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INTERIM FINAL RULE; REQUEST FOR COMMENTS - Summary Part 1

Interim Final Rule on SBA Express; Affiliation - Summary, Part 1

Nothing may be reprinted in whole or part without written permission from NAGGL. All rights reserved. ©2020 NAGGL, Inc.

On February 11, 2020, SBA published in the Federal Register an Interim Final Rule and Request for Comments (IFR) that amends SBA loan program regulations in a variety of substantive ways.  The changes being made were proposed in the Proposed Rule published in the Federal Register on September 28, 2018.

 

The major program requirements impacted by these amendments include those related to:

  • SBA Express / Export Express
  • Credit Elsewhere/Personal Resources Test
  • Lender and agent fee requirements and definitions
  • Affiliation

 

But, the IFR also contains other important changes so it must be read in its entirety.

 

What is an Interim Final Rule and Request for Comments?  Like any other Final Rule, the provisions of this Interim Final Rule will take effect on the dates specified in the publication.  In this case, with two exceptions described later, most of the new provisions will take effect on March 11, 2020.  But SBA also is requesting comments regarding the changes that it is implementing.  So, the publication invites interested members of the public to provide comments by April 10, 2020, a date which is approximately 30 days after most of the regulatory changes will have taken effect.   

 

NAGGL believes that there are a number of provisions in the Interim Final Rule that require either reconsideration or greater explanation.  Therefore, the association will be providing comments to the agency by that April 10 deadline.  As always, we will share the NAGGL comment letter when it has been finalized. 

 

But, for now, let’s look at the major regulatory changes contained in the IFR in this first of our two-part summary. (Watch your inbox for Part 2 - Affiliation on February 21!)

 

INTERIM FINAL RULE PROVISIONS:

 

SBA Express / Export Express

13 CFR 120.441-447 (effective 3/11/2020)

  • Consistent with the Proposed Rule, puts into regulations the Express program requirements that previously had only been found in the Small Business Act and in SOP 50 10.
  • As a change to the existing program requirements, provides that, when a lender’s SBA Express program term comes up for renewal, SBA may approve a term of up to 3 years rather than the previous 2 year maximum extension period.

[Note: Remember that any increase in the maximum SBA Express loan size will require a legislative change.] 

 

Credit Elsewhere Test / Personal Resources Test

13 CFR 120.102 (effective 3/11/2020)

  • Re-establishes a Personal Resources Test based on the size of the Total Financing Package (TFP) [defined for this purpose as the SBA loan and any other financing requested by the loan applicant within 90 days] as follows:
    • Test applies to all individuals and entities that own 20% or more of the applicant company [if the owner is an individual, resources of any spouse and minor child are included]
      • If the TFP is $350,000 or less, each 20 percent owner must inject any liquid assets that are in excess of 2 times the total financing package, or $500,000, whichever is greater
      • If the TFP is between $350,001 and $1,000,000, each 20 percent owner must inject any liquid assets that are in excess of 1.5 times the total financing package, or $1,000,000, whichever is greater
      • If the TFP exceeds $1,000,000, each 20 percent owner of the Applicant must inject any liquid assets that are in excess of 1 times the total financing package, or $2,500,000, whichever is greater

     

    TFP =

    Each 20% or > owner must inject any liquid assets in excess of =

    $350,000 or less

    2.0 x TFP or    $500,000, whichever is greater

    $350,001 - $1,000,000

    1.5 x TFP or $1,000,000, whichever is greater

    > $1,000,000

    1.0 x TFP or $2,500,000, whichever is greater

     

     

     

     

    Lender-Charged Origination Fees to Applicants / Borrowers

    13 CFR 120.221(a) (effective 10/1/2020, but lenders permitted to voluntarily use new standards beginning March 11, 2020 – the decision to follow the new requirements should be documented in loan file)

  • Permits lender to charge loan applicants what amounts to an origination fee, regardless of what it is called, as follows:
  • Up to $3,000 for loans of $350,000 and less
  • Up to $5,000 for loans over $350,000
  • Is the ONLY fee that lender may charge borrower, but reimbursement for out-of-pocket expenses still permitted
  • Per background information, continues to prohibit lender from splitting a loan in order to charge an additional fee, but allows a new fee if subsequent loan is for different project or purpose(s)
  • Requires fees to be disclosed on SBA Form 159, but clarifies that lender no longer required to itemize fees to support lender-charged fee amount [agent-charged fees still require documentation]

 

Agent-Charged Fees to Applicants / Borrowers

13 CFR 103, 103.1, 103.4 (effective 3/11/2020)

  • Eliminates current exception to the two-master rule and prohibits an agent, including an LSP, from providing services to, and being paid by, both applicant and lender in connection with the same application 
    • Adds to the definition of “agent” any affiliates of the agent

  • Clarifies other definitions related to various categories of agents – LSPs, packagers, and loan brokers/referral agents AND that an agent can be either a person or an entity

  • As part of the clarification of roles, in the LSP definition –
  • Includes a statement confirming long-standing policy that lender bears full responsibility for all aspects of its SBA loan operations
  • Specifies that LSP may only receive compensation from lender and that such compensation may not be passed on to applicant or paid from 7(a) loan proceeds                                            
  • Since more agents will be considered to be LSPs under regulations and some LSP agreements may need to be modified, provides 120 days from date of publication for lenders and agents to get required agreements
  • Changes term referral agent to loan broker to better align with industry terminology

13 CFR 103.5(b) (effective 10/1/2020 but agents permitted to voluntarily use new standards beginning March 11, 2020 – with this decision documented when reporting fees on SBA Form 159)

  • Clarifies that total compensation charged by an agent or agents for services to applicant in connection with obtaining an SBA loan [i.e., limit is on combined services] 
  • Must be reasonable and
  • Fees in excess to those permitted in regulation must be refunded to applicant AND
  • Clarifies that the following fees are considered by SBA to be reasonable – [chart below]
    • Loans $500,000 and under – maximum of 3.5% of loan amount or $10,000, whichever is less
    • Loans between $500,000 - $1 million – maximum of 2% of loan amount or $15,000, whichever is less
    • Loans over $1 million – maximum of 1.5% of loan amount or $30,000, whichever is less 

  • Makes no change to requirement that agent-charged fees must be documented

 

 

Reasonable Agent(s) Fee(s) MAXIMUMS

Loans $500,000 and under

3.5% of loan amount or $10,000, whichever less

Loans $500,000 - $1 million

2.0% of loan amount or $15,000, whichever less

Loans over $1 million

1.5% of loan amount or $30,000, whichever less

 

Remember, Part 2 of the Summary on the changes to Affiliation regulations will be in your inbox on Friday, February 21!  Meanwhile, remember that the IFR contains many other important changes so it must be read in its entirety.


Nothing may be reprinted in whole or part without written permission from NAGGL. All rights reserved. ©2020 NAGGL, Inc.

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