general session i regulatory and policy practices: the ......subpart a, chapter 1, paragraph iv. 13...
TRANSCRIPT
General Session I Regulatory and Policy Practices: The Updates You Need to Know
Grand Ballroom Salons 1-4 9:15 am – 10:30 am
Thank you to our Alliance Partners
Speakers
• Ann Marie Mehlum, Associate Administrator U.S. Small Business Administration • Linda Rusche, Director, Office of Financial Assistance U.S. Small Business Administration • Marty Andrews, Deputy Director, Office of Financial
Program Operations U.S. Small Business Administration • Linda Reilly, Chief 504 Program Branch U.S. Small Business Administration • Barbara A. Vohryzek, President & CEO National Association of Development Companies
Office of Capital Access SOP 50 10 5 (H)
National Association of Development Companies
Washington, DC
May 2015
4
504/CDCs
1. Aligns CDC governance requirements with Final Rule
2. Establishes CDC insurance sliding scale guidelines
7(a)
1. Simplifies debt refinancing look-back requirements
2. Clarifies appraisal requirements Aligns appraisal requirements with new USPAP standards
Clarifies requirements for change of ownership loans involving special use property
Streamlines post-construction review requirements
3. Increases use of E-Tran to reduce turn-times Establishes requirement for all 7(a) processing through E-Tran
Authorizes delegated lender use of E-Tran for 7(a) loan increases and decreases
4. Streamlines documentation for export-purpose loan proceeds on
export working capital loans
5
SOP 50 10 5 (H)
BEFORE
CDC membership required
Board size 5 is minimum requirement
Commercial lender required on board
Quorum requires attendance in person
CDCs could contract with other CDCs on long-term basis for CDC functions
NOW
CDC membership no longer required, it is now optional
Board size increased from 5 to 9-25
2 commercial lenders required on board
Quorums not less than 50% voting members with attendance in any format
allowed by state law
Prescribed loan approval delegation authority to Exec Committee and Loan
Committee
CDC affiliation with other CDCs prohibited with limits on CDCs contracting with
other CDCs
Subpart A, Chapter 3.
6
Subpart A - Aligns CDC governance requirements with Final Rule (requirements effective 4-21-2015)
BEFORE
No board certification of understanding SBA regulations required with annual
report
Economic development investment of surplus encouraged
Limited reporting on Executive Compensation required
OCRM onsite and offsite reviews and CDC management report benchmarks
NOW
Expansion of board oversight in expenditure review and approval and reporting
and board certification required with annual report
Investments of revenue surplus in economic development is required
Executive Compensation reporting through IRS 990 or equivalent is required
OCRM reviews terms revised and OCRM portal benchmarks are current standard
Subpart A, Chapter 3.
7
Subpart A - Aligns CDC governance requirements with Final Rule (requirements effective 4-21-2015)
BEFORE
Only ALP and PCLP CDCs required to have insurance
NOW
SOP 50 10 5 (H) requires CDC insurance effective May 1, 2015
Information Notice 5000-1341 became effective May 5, 2015
Minimum amounts of D&O and E&O insurance coverage required by SBA based on the CDC’s
annual revenues
As reported in the CDC’s Annual Report for their most recent fiscal year
At SBA’s discretion, higher levels of D&O and E&O insurance or reduced deductible levels
may be required due to risk issues
Subpart A, Chapter 3, Paragraph II.B.8)
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Subpart A - Establishes CDC insurance sliding scale guidelines
Minimum D&O and E&O Insurance Requirements - 13 CFR
120.823(e)
Annual Revenues
of CDC
D&O Minimum per
occurrence and in the
aggregate
E&O Minimum per
occurrence and in the
aggregate
>$8.5 million $ 5,000,000 $ 5,000,000
>$4.5M - $8.5 M $ 3,000,000 $ 3,000,000
>$2 M - $4.5 M $ 2,000,000 $ 2,000,000
$2 M or less $ 1,000,000 $ 1,000,000
BEFORE
CDC affiliation with other entities unclear in the Final Rule.
NOW
Clarification provided in SOP 50 10 5 (H):
A CDC may be affiliated with:
an entity (other than a 7(a) Lender or another CDC) whose function is
economic development in the same Area of Operations; and that is
either
--a non-profit entity or
-- a State or local government
-- or political subdivision (e.g., council of governments).
Subpart A, Chapter 3, Paragraph II.B.3(b)
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Subpart A – CDC Affiliation
BEFORE
If the borrower’s contribution is borrowed, the borrower may not pay the loan
for its contribution at a faster rate than the 504 loan (13 CFR §120.912)
unless it is approved by the D/FA or designee – required an exception to
policy
NOW
b) Only in situations where the borrowed equity contribution is
collateralized by the Project Property, the borrower may not pay the loan
for its equity contribution at a faster rate than the 504 loan
(13 CFR §120.912) unless it is approved in writing by the D/FA or designee;
If the Borrower’s Contribution is borrowed and secured by collateral
outside of the project property, no exception to policy is needed to allow
the borrowed equity to be repaid at a rate faster than the 504 loan.
Subpart C, Chapter 1, IV.Paragraph C. 7(b)
10
Subpart C - Clarifies Borrowed Contributions for 504 Loans
BEFORE
USPAP standards defined three written report options
Self-Contained Appraisal Report
Summary Appraisal Report
NOW
USPAP standards define only two report types:
Appraisal Report
Restricted Appraisal Report (not accepted in either 504 or 7(a))
After construction is completed, CDC must obtain a statement from the appraiser,
general contractor, project architect, or construction management firm that the
building was built with only minor deviations (if any) from the plans and
specifications upon which the original estimate of value was based.
Subpart C, Chapter 3, Paragraph II.3&5 and
Subpart B, Chapter 4, Paragraph II.C.1
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Subpart C - Clarifies appraisal requirements - USPAP
BEFORE
Guidance addressed the Small Business Applicant: Applicant or Associates
that incurred or guaranteed a debt which resulted in a Delinquent Federal
Debt or caused a Prior Loss (either directly or as a guarantor).
NOW
Updated Definition – Parties Subject to Delinquent Federal Debt Review (p.
264)
These rules apply to:
(a) The Small Business Applicant that incurred the Delinquent Federal Debt
or caused the Prior Loss (either directly or as a guarantor);
Any business owned, operated or controlled by the Small Business Applicant
or by an Associate of the Small Business Applicant that incurred the
Delinquent Federal Debt or caused the Prior Loss (either directly or as a
guarantor); and
(b) For Delinquent Federal Debt only, any guarantor who has a Delinquent
Federal Debt.
Subpart C, Chapter 2, Paragraph III.D.q.iv (a and b)
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Subpart C – Updated Definition – Parties Subject to Delinquent Federal Debt Review
Subpart A – Submissions for Delegated Authority
BEFORE
Lenders and/or Field Offices submitted requests for delegated
authority (PLP, EWCP, Export Express, SBA Express, CLP) to SBA Field
Office with copy to OCRM for review and approval.
NOW
Lenders submit requests to Field Offices only
Field Offices submit requests with their recommendation to
D/OFA for review and approval.
Delegated authority renewal requests are still submitted to OCRM
Subpart A, Chapter 1, Paragraph IV.
13
BEFORE
Referenced on-site and off-site reviews
NOW
Removes references to on-site/off-site
Synchronizes language with new 7(a) review protocols
PARRiS for 7(a) Lenders
See Notice 5000-1332 published December 29, 2014
504 CDCs: Stay tuned for separate notice
Subpart A, Chapter 1. , Paragraph III.C.
504 CDCs: Subpart A, Chapter 3.,Paragraph IV.B.
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Subpart A - Revises OCRM Review language
BEFORE
Lender is required to document loan proceeds do not refinance a
previously ineligible loan purpose, with no look-back time limit.
NOW
Lender may refinance a previously ineligible purpose loan, if that ineligible
condition no longer exists.
Debt on the business balance sheet may be refinanced if it reported on the
tax return, AND:
As a first refinance document the initial purpose was eligible; OR
As a refi of a refinanced note, the debt has been on the business tax
return for two full tax cycles and borrower’s certification as to exclusive
business use
OR
As credit card debt, the card is in the business name and applicant
certifies exclusive business use.
Subpart B, Chapter 2, Paragraph IV.E.5.-7.
15
Subpart B - Simplifies debt refinancing look-back requirements
BEFORE
A business valuation was required for change of ownership
For financing $250K or less the lender may perform
Must be performed by one of 5 “qualified sources” (identified by SBA)
NOW
Revised terminology requires business appraisal (in line with terminology
used in the lending industry)
Accredited Business Certified Appraiser (ABCA) is added to list of qualified
sources
For Special Use Properties, a Certified General Real Property Appraiser
must do the appraisal, and demonstrate the appraiser’s qualifications in
the Appraisal Report
Subpart B, Chapter 4, Paragraph II.C.4.-5.
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Subpart B - Clarifies appraisal requirements – Change of Ownership
BEFORE
New construction financing
Estimate of final value from an appraiser required
After completion, Lender required to obtain statement of completion with only
minor deviations
From appraiser of the original estimate
NOW
Require final statement of completion with only minor deviations from plans
and specifications
May be any one of:
The appraiser
General contractor
Project architect
Construction management firm
Eliminates the requirement that the appraiser must conduct the final valuation
Subpart B, Chapter 4, Paragraph II.C.1.g)
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Subpart B - Clarifies appraisal requirements – post construction
BEFORE All application activity conducted at Citrus Heights
Applications can be submitted via
E-Tran
Electronically to [email protected]
NOW
Establishes requirement for all 7(a) processing through E-Tran
Only “follow-on” large documents should be sent thru the
email address
Subpart B, Chapter 6, Paragraph II.A.
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Subpart B - Increases use of E-Tran to reduce turn-times in processing
BEFORE
For all delegated loans not fully disbursed
Lenders required to submit all increases and decreases to loans for “prior SBA
approval”.
Per § 120.536(a)
NOW
For all delegated loans not fully disbursed
Delegated lender has authority to increase and decrease using E-Tran as “SBA
prior approval”
Does not apply to delegated lender’s NON-delegated approvals
Does not apply to guaranty percentage
Subpart B, Chapter 3, Paragraph I.D. (underwriting/documentation)
and
Subpart B, Chapter 7, Paragraph I.B. (process)
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Subpart B - Increases use of E-Tran to reduce turn-times – Delegated lenders
BEFORE
Export Express Lines of Credit Use of Proceeds
As normal business course borrower could use a portion for domestic
purposes
As long as no less than 70% was used for export purposes
Lender was required to maintain documentation at least 70% of the first
full disbursement was used for export purposes
NOW
Reduces lender documentation requirements
The “70% of first full disbursement” no longer specified
documentation
Subpart B, Chapter 3, Paragraph IV.J.1.d)
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Subpart B - Export-purpose loan proceeds on export working capital loans
Linda Rusche
Director of Office of Financial Assistance
202-205-6396
Linda Reilly
Chief, 504 Loan Program
202-205-9949
Paul Kirwin
Supervisory Financial Analyst, OCRM
202-205-7261
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SBA Contacts
504 Processing Time
Average SLPC Transaction Times
Environmental
Loan Application (Approval, Decline, Screenout)
business days
Servicing
Screen Out
Decline
Application w/ no Screenouts or Declines
App In
7 days
SLPC Transaction Time = 7
Authorization Sent
Approval Turn Time= 7
Emailed Monthly
Your Approval Turn Time
11.7 Business Days
Median Approval Turn Time for all CDCs
What’s Up Next?
10:45 AM – 11:45 AM • Lessons Learned from the Loan Processing
Symposium Studio B • Executive Compensation and the Compensation &
Benefits Survey Studio D • The Insurance Breakdown: D&O and E&O Delineated Studio E • Central Servicing Agent: Program Updates Studio F