity, if applicable)
845 Alien (green card, if applicable)
Form 4506-T is to be faxed in to IRS, response and original form to be
retained in file.
Please submit information in ETRAN, upload completed
forms using “Documents Upload” feature the 1919, 1920
forms, credit memo, and all other related information,
hit submit button.
What documents do you need to send in?
FOR $350K and Over LOANS
As of 3/1/14 lenders are required to submit
applications to the LGPC using the 10-Tab format
for all loan guaranty requests
The 7(a) Authorization
After SBA approves the loan guaranty, an Authorization will be
issued for the loan using the required language in the National
7(a) Authorization Boilerplate.
The Authorization is not a loan agreement. It is a contract
between the Lender and SBA, who each sign the Authorization,
indicating specific conditions which must be met for SBA to
provide a guaranty on a loan made by the Lender to a
The requirements of the Authorization are directed to the
Lender not the Borrower, and the Borrower does not sign the
When a loan is approved, a loan
authorization must be generated
The Authorization spells out the terms of the loan, including the
amount, interest rate, any other terms and conditions including
collateral requirements, etc., and SBA’s guaranty.
Authorizations do not need to be sent or faxed in
 Please retain in your file.
After the Loan is made
The lender must obtain all required collateral and must
meet all other required conditions before loan
disbursement, including obtaining valid and enforceable
security interests in any loan collateral.
These conditions include requirements identified in the
loan write-up, such as standby agreements, appraisals,
business licenses, and cash/equity injections. In addition, for
SLA loans over $250,000 that are collateralized by
commercial real estate, the lender must comply with the
appraisal policy set forth in Chapter 4.
Loan Modifications
Teri Hendrix 916.735.1961
[email protected]
Include Business name, loan number, lender
phone/fax number
Within 10 days from approval
After the Loan is made
Closing, Servicing and Liquidation
The SBA Express lender must close, service, and liquidate
its SBA Express loans using the same reasonable and
prudent practices and procedures that the lender uses for
its non-SBA guaranteed commercial loans.
1502 Reporting
Mandatory on all 7a loans with an outstanding SBA
guaranty, regardless of payment activity.
Promptly notify SBA of cancelled or withdrawn loans.
Reporting period includes the first calendar day through
the last calendar day of the prior month.
Colson Customer Service
Telephone: 1-877-245-6159
e-mail: [email protected]
Unilateral Servicing Authority
For all loan servicing actions not requiring SBA’s
prior written consent, lenders must document
the justifications for their decisions and retain
these and supporting documents in their file for
future SBA review to determine if the actions
taken by the lender were prudent, commercially
reasonable and complied with all Loan Program
7a Lender Matrix
Cancel undisbursed loans.
Terminate guaranty on disbursed loans.
Decrease undisbursed loans.
Change the use of proceeds, which does not involve an
increase to loan.
Changes to maturity date or months on loans which
have not matured.
Change loans from revolver to term or vice versa.
Change legal/trade name or address.
Change project from rural to urban or vice versa.
Change principal(s) gender, race, veteran status,
Maximum Maturities
Extension of Maturity Date
Subject to the general requirements in Paragraph A, the
maturity date of a Note may be extended for up to 10
years beyond its original maturity date if:
a. The extension is requested before the SBA loan
guaranty expires, i.e., less than 180 calendar days after
the original maturity date and
b. The extension will aid in the orderly repayment of the
See page 50 of SOP 5057
Prior Consent
Should Include:
Statement of the proposed action.
What makes the request necessary/impact on the SBC.
Loan status.
Financial statement analysis.
Loan collateral analysis (“before” the modification and
“after” the modification).
Lender must obtain the consent of all loan
Note: Typically, the lenders’ internal credit memorandum will suffice.
Send to:
[email protected]
SBA Working Capital and
Contract Caplines
Program Overview
CAPLines Program Structural Changes
Reduce 5 subprograms to 4:
 Working Capital CAPLines (formerly Standard
Asset Based CAPLines and Eliminated Small Asset
Based CAPLines, maximum line amount $200,000.)
 Contract CAPLines
 Seasonal CAPLines
 Builder’s CAPLines
Delegated processing for PLP Lenders
Key Features Working Capital
Maximum line amount $5,000,000
 Maximum guaranty percentage 75% (over
$150,000)/85% if $150,000 or less
 Maximum maturity increased from 5 to 10
years (except Builder’s CAPLine, which is
limited by regulation to 5 years), this matches
the maturity for Working Capital term loans
General Requirements
• The applicant must qualify under Standard 7(a) requirements.
• The applicant must sell on credit and create accounts receivable
Use of Proceeds
• Finance short term working capital/operating needs.
• May refinance existing short-term revolving debt.
Must NOT be used to
• Pay delinquent withholding taxes or similar trust funds (state sales
taxes, etc.), or for floor planning.
• To acquire fixed assets.
If lender discovers the line was used to finance a fixed asset; it must refinance that
portion of the line into an appropriate term facility no later than 90 days after the
Determining Cash Cycle Days
The cash cycle is the number of days a business takes from the time it acquires
inventory, provides a service, manufactures a product etc., until it collects the
cash from its sale of that inventory, service, or product. To measure the length
of the applicant cash cycle – compute turnover ratios and convert into days.
Receivable Turnover (ARTO) days
Inventory Turnover (ITO) days
Payable Turnover (APTO) days
Cash Cycle days
Determining Loan Amount
To determine the maximum loan amount, the lender must
follow its established policies and procedures utilized on its
similarly sized, non-SBA guaranteed Commercial Lines of
Credit.* The key is the correct calculation of the business
cash cycle.
Divide prior year net sales by 365
The lender
may use the following formula:
Multiply daily sales figure by number of days
Net Sales for prior year
to finance (whatever number is the business
cash cycle)
The result will be the estimated working
capital needs
Per year
Per day
Estimated Need
Determining Cash Cycle Days
Why is it important to calculate CASH CYCLE
Cash Cycle Days are included in the Loan Authorization.
Used to determine date for final disbursement.
Non-delegated processing will use cash cycle days as part of their
review process to determine if the loan amount requested is
Maximum line amount tied to the borrower’s cash cycle.
Principal payments tied to the borrower’s cash cycle.
Collateral Requirements
If the lender is Using a borrowing base certificate (BBC)
Lender must obtain a first lien on the applicant’s working /trading assets (i.e.,
A/R, INV).
If the lender is Not using a borrowing base certificate (BBC)
Lender must obtain a first lien position on the working/trading assets financed
with the line.
If the working/trading assets are insufficient to provide a 1:1 collateral ratio,
the lender also must take additional collateral to ensure there is a 1:1
collateral ratio.
If business assets do not fully secure the loan, the lender must take available
personal assets of the principals as collateral to ensure there is a 1:1
collateral ratio.
Collateral Requirements
Determining collateral value:
• A maximum of 80% Advance Rate is allowed on eligible A/R.
A maximum of 50% Advance Rate is allowed on eligible Inventory.
Machinery and Equipment is allowed at 50% of Net Book Value (NBV) or
80% of Orderly Liquidation Value minus any prior liens.
Real estate is allowed at 85% of the value.
An independent appraisal by a qualified individual must be obtained by
lender to value fixed assets greater than their NBV.
After initial disbursement, lenders have unilateral authority to increase or
decrease the advance rate for receivables and/or inventory by 5% above
or below rate stated in Authorization.
Collateral Requirements
Examples of an ineligible receivable:
Any invoice more than 90 days past due. (exceptions are permitted with SBA’s
prior written concurrence)
A customer who is delinquent on more than 50% of its total outstanding invoices.
ALL accounts from that customer are ineligible.
All re-billed accounts - the practice of issuing a credit to a customer and reinvoicing the obligations in the current billing cycle.
Foreign receivables not backed by documentation such as standby letters of credit,
credit insurance, etc.
Contra accounts such as an offsetting receivable and payable between the
borrower and one of its creditors.
Accounts due from affiliate companies.
Accounts that require subordination to other parties—such as Government
contracts that require an assignment of the projects receivables.
Principal & Interest
Payment Requirements
 There is no provision for Interest only payments.
• Interest must be paid at least monthly
• Interest only payments for any period exceeding the
borrower’s cash cycle, seasonal cycle, contract final payment
date or project completion date are not permitted.
 Principal payments are tied to the borrower’s cash cycle.
Level of Funds Control & Monitoring
 The level of funds control for a Working Capital CAPLine, whether a BBC is used or not, is
determined by the banking relationship the lender has with the borrower.
• If the lender has the borrower’s deposit accounts, the lender is not required to utilize
cash collateral accounts or other types of controlled accounts, but must follow its
established procedures for its similarly-sized, non-SBA guaranteed commercial
lines of credit to monitor payments received.
• If the lender does not have the borrower’s deposit accounts, then the lender must utilize
some form of controlled account as follows:
 The customer of the borrower can be instructed to send their remittances via joint
payee checks payable to lender and borrower, to the lender; or
 Lock box (bank account under lender control where borrower’s customers remit
payments for accounts receivable).
Level of Funds Control & Monitoring
Using a BBC
When a BBC is used - the minimum monitoring
requirements are:
Monthly – BBC; Aging of A/R & A/P; and INV (if advanced against).
Quarterly – Borrower prepared financial statements
Annually – For $1,000,000 or less; credit review including a cash flow
analysis, concentration analysis, collateral analysis, owner/guarantor
credit review, and annual site visit.
Annually – For more than $1,000,000; same as above plus Annual Field
Level of Funds Control
Not Using a BBC – 1:1 collateral
When a BBC is not used - the minimum requirements are:
Use financial covenants consistent with those used on Lender’s
similarly sized, non-SBA guaranteed commercial lines of credit –
Tested Quarterly, Semi-Annually or Annually.
At a minimum; conduct a credit review including a cash flow analysis,
collateral analysis to ensure there is a 1:1 collateral ratio, owner/guarantor
credit review, and annual site visit.
For $1,000,000 or less; obtain borrower prepared financial statements and
tax returns.
For more than $1,000,000; obtain compiled, reviewed or audited financial
statements and tax returns.
Level of Funds Control & Monitoring
Annual Field Examination - for loans more than
Must be conducted by the lender’s staff or a 3rd party.
Complete a physical verification of the assets which compose the BBC,
including a sampling of the assets.
At a minimum, an examination must be conducted prior to the initial
disbursement and annually thereafter.
The lender should describe the level and frequency of examinations in
the credit memorandum based on the quality of the records, risk profile
of the borrower, and seasonality of the line.
Application Process
 For PLP and non-Delegated loans- use SBA Forms 1919 and 1920SX Parts
B&C. The lender should also use their own documents including the Credit
Memorandum. E-Tran submission for SBA approval is required.
 Include comment if lender will use BBC or 1:1 collateral ratio.
 Include comment on use of deposit account or controlled account.
 Include cash cycle days used to determine short term working capital need.
Contract CAPLines Program—Use of Proceeds
Proceeds can be used to finance all costs (excluding profit), previously only
labor and materials.
Contract CAPLine proceeds may not be used for:
 permanent working capital,
 to acquire fixed assets,
 to pay delinquent taxes or similar funds held in trust (directly or
 to finance a contract in which significant performance has already begun,
 for change of ownership
 Floor plan financing;
 to cover any mark-up or profit;
 to finance the performance of another contract or sub-contract; or
 in repayment of a different contract or sub-contract.
Contract CAPLines Program--Collateral
Assignment of Contract Proceeds:
 Subject to the exception noted below, prior to initial disbursement on any Contract CAPLine, the
entity the borrower has entered into the contract with must be advised in writing by both the
lender and borrower that an assignment of the contract proceeds is required. Such assignment
must be in place before any disbursement for a particular contract is made and include a provision
for the lender’s right to receive all payments from the third party. The lender must receive written
acknowledgement from the third party.
 Exception to the Assignment of Contract Proceeds: An assignment of the contract proceeds
may be foregone, if at least two of the following conditions are met:
 The term of the contract being financed is 12 months or less;
 A successful track record between the borrower and the contracting authority exists
relative to the same or reasonably similar contracts. (The definition of a “successful track
record” includes but is not limited to, any prior contractual arrangement between the
subject parties, where the responsibilities of each party under the contract were met to the
satisfaction of all parties to the contract.);
 Financial analysis of historical income statements and/or tax returns and pro-forma
financial statements show that the applicant has a Debt Service Coverage ratio that exceeds
 All contract proceeds are paid directly to the lender by the contracting authority or, in the
instance where a performance bond is in place, a Funds Control (or escrow or third party
servicer) procedure is implemented; or
 There is other available and worthwhile collateral pledged to secure the line by either the
borrower or any owner/guarantor.
Contract CAPLines Program—Eligible Contracts and
Purchase Orders
A contract between a prime and subcontractor, a contract with Performance bonds,
and a purchase order is eligible for financing under Contract CAPlines provided the
lender satisfies the section 2 (a) on page 218 of the SOP 50 10 5(F) and satisfies the
Prime and Subcontractor Contracts: a contract between a Prime and
Subcontractor is eligible to be financed with a Contract CAPLine, if at least two of
the following conditions are met:
 Both the Prime and the Subcontractor have favorable credit ratings based on an
acceptable rating agency (e.g., Builders Industry Credit Association “BICA”);
 There is a successful track record between the Prime contractor and the
Subcontractor (borrower);
 There is a successful track record between the Prime contractor and the
contracting authority;
 The Contract CAPLine amount is less than $300,000;
 The term of the contract is 12 months or less;
 The financial analysis of historical income statements and/or tax returns and proforma financial statements show that the applicant has a Debt Service Coverage
ratio that exceeds 1:1; or
 There is other available and worthwhile collateral pledged by either the borrower
or any owner/guarantor.
Contract CAPLines Program—Eligible Contracts and
Purchase Orders
Contracts with Performance Bonds: a contract requiring a Surety’s performance
bond may be eligible for a Contract CAPLine provided the lender perfects a UCC
security interest in the contract proceeds.
 SBA recognizes the following conditions may be necessary to effectuate the
transaction where a contract requires a Surety’s performance bond:
 The lender’s perfected UCC security interest in the contract proceeds will be
subordinate to the cost reimbursement claim of the Surety; and
 The Surety may require that a funds control facility be executed. The funds
control facility would disburse directly to suppliers and laborers. The
contracting authority will remit contract proceeds directly to the funds control
facility, which will remit payment to the lender.
Purchase Orders under a Master Agreement: Purchase Orders (PO) may be
substituted for a formal contract, provided the following conditions exist:
 The PO is issued to the borrower under a Master Agreement; and
 The combination of the PO and the Master Agreement constitute a binding
Thank You!
Q &A
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