August 23, 2017                                                        TIMELY. RELEVANT. NEWSWORTHY. 

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SBA's NEW Final Catch-all Rule Issued

On August 19, 2017 SBA published in the Federal Register the Final Rule intended to “update, streamline and clarify rules” for the Business Loan Programs [7(a), 504, Microloan and Intermediary Lending Pilot (ILP) programs] and the Surety Bond Guarantee Program. The Final Rule will take effect on September 20, 1017 (except for one provision related to enforcement actions which will take effect on October 20, 2017).  

What follows is a summary of the provisions in the regulations that impact 7(a) lenders, arranged in three groups from most to least significant.  

It is important to note that SBA currently is working on the next version of SOP 50 10, which will include additional information about some of these regulatory changes. SBA has announced its intention to have the new version of the SOP take effect on January 1, 2018.    
**Most significant regulatory changes for 7(a) program participants**

EPC/OC structures
For 7(a) participants, the most important and welcome changes in the new regulations are those that expand and clarify the eligible uses of 7(a) loan proceeds for loans with Eligible Passive Company/Operating Company (EPC/OC) structures [13 CFR 120.111]:   

Other changes to the EPC/OC regulations include putting into regulations two long-standing requirements:

Changes to regulations governing lender oversight

Onsite/Offsite Reviews [Multiple subsections]  
Because SBA has changed the way it reviews and monitors lenders, including through the greater use of technology, the differences between “on- and offsite reviews” have diminished, so SBA removed all references to those terms. SBA has retained the terms “review/examination assessments” and “monitoring”.

Lender Status with other regulators [Multiple subsections]  
SBA replaced the term “Good Standing” with “Satisfactory” as it relates to lenders’ and pool assemblers’ statuses with the federal regulators.   

Suspension/Revocation of Secondary Market Participation [Section 120.660]  

Confidentiality of Reports, Risk Ratings and related Confidential Information [Section 120.1060]  
SBA expanded the group of “permitted parties” with whom a lender may share its report findings, risk rating, etc., to include parties with “a legitimate need to know” including the lender's parent entity, directors, auditors and those lender consultants under written contract specifically to assist the Lender in addressing SBA Findings and Corrective Actions Required to SBA's satisfaction, but specifically excluding Lender Service Providers

Lender Oversight Fees [Section 120.1070]  
Regulations have been amended to provide greater specificity regarding the way costs are allocated to lenders, including stating that costs that are specifically allocable to a particular lender will be charged directly to that lender. [In its comments on the proposed regulations, NAGGL had noted its opinion that SBA has little incentive to limit the costs that it imposes on program participants for the review function and its concern that increasing oversight costs could, at some point, make program participation too expensive for some lenders, thus limiting small business’ access to critically needed capital.  We asked SBA to continue to find ways to make the OCRM review function as cost-effective as possible for SBA and for program participants. SBA did not agree with NAGGL’s concerns, but stated that it is committed to developing and operating a robust risk management program at the most efficient cost possible and to reducing costs where possible and will continue to minimize its oversight costs and the fees it charges program participants through competitive bidding processes, using fixed price contracts where appropriate, contract monitoring, and efficiently coordinating the work with its contractors.]

Grounds for enforcement actions—SBA Lenders [120.1400(a)] – Takes effect October 20, 2017  
The existing regulation stated that SBA lenders automatically agree to the terms, conditions, and remedies in Loan Program Requirements, as promulgated or issued from time to time and as fully set forth in the SBA Form 750 (Loan Guaranty Agreement), Development Company 504 Debenture, CDC Certification, Servicing Agent Agreement, or other applicable participation, guaranty, or supplemental agreement. SBA revised that provision to discuss both 7(a) lenders and CDCs and to add a provision that SBA lenders further agree that “a violation of Loan Program Requirements constitutes default under their respective agreements with SBA.” 

Grounds for enforcement actions for regulated lenders and SBA-regulated lenders [Sections 120.1400(a)(2) and 120.1500]  
By making 7(a) loans, lenders in either category now are deemed to have consented to the appointment of a receiver with duties that may, among others, include taking possession of, servicing and/or selling or transferring the 7(a) loan portfolios.


MORE (full article) >

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New membership add-on available - Individual Membership
Calling all political junkies! Interested in better understanding the ins & outs of government relations as it relates to the 7(a) program? Want to know how to best communicate with your congressional representatives and the agency while getting involved with NAGGL leadership and learning about our PAC? Add an Individual Membership to your existing NAGGL membership! Enrollment is voluntary and the annual dues are either $25 (for those persons on a Sustaining member’s roster; or serving on the Board) or $50 (for those persons on an Associate or a Regular member’s roster). FAQ >

What are the additional benefits of an individual membership?

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September 7 - WEBExpress: Preserve Your Guaranty - Don't Make These Mistakes
September 12 - WEBExpress: SBA’s NEW Final Rule   - Special fee: $95
September 12-13 – Fundamentals of SBA Credit Underwriting (Orlando, FL)
September 7 - WEBExpress: Planning for Liquidation 
September 14 - WEBExpress: Preserve Your Guaranty: Don’t Make These Mistakes! 
September 20 - WEBExpress: Winter IS Coming ... How to Meet the Prudent Liquidation Deadline Special fee: $145

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