The SBA and the new SOP

In August of 2008, the SBA released the SOP 50-10(5). On March 1, 2009, they released the SOP 50- 10 5(A). On October 1, 2009, they released the SOP 50- 10 5(B).

The SBA has released yet another version, SOP 50- 10 5(C) which will be effective October 1, 2010.

This latest version of the SOP has some noteworthy changes.

For example, businesses such as hair salons nail salons, dance studios and others often rent space to the tradesperson and then handle advertising, hiring cleaning services and the sales of merchandise. Under the previous guidance, these businesses were ineligible for SBA financing unless more than 50% of their revenue was from sources other than rent (the “sufficient services” test). The new guidance eliminates the “sufficient services” test in order to make SBA loan guarantees available to more of these types of businesses.

Another change is the financing of Other Real Estate Owned (OREO) with a 7(a) loan.

The new SOP right there on page 141 now states:

B. Loan Proceeds May be Used to Finance a Lender’s Other Real Estate Owned (OREO):
Where loan proceeds will be used to finance the purchase of real estate owned by the 7(a) lender making the loan, the application must:
1. Be submitted to the LGPC (delegated authority may not be used to process these applications);
2. Include an independent real estate appraisal that meets the requirements found in Chapter 4 of this Subpart (the appraisal requirement cannot be delayed until loan closing), and that provides the liquidation value of the real estate;
3. Identify the lender’s cost in the real estate, including any expenses directly associated with acquiring and maintaining the property. The use of proceeds attributable to the purchase of the real estate may not exceed the liquidation value or the lender’s cost, whichever is less; and
4. Include an explanation of the circumstances surrounding the lender’s acquisition of the real estate. If the acquisition of the property was triggered by a business failure at that particular location, the lender must submit a detailed explanation of why the new small business borrower will succeed at that same location.