general session v governance concerns: how does your ......before only alp cdcs required to have...

General Session V Governance Concerns: How Does

Your Organization Stack Up? Grand Ballroom Salons 1-4

2:15 pm – 3:15 pm

Thank you to our Alliance Partners

Speakers • Linda Rusche, Director, Office of Financial Assistance U.S. Small Business Administration • Linda Reilly, Chief 504 Program Branch U.S. Small Business Administration • Paul Kirwin, Supervisory Financial Analyst U.S. Small Business Administration • Sally Robertson, President Business Finance Group, Inc. • Randy Griffin, President CSRA Business Lending • Rhonda Pointon, Vice President of Regulatory Affairs National Association of Development Companies

Office of Capital Access SOP 50 10 5 (H) CDC Corporate Governance Updates

National Association of Development Companies

Washington, DC

May 2015

4

504/CDCs

1. Establishes CDC insurance sliding scale guidelines

2. Aligns OCRM reviews with current protocols

OCRM reviews no longer specify onsite/offsite

OCRM reviews CDC annual reports, bylaws and insurance

OCRM reviews ALP renewals

OFA reviews new CDC applications, ALP applications,

LEA and multi-state applications and reviews CDC contracts

3. Aligns CDC governance requirements with Final Rule

CDC affiliation/board overlap clarifications

Membership eliminated

Board, Executive Committee, Loan Committee Updates

Updates to CDC reporting, Investments and Bylaws

5

SOP 50 10 5 (H)

BEFORE

Only ALP CDCs required to have insurance

NOW

SOP 50 10 5 (H) requires CDC insurance effective May 1, 2015 and SBA Information Notice

5000-1341 is 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)

6

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

Referenced on-site and off-site reviews

OFA reviewed annual reports and renewed ALP status

NOW

Removes references to on-site/off-site

504 CDCs: Stay tuned for separate notice

OCRM now reviews annual reports, insurance, bylaws and ALP renewals

7(a): Synchronizes language with new 7(a) review protocols

PARRiS for 7(a) Lenders

7(a): See Notice 5000-1332 published December 29, 2014

504 CDCs: Subpart A, Chapter 3.,Paragraph IV.B.

7(a): Subpart A, Chapter 1. , Paragraph III.C.

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Subpart A - Revises OCRM Review language

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

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.

9

Subpart A - Aligns CDC governance requirements with Final Rule (requirements effective 4-21-2015)

BEFORE

Retirees were classified under the community category.

Vacancies on the board must be filled from the Membership by the Members.

Commercial lender required on board

Written internal control policies still required by 120.826

CDCs could contract with other CDCs on long-term basis for CDC functions

NOW

Board Directors may be either currently employed or retired. Retirees may

represent the field from which they retired.

CDC boards are self-perpetuating as membership is no longer required.

Independent Loan Reviews now also required. See also new guide.

Any CDC with a Professional Services Contract must have a transition plan for

wind down and exit of the contractor


10


BEFORE

CDCs Board not the Executive Committee must ratify all Loan Committee

decisions.

NOW

CDC Bylaws must authorize executive committee in its bylaws.

Delegation of authority to an Executive Committee does not relieve a Board of its

responsibilities.

Executive Committee must be chosen by and from the Board of Directors from the

Board

Only the Board or Executive Committee, if authorized by the Board, may provide

credit approval for loans greater than $2,000,000.


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BEFORE

The Board may establish a Loan Committee of non-Board Members that reports to Board.

Loan Committee members must include at least one members with commercial lending

experience.

The CDC’s Board must ratify the actions of any Loan Committee.

Loan Committee quorum requirement in Bylaws with attendance in person required.

Loan policy manuals were not required to be referenced in the CDC’s bylaws.

NOW

The Board may establish a loan committee, must include delegation in bylaws as per

120.823(d)(4)(ii).

Loan Committee must be chosen by the Board of Directors and have 2 members with

commercial lending experience.

Loan Committee, if established may be delegated the authority to provide credit approvals for

loans up to $2,000,000. For loan of $1,000,000 to $2,000,000 the Loan Committee’s action must

be ratified by the Board of Executive Committee prior to Debenture closing.

Loan Committee must have a quorum of at least five (5) committee members authorized to

vote, with attendance allowed in any method allowed by state law.

CDC must include Loan Committee and delegation authority in its credit approval process and

bylaws.


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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


13


Linda Rusche

Director of Office of Financial Assistance

202-205-6396

[email protected]

Linda Reilly

Chief, 504 Loan Program

202-205-9949

[email protected]

Paul Kirwin

Supervisory Financial Analyst, OCRM

202-205-7261

[email protected]

14

SBA Contacts

What’s Up Next? 3:30 PM – 5:00 PM

• General Session VI

SMART Review Process and Potential Loss: What Else Do You Need to Know?

Grand Ballroom Salons 1-4

5:30 PM – 7:00 PM

• PAC Reception

Representative Steve Chabot (R-OH)

Sonoma Restaurant & Wine Bar

general session v governance concerns: how does your ......before only alp cdcs required to have...

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