Exhibit 13 — SBA SOP 50 10 6 (Lender and Development Company Loan Programs) — OTO Analytics v. Benworth (N.D. Cal. No. 3:24-cv-03975)

Record facts

U.S. District Court for the Northern District of California · No. 4:24-cv-03975-AMO · Doc. 52-14 · 2024-09-06 · Docket on CourtListener

Full text

EXHIBIT 13 
Case 4:24-cv-03975-AMO     Document 52-14     Filed 09/06/24     Page 1 of 591

 
 
 
 SBA 
SOP 50 10 6 
__________________ 
Lender and Development 
Company Loan Programs 
Office of Financial Assistance  
U.S. Small Business Administration 
JX019.1
JX019
r 
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Effective October 1, 2020 
Page 2 
U.S. Small Business Administration 
Standard Operating Procedure 
Summary 
S.O.P. Number: SOP 50 10 Version: 06 
Series: N/A 
SOP Version This Replaces: 50 10 5(K) 
Purpose: Update SOP 50 10, Lender and Development Company Loan Programs 
Key Pages Affected in this Version: All 
Stakeholders Affected: All SBA employees and SBA Lenders 
Originating Office: Office of Capital Access 
Authorized By: William M. Manger, Associate Administrator Capital Access 
Effective Date: October 1, 2020
JX019.2
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SOP 50 10 6  
Table of Contents 
Effective October 1, 2020 
Page 3 
TABLE OF CONTENTS 
Table of Contents .............................................................................................................................3 
User Tips: How to Use this Document ............................................................................................7 
Part 1: Participating in the SBA 7(a) and 504 Loan Programs ........................................................9 
Section A. 7(A) Lender Participation ....................................................................................... 11 
Chapter 1: Lender Participation in the 7(A) Loan Program ..................................................11 
A. 
Process to Become a 7(a) Participating Lender ........................................................ 11 
B. 
Loan Guaranty Agreement ........................................................................................ 18 
C. 
Responsibilities of 7(a) Lenders ............................................................................... 19 
D. 
SBA Oversight of 7(A) Lenders ............................................................................... 23 
E. 
Delegated Authority in the 7(a) Loan Program ........................................................ 29 
Chapter 2: Small Business Lending Companies ....................................................................51 
A. 
SBLC Requirements ................................................................................................. 51 
B. 
Process for Acquiring an SBLC ................................................................................ 52 
Chapter 3: Lender Financing and Operations ........................................................................57 
A. 
Secondary Market for Guaranteed Loans ................................................................. 57 
B. 
Secondary Market Resources .................................................................................... 58 
C. 
Loan Transfers .......................................................................................................... 58 
D. 
Loan Participation Sales ........................................................................................... 59 
E. 
Securitization and Other Conveyances ..................................................................... 60 
F. 
Lender Loan Reporting ............................................................................................. 62 
Section B. Certified Development Company (CDC) Participation .......................................... 65 
Chapter 1: CDC Participation ................................................................................................67 
A. 
Application to Become Certified as a CDC .............................................................. 67 
B. 
Form 1081 CDC Character Determinations ............................................................. 70 
C. 
Types of Authorities ................................................................................................. 72 
D. 
Operating Requirements ........................................................................................... 81 
E. 
Reporting Requirements ........................................................................................... 93 
F. 
Expanding Service Area ........................................................................................... 97 
G. 
Mergers ................................................................................................................... 104 
Chapter 2: SBA Oversight of CDCs ....................................................................................107 
A. 
Loan and Lender Monitoring System (L/LMS) ...................................................... 107 
B. 
Lender Portal ........................................................................................................... 108 
C. 
Monitoring and reviews .......................................................................................... 109 
D. 
Supervision and Enforcement ................................................................................. 110 
E. 
Oversight and Enforcement Actions ....................................................................... 110 
JX019.3
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SOP 50 10 6  
Table of Contents 
Effective October 1, 2020 
Page 4 
Part 2: SBA Business Loan Requirements...................................................................................113 
Section A. Core Requirements for all 7(a) and 504 Loans ..................................................... 115 
Chapter 1: Primary Eligibility Requirements ......................................................................117 
A. 
Operating Business ................................................................................................. 117 
B. 
Organized for Profit ................................................................................................ 117 
C. 
Located in the United States ................................................................................... 118 
D. 
Small Under SBA Size Requirements .................................................................... 118 
E. 
Demonstrate the Need for Desired Credit ............................................................... 131 
Chapter 2: Special Transaction Structures ...........................................................................133 
A. 
Eligible Passive Companies .................................................................................... 133 
B. 
Loans to Employee Stock Ownership Plans (ESOPs) ............................................ 137 
C. 
Cooperatives ........................................................................................................... 138 
D. 
401(k) Plans Including Rollovers as Business Start-ups (ROBS) Plans................. 139 
Chapter 3: Ineligible Businesses ..........................................................................................141 
A. 
Types of Ineligible Businesses................................................................................ 141 
B. 
Character Determinations ....................................................................................... 152 
C. 
Businesses Owned by Non-U.S. Citizens ............................................................... 157 
Chapter 4: Uses of Proceeds ................................................................................................161 
A. 
Eligible Uses of Proceeds ....................................................................................... 161 
B. 
Restrictions on Uses of Proceeds ............................................................................ 163 
C. 
Occupancy and Leasing Requirements ................................................................... 164 
Chapter 5: Ethics, Fees, and Agents ....................................................................................169 
A. 
Ethical Requirements .............................................................................................. 169 
B. 
Debarment, Suspension, and Exclusion (SAM.gov) .............................................. 170 
C. 
7(a) Loan Program Fees .......................................................................................... 171 
D. 
7(a) Loan Program and Use of Agents ................................................................... 181 
E. 
504 Loan Program Fees and Use of Agents............................................................ 191 
Chapter 6: Other Core Requirements ...................................................................................203 
A. 
Guaranties ............................................................................................................... 203 
B. 
IRS Tax Transcript/Verification of Financial Information ..................................... 204 
C. 
Insurance Requirements .......................................................................................... 207 
D. 
Historic Properties .................................................................................................. 211 
E. 
Environmental Policies and Procedures .................................................................. 215 
Section B. 7(a) Loan Program Specific Requirements ........................................................... 225 
Chapter 1: Basic 7(a) Loans .................................................................................................227 
A. 
Eligible Uses of Proceeds ....................................................................................... 227 
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SOP 50 10 6  
Table of Contents 
Effective October 1, 2020 
Page 5 
B. 
Loan Terms and Conditions .................................................................................... 236 
C. 
Credit Standards ...................................................................................................... 246 
D. 
Submission of Application for Guaranty ................................................................ 264 
Chapter 2: SBA Express Loans............................................................................................271 
A. 
Eligible Uses of Proceeds for SBA Express ........................................................... 271 
B. 
Loan Terms and Conditions for SBA Express ........................................................ 276 
C. 
Credit Standards for SBA Express .......................................................................... 285 
D. 
Submission of Application for Guaranty for SBA Express .................................... 292 
Chapter 3: 7(a) CAPLines ....................................................................................................297 
A. 
Eligibility and Eligible Uses of Proceeds for all CAPLines ................................... 297 
B. 
Loan Terms and Conditions for all CAPLines ....................................................... 303 
C. 
Credit Standards for all CAPLines ......................................................................... 312 
D. 
Submission of Application for Guaranty for all CAPLines .................................... 322 
Chapter 4: 7(a) Export Trade Finance .................................................................................339 
A. 
Export Express ........................................................................................................ 341 
B. 
Export Working Capital Program (EWCP) ............................................................ 369 
C. 
International Trade (IT) .......................................................................................... 397 
Chapter 5: Authorization through Disbursement for all 7(a) Loans ....................................433 
A. 
Loan Authorization ................................................................................................. 433 
B. 
Post-Approval/Pre-Disbursement Requests for Changes ....................................... 438 
C. 
Transfer of Guaranty Between Participating Lenders ............................................ 441 
D. 
Loan Closing and Disbursement ............................................................................. 442 
Section C. 504 Loan Program Specific Requirements............................................................ 451 
Chapter 1: Eligibility through Submission of Application ..................................................453 
A. 
Primary Program Eligibility Factors ....................................................................... 453 
B. 
Third Party Lender Participation ............................................................................ 455 
C. 
Eligible Uses of Proceeds ....................................................................................... 460 
D. 
504 Loan and Debenture Terms and Conditions .................................................... 474 
E. 
Credit Standards ...................................................................................................... 476 
F. 
Submission of Loan Application ............................................................................ 489 
Chapter 2: Authorization through Disbursement .................................................................495 
A. 
Authorization .......................................................................................................... 495 
B. 
Modifying the Authorization .................................................................................. 498 
C. 
Closing, Disbursement, and Post-Closing .............................................................. 499 
Chapter 3: Debenture Pricing and Funding .........................................................................513 
A. 
Determining SBA’s Share of the Project Costs ...................................................... 513 
B. 
Steps to Calculate the Gross Debenture .................................................................. 513 
JX019.5
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SOP 50 10 6  
Table of Contents 
Effective October 1, 2020 
Page 6 
C. 
Separate Payment of the Debenture Fees ............................................................... 514 
D. 
When the Debenture is Priced ................................................................................ 515 
E. 
Funding the Debenture ............................................................................................ 515 
F. 
Disbursement of Debenture Proceeds ..................................................................... 515 
Appendices ...................................................................................................................................517 
Appendix 1: Forms and Related SOPs.................................................................................... 519 
Appendix 2: Acronyms ........................................................................................................... 521 
Appendix 3: Definitions .......................................................................................................... 527 
Appendix 4: Definitions – Environmental .............................................................................. 537 
Appendix 5: Reliance Letter ................................................................................................... 543 
Appendix 6: NAICS Codes of Environmentally Sensitive Industries .................................... 547 
Appendix 7: Requirements Pertaining to Gas Station Loans .................................................. 551 
Appendix 8: SBA Environmental Indemnification Agreement .............................................. 553 
Appendix 9: Sample Borrowing Base Certificate and Report to Lender ................................ 575 
Appendix 10: Electronic Signatures ....................................................................................... 583 
Appendix 11: Record Retention Requirements ...................................................................... 587 
Appendix 12: SBA Email Addresses ...................................................................................... 589 
 
JX019.6
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SOP 50 10 6  
User Tips: How to Use This Document 
 
Effective October 1, 2020 
Page 7 
 
USER TIPS: HOW TO USE THIS DOCUMENT 
SOP 50 10 6 contains the SBA’s participation requirements for 7(a) Lenders and Certified 
Development Companies (CDCs), together known as “SBA Lenders,” and the policies and 
procedures governing the 7(a) and 504 loan programs. The SOP is divided into two parts. 
Part 1 contains SBA Lender participation and portfolio requirements. Here you will find criteria 
for becoming an SBA Lender; types of delegated authority; a brief overview of how SBA 
conducts oversight of SBA Lenders; processes for loan reporting, secondary market transactions, 
loan transfers, and securitization. 
Part 2 is divided into three sections. 
Section A: Core Requirements for all 7(a) and 504 loans 
Section B: 7(a) Loan Program requirements 
Section C: 504 Loan Program requirements 
Navigating the SOP in Microsoft Word 
The SOP contains bookmarks and built-in style headings to enable easy navigation using the 
Navigation Pane, which is a vertical panel on the left of the viewing screen. The Navigation Pane 
looks like a table of contents. Clicking on a line will jump you to the corresponding section in the 
SOP.  
Hint 1: The sections expand and collapse by clicking on the arrows on the far left. 
Hint 2: Clicking the “alt” and “left arrow” keys will return you to your original page when you 
click on a hyperlink that redirects you to a different place within the SOP. You may need to click 
your mouse once before you click the alt and left arrow keys. 
 
Navigation Pane Expanded
 
Navigation Pane Collapsed 
 
• Method 1: “CTRL+F” will launch a search screen. From here you can access the 
Navigation Pane by selecting Headings. You can also type in a keyword search here. 
• Method 2: From the menu bar at the top of the screen, select “View,” and then select the 
“Navigation Pane” box in the “Show” group.
JX019.7
" Part 2.: SBA Business Loan Requirements 
" Section A. Core Requirements for all 7(a) and 504 Loa 
" 
Chapter 1: Primary Eligibility Requirements lncludi 
A. Operating Business 
8. Organized for Profit 
C. Located in the United States 
" 0. Small Under SBA Size Requirements 
1, Size Standards 
2. When Applicant size is determined 
3. Formal size determinations 
4. Affiliation 
~. Affili;itinn h;i--.p,t nn M;in;igpmpnf 
6. Affiliation Based on Franchise, License, De 
E. Demonstrate the Need for Desired Credit 
" Part 2: SBA Business loan Requirements 
I> Section A. Core Requirements for al 
I> Section B. 7(a) l oan Program Specif 
I> Section C. 504 l oan Program Specif 
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JX019.8
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SOP 50 10 6 
Part 1: Participating in the SBA 7(a) and 504 Loan Programs 
Effective October 1, 2020 
Page 9 
PART 1: PARTICIPATING IN THE SBA 7(A) AND 504 LOAN PROGRAMS 
This Part contains: 
• Criteria for 7(a) Lenders and Certified Development Companies (CDCs) (defined in 13 CFR 
120.10 as “SBA Lenders”) to participate in SBA lending programs; 
• The different types of delegated authority SBA grants to SBA Lenders; 
• How SBA Lenders maintain their participating status with SBA; 
• A brief overview of how SBA oversees its participating SBA Lenders; and 
• Lender financings and operations, including but not limited to 7(a) loan program secondary 
market transactions, loan transfers, securitization, and Lender reporting.  
SBA Lenders must act ethically and exhibit good character (13 CFR § 120.140). The SBA 
Lender is responsible for the conduct of its Associates (including, but not limited to, Agents and 
Lender Service Providers) and staff (including individuals or entities operating under an SBA-
approved professional services contract). SBA Lenders are required to notify SBA immediately 
upon becoming aware of any unethical behavior by its staff or its Associates. Examples of 
unethical behavior are found at 13 CFR § 120.140. 
Exceptions to Policy: When the policy set forth in this Part does not adequately address the 
unique circumstances regarding a particular matter, the SBA Lender may submit a request for an 
exception to policy through E-Tran to the SBA loan processing center.  
The loan processing center will analyze the request and make a recommendation to the D/FA for 
504 loans and for 7(a) loans except Export Working Capital Program (EWCP), Export Express, 
and International Trade (IT) loans or to the Director, International Trade Finance (D/ITF) for 
EWCP, Export Express, and IT loans. The D/FA or D/ITF, or an individual acting in that 
capacity, will make the final decision (with the concurrence of the D/OCRM for Export Express 
loans). 
The D/FA or D/ITF may not approve an exception to policy if such exception would be 
inconsistent with a statute or regulation. This procedure may only be used in situations where a 
minor deviation from standard policy is necessary for the specific situation. Exceptions to policy 
will be considered on a case-by-case basis and the decision will only apply to the specific 
request. The decision must be documented in the appropriate Agency loan file. 
 
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 11 
SECTION A. 7(A) LENDER PARTICIPATION 
CHAPTER 1: LENDER PARTICIPATION IN THE 7(A) LOAN PROGRAM 
The 7(a) Loan Program is authorized by section 7(a) of the Small Business Act and is governed 
by the regulations outlined in Parts 103, 105, 120, 121, and 134 of Title 13 of the Code of 
Federal Regulations (CFR). 
This multi-purpose business loan program is administered as a deferred participation program 
where SBA guarantees a portion of the loan made by a Lender. The Lender initiates the loan to a 
small business and, if the SBA agrees to guarantee the loan, the Lender funds and services the 
loan. In the event of default, the Lender conducts the work-out or the liquidation efforts and the 
Lender and SBA share in the loss, if any, in accordance with the percentage guaranteed by the 
SBA. 
Definitions applicable to this section can be found in 13 CFR §§103.1, 105.201, 120.10, 120.420, 
and Appendix 3 of this SOP. 
Types of lenders that may participate: 
• The following lenders may apply to participate with SBA as a 7(a) Lender: 
o Federally-regulated lenders, including those lenders regulated by Federal 
Financial Institution Regulators (e.g., the Federal Deposit Insurance Corporation, 
the Federal Reserve Board, the Office of the Comptroller of the Currency, the 
National Credit Union Administration, and the Farm Credit Administration); and 
o SBA Supervised Lenders: 
▪ Non-Federally Regulated Lenders (NFRLs, including State-regulated 
lenders without Federal deposit or share insurance protection; and 
▪ Small Business Lending Companies (SBLCs). 
• The following lenders may not apply to participate with SBA as a 7(a) Lender: 
o SBA-licensed Small Business Investment Companies (SBICs); 
o Certified Development Companies (see 13 CFR § 120.820(c), except with respect 
to the Community Advantage Pilot Program); and  
o Bank holding companies. 
A. PROCESS TO BECOME A 7(A) PARTICIPATING LENDER 
1. Federally-Regulated Lenders: 
 An institution that has Federal deposit or share insurance protection and is a State 
or National bank, a State or federally-chartered thrift institution or a State or 
federally-chartered credit union must submit a request in writing to the Lead 
District Office (see definition in Appendix 3) serving the geographic area where 
the lender’s principal office is located. With the exception of State-chartered 
JX019.11
a. 
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 12 
credit unions, these institutions automatically comply with the Agency’s 
examination and supervision requirements under 13 CFR § 120.410.  
 When a State-chartered credit union applies to become a participating Lender:  
i. If the credit union has Federal deposit or share insurance protection, it must 
submit an application to the Lead District Office servicing the geographic 
area where its principal office is located. The application must include: 
a) 
The name and contact information for the credit union’s state regulator; 
b) 
How often the credit union is examined by its state regulator; 
c) 
Date of the last examination by the state regulator; 
d) 
Evidence of good standing with the state regulator; 
e) 
Evidence of the state regulator’s authorization for the proposed area of 
operations; 
f) 
A description of the credit union’s experience in commercial lending 
including the dollar value and number of small business loans originated 
over the past 12 months; 
g) 
A list of personnel and a brief summary of staff with SBA lending 
experience. If the credit union does not have staff with SBA lending 
experience, provide a staff training plan for loan origination, servicing, 
and liquidation; 
h) 
An operation plan detailing the nature of proposed SBA lending, 
including detailed projections for the first 3 years as an SBA Lender; 
i) 
SBA may request additional information. 
ii. If the credit union does not have Federal deposit or share insurance 
protection, it must send to the Lead District Office the items required in 
paragraph 2.b. below for Non-Federally Regulated Lenders. 
iii. The SBA counsel must review the application for legal sufficiency. As part 
of that review, SBA counsel must determine that the credit union has the 
authority to apply for participation with SBA and, specifically, that the 
person who submitted the application has the authority to act on behalf of the 
credit union. Applications submitted on behalf of a credit union by a Credit 
Union Service Organization (CUSO) or Lender Service Provider (LSP) are 
not acceptable.  
iv. The Lead District Office must submit the application, any supporting 
information, and SBA counsel’s review to OCRM at OCRM@sba.gov for a 
written determination by OCRM regarding the State’s level of regulatory 
supervision and examination. 
 A lender must be considered in good/satisfactory standing with its state regulator 
and considered to be satisfactory by its Federal Financial Institution Regulator 
(FFIR) as determined by SBA. For purposes of participation in the 7(a) program, 
SBA considers a lender to be in good/satisfactory standing with its state/FFIR if it 
JX019.12
b. 
C. 
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 13 
has satisfactory financial condition and satisfactory small business credit 
administration and servicing policies, procedures, and practices. Accordingly, the 
lender’s written request to participate must include a written statement that to the 
best of its knowledge, the lender has satisfactory: i) financial condition (e.g., 
capital and liquidity); ii) small business credit administration policies, procedures, 
and practices that it continues to adhere to in its operations; and iii) small business 
servicing policies, procedures, and practices that it continues to adhere to in its 
operations. When reviewing good standing or whether a lender is considered 
satisfactory, SBA will look to see that a lender does not have significant 
deficiencies or weaknesses in these areas. “Significant” may be evidenced by the 
number or seriousness of the deficiencies, as determined by SBA in its discretion. 
SBA will verify any good standing/satisfactory status statement where possible 
with public (e.g., Cease and Desist Orders and Call Reports) and/or non-public 
information from the lender’s primary and/or other regulators.  
 The Lead District Office must determine whether the lender meets the 
requirements of 13 CFR § 120.410 to be a 7(a) participant. If the Lead District 
Office determines that the lender meets these requirements, it may enter into a 
Loan Guaranty Agreement with the lender. The lender will sign an SBA Form 
750, “Loan Guaranty Agreement (Deferred Participation),” and return it to the 
Lead District Office for execution by the District Director or designee. Once the 
SBA Form 750 is executed, the Lead District Office will add the Lender to the 
SBA Partner Information Management System (PIMS), which identifies the 
Lender as an SBA participating Lender. Note: The District Director or designee 
must not sign the SBA Form 750 until after the Lender has signed the form and 
returned it to the SBA. The Lead District Office will retain the executed SBA 
Form 750 in the Lead District Office’s files. 
2. Non-Federally Regulated Lenders: 
 Non-Federally Regulated Lenders (NFRLs) are entities engaged in small business 
lending that are subject to the oversight and supervision by a state regulator 
authorized to evaluate the safety and soundness of its regulated members. These 
entities operate without Federal deposit or share insurance protection (such as 
Business and Industrial Development Companies (BIDCOs)). NFRLs are 
authorized by the Administrator to make loans pursuant to section 7(a) of the 
Small Business Act. NFRLs are subject to additional regulations specific to SBA 
Supervised Lenders (see 13 CFR §§ 120.460-120.465) as well as all other 7(a) 
regulations specific to loan processing, servicing, and liquidation. NFRLs must 
have internal controls that meet the requirements set forth for SBLCs in Chapter 
2, Small Business Lending Companies, of this Part. 
To become a 7(a) participant, the lender must submit an application containing 
the information and documents specified below to the Office of Financial 
Assistance (OFA) at 409 Third Street SW, Washington DC 20416, ATTN: 
Director, Office of Financial Assistance. The applicant must submit two complete 
binders of fully executed paper copies and one executed electronic scanned copy 
(in pdf format) to OFA addressing each of the elements set forth below (“NFRL 
Application”). The NFRL Application must be complete and organized in tabular 
JX019.13
d. 
a. 
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 14 
format. Incomplete NFRL Applications will not be processed by SBA and will be 
returned to the applicant. An applicant that submits an incomplete NFRL 
Application (as determined by SBA) must wait 30 calendar days before 
reapplying. 
SBA reserves the right to deny any applicant requesting to become an NFRL in its 
sole discretion. In addition to SBA’s evaluation of the elements required below, 
SBA may consider risk factors in its evaluation of an NFRL Application. These 
factors include, but are not limited to, historical performance measures (such as 
default, purchase and loss rate), and other performance data or program integrity 
concerns associated with the lender or its senior management team, along with 
other relevant information (such as SBA-observed gaps in small business lending 
not served by the existing 7(a) Lender population). 
 The Lender’s application must include: 
i. Lender’s name, address, telephone number and email address; 
ii. A copy of the lender’s organizational formation documents and bylaws filed 
with the appropriate authority and certified by an appropriate officer of the 
applicant; 
iii. The identification of all classes of stock, partnership interest or members 
interests, the rights and preferences accorded to these forms of ownership, 
including voting rights, redemption rights, distribution rights and rights of 
convertibility and any conditions for the transfer, sale, or assignment of such 
interests; 
iv. The lender’s proposed geographical area of operations, as authorized by the 
lender’s state regulator; 
v. A list of officers, directors, managing partners, managing members, 
Associates (see Appendix 3, Definitions), and holders of 10% or more of any 
class of the lender’s capital stock or ownership interest;  
vi. An organizational chart showing all officers, directors, managers, and Key 
Employees of the lender, which includes senior managers, members of loan 
committees, and individuals who have a meaningful participation in the 
direction of the operations, policies, or financial decisions of the lender, 
including any relationships between the lender and any Associates; 
vii. An executed SBA Form 1081, “Statement of Personal History,” and either 
FBI Form FD-258 Applicant Fingerprint Form (fingerprint card) or 
Electronic Fingerprint Submission (see definition in Appendix 3), each 
signed and dated within 90 days of submission to SBA for:  
a) 
Each officer, managing partner, and managing member of lender, and 
all holders of 10% or more of any class of stock or ownership, limited 
partnership, or member’s interest; and 
b) 
Each director and Key Employee of the lender organization. Directors 
and Key Employees must only submit either Form FD-258 (fingerprint 
card) or Electronic Fingerprint Submission along with SBA Form 1081 
JX019.14
b. 
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 15 
if the individual answered affirmatively to questions 10a, 10b, 10c, 11a, 
and/or 11b on the SBA Form 1081. 
viii. A copy of the most recent audited financial statements of the lender; 
ix. A copy of the most recent audited financial statements on any entity, other 
than natural persons, holding 10% or more of any class of the lender’s stock 
or ownership interest; 
x. An operations plan detailing the nature of the lender’s proposed loan activity, 
the volume of activity projected over the first 3 years as a 7(a) Lender, 
projected balance sheets, income statements and statement of cash flows of 
the lender, with alternative profit and loss scenarios based on run rates 
equivalent to 70% and 50% of projected loan activity, the type and projected 
amount of financing needed to support its lending plan, along with a 
discussion of lender’s proposed wind-down plan in the event the lender 
decides to leave the program; 
xi. A detailed analysis of the lender’s projected secondary market activities 
during the first 3 years of operation, including a sensitivity analysis of the 
effect any changes in premium from the sale of the guaranteed portion of 7(a) 
loans in SBA’s secondary market may have on the lender’s prospective 
earnings. The analysis must also include a description of the lender’s plans 
(if any) to securitize or sell participations in the unguaranteed portion of 7(a) 
loans; 
xii. If the lender intends to acquire any 7(a) loans, a written plan detailing the 
extent of this acquisition activity in its operating plan, and how the lender 
intends to manage the transition of the 7(a) loan portfolio; 
xiii. A copy of the lender’s policies and procedures governing business loan 
origination, servicing, and liquidation; 
xiv. A copy of the lender’s internal control policies; 
xv. A certification that the lender will not be engaged primarily in financing the 
operations of an Affiliate, as defined in 13 CFR §§ 121.103 and 121.301.  
xvi. A copy of the State or Federal statute or regulations governing the lender’s 
operations, including those pertaining to audit, examination, and supervision 
of the lender. Each lender bears the burden of demonstrating that it is subject 
to continuing supervision by a State or Federal regulatory authority 
satisfactory to SBA; 
xvii. A copy of the latest report covering the examination of the lender, and/or any 
regulatory orders if such reports can be released to SBA. If the report cannot 
be released or the lender is newly formed and has not been examined by its 
primary regulator include a statement to that effect; 
xviii. A copy of the license, certificate, and/or charter, if any, issued to the lender 
by a regulatory authority; 
JX019.15
App.3272
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SOP 50 10 6 
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Effective October 1, 2020 
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xix. A certified copy of a Resolution of the Board of Directors designating the 
person(s) authorized to submit the application on behalf of the lender; 
xx. Disclosure of any and all actions, proceedings, investigations, or litigation, 
pending or threatened, against the lender and/or its Associates, including 
complete details of any actions disclosed; and 
xxi. A written legal opinion of independent counsel (“Independent Counsel” is 
counsel that is not an “Associate” of the lender under 13 CFR § 120.10.), 
satisfactory to SBA that addresses whether the lender: 
a) 
Is duly formed, organized, and validly existing in good standing under 
the laws of the State of its organization, and is in full compliance with 
all Federal, State, and local laws in connection with the formation and 
organization of the lender; 
b) 
Has the power, legal right, and authority to conduct business in the 
lender’s proposed operating area; and 
c) 
Is in full compliance with all appropriate Federal and State securities 
laws. 
 Once received, the D/FA or designee, in consultation with the Director, Office of 
Credit Risk Management (D/OCRM), makes the final determination on the 
application and notifies the Lead District Office. If the application is approved, 
the Lead District Office will send an SBA Form 750 to the Lender for signature 
and return to the Lead District Office.  
Note: SBA must not sign the SBA Form 750 until after the lender has signed the 
form and returned it to the Lead District Office.  
 When the Lead District Office receives the SBA Form 750 signed by the Lender: 
i. The District Director or designee will execute the agreement, and the Lead 
District Office will send a copy of the executed agreement to the D/FA; 
ii. The Lead District Office will add the Lender to the SBA Partner Information 
Management System (PIMS), which identifies the Lender as an SBA 
participating Lender; 
iii. The Lead District Office will retain the executed SBA Form 750 in the Lead 
District Office’s files. 
 Change of Ownership or Control. Control, as defined in this paragraph, means the 
possession, direct or indirect, or the power to direct or cause the direction of the 
management or policies of an NFRL, whether through the ownership of voting 
securities, by contract, or otherwise.  
i. SBA’s prior written consent is required for: 
a) 
Any single (or aggregate over time) change of ownership or control of 
10 percent or more of any class of an NFRL’s stock or ownership 
interests. 
JX019.16
C. 
d. 
e. 
App.3273
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 17 
b) 
Any proposed transaction or event that results in control by any entity or 
person(s) not previously approved by SBA.  
ii. A new application in accordance with the above requirements must be 
submitted for SBA’s prior written consent with respect to a change of 
ownership or control transaction. For change of control transactions, the 
Lender must reapply for any delegated authorities.  
iii. If the proposed change of ownership is for less than a majority interest, SBA, 
in its sole discretion, may limit the items required by the Lender in paragraph 
2.b., “The Lender’s application must include,” above to support a request for 
prior SBA consent. 
3. Small Business Lending Companies (SBLCs) (13 CFR §§ 120.460 - 120.490): 
A Small Business Lending Company (SBLC) is a non-depository lending institution that 
is authorized by SBA to only make loans pursuant to section 7(a) of the Small Business 
Act and loans to Intermediaries in SBA’s Microloan program. See chapter 2, “Small 
Business Lending Companies,” of this section for more information on becoming an 
SBLC. 
4. Export Working Capital Program (EWCP): 
To participate in the Export Working Capital Program (EWCP): 
 Existing SBA Lenders: 
Note: SBA Form 750, “Loan Guaranty Agreement (Deferred Participation)," was 
updated as of July 1, 2019. Lenders with an executed: 
i. July 1, 2019, version of SBA Form 750 are eligible to submit applications for 
guaranty under non-delegated processing procedures. 
ii. SBA Form 750 that is prior to the July 1, 2019, version, and that also have an 
executed SBA Form 750EX, are permitted to submit applications for 
guaranty under non-delegated processing procedures. 
iii. SBA Form 750 that is prior to the July 1, 2019, version, and that do not have 
an executed SBA Form 750EX, must execute a new July 1, 2019, version of 
SBA Form 750 to be eligible to submit applications for guaranty under non-
delegated processing procedures. Such Lenders may contact the local Lead 
District Office to request authority to participate.  
If the lender meets the criteria set forth above for 7(a) Lenders (or, for 
SBLCs, in Chapter 2, Small Business Lending Companies, of this Section 
below), and if the lender is approved to participate, the Lead District Office 
staff will provide the lender with SBA Form 750, which the lender must sign 
and return. Once the executed SBA Form 750 is returned, the District 
Director or designee will sign SBA Form 750 and the Lead District Office 
staff will enter the SBA Form 750 into the Partner Information System and 
notify the Export Finance Manager in the appropriate United States Export 
Assistance Center (USEAC). Note: A complete listing of Export Finance 
JX019.17
a. 
App.3274
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 18 
Managers and USEAC locations may be found at 
https://www.sba.gov/article/2017/nov/01/list-useacs-sba-staff. 
Note: The District Director or designee must not sign the SBA Form 750 until 
after the lender has signed the form and returned it to the SBA. 
 Non-SBA lender: 
i. A lender that is not an existing SBA Lender must be approved by SBA to 
participate in the 7(a) loan guaranty program before they can participate in 
EWCP. Such lenders may contact the local Lead District Office to request 
authority to participate in SBA lending. 
ii. If the lender meets the criteria set forth above for 7(a) Lenders (or, for 
SBLCs, in Chapter 2, Small Business Lending Companies, of this Section 
below), and if the lender is approved to participate, the Lead District Office 
staff will provide the lender with SBA Form 750, which the lender must sign 
and return. Once the executed SBA Form 750 is returned, the District 
Director or designee will sign the SBA Form 750 and the Lead District 
Office staff will enter the SBA Form 750 into the Partner Information System 
and notify the appropriate Export Finance Manager. 
Note: The District Director or designee must not sign the SBA Form 750 until 
after the lender has signed the form and returned it to the SBA. 
 The Export Finance Manager will consult, advise and train Lenders and small 
business exporters on the procedures and benefits of SBA’s EWCP.  
 To request authority to participate in the Preferred Lenders Program (PLP) for 
EWCP, see paragraph E.2.j. PLP Lender Authority and Responsibilities, below in 
this chapter. 
B. LOAN GUARANTY AGREEMENT 
The SBA Form 750, “Loan Guaranty Agreement,” provides a basic framework for the 
responsibilities and duties of the Lender and SBA when making, closing, and administering any 
individual SBA-guaranteed loan.1 (13 CFR § 120.400) This agreement is subject to SBA’s rules 
and regulations, as amended from time to time. A Lender must execute this agreement prior to 
submitting any applications for guaranty to SBA.  
 
 
1 In July 2019, SBA issued a revised SBA Form 750 that consolidated the separate agreement for short-term loans 
(SBA Form 750B) and the Supplemental Guaranty Agreement Export Working Capital Program (SBA Form 
750EX) into one agreement that covers a Lender’s authority for processing all 7(a) loans except loans made under 
the Community Advantage Pilot Program. The SBA Form 750CA for Community Advantage Lenders remains as a 
separate agreement. While the SBA Form 750B, the SBA Form 750EX, and the prior version of the SBA Form 750 
will no longer be used, any such previously-executed agreements will remain in effect. 
JX019.18
b. 
C. 
d. 
App.3275
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 19 
C. RESPONSIBILITIES OF 7(A) LENDERS 
1. In making SBA-guaranteed loans, 7(a) Lenders must: 
 For all loans submitted using the non-delegated process through the LGPC 
(including loans from delegated Lenders using this processing method): 
i. Submit applications for guaranty with all required forms, documentation, and 
credit analyses, to the designated SBA processing center for review;  
ii. Execute the Authorization; 
 For all loans processed using the Lender’s delegated authority: 
i. Obtain all required forms and documentation, perform all required credit and 
eligibility analyses, and maintain the documentation in the loan file; 
ii. Prepare and execute the Authorization on SBA’s behalf and ensure that it 
includes all applicable provisions consistent with the loan approval. 
 Close the loan in accordance with the Authorization, all SBA policies, 
regulations, and Loan Program Requirements; 
 Maintain complete loan files and allow SBA’s authorized representatives access 
to those files during normal business hours (SBA expects Lender’s loan files and 
related records to be under the direct control of the Lender, not an Agent or 
Lender Service Provider); 
 Service the loan in accordance with SOP 50 57 and regulations; 
 Liquidate the loan in accordance with SOP 50 57 and regulations; 
 Comply with SBA Loan Program Requirements (as defined in 13 CFR § 120.10) 
for the 7(a) program, as such requirements are revised from time to time. SBA 
Loan Program Requirements in effect at the time that a Lender takes an action in 
connection with a particular loan govern that specific action. For example, 
although loan closing requirements in effect when a Lender closes a loan will 
govern closing actions, a Lender’s liquidation actions on the same loan are subject 
to the liquidation requirements in effect at the time that a liquidation action is 
taken (13 CFR § 120.180). SBA Loan Program Requirements, Center contacts, 
and other information can be found at https://www.sba.gov/partners/lenders/7a-
loan-program; and 
 SBA expects Lenders to exercise due diligence and prudent oversight of their 
third party vendors, including Lender Service Providers (LSPs) and other loan 
agents, which should include having written policies governing such relationships 
and monitoring performance of loans referred by an Agent or where an Agent 
provided assistance. SBA will review evidence of such due diligence and 
oversight of such relationships when conducting lender oversight activities. 
Federally-regulated Lenders are reminded that they must comply with the 
requirements of their primary Federal Financial Institution Regulator regarding 
third party vendors. 
JX019.19
a. 
b. 
C. 
d. 
e. 
f. 
g. 
h. 
App.3276
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 20 
2. Preferences: 
 A Lender may not take any action in connection with an SBA-guaranteed loan 
that establishes a preference in favor of the Lender (13 CFR § 120.411). A Lender 
must be particularly careful to avoid establishing a preference when using its 
delegated authority (for example, reducing its existing exposure to the Borrower 
through the use of an SBA-guaranteed loan). 
 A Lender must not: 
i. Take any side collateral or guaranty that would secure only its own interest in 
a loan; 
ii. Obtain a separate guaranty on the unguaranteed portion of the 7(a) loan 
without SBA’s approval; 
iii. Require a Borrower to purchase certificates of deposit; 
iv. Maintain a compensating balance not under the control of the Borrower; 
v. Take a side loan which would have the effect of ensuring a risk-free or 
limited-risk investment on the participant’s share; or 
vi. Have an SBA-guaranteed loan in a “piggyback” structure. 
a) 
Piggyback financing occurs when one or more lenders provide more 
than one loan to a single Borrower at or about the same time, financing 
the same or similar purpose, and where the SBA-guaranteed loan is 
secured with a junior lien position or no lien position on the collateral 
securing the non-guaranteed loan(s). SBA considers “at or about the 
same time” to mean loans approved within 90 days of each other. 
b) 
SBA does not consider a scenario where both the SBA-guaranteed loan 
and the non-SBA guaranteed loan are for working capital and the non-
SBA guaranteed loan is secured only by working/trading assets to be a 
piggyback structure. 
c) 
SBA does not consider a shared lien position with the lender (pari 
passu) to be a piggyback structure when the maturity of the non-SBA 
guaranteed loan is not shorter than the maturity of the SBA-guaranteed 
loan. 
 Under the following circumstances, a Lender may make a side loan to the 
Borrower to purchase stock of the participating Lender (as may be required by 
certain Lenders, such as Farm Credit Administration entities): 
i. The enabling authority of the Lender requires the purchase as a condition for 
making the loan. 
ii. The Lender makes a separate side loan not guaranteed by SBA for the 
Borrower to buy the stock or debentures. The side loan must be subordinated 
to the SBA loan, but the Lender may hold a first lien on any stock 
collateralizing the side loan. 
JX019.20
a. 
b. 
C. 
App.3277
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 21 
iii. The interest to be charged on the side loan must not exceed the maximum 
rate of interest acceptable for SBA-guaranteed loans, and the maturity of the 
side loan must not be less than that of the SBA-guaranteed loan. 
iv. In the event of default, either on the side loan or the SBA-guaranteed loan, 
the Lender may not take any action to collect or liquidate the side loan, 
except canceling or retiring the stock securing the side loan, until the SBA 
loan has been fully liquidated. 
3. Forward Commitments: 
A forward commitment exists when a Lender issues a commitment to a builder or 
developer to finance future sales of real estate. The SBA will not guarantee loans made 
by the Lender to small businesses to purchase such real estate. This is a potential conflict 
of interest for the Lender because of its predisposition to make SBA loans in order to 
honor their prior agreement with the builder or developer. Such loans are ineligible for 
SBA’s guarantee regardless of whether the Lender gets a fee for issuing the commitment. 
4. Notifying SBA of Suspected Fraud or Illegal Activity: 
SBA Lenders, Borrowers, and others must notify both D/OCRM and the SBA Office of 
Inspector General (OIG) of any information that indicates fraud or illegal activity may 
have occurred in connection with a 7(a) or 504 loan. Notify D/OCRM at 
OCRM@sba.gov. Notify the OIG either at https://sbax.sba.gov/oigcss/ or by mail 
(preferably by overnight courier) to the Assistant Inspector General for Investigations, 
Office of Inspector General, U.S. Small Business Administration, 409 3rd Street, SW, 
Washington, DC 20416. Any substantiating evidence should be included when contacting 
the Office of the Inspector General and D/OCRM. 13 CFR § 120.197 
5. Advertising of Relationship with SBA (13 CFR §120.413): 
 General Advertising. To further clarify the above referenced section of the Code 
of Federal Regulations, a Lender may not use the SBA seal or logo in any manner 
in any advertisement, brochure, publication or promotional piece, or state or 
imply that the Lender or its Borrowers will receive any preferential treatment by 
SBA. However, a Lender may publicize its relationship with the SBA by 
identifying itself as an SBA participating Lender. In addition, to protect the 
Lender from any perceived misrepresentation or false impression by the public of 
SBA endorsement, the SBA has created an SBA-approved window decal and 
identical digital icon that may be used in the following manner: 
i. Window Decals. The SBA-approved Lender decal may only be used to 
inform the public of the Lender’s relationship with SBA and may not be used 
to promote, or appear to promote, the Lender’s non-SBA products or 
services. Window decals are available from Lead District Offices for display 
in the lending institution’s window, e.g., alongside the required decals of 
other regulating institutions such as the FDIC. 
ii. Digital Icon on Website. The SBA-approved Lender digital icon is an exact 
replica of the window decal and may only be used to inform the public of the 
Lender’s relationship with SBA and may not be used to promote, or appear to 
promote, the Lender’s non-SBA products or services. 
JX019.21
a. 
App.3278
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 22 
a) 
When using the SBA-approved Lender digital icon on a website, the 
Lender must include the following public statement: “Approved to offer 
SBA loan products under SBA’s Preferred Lenders Program” (or SBA 
Express Program, etc.). 
b) 
The Lender digital icon may be downloaded from and must be used in 
accordance with SBA’s Lender digital icon guidelines found at 
www.sba.gov/document/support-object-object-advertising-your-sba-
relationship. 
iii. Digital Icon in Advertising. The SBA Lender digital icon may only be used 
in print, television, digital advertising, and exhibit signage, dedicated 
exclusively to SBA lending products, e.g., brochure, advertisement, 
publication, or promotional piece. The digital icon may only be used to 
inform the public of the Lender’s relationship with the SBA and may not be 
used to promote, or appear to promote, the Lender’s non-SBA products or 
services. The SBA Lender digital icon may not be used on an SBA Lender’s 
stationery or business cards. 
iv. Digital Icon on Construction Signage.  In connection with construction made 
possible by an SBA-guaranteed loan, if the SBA Lender initiates the signage 
and invites the SBA to add its logo, the SBA Lender digital icon may be used 
with the following disclaimer: “This project is made possible by an SBA-
guaranteed loan.” It is also acceptable for the SBA Lender to choose only to 
display the disclaimer. 
 Oversight. A Lender’s usage of the window/building decal and any identical 
digital icons on its website and how it represents its relationship with SBA may be 
reviewed as part of the Agency’s Lender oversight activities. 
6. If a Lender makes a major change in its structure or organization after execution of the 
SBA Form 750, it must notify OCRM at OCRM@sba.gov (with a copy to the Lead 
District Office) in writing. Major changes that may impact continued SBA participation 
include: 
 Acquisition by another entity; 
 Merger into another legal entity; 
 A change of name; 
 Substantial changes in management; 
 Establishment of a subsidiary or affiliate, or acquisition of another entity, to 
administer Lender’s SBA loan portfolio; 
 Substantial changes in how the Lender handles SBA loans, including a proposed 
sale of its SBA loan portfolio;  
 Takeover or closure of the Lender by a regulatory agency; or  
7. If Lender enters into an Order or Consent Agreement with its primary Federal Regulator 
that may affect the Lender’s 7(a) lending activities, the Lender must notify OCRM at 
OCRM@sba.gov within 30 calendar days of the Order issuance. 
JX019.22
b. 
a. 
b. 
C. 
d. 
e. 
f. 
g. 
App.3279
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SOP 50 10 6 
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Effective October 1, 2020 
Page 23 
8. Record Retention: See Appendix 11, Record Retention Requirements 
D. SBA OVERSIGHT OF 7(A) LENDERS 
SBA oversees 7(a) Lenders through: 
1. Loan and Lender Monitoring System (L/LMS): 
 L/LMS is an internal SBA data system that includes the use of historical data and 
predictive small business credit scoring. All SBA 7(a) loans with an outstanding 
balance are credit-scored quarterly. Data on 7(a) loans are aggregated, analyzed, 
and evaluated to assess the credit quality of each individual 7(a) Lender’s 
portfolio of SBA-guaranteed loans. SBA uses this information to monitor the 
performance of 7(a) Lenders individually and in comparison to their peers and the 
7(a) program portfolio.  
 Using SBA’s L/LMS system, SBA assigns all 7(a) Lenders a composite rating. 
The composite rating reflects SBA’s assessment of the potential risk to the 
government of that 7(a) Lender’s SBA portfolio. The specific performance factors 
which comprise the composite rating are published from time to time by SBA’s 
Office of Credit Risk Management (OCRM). In general, these factors reflect both 
historical 7(a) Lender performance and projected future performance. SBA 
performs quarterly recalculations on the common factors for each 7(a) Lender, so 
7(a) Lenders’ composite risk ratings are updated on a quarterly basis.  
 SBA has established peer groups to minimize the differences in loan performance 
relative to portfolios of different sizes. The peer groups are based upon gross 
outstanding SBA loan dollars. For 7(a) Lenders, they are: 
i. $350,000,000 or more 
ii. $100,000,000 - $349,999,999 
iii. $10,000,000 - $99,999,999 
iv. $4,000,000 - $9,999,999 
v. $1,000,000 - $3,999,999 
vi. $0 - $999,999B (active with at least one loan disbursed in past 12 months) 
vii. $0 - $999,999A (inactive with no loans disbursed within the past 12 months) 
 SBA assigns a composite rating of “1” to “5” to each 7(a) Lender generally based 
upon its portfolio performance, as reported in L/LMS. A rating of “1” indicates 
strong portfolio performance, the least risk, and requires the lowest degree of 
SBA management oversight (relative to other 7(a) Lenders in its peer group). A 
“5” rating indicates weak portfolio performance, the highest risk, and requires the 
highest degree of SBA management oversight. (See 13 CFR § 120.10 (definitions 
related to Risk Rating); 13 CFR § 120.1015 (Risk Rating System); 75 FR 9257, 
March 1, 2010; 75 FR 13145, March 18, 2010; and 79 FR 24053, April 29, 2014 
(Risk Rating Notices)) As set forth in the Risk Rating Notices, SBA may take into 
account rapid growth that may skew metrics and other factors in considering a 
Lender’s risk. 
JX019.23
a. 
b. 
C. 
d. 
App.3280
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SOP 50 10 6 
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Effective October 1, 2020 
Page 24 
2. Lender Portal:  
 SBA communicates Lender performance to individual 7(a) Lenders through the 
use of SBA’s Lender Portal (Portal). The Portal allows a 7(a) Lender to view its 
own quarterly performance data, including, but not limited to, its current 
composite risk rating, peer and portfolio metric averages, and its PARRiS score 
(as discussed below). Portal data includes both summary performance and credit 
quality data. Summary performance data is largely derived from data that 7(a) 
Lenders provide to SBA through SBA Form 1502 and 172 Reports; therefore, 
7(a) Lenders bear much of the responsibility for ensuring data accuracy. If a 7(a) 
Lender reviews its performance components and finds a discrepancy with its 
records, the 7(a) Lender should contact OCRM. 
 SBA 7(a) Lenders with at least 1 outstanding SBA Loan may apply for the Portal 
access. Currently, SBA issues only one Portal user account per 7(a) Lender. 
Submission of initial requests for a Portal user account must be submitted to 
SBA’s OCRM, and must include the following information: 
i. Request must be made by a senior officer with proper authority of the 7(a) 
Lender (Senior Vice President or higher); 
ii. Request must be sent via overnight mail or courier to the SBA’s OCRM at 
409 Third Street SW, Washington DC 20416, ATTN: Director, Office of 
Credit Risk Management; 
iii. Request must be made using the 7(a) Lender’s stationery; 
iv. Request must include the user’s business card; 
v. The stationery and business card should include the 7(a) Lender’s name and 
address; 
vi. The request must include the following data: 
a) 
SBA FIRS ID Number(s); 
b) 
Account user’s name and title; 
c) 
Account user’s mailing address, telephone number and email address at 
the 7(a) Lender; 
d) 
Requesting officer’s name and title; and 
e) 
Requesting officer’s mailing address, telephone number and email 
address at the 7(a) Lender. 
vii. Once SBA receives and approves the user’s request, SBA will forward the 
approval to SBA’s Portal contractor for issuance of a user account name and 
password. The Portal contractor will email the user his or her username and 
password within approximately 2 weeks of account approval. The user can 
then access its data by logging into the SBA Lender Portal web page. Before 
accessing the Portal, Lenders must agree to the terms of a Confidentiality 
Agreement, which is found on the SBA Lender Portal web page. 
JX019.24
a. 
b. 
App.3281
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SOP 50 10 6 
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Effective October 1, 2020 
Page 25 
viii. Lenders are responsible for complying with and maintaining the Portal user 
accounts and passwords as set forth in the Confidentiality Agreement on the 
Portal web page, and as published by SBA from time to time. Lenders are 
also responsible for timely informing SBA to terminate or transfer an account 
if the person to whom it was issued no longer holds that responsibility for the 
7(a) Lender. Lenders must take full responsibility for protecting the 
confidentiality of the user password and the 7(a) Lender Risk Rating, 
PARRiS score, and confidential information and for ensuring the security of 
the data. See 13 CFR § 120.1060. A Lender is not permitted to share access 
to the SBA Lender Portal or its portal information with an individual or 
entity operating as a Lender Service Provider or other third party. 
3. Monitoring and Reviews: (13 CFR §§ 120.1025 and 120.1050 - 1060) 
L/LMS provides performance information that allows SBA to monitor and conduct 
reviews of all Lenders. L/LMS-related monitoring/reviews serve as the primary means of 
reviewing Lenders with less than $10 million in gross outstanding SBA loan dollars 
although SBA may determine, in its discretion, to conduct other more in-depth reviews 
(e.g., Analytical, Targeted, Full, or Delegated Authority Renewal) of these Lenders. SBA 
may also perform Desk Reviews, Secondary Market Evaluations, Loan-by-Loan 
Reviews, Other Reviews, and pilot test reviews. In addition to these types of reviews, 
SBA may perform for SBA Supervised Lenders Safety and Soundness Examinations and 
Quarterly Condition and Certification of Capital Compliance Reviews. (“L/LMS-related” 
refers to the L/LMS reviews and the SBA Lender Profile Assessment (LPA) including 
the PARRiS Score (defined below).) SBA will contact the Lender if the review detects 
performance issues or trends requiring further discussion. 
 For Lenders with more than $10 million in gross outstanding SBA loan dollars, 
L/LMS details historical and projected performance data:  
i. For use in planning and conducting more in-depth reviews or examinations; 
ii. To assist in prioritizing more in-depth reviews or examinations; and 
iii. To monitor Lenders between the more in-depth reviews or examinations. 
 SBA’s 7(a) risk-based reviews generally feature a composite risk measurement 
methodology and scoring guide, known as “PARRiS.” PARRiS is an acronym for 
the specific risk areas or components that SBA reviews: Portfolio Performance; 
Asset Management; Regulatory Compliance; Risk Management; and Special 
Items. 
 Additionally, in accordance with 13 CFR § 120.1010, a Lender must allow SBA’s 
authorized representatives, including representatives authorized by SBA’s 
Inspector General, during normal business hours, access to its files to review, 
inspect and/or copy all records and documents relating to SBA-guaranteed loans 
or as requested for SBA oversight. In keeping with Lender’s responsibility to 
maintain complete loan files and to allow SBA’s authorized representatives access 
to those files during normal business hours, SBA expects that all loan files and 
related records will be under the direct control of Lender (not an Agent or Lender 
Service Provider). 
JX019.25
a. 
b. 
C. 
App.3282
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 26 
 SBA may request reports on a case-by-case basis. 
 Additional information regarding reviews and examinations can be found in: 
i. 13 CFR §§ 120.1050-1060; 
ii. SBA Policy Notice 5000-1332: Revised Risk-Based Review Protocol for SBA 
Operations of Federally Regulated 7(a) Lenders (December 29, 2014), 
available for download at https://www.sba.gov/document; 
iii. SBA Information Notice 5000-1397: Updated PARRiS Methodology for 
Oversight of SBA Operations of Federally Regulated 7(a) Lenders (November 
15, 2016), available for download at https://www.sba.gov/document; 
iv. SBA Policy Notice 5000-1940: Revised Risk-Based Review/Examination 
Protocol for SBA Supervised Lenders (January 18, 2017), available for 
download at https://www.sba.gov/document; and  
v. SBA’s SOP 51 00. 
 Lender oversight fees. Lenders are required to pay SBA fees to cover the costs of 
examinations and reviews and, if assessed by SBA, other Lender oversight 
activities. 
(13 CFR § 120.1070) 
i. The fees may cover: 
a) 
The cost of conducting L/LMS-related reviews/monitoring of a 7(a) 
Lender; 
b) 
The cost of conducting more in-depth reviews of a 7(a) Lender (e.g., 
Analytical, Targeted, and Full Reviews, Delegated Authority Reviews, 
Quarterly Condition and Certification of Capital Compliance Reviews 
(for SBA Supervised Lenders), Secondary Market Evaluations, and 
related review activities, such as corrective action assessments); 
c) 
The cost of conducting loan reviews (e.g., Secondary Market loan-by-
loan reviews); 
d) 
The cost of conducting safety and soundness examinations of an SBA 
Supervised Lender (SBLCs and NFRLs); and 
e) 
Any additional expenses that SBA incurs in carrying out Lender 
oversight activities (e.g., technical assistance and analytics to support 
the monitoring and review program, supervision and enforcement 
activity costs, salaries and travel expenses of SBA employees, and 
equipment expenses directly related to Lender oversight. 
ii. In general, where the costs that SBA incurs for a review, examination, 
monitoring, or other Lender oversight activity are specific to a particular 7(a) 
Lender, SBA will charge that Lender a fee for the actual costs of the 
oversight activity. For example, for most examinations or reviews conducted 
under i.b) through d) above, SBA will invoice each Lender for the amount 
owed following completion of the examination or review. 
JX019.26
d. 
e. 
f. 
App.3283
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 27 
iii. In general, where the costs that SBA incurs for the Lender oversight activity 
are not sufficiently specific to a particular Lender, SBA will assess a fee 
based on each 7(a) Lender’s portion of the total dollar amount of SBA 
guaranties in SBA’s total portfolio or in the relevant portfolio segment being 
reviewed or examined, to cover the costs of such activity. For these fees, 
such as the L/LMS related reviews/monitoring and other Lender oversight 
activity expenses incurred under i.a) and i.e) above, SBA will invoice each 
Lender on an annual basis. 
a) 
The invoice will state the charges, the date by which payment is due and 
the approved payment method(s). 
b) 
The payment due date will be no less than 30 calendar days from the 
invoice date. 
c) 
SBA may waive the fees assessed under this paragraph f(iii) for those 
Lenders owing less than a threshold amount if SBA determines that it is 
not cost effective to collect the fee. 
iv. Payments that are not received by the due date shall be considered 
delinquent, and SBA will charge interest and other applicable charges and 
penalties as authorized by 31 U.S.C. 3717. A Lender’s failure to pay any of 
the fee components described above, or to pay interest, charges and penalties 
that have been charged, may result in a decision to suspend or revoke a 
Lender’s eligibility to participate in SBA’s loan programs or participant’s 
delegated authority or other remedy available under law. (13 CFR § 
120.1070) 
v. For the schedule of fees that SBA charges for certain activities, refer to SBA 
Notices that SBA may issue and update from time to time. For example, see 
SBA Information Notice 5000-19008, FY 2019 Updated Fee Schedule for 
SBA Oversight of 7(a) Lenders (January 1, 2019). 
4. Supervision and Enforcement: 
An integral part of overseeing the 7(a) loan program is SBA’s authority to supervise and 
take enforcement actions as necessary. For further guidance on Lender Supervision and 
Enforcement, see SOP 50 53. 
5. Suspension or Revocation: 
 SBA may suspend or revoke the authority of a Lender to conduct 7(a) program 
activities, in accordance with 13 CFR §§ 120.1400-1600. 
 Examples of circumstances that may result in suspension or revocation under the 
above cited regulation include but are not limited to: 
i. Failure to comply materially with any requirement imposed by Loan Program 
Requirements, (e.g., credit elsewhere; maintaining ability within Lender to 
originate, service, and liquidate SBA Loans; charging impermissible or 
unreasonable fees; 1502 reporting; failing to pay oversight fees); 
JX019.27
a. 
b. 
App.3284
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 28 
ii. Failure to underwrite, service, and liquidate SBA Loans in a commercially 
reasonable and prudent manner; 
iii. Failure to maintain Lender eligibility requirements for SBA loan programs or 
delegated authority; 
iv. Engaging in a pattern of uncooperative behavior (after notice); 
v. Any other reason that SBA determines may increase SBA’s financial risk, for 
example, a Less Than Acceptable examination/review assessment, regulatory 
order or agreement, indictment on felony or fraud charges of an officer, key 
employee or loan agent involved with SBA Loans for Lender, or repeated 
Less Than Acceptable Risk Rating, the latter generally in conjunction with 
other grounds. 
 SBA will consider the severity and frequency of violations among other facts. 
 SBA will notify the Lender of a proposed suspension or revocation in accordance 
with 13 CFR § 120.1600. The Lender will be provided an opportunity to respond 
prior to final action. 
6. Receiverships of NFRLs: 
 Upon SBA’s determination that grounds for an enforcement action against a 
NFRL exist under 13 CFR § 120.1400, SBA may, pursuant to 13 CFR § 
120.1500(c)(3), apply to a Federal court for the appointment of a receiver. 
Typically, SBA will use its receivership authority as a remedy of last resort. The 
appointment of a receiver is only one of several types of enforcement actions set 
forth in 13 CFR § 120.1500. 
 SBA will review the facts and circumstances of the enforcement action when 
deciding whether or not to seek the appointment of a receiver. SBA will also 
make a determination regarding the scope of the receiver’s duties and powers, 
including whether the receivership will be limited to the NFRL’s assets related to 
the SBA loan programs. In deciding whether to seek a receiver and in determining 
the scope of a receivership, SBA will consider the following: 
i. The existence of fraud or false statements; 
ii. A NFRL’s refusal to cooperate with SBA enforcement action instructions or 
orders; 
iii. A NFRL’s insolvency (legal or equitable); 
iv. The size of the NFRL’s SBA loan portfolio(s) in relation to other activities of 
the NFRL; 
v. The dollar amount of any claims SBA may have against the NFRL; and/or 
vi. The existence of other non-SBA enforcement actions against the NFRL. 
 Under 13 CFR § 120.1400(a)(2), a NFRL that makes 7(a) guaranteed loans after 
October 20, 2017, has consented to SBA’s right to seek a receivership in 
appropriate circumstances. Such consent is deemed to apply only if the NFRL 
makes 7(a) loans on or after January 1, 2018. The NFRL’s consent does not in 
JX019.28
C. 
d. 
a. 
b. 
C. 
App.3285
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 29 
any way preclude the NFRL from contesting whether or not SBA has established 
the grounds for seeking the remedy of receivership. A NFRL’s consent to 
receivership as a remedy does not require SBA to seek the appointment of a 
receiver in any particular SBA enforcement action. 
E. DELEGATED AUTHORITY IN THE 7(A) LOAN PROGRAM 
SBA may grant delegated authority to lenders to process, close, service, and liquidate certain 
SBA-guaranteed loans without prior SBA review. The delegated authorities are: 
• Preferred Lenders Program (PLP) (Standard 7(a) loans, 7(a) Small loans, CAPLines, 
EWCP, and International Trade loans); 
• SBA Express; and 
• Export Express. 
1. Delegated Authority Criteria 
 In making its decision to grant or renew a delegated authority, SBA considers, in 
accordance with 13 CFR § 120.440 whether the Lender, as determined by SBA in 
its discretion: 
i. Has the continuing ability to evaluate, process, close, disburse, service, 
liquidate and litigate SBA loans. This includes the ability to develop and 
analyze complete loan packages. SBA may consider the experience and 
capability of Lender’s management and staff. Review and exam results may 
also inform on Lender capability. A minimum level of loan volume may be 
needed to make this assessment; 
ii. Has satisfactory SBA performance (as defined in 13 CFR § 120.410(a)(2)). 
Factors may include, but are not limited to, review/examination assessments, 
PARRiS metrics, historical performance measures (like default rate, purchase 
rate and loss rate), loan volume to the extent that it impacts performance 
measures or is of sufficient level for SBA to assess performance, Lender 
Purchase Rating, and other performance related measurements and 
information (such as contribution toward SBA’s mission); 
iii. Is in compliance with SBA Loan Program Requirements (i.e., SBA Form 
1502 reporting, SBA Form 159 reporting, and timely payment of all fees to 
SBA). For further guidance on SBA Form 1502 reporting, see Chapter 3, 
Lender Financing and Operations below; 
iv. Has completed, to SBA’s satisfaction, all required corrective actions; 
v. Is in good standing with SBA as defined in 13 CFR § 120.420(f) (as 
determined by SBA in its discretion), and, as applicable, with its state 
regulator and is considered satisfactory by its FFIR (as determined by SBA 
and based on, for example, information in orders/agreements, and call 
reports) (13 CFR § 120.410(e)): 
a) 
The Lender’s written request to participate must include a written 
statement that to the best of its knowledge, the Lender has satisfactory: 
JX019.29
a. 
App.3286
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
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(a) financial condition (i.e., is deemed well-capitalized based on size of 
entity, has sufficient liquid assets, etc.); (b) small business credit 
administration policies, procedures, and practices that it continues to 
adhere to in its operations; and (c) small business servicing policies, 
procedures, and practices that it continues to adhere to in its operations. 
When reviewing good standing/satisfactory status, SBA will look to see 
that a Lender does not have significant deficiencies or weaknesses in 
these areas. “Significant” may be evidenced by the number or 
seriousness of the deficiencies, as determined by SBA in its discretion. 
SBA will verify any good-standing/satisfactory status statement where 
possible with public (e.g., Cease and Desist Orders and Call Reports) 
and/or non-public information from the Lender’s primary and/or other 
regulators.  
b) 
In conjunction with this eligibility criteria, SBA reviews whether 
Lender is subject to any enforcement action, order or agreement with a 
regulator or the presence of other regulatory concerns as determined by 
SBA; 
vi. Is not subject to any SBA enforcement actions; 
vii. Has not received a major substantive objection from its Lead District Office 
relating to the delegated authority criteria set forth in 13 CFR § 120.440; and 
viii. Exhibits other risk/program integrity factors (i.e., has rapid growth; low SBA 
activity; SBA loan volume; Lender, an officer or director is under 
investigation or indictment, inadequate capital, inadequate governance or 
management). 
 Delegated authority decisions are made by the appropriate SBA official in 
accordance with Delegations of Authority and are final. 
 If delegated authority is approved or renewed, Lender must execute a 
Supplemental Guarantee Agreement, which will specify a term not to exceed 2 
years. SBA may grant shorter terms based on risk or any of the other delegated 
authority criteria. See also SOP 50 53, discussion on Shortened and Non-
Renewals of Delegated Authority. Lenders with less than 3 years of SBA lending 
experience generally will be limited to a term of 1 year. 
 Changes in a delegated Lender’s structure: 
i. If a delegated Lender changes its structure or organization in any of the 
following ways, it must inform OCRM in writing at OCRM@sba.gov (with a 
copy to the Lead District Office) in writing. Changes include: 
a) 
Acquisition by another entity; 
b) 
Merger into another legal entity; 
c) 
A change in name; 
d) 
Substantial changes in management 
JX019.30
b. 
C. 
d. 
App.3287
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 31 
e) 
Establishment of a subsidiary or affiliate, or acquisition of another 
entity, to administer Lender’s SBA loan portfolio; 
f) 
Substantial changes in how the Lender handles SBA loans, including a 
proposed sale of its SBA portfolio; 
g) 
Takeover or closure of the Lender by a regulatory agency; or 
h) 
Orders or Consent Agreements issued by a regulator (for additional 
guidance see 13 CFR § 120.660(a)(3)) . 
ii. When a delegated Lender’s structure changes and the Lender continues as the 
same legal entity that signed the SBA Form 1347, a new SBA Form 1347 is 
not required including when: 
a) 
The delegated Lender changes its name; 
b) 
The delegated Lender is acquired by another entity and the delegated 
Lender continues as a separate legal entity; or 
c) 
The delegated Lender acquires another Lender and the acquired Lender 
does not continue as a separate legal entity. 
iii. When a delegated Lender acquires another Lender and the acquired Lender 
continues to operate as a separate legal entity, the delegated Lender’s 
delegated authority does not transfer to the acquired Lender; however, the 
acquired Lender may apply for its own delegated authority. 
iv. SBA will not renew a Lender’s delegated authority or will revoke, suspend, 
or terminate a Lender’s delegated authority when: 
a) 
The Lender changes its operations so much that it cannot show that it 
handles SBA Loans appropriately; or  
b) 
The delegated Lender is merged into a non-delegated lender (the 
surviving Lender may apply for delegated authority). 
v. SBA will terminate the Lender’s delegated authority and prohibit the Lender 
from making any new SBA loans when the Lender is dissolved, closed, or 
taken over by a regulatory authority. 
vi. If any SBA office discovers any of the above circumstances, OCRM must be 
immediately notified in writing. 
 Monitoring and reviews: 
SBA uses the L/LMS system to assess Lenders quarterly through the composite 
risk rating and other performance metrics. In addition, those Lenders with 
outstanding SBA balances of $10 million or more may also receive more in-depth 
reviews. See Section A, Ch. 1, Para. D., SBA Oversight of 7(a) Lenders of this 
Part above for further information. 
 Supervision and enforcement: 
See paragraph D.4, Supervision and Enforcement above for further information. 
JX019.31
e. 
f. 
App.3288
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 32 
 Suspension or revocation: 
See paragraph D.5, Suspension or Revocation above for further information. 
2. Preferred Lenders Program (PLP) 
13 CFR § 120.450 
Experienced Lenders may be designated as PLP Lenders and delegated the authority to 
process, close, service, and liquidate most SBA-guaranteed loans without prior SBA 
review. 
 PLP Lenders are authorized to make SBA-guaranteed loans without prior SBA 
review of eligibility or creditworthiness. An SBA Loan Number is assigned by 
SBA upon notification by the PLP Lender of approval of the loan. PLP Lenders 
are expected to handle servicing and liquidation of all of their SBA loans with 
limited involvement of SBA. 
 Qualifications for Initial PLP Consideration: 
The Lender must demonstrate to SBA’s satisfaction that it: 
i. Meets the delegated authority criteria set forth in paragraph 1 above; and 
ii. Has the continuing ability to evaluate, process, close, and disburse SBA loans 
by having processed and fully disbursed at least 10 SBA loans within the past 
24 months. Acquired loans do not count towards this minimum amount 
needed for SBA to assess Lender against the delegated authority criteria in 13 
CFR § 120.440. 
 Process to obtain PLP authority:  
i. To apply for initial PLP authority or to reapply for PLP authority, a Lender 
must submit a request along with all applicable supporting documents to 
D/OCRM or designee at DelegatedAuthority@sba.gov.
ii. The Lender’s request should include: 
a) 
Legal name and address of Lender; 
b) 
Legal name of any holding company of Lender; 
c) 
Name, title, address, phone number, email address and fax number for 
contact person at Lender; 
d) 
Lender’s Lead District Office;  
e) 
A copy of the Lender’s SBA Form 750 and SBA Form 750B, if 
applicable; 
f) 
If Lender was previously a PLP Lender, an explanation of why the 
Lender left the Preferred Lenders Program; 
g) 
A description of the Lender’s history, organization, and management, 
including: 
i) When the Lender was chartered;  
ii) Any recent mergers or acquisitions; 
JX019.32
g. 
a. 
b. 
C. 
App.3289
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 33 
iii) Personnel who will be in charge of PLP loan activities for the Lender, 
have PLP loan approval authority, and their experience with the 
Lender, in the industry, and with SBA loans, including any training 
they have received; and 
iv) Where and how PLP loans will be processed, closed, serviced, and 
liquidated; 
h) 
A good standing/satisfactory statement (as described above in paragraph 
E.1.a.v.a) in this chapter) on Lender’s letterhead.  
iii. In conjunction with the criteria set forth in 13 CFR § 120.440, SBA may 
consider: 
a) 
Any Lead District Office concerns regarding the Lender;  
b) 
The processing, servicing, and liquidation centers’ written opinion of 
Lender’s ability to process, close, service and liquidate SBA loans, as 
applicable; and 
c) 
The Lender’s commitment to SBA lending. 
iv. D/FA will make the final Agency decision in consultation with and upon 
receipt of recommendations from D/OCRM.  
v. Upon approval of the PLP application, OCRM notifies the Lender and the 
Lead District Office: 
a) 
That the request for delegated authority is approved; and 
b) 
Of the term of the delegated authority (not to exceed 2 years). For 
Lenders with less than 3 years of SBA lending experience/data, the 
Agency may consider performance over the period of time that the 
Lender has been a participating Lender but will limit the Lender’s initial 
term of delegated authority to 1 year or less. Lenders that identify 
significant differences between the performance numbers developed by 
the Lender and those developed by SBA (not related to a lack of 
accurate SBA Form 1502 reporting) should contact OCRM. 
vi. OCRM sends the Lender an SBA Form 1347, “Supplemental Guaranty 
Agreement, Preferred Lenders Program.” The Lender must sign, 
attest/witness, and return the executed form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the Lender’s 
PLP authority can be effective. OCRM sends the Lead District Office a copy 
of the approval letter. OCRM will enter the effective term of the Lender’s 
PLP authority on the SBA Partner Information Management System (PIMS). 
This is an essential step for Lenders processing PLP loans.  
vii. Decline of PLP application: 
If the PLP application is declined, OCRM notifies the Lender and Lead 
District Office with the reason(s) for decline. 
JX019.33
App.3290
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 34 
To reapply, the Lender must submit a request to OCRM at 
DelegatedAuthority@sba.gov explaining how it has overcome the reason(s) 
for decline. 
OCRM will review the request, make a recommendation, and send it to the 
D/FA for a final Agency decision. OCRM will notify the Lender in writing of 
SBA’s final decision. 
 Process for Renewal of PLP Authority: 
For renewal of its PLP authority, the Lender must demonstrate to SBA’s 
satisfaction that it meets the criteria for delegated authority set forth in Paragraph 
E.1., Delegated Authority Criteria above.  
i. OCRM will generally initiate the renewal process approximately 90 days 
prior to the expiration of the Lender’s PLP authority. It is the Lender’s 
responsibility to ensure its point of contact information is accurate in PIMS. 
However, if the Lender has not received any correspondence from OCRM 60 
days prior to expiration of its PLP authority, it must initiate the process by 
submitting to OCRM at DelegatedAuthority@sba.gov a good 
standing/satisfactory status statement (as described in paragraph E.1.a.v.a) 
above) on the Lender’s letterhead.  
ii. OCRM may ask the Lead District Office and SBA’s processing, servicing 
and liquidation centers for comments regarding the Lender’s activity for its 
most recent PLP term, which may include: 
a) 
Recommendation for or against, and why; 
b) 
Whether the Lender can process, close, service and liquidate SBA loans; 
c) 
Changes in Lender’s organization or management; 
d) 
Any recurring denial of liability or repair situations with the Lender; 
e) 
Reasons for any unfavorable loan volume or repurchase rate data; 
f) 
Identification of any areas of concern; and 
g) 
An explanation of any discussions with the Lender that may impact the 
PLP renewal decision. 
 Notification of Renewal: 
OCRM will approve or decline renewals of PLP authority. OCRM notifies the 
Lender and the Lead District Office of the approval and the term. 
OCRM sends the Lender a new SBA Form 1347. The Lender must sign, 
attest/witness, and return the form to OCRM at DelegatedAuthority@sba.gov 
within 30 calendar days before the Lender’s PLP renewal can be effective.  
 Non-Renewal and Short Renewal:  
If SBA determines in its discretion that a Lender does not meet the delegated 
authority criteria or that increased supervision is necessary, SBA may:  
i. Grant a shorter renewal period; or  
JX019.34
d. 
e. 
f. 
App.3291
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SOP 50 10 6 
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ii. Not grant renewal of delegated authority.  
a) 
If renewal is declined, OCRM notifies the Lender and Lead District 
Office with the reason(s) for decline. The Lender may not make PLP 
loans after its PLP authority expires. 
b) 
To reapply, the Lender must submit a request to OCRM at 
DelegatedAuthority@sba.gov explaining how it has overcome the 
reason(s) for decline. OCRM will review the request and make the final 
Agency decision. OCRM will notify the Lender in writing of the final 
decision. See paragraph E.2.h., Reapplying for PLP Authority, below. 
See SOP 50 53 on Increased Supervision. 
 Temporary Extension of PLP Authority: 
If SBA has not completed the renewal process before the Lender’s PLP authority 
expires, OCRM may extend the Lender’s PLP authority for a short, interim period 
as determined by the D/OCRM. 
 Reapplying for PLP Authority: 
If a Lender’s PLP authority was revoked, not renewed, or voluntarily terminated, 
after 6 months the Lender may reapply for PLP authority by following paragraph 
E.2.c., Process to obtain PLP authority, above. 
 PLP - Export Working Capital Program (EWCP) Authority: 
i. This program offers the opportunity for SBA 7(a) Lenders with experience 
making EWCP loans or who are participants in the Delegated Authority 
Lender Program of the Export-Import Bank to apply for PLP authority to 
underwrite EWCP loans. Lenders with PLP-EWCP authority are delegated 
the same level of authority to process, close, service, and liquidate EWCP 
loans as is granted to approved 7(a) Lenders with PLP authority. 
ii. Application requests include the following elements: 
a) 
Legal name and address of Lender; 
b) 
Address, city, and state where Lender’s EWCP underwriting will be 
performed; 
c) 
Name, title, telephone and fax numbers and email address of the lending 
unit’s primary contact for the EWCP program; 
d) 
A copy of the Lender’s SBA Form 750 and/or SBA Form 750EX (if the 
Lender has an SBA Form 750 that was executed before July 2019, it 
must provide both SBA Forms 750 and 750EX; if the Lender executed 
the July 2019 version of SBA Form 750, then only that agreement is 
needed); 
e) 
Identification of the SBA Export Finance Managers the lending unit 
works with on EWCP loans (A complete listing of Export Finance 
Managers and USEAC locations may be found at 
https://www.sba.gov/article/2017/nov/01/list-useacs-sba-staff); 
JX019.35
g. 
h. 
1. 
App.3292
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SOP 50 10 6 
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Effective October 1, 2020 
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f) 
A description of the lending unit’s experience in international trade 
lending, including its level of EWCP lending over the last 2 years, 
Export-Import Bank (“Ex-Im”) lending activity over the same 2-year 
period, and identification of any form of delegated lender authority with 
Ex-Im Bank or other trade finance agencies; 
g) 
Identification of personnel in charge of EWCP lending and explanation 
of their experience in export trade finance for small concerns; and  
h) 
Documentation supporting the bank’s delegation of authority to the 
contact person filing this PLP expansion request. 
iii. Completed applications should be directed to the local Export Finance 
Manager, who then sends the application to the Director, Office of 
International Trade (“OIT”) at SBA. OIT staff will be responsible for 
screening and collecting information from the applicable SBA offices on the 
current regulatory authority of the Lender and the Lender’s capabilities as an 
EWCP participant. OIT will forward its recommendation and the comments 
of the other offices to OCRM at DelegatedAuthority@sba.gov to either 
concur or non-concur on the recommendation to the D/FA. The D/FA makes 
the final decision. The Lender must demonstrate to SBA’s satisfaction that it: 
a) 
Meets the delegated authority criteria in paragraph E.1. above; and 
b) 
Has a satisfactory history of providing trade finance to exporters (both 
the Lender and the Lender’s loan officers); and 
c) 
Has been an active participant in the EWCP with SBA and/or with Ex-
Im Bank for at least 6 consecutive months immediately prior to 
application and, if not an Ex-Im Bank delegated lender, has booked at 
least three SBA EWCP loans during the 24 months prior to application. 
iv. Lenders are notified of the final decision by written letter from OCRM with a 
copy to OIT and the Lead District Office. If approved, OCRM will provide 
the Lender with SBA Form 2310, “Supplemental Guaranty Agreement – 
Preferred Lenders Program (PLP) for Export Working Capital Program 
(EWCP) Loans,” which the Lender must execute, attest/witness, and return to 
OCRM at DelegatedAuthority@sba.gov within 30 calendar days before the 
Lender can submit any loan applications under its PLP-EWCP authority. 
Upon receipt, OCRM will execute SBA Form 2310 and enter the information 
into PIMS. OCRM will maintain the documentation in its file. 
v. If the PLP-EWCP application is declined, OCRM notifies the Lender, OIT, 
and Lead District Office with the reason(s) for decline. 
To reapply, the Lender must submit a request to the local Export Finance 
Manager explaining how it has overcome the reason(s) for decline. OIT will 
review the request, make a recommendation, and send it to OCRM for a final 
Agency decision. OCRM will notify the Lender in writing of SBA’s final 
decision. 
JX019.36
App.3293
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 37 
vi. All PLP-EWCP approvals will be for a period not to exceed the existing term 
of the Lender’s PLP authority. The succeeding PLP renewal of the Lender 
will include a section on the Lender’s EWCP lending, with comment requests 
from OCRM directed to OIT. 
Lenders that are participating in the Delegated Authority Lender Program of 
the Export-Import Bank of the United States (Ex-Im Bank) (or any successor 
Program) are eligible to participate in the PLP-EWCP program. Lenders 
should be aware that they must comply with 13 CFR § 120.410(d), which 
requires SBA Lenders to “be supervised and examined by either a Federal 
Financial Institution Regulator or a state banking regulator satisfactory to 
SBA.” Ex-Im Bank Delegated Authority Lenders must comply with the PLP-
EWCP application procedures described above; however, such lenders are 
not required to have prior experience with SBA 7(a) lending and are deemed 
to be an active participant with Ex-Im Bank for purposes of the application. 
 PLP Lender Authority and Responsibilities (including PLP-EWCP):  
i. Eligibility Requirements: 
In addition to the SBA’s business loan eligibility standards set forth in Part 2, 
Sections A and B of this SOP, the following restrictions apply to PLP Loans. 
a) 
Lenders may use PLP only for 7(a) loans. Lenders may not use PLP for 
any pilot program unless SBA authorizes use of PLP for the pilot. 
b) 
The following types of loans are not eligible under PLP processing: 
i) Disabled Assistance Loans (DAL); 
ii) Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to 
an eligible small business owned or controlled by an ESOP (see 
Section A, Ch. 2, Para. B., Employee Stock Ownership Plans, of this 
Part for more information); 
iii) Loans to a cooperative or to an eligible small business owned or 
controlled by a cooperative (see Section A, Ch. 2, Para. C, 
Cooperatives, of this Part for more information); 
iv) Loans involving a Single Employer 401(k) plan, including a ROBS 
plan, unless the only investment held by the 401(k) plan (including a 
ROBS plan) is the equity in the Applicant business; 
v) Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that 
holds in trust the assets of other businesses), including a ROBS plan 
(see Part 2, Section A, Ch. 2, Para. D, 401(k) Plans Including 
Rollovers as Business Start-Ups (ROBS) Plan, of this SOP for more 
information); 
vi) Pollution Control Program Loans; 
vii) International Trade Loans not secured by a first lien position on the 
assets being financed; 
JX019.37
J. 
App.3294
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 38 
viii) Applications Previously Submitted to LGPC for Processing. Once 
submitted to LGPC, an application withdrawn by a Lender, screened-
out, or declined by LGPC may not be approved by any Lender under 
its PLP Authority. E-Tran will not permit the submission of such an 
application under any Lender’s PLP authority for a period of 12 
months from the date of the withdrawal, screen-out, or decline of the 
application; and 
ix) Revolving credits are not eligible except under CAPLines and, if the 
Lender has authority from SBA to make PLP-EWCP loans, under the 
EWCP. 
x) See Part 2, Section A of this SOP for the types of businesses that are 
not eligible for SBA financial assistance. 
c) 
Additional restrictions specific to PLP refinancing are found in 13 CFR 
§ 120.452, and explained further in Part 2, Section B. 
ii. PLP Lenders’ Processing Responsibilities (13 CFR § 120.452(a)): 
SBA’s business loan eligibility requirements, credit policy, and procedures 
apply to PLP loans. The PLP Lender must stay informed on and must apply 
all of SBA’s Loan Program Requirements.  
a) 
Lender’s Eligibility Review:  
i) A PLP Lender must analyze a PLP loan Applicant’s eligibility in the 
same way that SBA analyzes eligibility for a regular 7(a) Applicant. 
The PLP Lender must keep in its loan file documentation supporting 
its eligibility analysis. SBA will not conduct an eligibility review prior 
to issuing a loan number. SBA may review the Lender’s 
documentation supporting its eligibility determination as part of any 
guaranty purchase request or when conducting lender oversight 
activities. 
ii) For a PLP loan, size of the Applicant is determined as of the date of 
the Lender’s approval of the loan. A PLP Lender may accept as true 
the size information provided by the Applicant, unless credible 
evidence to the contrary is apparent. 
b) 
Credit Analysis:  
SBA has authorized PLP Lenders to make the credit decision without 
prior SBA review. The Lender must perform a thorough and complete 
credit analysis of the applicant, establish that the loan is of such sound 
value as to reasonably assure repayment and document its analysis in 
the loan file. 
c) 
The Authorization: 
PLP Lenders draft the Authorization without SBA review and execute it 
on behalf of SBA. The Lender must make sure that all collateral and 
other requirements documented in the Lender’s credit analysis are in 
JX019.38
App.3295
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 39 
each Authorization. The Lender also must include all SBA-required 
authorization provisions. 
d) 
Closing Requirements:  
SBA closing requirements are the same for PLP loans as for non-
delegated 7(a) loans. The same SBA forms are required. The Lender 
must obtain all required collateral positions and must meet all other 
required conditions before loan disbursement. SBA delegates to the PLP 
Lender responsibility for all pre-disbursement Authorization 
requirements in this SOP. The only actions that the Lender may not take 
on a PLP loan are those specifically reserved to SBA. 
Within 15 business days after final disbursement, the PLP Lender must 
submit to SBA through E-Tran a copy of the final executed 
Authorization, along with any amendments or modifications, and retain 
all other documents in the PLP Lender’s loan file. The Lender should 
not send SBA any other closing documentation, including disbursement 
information, except through the required periodic loan status reports 
using SBA Form 1502. 
e) 
Servicing and Liquidation Responsibilities: 
See SOP 50 57, 13 CFR § 120.453, and 13 CFR Part 120, Subpart E for 
guidance.  
iii. Change of PLP Lender’s Structure:  
a) 
When a PLP Lender’s structure changes and the Lender continues as the 
same legal entity that signed the SBA Form 1347, a new SBA Form 
1347 is not required including when: 
i) The PLP Lender changes its name; 
ii) The PLP Lender is acquired by another entity and the PLP Lender 
continues as a separate legal entity; or 
iii) The PLP Lender acquires another Lender and the acquired Lender 
does not continue as a separate legal entity; 
b) 
When a PLP Lender acquires another Lender and the acquired Lender 
continues to operate as a separate legal entity, the PLP Lender’s 
delegated authority does not transfer to the acquired Lender; however, 
the acquired Lender may apply for its own PLP authority; 
c) 
SBA will not renew a Lender’s PLP authority or will revoke, suspend, 
or terminate a Lender’s PLP authority when: 
i) The Lender changes its operations so much that it cannot show that it 
handles SBA Loans appropriately;  
ii) The PLP Lender is merged into a non-PLP lender (the surviving 
Lender may apply for PLP authority); 
JX019.39
App.3296
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 40 
d) 
SBA will terminate the Lender’s PLP authority and prohibit the Lender 
from making any new SBA loans when the Lender is dissolved, closed, 
or taken over by a regulatory authority. 
e) 
If any SBA office discovers any of the above circumstances, OCRM 
must be immediately notified in writing. 
iv. Requests for New SBA Guaranty Agreements: 
When necessary, the Lender may obtain a new: 
a) 
SBA Form 750 from the Lead District Office; and 
b) 
SBA Form 1347 from OCRM. 
3. SBA Express Program 
 SBA Express was established as a permanent SBA program under P.L.108-447 
and signed into law on December 8, 2004. The program reduces the number of 
government mandated forms and procedures, streamlines the processing, and 
reduces the cost of smaller, less complex SBA loans. The program allows Lenders 
to use, to the maximum extent practicable, their respective loan analyses, 
procedures, and documentation. In return for the expanded authority and 
autonomy provided by the program, Lenders agree to accept a maximum SBA 
guaranty of 50 percent. SBA Express Lenders may make SBA Express loans in 
any area of the country and must apply and comply with all of SBA’s Loan 
Program Requirements. 
 Qualifications for Initial SBA Express Lender Authority: 
i. An existing SBA Lender must demonstrate to SBA’s satisfaction that it 
meets the delegated authority criteria set forth above in paragraph E.1. 
ii. For SBA Lenders with less than 3 years of SBA lending experience/data, the 
Agency may consider performance over the period of time the Lender has 
been an SBA Lender, but generally will limit the Lender’s initial term of 
participation to 1 year or less. Lenders that identify significant differences 
between the performance numbers developed by the Lender and those 
developed by SBA (not related to a lack of accurate SBA Form 1502 
reporting) may contact OCRM. 
 Lenders that do not currently participate with SBA: 
In addition to meeting the Agency’s Lender requirements as set forth in paragraph 
A., Process to Become a 7(A) Participating Lender above, in support of 13 CFR § 
120.440(a)(1), a lender that does not currently participate with SBA also must 
demonstrate to SBA’s satisfaction that it: 
i. Has at least 20 commercial or business loans for $350,000 or less in its 
portfolio at its most recent fiscal year end; and 
ii. Ensures its primary SBA loan personnel have received appropriate training 
on SBA’s policies and procedures (such training could include Lead District 
Office training and/or trade association training that adequately addresses 
JX019.40
a. 
b. 
C. 
App.3297
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 41 
SBA’s regulations and Standard Operating Procedures, including SBA’s loan 
processing, servicing, and liquidation requirements); and 
 Has no major substantive objections from the D/OCRM (e.g., relating to risk or 
program integrity. 
 Process to become an SBA Express Lender: 
i. To apply for initial SBA Express authority or to reapply for SBA Express 
authority, a Lender must submit a request with all applicable supporting 
documents to D/OCRM or designee at DelegatedAuthority@sba.gov. 
ii. As noted above, lenders not currently participating with the SBA must meet 
the Agency’s Lender requirements and must become an approved 7(a) 
Lender before participating in SBA Express. (An application for SBA 
Express authority may be made simultaneously with the application for 7(a) 
Lender authority.)  
iii. The Lender’s request should include: 
a) 
Legal name and address of Lender; 
b) 
Legal name of any holding company of Lender; 
c) 
Name, title, address, phone number, email address, and fax number for 
contact person at Lender; 
d) 
Lender’s Lead District Office; 
e) 
A copy of the Lender’s SBA Form 750 and SBA Form 750B, if 
applicable; and 
f) 
A good standing/satisfactory statement on the Lender’s letterhead (as 
described in paragraph E.1.a.v.a) above. 
iv. D/FA will make the final Agency decision in consultation with and upon 
receipt of recommendations from D/OCRM. OCRM notifies the Lender and 
the Lead District Office of SBA’s decision. 
v. SBA may limit a new SBA Express Lender to a yearly maximum of 
$25 million of SBA Express loans in its first year of participation. 
 Supplemental Guaranty Agreement: 
i. If the Lender’s request for SBA Express authority is approved, OCRM 
notifies the Lender of the decision and sends the Lender an SBA Form 2424, 
“Supplemental Loan Guaranty Agreement SBA Express Program.” The 
lender must sign, attest/witness, and return the form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the Lender’s 
SBA Express authority is effective. 
ii. If the Lender is a PLP Lender, the term of its SBA Express authority, when 
possible, will be aligned with the Lender’s remaining PLP term. 
iii. Lenders not currently participating in SBA’s loan programs that are approved 
for SBA Express will be limited to an initial SBA Express term of 1 year. 
JX019.41
d. 
e. 
f. 
App.3298
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 42 
 Decline of SBA Express Authority: 
If the request for SBA Express authority is declined, OCRM notifies the Lender 
and Lead District Office with the reason(s) for decline. 
To reapply, the Lender must submit a request to OCRM at 
DelegatedAuthority@sba.gov explaining how it has overcome the reason(s) for 
decline. OCRM will review the request, make a recommendation, and send it to 
the D/FA for a final Agency decision. OCRM will notify the Lender in writing of 
SBA’s final decision. 
 Renewals of SBA Express Authority: 
For renewal of its SBA Express authority, the Lender must demonstrate to SBA’s 
satisfaction that it meets the delegated authority criteria set forth in paragraph E.1. 
above. 
i. OCRM will generally initiate the renewal process approximately 90 days 
prior to the expiration of the Lender’s SBA Express authority. It is the 
Lender’s responsibility to ensure its point of contact information is accurate 
in PIMS. However, if the Lender has not received any correspondence from 
OCRM 60 days prior to expiration of its SBA Express authority, it must 
initiate the process by submitting to OCRM at DelegatedAuthority@sba.gov 
a good standing/satisfactory status statement (as described in paragraph 
E.1.a.v.a) above) on the Lender’s letterhead.  
ii. OCRM may ask the Lead District Office and the appropriate processing, 
servicing, and liquidation centers for comments regarding the Lender’s 
activity for its most recent SBA Express term, which may include: 
a) 
Recommendation for or against, and why; 
b) 
Whether the Lender can effectively process, close, service and liquidate 
SBA loans; 
c) 
Changes in Lender’s organization or management; 
d) 
Any recurring denial of liability or repair situations with the Lender; 
e) 
Reasons for any unfavorable loan volume or repurchase rate data; 
f) 
Identification of any areas of concern; and 
g) 
An explanation of any discussions with the Lender that may impact the 
SBA Express renewal decision. 
iii. Lenders that have participated in SBA Express for 2 years or more may be 
renewed in the program for 2 years, SBA in its discretion may renew for less 
than 2 years if Lender or program circumstances warrant. Lenders 
participating in SBA Express for less than 2 years may be renewed in SBA 
Express for an additional year and may be renewed for terms of up to 2 years 
thereafter. 
JX019.42
g. 
h. 
App.3299
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 43 
 Notification of Renewal:  
OCRM makes the decision and notifies the Lender and the Lead District Office of 
the approval and term. OCRM sends the Lender a new SBA Form 2424. The 
Lender must sign, attest/witness, and return the form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the Lender’s SBA 
Express renewal can be effective. 
 Non-Renewal and Short Renewal: 
If SBA determines in its discretion that an SBA Express Lender does not meet the 
delegated authority criteria or that increased supervision is necessary, SBA may: 
i. Grant a shorter renewal period; or 
ii. Not grant renewal of the delegated authority. 
a) 
If renewal is declined, OCRM notifies the Lender and the Lead District 
Office with the reason(s) for decline. The Lender may not make SBA 
Express loans after its SBA Express authority expires. 
b) 
To reapply, the Lender must submit a request to OCRM at 
DelegatedAuthority@sba.gov explaining how it has overcome the 
reason(s) for decline. OCRM will review the request and make the final 
Agency decision. OCRM will notify the Lender in writing of the final 
decision. See paragraph E.3.l. Reapplying for SBA Express Authority, 
below. 
See SOP 50 53, for more information on increased supervision. 
 Temporary Extension of SBA Express Authority: 
If SBA has not completed the renewal process before the Lender’s SBA Express 
authority expires, OCRM may extend the Lender’s SBA Express authority for a 
short, interim period as determined by the D/OCRM. 
 Reapplying for SBA Express Authority: 
If a Lender’s SBA Express authority was revoked, not renewed, or voluntarily 
terminated, after 6 months the Lender may reapply for SBA Express authority by 
following paragraph E.3.e., Process to become an SBA Express Lender above. 
 SBA Express Lender Authority and Responsibilities 
i. SBA Express Lenders may make SBA Express loans in any area of the 
country. 
ii. Applications Previously Submitted to LGPC for Processing. Once submitted 
to LGPC, an application withdrawn by the Lender, screened-out, or declined 
by LGPC may not be approved by any Lender under its SBA Express 
Authority. E-Tran will not permit the submission of such an application 
under any Lender’s SBA Express authority for a period of 12 months from 
the date of withdrawal, screen-out, or decline of the application. 
JX019.43
1. 
J. 
k. 
I. 
m. 
App.3300
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 44 
iii. An application that did not receive an acceptable credit score under 7(a) 
Small Loan procedures may be withdrawn prior to submission through 
E-Tran or SBA One and may be processed under SBA Express. 
iv. See Part 2, Section A, for the types of businesses that are not eligible for 
SBA financial assistance, and Part 2, Section B, Ch. 2 of this SOP for other 
restrictions on SBA Express loans. 
v. SBA Express Lender’s Processing Responsibilities: 
a) 
Lender’s Eligibility Review: 
i) SBA Express is a streamlined program, so complex or ambiguous 
eligibility issues should be processed using Basic 7(a) Loan procedures 
rather than through SBA Express. SBA grants SBA Express Lenders 
increased responsibility for screening applicants and loans for SBA 
eligibility. SBA Express Lenders must be fully familiar with SBA’s 
eligibility requirements as set forth in the SBA Loan Program 
Requirements and must screen all SBA Express Applicants and loans 
to ensure they meet those requirements. 
ii) Lenders may rely, in many instances, on certifications provided by the 
Applicant, several of which are included in the SBA Express 
application documents. In the case of size, the Lender may rely on 
information provided by the Applicant at the date of application, 
unless the Lender has credible evidence to the contrary. 
iii) Certain eligibility issues require additional lender review and/or 
verification. Lenders must follow all 7(a) loan eligibility requirements 
and maintain appropriate documentation supporting their eligibility 
screening in the loan file. 
iv) Lenders must carefully review and screen SBA Express Applicants 
and loans to ensure they meet SBA’s eligibility requirements before 
transmitting the SBA Express guaranty request and supplemental 
information via E-Tran. 
v) Lenders must ensure all required forms/information are obtained, 
complete, and properly executed. Appropriate documentation must be 
maintained, including adequate information to support the eligibility of 
the Applicant and the loan, in the Lender’s loan file. 
b) 
See Part 2, Section A, Core Requirements for all 7(a) and 504 loans, and 
Section B, Ch. 2, SBA Express Loans, for eligibility and underwriting 
requirements. 
 Closing, Servicing and Liquidation: 
i. The SBA Express Lender must close, service, and liquidate its SBA Express 
loans using the same reasonable and prudent practices and procedures that 
the Lender uses for its similarly-sized, non-SBA guaranteed commercial 
loans. 
JX019.44
n. 
App.3301
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 45 
ii. Within 15 business days after final disbursement, the SBA Express Lender 
must submit to SBA through E-Tran a copy of the final executed 
Authorization, along with any amendments or modifications, and retain all 
other documents in the SBA Express Lender’s loan file. The Lender should 
not send SBA any other closing documentation, including disbursement 
information, except through the required periodic loan status reports using 
SBA Form 1502. 
4. Export Express Program 
 The Export Express Program was designed to help SBA meet the export financing 
needs of small businesses too small to be effectively met by existing SBA export 
loan guaranty programs. It is generally subject to the same loan processing, 
making, closing, servicing, and liquidation requirements as well as the same 
maturity terms, interest rates, and applicable fees as the SBA Express Loan 
Program. Any differences between the Export Express requirements are set forth 
in the appropriate section of this SOP. (For example, certain uses of loan proceeds 
are allowed under Export Express that are not allowed under SBA’s other lending 
programs. See Part 2, Section B, Ch 4, Para. A. Export Express, of this SOP.) 
 Becoming an Export Express Lender: 
i. Lenders must have a signed SBA Form 2426, “Supplemental Loan Guarantee 
Agreement Export Express Program,” to make Export Express loans. 
ii. The procedures for receiving Export Express authority are different based on 
the Lender’s existing authority: 
a) 
Active SBA Express Lenders: 
i) Lenders that currently have SBA Express authority that would like to 
make Export Express loans must submit a request to SBA. The request 
should be submitted to the Lender’s Lead District Office or SBA 
Export Finance Managers the lending unit works with on Export 
Express loans. These offices should submit the Lender’s request to 
OCRM, at DelegatedAuthority@sba.gov. Note: A complete listing of 
Export Finance Managers and USEAC locations may be found at 
https://www.sba.gov/article/2017/nov/01/list-useacs-sba-staff. 
ii) D/FA will make the final Agency decision in consultation with and 
upon receipt of recommendations from D/OCRM. 
iii) OCRM will send the Lender the approval letter and SBA Form 2426 
with a copy of the approval letter to OIT and the Lead District Office.  
iv) The Lender must sign, attest/witness, and return the form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the 
Lender’s Export Express authority can be effective. 
b) 
Existing 7(a) Lenders that Do Not Participate in the SBA Express 
Program: 
JX019.45
a. 
b. 
App.3302
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 46 
i) Existing 7(a) Lenders that would like to participate in the Export 
Express Program must submit a request to its Lead District Office or 
USEAC. These offices should submit the request to OCRM at 
DelegatedAuthority@sba.gov.  
ii) If the request was received from the Lead District Office, OCRM will 
contact the Export Finance Manager in the appropriate USEAC for 
comments and process the request in accordance with the procedures 
and process for the SBA Express Program, as described in paragraph 
E.3.e., Process to become an SBA Express Lender, above.  
iii) Lenders can request SBA Express and Export Express authority 
simultaneously but are not required to do so.  
iv) D/FA will make the final Agency decision in consultation with and 
upon receipt of recommendations from D/OCRM. 
v) If approved, OCRM will send the Lender the approval letter and SBA 
Form 2426, with a copy of the approval letter to OIT and the Lead 
District Office.  
vi) The Lender must sign, attest/witness, and return the form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the 
Lender’s Export Express renewal can be effective. 
iii. To obtain or renew Export Express authority, SBA Express Lenders must 
demonstrate to SBA’s satisfaction that it: 
a) 
Meets the criteria for delegated authority set forth in paragraph E.1., 
Delegated Authority Criteria, above; 
b) 
Can effectively process, make, close, service, and liquidate Export 
Express loans; 
c) 
Is in compliance with SBA Loan Program Requirements; 
d) 
Has received no major substantive objections regarding renewal from 
the Lead District Office covering the territory where the Lender 
generates significant numbers of Export Express loans; and 
e) 
Has received acceptable review results on the Export Express portion of 
any SBA-administered Lender reviews. 
f) 
OCRM will generally initiate the renewal process approximately 90 
days prior to the expiration of the Lender’s Export Express authority. It 
is the Lender’s responsibility to ensure its point of contact information 
is accurate in PIMS. However, if the Lender has not received any 
correspondence from OCRM 60 days prior to expiration of its Export 
Express authority, it must initiate the process by submitting to OCRM at 
DelegatedAuthority@sba.gov a good standing/satisfactory status 
statement (as described in paragraph E.1.a.v.a) above) on the Lender’s 
letterhead.  
JX019.46
App.3303
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 47 
g) 
OCRM may ask the Lender’s Lead District Office and the appropriate 
processing, servicing, and liquidation centers for comments regarding 
the Lender’s activity for its most recent Export Express term, which 
may include: 
i) Recommendation for or against, and why; 
ii) Whether the Lender can effectively process, close, service and 
liquidate SBA loans; 
iii) Changes in Lender’s organization or management; 
iv) Any recurring denial of liability or repair situations with the Lender; 
v) Reasons for any unfavorable loan volume or repurchase rate data; 
vi) Identification of any areas of concern; and 
vii) An explanation of any discussions with the Lender that may impact the 
Export Express renewal decision. 
iv. D/FA will make the final Agency decision on initial requests for Export 
Express authority, and D/OCRM will concur or non-concur in 
recommendations to the D/FA. OCRM will approve or decline renewals of 
Export Express authority.  
v. SBA will generally grant Lenders Export Express loan authority for a term 
that aligns with the Lender’s SBA Express term, unless the D/FA determines 
a shorter term is appropriate. The maximum term for all Export Express 
Lenders is 2 years. For lenders that have not participated in SBA Express 
prior to applying for Export Express authority, the term may be less than 2 
years at the discretion of the D/FA. 
vi. Notification of Renewal: 
a) 
OCRM will approve or decline renewals of Export Express authority 
and will provide written notification to the Lender, OIT, and the Lead 
District Office of the approval and the term. 
b) 
OCRM sends the Lender a new SBA Form 2426. The Lender must 
sign, attest/witness, and return the form to OCRM at 
DelegatedAuthority@sba.gov within 30 calendar days before the 
Lender’s Export Express renewal can be effective. 
vii. Non-Renewal and Short Renewal: 
If SBA determines in its discretion that the Export Express Lender does not 
meet the delegated authority criteria or that increased supervision is 
necessary, SBA may: 
a) 
Grant a shorter renewal period; or 
b) 
Not grant renewal of Export Express authority. 
JX019.47
App.3304
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 48 
i) If renewal is declined, OCRM notifies the Lender, OIT, and the Lead 
District Office with the reason(s) for decline. The Lender may not 
make Export Express loans after its Export Express authority expires. 
ii) To reapply, the Lender must submit a request to OCRM at 
DelegatedAuthority@sba.gov explaining how it has overcome the 
reason(s) for decline. OCRM will review the request and make the 
final Agency decision. OCRM will notify the Lender in writing of the 
final decision. See paragraph E.4.b.ix, Reapplying for Export Express 
Authority, below. 
See SOP 50 53 on Increased Supervision. 
viii. Temporary Extension of Export Express Authority: 
If SBA has not completed the renewal process before the Lender’s Export 
Express authority expires, OCRM may extend the Lender’s Export Express 
authority for a short, interim period as determined by the D/OCRM.  
ix. Reapplying for Export Express Authority: 
If a Lender’s Export Express authority was revoked, not renewed, or 
voluntarily terminated, after 6 months the Lender may reapply for Export 
Express authority following paragraph E.4.b.iii. above. 
 Export Express Authority and Responsibilities 
i. Export Express Lenders may make Export Express loans in any area of the 
country. 
ii. Eligibility Requirements: In addition to SBA’s business loan eligibility 
standards set forth in Part 2, Section A, and Section B, Chapter 4 of this SOP, 
the following restrictions apply to Export Express loans. 
a) 
Lenders may not use Export Express for any pilot program unless SBA 
authorizes use of Export Express for the pilot.. 
b) 
Applications Previously Submitted to LGPC for Processing. Once 
submitted to LGPC, an application withdrawn by the Lender, screened-
out, or declined by LGPC may not be approved by any Lender under its 
Export Express Authority. E-Tran will not permit the submission of 
such an application under any Lender’s Export Express authority for a 
period of 12 months from the date of withdrawal, screen-out, or decline 
of the application. 
c) 
See Part 2, Section A of this SOP for the types of businesses that are not 
eligible for SBA financial assistance. 
iii. Export Express Lender’s Processing Responsibilities: 
a) 
Lender’s Eligibility Review: 
i) Export Express is a streamlined program, so complex or ambiguous 
eligibility issues should be processed using Basic 7(a) Loan procedures 
rather than through Export Express. SBA grants Export Express 
JX019.48
C. 
App.3305
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SOP 50 10 6 
Part 1, Section A, Ch 1: Lender Participation 
Effective October 1, 2020 
Page 49 
Lenders increased responsibility for screening applicants and loans for 
SBA eligibility. Export Express Lenders must be fully familiar with 
SBA’s eligibility requirements as set forth in the SBA Loan Program 
Requirements and must screen all Export Express Applicants and 
loans to ensure they meet those requirements. 
ii) Lenders may rely, in many instances, on certifications provided by the 
Applicant, several of which are included in the Export Express 
application documents. In the case of size, the Lender may rely on 
information provided by the Applicant at the date of application, 
unless the Lender has credible evidence to the contrary. 
iii) Certain eligibility issues require additional lender review and/or 
verification. Lenders must follow all 7(a) loan eligibility requirements, 
including any additional eligibility requirements specific to Export 
Express as set forth in Part 2, Section B, Ch. 4, Paragraph A.1. of this 
SOP, and maintain appropriate documentation supporting their 
eligibility determination in the loan file. 
iv) Lenders must carefully review and screen Export Express Applicants 
and loans to ensure they meet all applicable SBA eligibility 
requirements before transmitting the Export Express guaranty request 
and supplemental information via E-Tran. 
v) Lenders must ensure all required forms/information are obtained, 
complete, and properly executed. Appropriate documentation must be 
maintained, including adequate information to support the eligibility of 
the Applicant and the loan, in the Lender’s loan file. 
b) 
See Part 2, Section A, Core Requirements for all 7(a) and 504 loans, and 
Section B, Ch. 4. Para. A, Export Express, for eligibility and 
underwriting requirements. 
 Closing, Servicing and Liquidation: 
i. The Export Express Lender must close, service, and liquidate its SBA 
Express loans using the same reasonable and prudent practices and 
procedures that the Lender uses for its similarly-sized, non-SBA guaranteed 
commercial loans. 
ii. Within 15 business days after final disbursement, the Export Express Lender 
must submit to SBA through E-Tran a copy of the final executed 
Authorization, along with any amendments or modifications, and retain all 
other documents in the Export Express Lender’s loan file. The Lender should 
not send SBA any other closing documentation, including disbursement 
information, except through the required periodic loan status reports using 
SBA Form 1502. 
 
JX019.49
d. 
App.3306
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JX019.50
App.3307
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SOP 50 10 6 
Part 1, Section A, Ch 2: Small Business Lending Companies 
Effective October 1, 2020 
Page 51 
CHAPTER 2: SMALL BUSINESS LENDING COMPANIES 
Small Business Lending Companies (SBLCs) 13 CFR 120.460-120.490 
An SBLC is a non-depository lending institution that is authorized by SBA to only make loans 
pursuant to section 7(a) of the Small Business Act and loans to Intermediaries in SBA’s 
Microloan program. An SBLC is: 
• Regulated, supervised, and examined solely by SBA; 
• Subject to additional SBA regulations specific to SBLCs regarding formation, 
capitalization, and enforcement actions; and 
• Subject to all other 7(a) regulations specific to origination, servicing, and liquidation. 
As required of all SBA Lenders, SBLCs must analyze each application in a commercially 
reasonable manner, consistent with prudent lending standards.
A. SBLC REQUIREMENTS 
SBLCs are subject to the requirements in Chapter 1 of this Part. Additionally, SBLCs must: 
1. Submit to the D/OCRM for review their credit policy that demonstrates compliance with 
Title 13 of the CFR and SBA’s Standard Operating Procedures (SOPs) for origination, 
servicing, and liquidation of 7(a) loans, and which must be acceptable to SBA in its 
discretion. 
2. Submit to the D/OCRM for review and approval annual validation, with supporting 
documentation and methodologies demonstrating that any scoring model used by the 
SBLC is predictive of loan performance. 
3. Each SBLC’s Board of directors must adopt and fully implement an internal control 
policy that provides adequate direction to the institution for effective control over and 
accountability for operations, programs, and resources. The Board-adopted internal 
control policy must, at a minimum, comply with 13 CFR § 120.460. For example: 
 The internal control policy implemented must ensure satisfactory monitoring and 
management of the SBA loan portfolio, including but not limited to, providing for 
a periodic loan review function to be performed at least annually by a person who 
is not directly or indirectly responsible for loan making or by outside contractors. 
 It must include a list of monthly reports provided by the SBLC’s management for 
Board review to support adequate Board oversight. 
 It must provide for internal controls for loan making, servicing and liquidation. 
 It must provide for a risk rating system to risk classify SBA loan assets 
satisfactory to SBA. 
 Internal control policies and procedures must include provisions to ensure 
compliance with SBA’s Loan Program Requirements on eligibility. 
JX019.51
a. 
b. 
C. 
d. 
e. 
App.3308
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SOP 50 10 6 
Part 1, Section A, Ch 2: SBLCs 
Effective October 1, 2020 
Page 52 
 Internal control policies and procedures must include provisions to ensure the 
SBLC exercises due diligence and prudent oversight of its third party vendors, 
including Lender Service Providers (LSP) and other loan Agents. Such policies 
and procedures should include, but not be limited to, monitoring performance of 
loans referred by an Agent or where an Agent provided assistance.  
 SBLCs must provide documentation demonstrating that the internal control 
policies and procedures are fully implemented and followed. 
4. SBLCs must adhere to their internal policies and procedures for originating, closing, 
servicing, and when necessary liquidating SBA loans. When this SOP states that Lenders 
are to follow their own policies and procedures on their similarly-sized, non-SBA 
guaranteed loans, SBLCs must follow the written policies and procedures that have been 
reviewed by SBA. 
5. An SBLC may not make a loan to an Applicant that has received assistance from an 
affiliated Small Business Investment Company (SBIC). (13 CFR § 120.476) 
B. PROCESS FOR ACQUIRING AN SBLC 
1. SBA regulations restrict the issuance of the SBA lending authority to operate as an SBLC 
to 14 entities.1 To become an SBLC, an entity must purchase one of the existing lending 
authorities from a current SBLC. 
2. SBA reserves the right to deny any entity proposing to acquire an SBLC’s SBA lending 
authority in its sole discretion. In addition to SBA’s evaluation of the elements required 
in paragraph 5, “SBLC Application,” below, SBA may consider risk factors in its 
evaluation of an SBLC application. These factors include, but are not limited to, 
historical performance measures (such as default, purchase and loss rate), and other 
performance data associated with the acquiring concern or its senior management team, 
along with other relevant information (such as SBA-observed gaps in small business 
lending not served by the existing 7(a) Lender population). 
3. SBA does not participate in facilitating the transfer of an SBLC’s SBA lending authority. 
Private party negotiations culminate in a definitive purchase and sale agreement which 
includes the terms and conditions related to the transfer of the SBA lending authority. 
This agreement must include provisions which condition the transfer upon the prior 
written approval of the SBA. 
4. A written request by the selling SBLC to the D/FA for approval of a transfer of 
ownership and control by the entity transferring the SBA lending authority becomes 
notice to SBA of the intent to transfer. The written request should include: 
 
 
1 For purposes of the Community Advantage (CA) Pilot Program, on February 18, 2011, SBA waived the regulation 
imposing a moratorium on licensing of new SBLCs in order to allow organizations that meet the definition of an 
SBLC but that do not currently have an SBLC license to participate in the CA Pilot Program. Currently, the CA 
Pilot Program is not accepting additional Lenders. A Community Advantage Lender is not permitted to transfer or 
sell its Community Advantage lending authority to another entity. For other regulations waived for purposes of the 
CA Pilot, see the CA Participant Guide. 
JX019.52
f. 
g. 
App.3309
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SOP 50 10 6 
Part 1, Section A, Ch 2: SBLCs 
Effective October 1, 2020 
Page 53 
 The name and address of the acquiring concern; 
 The primary name and contact information for the acquiring concern’s contact. 
5. SBLC Application:  
The acquiring concern must file a request for transfer with the D/FA and submit two 
complete binders of fully executed paper copies and one executed electronic scanned 
copy (in pdf format) to OFA addressing each of the elements set forth below (“SBLC 
Application”). The SBLC Application must be complete and organized in tabular format. 
Incomplete SBLC Applications will not be processed by SBA and will be returned to the 
acquiring concern. An applicant that submits an incomplete SBLC Application (as 
determined by SBA) must wait 30 calendar days before reapplying. The application must 
include: 
 The Legal name, address, telephone, facsimile, and email address of the acquiring 
concern; 
 Identification of the form of organization of the proposed SBLC along with file-
stamped copies of the concern’s certificate of incorporation, certificate of 
formation or certificate of limited partnership (as applicable), and a copy of the 
concern’s corporate bylaws, limited liability company operating agreement, or 
limited partnership agreement (as applicable); 
 Identification of the proposed SBLC’s capitalization including the form of 
ownership, the identification of all classes of equity capital and proposed funding 
amounts, rights and preferences accorded to each class of stock or members 
interest (including voting rights, redemption rights, and rights of convertibility) 
and conditions for transfer, sale, or assignment of these interests; 
 The proposed SBLC’s geographic area of operation; 
 Identification of all officers, directors, managing partners, managing members, 
Key Employee(s) of the acquiring concern, which includes senior managers, 
members of loan committees, and individuals who have a meaningful 
participation in the direction of the operations, policies, or financial decisions of 
the acquiring concern),and all other individuals or entities that propose to hold an 
equity interest of at least 10% of the economic interest in any class of stock or 
ownership interest in the proposed SBLC (such identification should include a 
discussion of any prior SBA experience); 
i. An organization chart showing the relationship of the proposed SBLC with 
all related Associates (see Appendix 3, Definitions) and affiliates within the 
organization; 
ii. All individuals or entities identified in this paragraph must submit an 
executed SBA Form 1081 and either a Form FD-258 (fingerprint card) or 
Electronic Fingerprint Submission. SBA Form 1081 and the Form FD-258 or 
Electronic Fingerprint Submission must be signed and dated within 90 days 
of submission to SBA. 
iii. A director or Key Employee of the lender organization is only required to 
submit either Form FD-258 (fingerprint card) or Electronic Fingerprint 
JX019.53
a. 
b. 
a. 
b. 
C. 
d. 
e. 
App.3310
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SOP 50 10 6 
Part 1, Section A, Ch 2: SBLCs 
Effective October 1, 2020 
Page 54 
Submission if the director or Key Employee answered affirmatively to 
questions 10a, 10b, 10c, 11a and/or 11b on the SBA Form 1081. 
 Proof of fidelity insurance coverage as detailed in 13 CFR § 120.470(e). 
 A comprehensive business plan that details: 
i. The nature of proposed operations, including the organizational units 
involved in sourcing, evaluating, underwriting, closing, disbursing servicing, 
and liquidating small business loans in the organization; 
ii. The identification of all sources of capital used to finance lending operations; 
iii. An operations plan detailing the nature of the Lender’s proposed loan 
activity, the volume of activity projected over the first 3 years as an SBA 
Lender, projected balance sheets, income statements and statement of cash 
flows of the Lender, with alternative profit and loss scenarios based on run 
rates equivalent to 70% and 50% of projected loan activity, the type and 
projected amount of financing needed to support its lending plan, along with 
a discussion of Lender’s proposed wind-down plan in the event the Lender 
decides to leave the program; 
iv. A detailed analysis of the Lender’s projected secondary market activities 
during the first 3 years of operation, including a sensitivity analysis of the 
effect any changes in premium from the sale of the guaranteed portion of 7(a) 
loans in SBA’s secondary market may have on the Lender’s prospective 
earnings. The analysis must also include a description of the Lender’s plans 
(if any) to securitize or sell participations in the unguaranteed portion of 7(a) 
loans; and 
v. If the Lender intends to acquire any 7(a) loans, a written plan detailing the 
extent of this acquisition activity in its operating plan, and how the Lender 
will manage the transition of the 7(a) loan portfolio; 
 All documents associated with any type of external financing expected to be 
undertaken by the proposed SBLC; 
 A written statement from an authorized official of the acquiring concern 
certifying that the SBLC will not be primarily engaged in financing the operations 
of an Affiliate as defined in 13 CFR § 121.103. 
 The most recent audited financial statements of the acquiring concern if it has 
been in operation for more than 1 year, or the audited financial statements of the 
acquiring concern’s parent company. 
 A certified copy of a Board, limited partners, or members resolution specifying 
the individual(s) or official(s) granted the authority by the organization to submit 
this SBLC application; 
 A certification by the acquiring concern that it is in full compliance with all 
Federal, State, and local laws; 
JX019.54
f. 
g. 
h. 
1. 
J. 
k. 
I. 
App.3311
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SOP 50 10 6 
Part 1, Section A, Ch 2: SBLCs 
Effective October 1, 2020 
Page 55 
 A written legal opinion of independent counsel (“Independent Counsel” is counsel 
that is not an Associate of the lender), satisfactory to SBA that addresses whether 
the proposed SBLC: 
i. Is duly formed, organized, and validly existing in good standing under the 
laws of the State of its organization, and is in full compliance with all 
Federal, State, and local laws in connection with the formation and 
organization of the proposed SBLC; and 
ii. Has the power, legal right, and authority to enter into the sale transaction. 
6. Once received, the D/FA or designee, in consultation with the Director, Office of Credit 
Risk Management (D/OCRM) or designee, makes the final determination on the 
application. If approved, the D/FA will provide written notification to the selling SBLC 
and the acquiring concern that SBA consents to the transfer of the lending authority. 
Included with this letter will be SBA Form 750 for execution and return to OFA. For 
change of control transactions, the Lender will need to reapply for any delegated 
authorities separately. 
7. SBA’s prior written consent is required for any proposed transaction or event that results 
in Control by any entity or person(s) not previously approved by SBA. Control as defined 
in this paragraph means the possession, direct or indirect, or the power to direct or cause 
the direction of the management or policies of an SBLC, whether through the ownership 
of voting securities, by contract, or otherwise. 
 A new application in accordance paragraph 5, “SBLC Application,” above must 
be submitted for SBA’s prior written consent with respect to any change of 
ownership or control transaction as specified in 13 CFR § 120.475. 
 For change of control transactions, the Lender will need to reapply for any 
delegated authorities separately. 
8. If the proposed change of ownership is for less than a majority interest, SBA may in its 
sole discretion limit the items required from the Lender in the “SBLC Application” 
paragraph above to support a request for prior SBA consent. 
9. Receiverships of SBLCs (except Other Regulated SBLCs as defined in 13 CFR § 
120.10): 
 Upon SBA’s determination that grounds for an enforcement action against an 
SBLC (except an Other Regulated SBLC) exist under 13 CFR § 120.1400, SBA 
may, pursuant to 13 CFR § 120.1500(c)(3), apply to a Federal court for the 
appointment of a receiver. Typically, SBA will use its receivership authority as a 
remedy of last resort. The appointment of a receiver is only one of several types 
of enforcement actions set forth in 13 CFR § 120.1500. 
 SBA will review the facts and circumstances of the enforcement action when 
deciding whether or not to seek the appointment of a receiver. SBA will also 
make a determination regarding the scope of the receiver’s duties and powers. In 
deciding whether to seek a receiver and in determining the scope of a 
receivership, SBA will consider the following: 
i. The existence of fraud or false statements; 
JX019.55
m. 
a. 
b. 
a. 
b. 
App.3312
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SOP 50 10 6 
Part 1, Section A, Ch 2: SBLCs 
Effective October 1, 2020 
Page 56 
ii. An SBLC’s refusal to cooperate with SBA enforcement action instructions or 
orders; 
iii. An SBLC’s insolvency (legal or equitable); and/or 
iv. The dollar amount of any claims SBA may have against the SBLC. 
 Under 13 CFR § 120.1400(a)(2), an SBLC (except an Other Regulated SBLC) 
that makes SBA 7(a) guaranteed loans after October 20, 2017, has consented to 
SBA’s right to seek a receivership in appropriate circumstances. Such consent is 
deemed to apply only if the SBLC makes 7(a) loans on or after January 1, 2018. 
The SBLC’s consent does not in any way preclude the SBLC from contesting 
whether or not SBA has established the grounds for seeking the remedy of a 
receivership. An SBLC’s consent to receivership as a remedy does not require 
SBA to seek the appointment of a receiver in any particular SBA enforcement 
action. 
 
 
JX019.56
C. 
App.3313
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SOP 50 10 6 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 57 
CHAPTER 3: LENDER FINANCING AND OPERATIONS 
A. SECONDARY MARKET FOR GUARANTEED LOANS 
1. Sale of SBA 7(a) Loans into SBA’s Secondary Market: 
The SBA Secondary Market was established to provide liquidity to Lenders, and thereby 
expand the availability of commercial credit for small business. A Lender may sell the 
guaranteed portion of disbursed loans into the Secondary Market and must use SBA 
Form 1086, “Secondary Participation Guaranty Agreement.” SBA Form 1086 provides 
the terms and conditions that govern the sale and all subsequent servicing of the loan 
sold, which must be executed by the Lender, Registered Holder (or investor), Fiscal and 
Transfer Agent (FTA), and SBA. 
2. In order for a 7(a) loan to be sold, the Lender must certify, among other things, that: 
 The Lender has underwritten, closed and serviced the loan in a prudent manner 
and in accordance with all SBA Loan Program Requirements; 
 The Lender will not share any premium it has received from this sale with a 
Lender Service Provider, Packager, or other loan referral source; 
 The loan is fully disbursed (a loan is considered to be fully disbursed and then 
may be sold on the secondary market when the Borrower has access to all of the 
loan proceeds and is able to use them in accordance with the loan authorization); 
 The loan is not a revolving loan or line of credit facility; 
 The SBA guaranty fee has been paid by the Lender; 
 The Lender, including its officers, directors, and employees, has no knowledge of 
a default or likelihood of a default by Borrower; and 
 The Lender has no authority to unilaterally repurchase the loan guaranty from the 
Registered Holder without SBA’s written consent. 
3. The following sale documents must be presented to the FTA: 
 A fully executed SBA Form 1086; 
 A true and certified copy of the Borrower’s Note, including true and certified 
copies of any amendments or modifications. All Notes, modifications, or 
amendments presented for sale must have the SBA Loan Number on the first page 
of each document. 
4. Loan and sale information is recorded on SBA Form 1086 by the Lender and purchaser, 
who then presents the sale documents to the FTA for examination and processing. The 
FTA will identify any errors on the Note or SBA Form 1086 and notify either the Lender 
or the broker/dealer. 
JX019.57
a. 
b. 
C. 
d. 
e. 
f. 
g. 
a. 
b. 
App.3314
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 58 
5. Secondary Market Sale Settlement: 
 Upon a confirmed settlement date, the Registered Holder (investor) will wire all 
sale proceeds, including all principal, interest and premium (if any), to the FTA. 
The FTA will wire sale proceeds to the Lender, pursuant to instructions, 
submitted to the FTA through a confirmation of sale document. The FTA will 
issue a Guaranteed Interest Certificate to the Register Holder (investor) 
evidencing ownership of the guaranteed portion of the loan. The guaranty to the 
Registered Holder or investor is unconditional.  
 All Borrower payments received by the Lender after the settlement date must be 
remitted to the FTA using SBA Form 1502 pursuant to the instructions contained 
in SBA Form 1086. This includes, but is not limited to, note payments and 
Borrower prepayments. All payments must be remitted by the Lender to the FTA. 
B. SECONDARY MARKET RESOURCES 
SBA’s web page for Lenders has specific information on the Secondary Market at: 
https://www.sba.gov/partners/lenders/7a-loan-program/secondary-market. 
Colson Services Corporation is the Fiscal and Transfer Agent (FTA). Find additional 
information on their web page: https://colsonservices.bnymellon.com/ 
SBA’s SOP 50 57 provides additional information and can be accessed on SBA’s web page 
for Lenders. 
C. LOAN TRANSFERS 
1. SBA allows SBA 7(a) loan portfolio transfers under limited circumstances. Lenders may 
encounter situations that result in the ownership transfer of their entire interest in SBA 
7(a) loans from one Lender to another. These situations may arise when Lenders merge, 
decide to leave a specific operating area, cease participation in the SBA 7(a) loan 
program, or as may be directed by other Federal financial regulators. 
2. Pursuant to 13 CFR § 120.432(a), Lenders selling or transferring the entire interest in a 
SBA 7(a) loan are required to obtain SBA’s prior written consent. All loan transfers must 
occur between Lenders in the 7(a) loan program. When the proposed transfer involves a 
single loan account, Lenders may request a transfer of participation from the appropriate 
SBA Commercial Loan Servicing Center (Fresno CLSC or Little Rock CLSC).  
3. When a transfer involves more than one SBA 7(a) loan, Lenders are required to obtain 
SBA’s prior written consent to the proposed portfolio transfer. Prior to conducting a 
review for approval, Lenders must pay all outstanding SBA receivables that are more 
than 30 days in arrears. Lenders must contact DFCActionDesk@sba.gov in advance of 
their consent request for information on any SBA receivables outstanding. All SBA 
receivables must be satisfied with proof of payment to SBA in order to consider a 
portfolio transfer of loans. 
4. Requests for consent for transfers involving more than one SBA 7(a) loan are submitted 
to OFA at 7aPortfolioTransfers@sba.gov. Failure to secure SBA consent will prevent the 
transfer of related SBA loan guarantees accompanying the loans scheduled for transfer. 
The written request shall include documents describing the basis for the portfolio 
JX019.58
a. 
b. 
App.3315
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 59 
transfer. These documents are either in the form of an asset purchase agreement or plan 
of merger agreement. If the transfer takes the form of an asset purchase, SBA will also 
require submission of a loan list (preferably in a Microsoft Excel spreadsheet) identifying 
the loans to be transferred. Listed loans are to be assembled in ascending order by SBA 
Loan Number and must include the name of the Borrower and the original loan amount. 
SBA will also require the proposed purchaser of the loan portfolio to submit a signed 
Lender Statement of Obligation which will identify points of contact and the purchasing 
Lender’s responsibilities and obligations after the transfer is completed. 
5. Upon SBA approval, the Lender purchasing the 7(a) loans and/or loan portfolio must take 
possession of the promissory notes and the other loan documents and service the 7(a) 
loans. The purchasing Lender will assume all of the obligations and responsibilities of the 
selling Lender, including but not limited to, all obligations, responsibilities and liabilities 
resulting from the making, servicing, closing and liquidation of the selling Lenders’ 
loans. The purchasing Lender purchases the 7(a) loans subject to SBA’s existing rights to 
deny liability on its guarantee as provided in 13 CFR § 120.524.  
6. Lenders that receive SBA approval must notify the Secondary Market Division once the 
proposed transaction is completed. At that time, OFA will notify OPSM to transfer loan 
accounts into the purchasing Lender portfolio. 
D. LOAN PARTICIPATION SALES 
1. Lenders are permitted to enter into 7(a) loan participation sales, pursuant to  
13 CFR § 120.432(b) and 13 CFR § 120.433 provided the purchaser is another 7(a) 
lender participant. Participation sales involve the sale of a portion of an SBA 7(a) loan 
and are private sale transactions between Lenders. 
2. Lenders that sell loan participations are required to retain the SBA Note and service the 
loan on behalf of all participants. While participations may be for amounts equivalent to a 
loan’s guarantee percentage, purchasing Lenders are not permitted to sell a participation 
interest into SBA’s Secondary Market. 
3. Lenders are required to notify OCRM at OCRM@sba.gov if the Lender sells a 
participation in any portion of an SBA 7(a) loan to another Lender. Lenders that wish to 
sell a participation in which the unguaranteed amount retained is below 10% of the 
outstanding principal balance of the loan must obtain SBA’s prior written consent, which 
SBA may withhold in its sole discretion. 
4. Requests for prior approval shall be made in writing to OFA’s Secondary Market 
Division. The request from the selling Lender shall include a form of the participation 
agreement acceptable to SBA, identification of the purchasing Lender, and identification 
of the SBA loan(s) proposed for sale. These documents may be submitted electronically 
or by overnight mail or courier. OFA will coordinate its review with OCRM, and if 
approved, will issue conditional approval to the selling Lender. Lenders must close on the 
approved transaction and notify OFA upon the closing of the transaction. 
JX019.59
App.3316
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 60 
E. SECURITIZATION AND OTHER CONVEYANCES 
1. Securitizations.  
 Lenders with an executed SBA Form 750, “Lender’s Loan Guaranty Agreement 
(Deferred Participation),” are permitted to securitize the unguaranteed portion of 
their SBA-guaranteed 7(a) loans subject to SBA’s prior written approval, which it 
may withhold in its sole discretion.  
 A securitization is a financial transaction involving the pooling and sale of the 
unguaranteed portion of a 7(a) loan to a trust, special purpose vehicle or other 
mechanism, and the issuance of securities backed by such 7(a) loans to investors.  
 Community Advantage Lenders are not permitted to securitize Community 
Advantage loans under the CA Pilot Program.  
 A discussion of SBA’s requirements for securitizations can be found at  
13 CFR §§ 120.420 through 120.428. 
2. Conditions to Securitize. 
There are certain basic conditions that a Lender must meet in order to securitize. SBA’s 
consent to a Lender’s securitization application may be withheld by SBA in its sole 
discretion. To securitize, a Lender must: 
 Be in satisfactory standing with SBA (as defined in 13 CFR §120.420(f)); 
 Have satisfactory SBA performance; 
 Use a securitization structure satisfactory to SBA; 
 Use transaction documents acceptable to SBA (including the execution of an SBA 
Multi-Party Agreement for securitizations); 
 Obtain SBA’s written consent prior to executing a commitment to securitize; and 
 Deposit the original 7(a) loan notes with SBA’s Fiscal Transfer Agent. 
3. There are certain minimum elements SBA requires for securitizations: 
 All securitizers must be considered “well capitalized” by their regulator and meet 
SBA’s capital requirements. A discussion of SBA’s capital requirements for 
securitizations can be found at 13 CFR § 120.425(a). If a securitizer does not 
maintain the level of capital required for a securitization, SBA will not approve a 
securitization application. 
 Each securitizer must retain a subordinated tranche of the securities issued in the 
securitization equal to the greater of two times the securitizer’s Loss Rate (as 
defined in 13 CFR § 120.420(i)) or 2 percent of the principal balance outstanding 
at the time of securitization of the unguaranteed portion of the loans in the 
transaction. The securitizer’s retained tranche must be subordinate to all other 
securities issued in the securitization (including other subordinated or junior 
tranches). The subordinated tranche may not be sold, pledged, transferred, 
assigned, participated, or otherwise conveyed by the securitizer during the first 6 
years after the closing date of the securitization. A discussion of SBA’s 
requirements for the subordinated tranche can be found at 13 CFR §120.425(b). 
JX019.60
a. 
b. 
C. 
d. 
a. 
b. 
C. 
d. 
e. 
f. 
a. 
b. 
App.3317
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 61 
SBA expects all securitizers to be in compliance with other laws, rules or 
regulations related to securitizations. 
 OCRM may suspend a securitizer’s PLP loan approval privileges based on the 
relationship between the securitizer’s currency rate and the SBA 7(a) loan 
portfolio currency rate. See 13 CFR § 120.425(c). 
 Prefunding – Lenders may only securitize 7(a) loans that are fully disbursed 
within 90 days of the securitization’s closing date. See 13 CFR § 120.423. 
 Once transaction documents have been drafted, Lenders shall submit key 
transaction documents (together with a closing checklist of all documents to be 
included in the transaction) in electronic form to the Chief of the Secondary 
Market Division within OFA. This unit will review the transaction documents and 
provide comments to the Lenders on unacceptable terms and conditions. Once 
resolved, OFA will coordinate the review of the transaction within SBA. If 
approved, OFA will issue a consent letter along with signature pages to the Multi-
Party Agreement executed by both SBA and the FTA. 
 Secured Credit Facilities. Under 13 CFR § 120.434, Lenders are required to 
obtain SBA’s prior written consent when pledging 7(a) loans as collateral for a 
secured credit facility. These credit facilities are entered into by Lenders as a 
source of funding for making 7(a) loans to small businesses. These credit facilities 
may only be used to finance the guaranteed and/or unguaranteed portions of 7(a) 
loans along with the cost and expenses of obtaining the credit.  
 Lenders are permitted to make financing arrangements with credit providers 
which culminate in the drafting of a loan and security agreement as well as other 
ancillary transaction documents. SBA requires each secured financing transaction 
to include an SBA Multi-Party Agreement (MPA). The form of the MPA is 
located at www.sba.gov/document/support-object-object-sba-multi-party-
agreements. The MPA is a document executed by the Lender, the credit provider, 
SBA, and the Fiscal Transfer Agent (FTA). The MPA identifies rights and 
restrictions that limit actions that may be taken by the credit provider if a Lender 
default on the facility occurs. As stated in the MPA, inconsistent provisions 
identified between the MPA and other transaction documents are decided in favor 
of the MPA in all cases. 
 Once transaction documents are drafted, Lenders shall submit these documents in 
electronic form to the Chief of the Secondary Market Division within OFA. This 
unit will review the transaction documents and provide comment to the Lenders 
on unacceptable terms and conditions. Once resolved, OFA will coordinate the 
review of the transaction within SBA and the FTA. If approved, OFA will issue 
its consent letter along with signature pages for the MPA from both SBA and the 
FTA. Lenders are to ensure that all conditions in the MPA are satisfied at closing 
including the delivery of opinions of counsel from both the Lender and the credit 
provider. Lenders are to send electronic editions of the closing binders for these 
transactions to OFA in care of the Secondary Market Division. 
JX019.61
C. 
d. 
e. 
f. 
g. 
h. 
App.3318
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 62 
F. LENDER LOAN REPORTING 
1. Lenders must provide a monthly report on SBA Form 1502, “Guaranty Loan Status & 
Lender Remittance Form,” (“Form 1502”) that includes loan status information for all of 
its SBA-guaranteed loans, regardless of whether the Borrower made a payment in the 
current month. International trade Lenders that participate in the EWCP must ensure that 
this reporting function is addressed within their own operation. Lenders with EWCP 
loans should determine how this reporting is carried out by any domestic affiliate 
group(s), to the extent these affiliates participate in other SBA programs and combine 
loan portfolio reporting into one source point where possible. 
Detailed instructions for Form 1502 can be found at www.sba.gov/document/sba-form-
1502-sba-form-1502-instructions.  
2. Loan reporting in a current month reflects Borrower payments received or omitted in the 
prior month. 
3. The report period begins with the first calendar day of the month and continues through 
the last calendar day of the month.  
4. Lenders must compute and remit with the Form 1502 either the payments owed if the 
guaranteed portions have been sold in the secondary market or the ongoing guaranty fees 
due if the guaranteed portion has not been sold. 
5. The due date for transmitting loan account updates and payments to the Fiscal and 
Transfer Agent (FTA) is the third calendar day of each month, or the next business day 
thereafter if the third calendar day of the month is not a business day, plus a two business 
day grace period. 
6. Lender must submit the Form 1502 to SBA’s FTA using one of the following delivery 
methods: FTA’s website facilities or Secure File Transfer Protocol (SFTP). Each method 
is described below, followed by wire instructions: 
 FTA’s Website: 
i. FTA provides Lender with the option of using its website to transmit Form 
1502 information. The 1502 Dashboard and the 1502 Connection are found 
at https://colsonservices.bnymellon.com/. 
ii. The 1502 Dashboard’s e-File Submission option allows Lender to securely 
upload Form 1502 file attachments in MS Excel format. 
iii. The 1502 Connection allows Lender to view its portfolio of loans and enter 
Form 1502 information on a Form 1502 data input screen directly on the site. 
iv. All 1502 Dashboard and 1502 Connection submissions must be accompanied 
with a corresponding wire transfer of funds. 
v. Lender must call FTA Client Service at 877-245-6159, Option 1 for 
enrollment information. 
 SFTP: 
i. An SFTP server site is made available through FTA. Lenders are instructed 
to contact Colson Services Corporation’s FTA Client Service number at 
JX019.62
a. 
b. 
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SOP 50 10 6 
 
Part 1, Section A, Ch 3: Lender Financing and Operations 
Effective October 1, 2020 
Page 63 
877-245-6159 and select Option 1 to receive instructions on obtaining a 
username and password to access the secure site. 
ii. Wire Transfer instructions for Secondary Market and SBA Fee payments 
should be directed to the following wire address: 
Bank of New York Mellon 
ABA Routing: 021-000-018 
For credit to Colson Services Corp. 
7(a) Collection Account # 8900606797 
Text: Bank Name & Payment Information 
 Wire Transfer instructions for Secondary Market Payoffs and Prepayments should 
be directed to the following wire address: 
Bank of New York Mellon 
ABA Routing:  021-000-018 
For credit to Colson Services Corp. 
7(a) Payoff Account # 8900606827 
Text: GP #, Bank Name and P & I 
Lender is responsible for any additional funds due to the secondary market 
for using the incorrect wire transfer instructions. 
 
JX019.63
C. 
App.3320
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JX019.64
App.3321
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SOP 50 10 6 
 
Part 1, Section B, Certified Development Company (CDC) Participation 
Effective October 1, 2020 
Page 65 
SECTION B. CERTIFIED DEVELOPMENT COMPANY (CDC) PARTICIPATION  
13 CFR Part 120 Subpart H 
The SBA 504 Loan Program is an economic development program offering a financing package 
that stimulates private sector investment in long-term fixed assets to increase productivity, create 
new jobs, and increase the local tax base. The stimulus is provided by making long-term, low 
down payment, reasonably priced fixed-rate financing to healthy and expanding businesses 
which have the highest probability of successfully creating new jobs and competing in the world 
marketplace. 
504 loans are issued through a partnership with Certified Development Companies (CDC) and 
private sector Third Party Lenders. CDCs are non-profit corporations (with the exception of 
several for-profit corporations grandfathered into the 504 Loan Program) certified and regulated 
by the Small Business Administration to package, process, close, and service 504 loans. Unless 
expressly provided otherwise in the regulations, any SBA Loan Program Requirement that 
applies to non-profit CDCs also applies to for-profit CDCs. (13 CFR § 120.818) 
The 504 Loan Program was authorized by Congress under the Small Business Investment Act. 
The regulations governing the 504 program can be found in 13 Code of Federal Regulations 
(CFR) Part 103 and Part 120, (Sections 120.800 - 120.991 refer exclusively to the Development 
Company Loan Program). Terms and definitions specific to the 504 program can be found at 13 
CFR § 120.802. 
 
JX019.65
App.3322
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JX019.66
App.3323
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 67 
CHAPTER 1: CDC PARTICIPATION 
A. APPLICATION TO BECOME CERTIFIED AS A CDC 
13 CFR § 120.810 
1. The Application for Certification as a Certified Development Company is SBA Form 
1246. CDCs must also comply with all of the requirements prescribed in 13 CFR §§ 
120.810 – 120.830. The applicant must demonstrate that it satisfies the CDC certification 
and operational requirements in 13 CFR §§ 120.816 through 120.830. It is important for 
the CDC to have adequate initial capital to reasonably assure its ability to sustain 
operations.  
A CDC applicant must provide evidence of the following in its application (additional 
information may be requested by the reviewing parties at the Lead District Office and/or 
the 504 Program Branch):  
 Copy of its IRS tax exempt status; 
 Applicant CDC is in good standing in the State in which it is incorporated; 
 Applicant CDC is in compliance with all laws, including taxation requirements, in 
the State in which the CDC is incorporated and any other State in which the CDC 
conducts business; 
 List of Board of Directors and any Executive Committee or Loan Committee 
established, organized by area of expertise. For each of these individuals, identify 
the area(s) of expertise that he or she represents on the Board or committee to 
satisfy the representational requirements of 13 CFR 120.823(a), including a 
description of the individual’s experience that demonstrates that he or she is 
qualified to represent that area of expertise; 
 Organizational Chart; 
 List of all officers and paid employees of the CDC (including all contracted staff 
and contractors assisting in performing 504 loan functions, including but not 
limited to loan packaging, processing, closing, servicing and liquidation (if 
applicable) for the CDC); 
 Each of the following must undergo a character determination in accordance with 
paragraph B. of this Chapter, Form 1081 CDC Character Determinations: CDC 
manager; officers; Board members; CDC staff, and loan committee members.  
i. If SBA’s character determinations have already been received at the time of 
application submission, include a copy of the character determinations with 
the application.  
ii. For loan committee members who do not require fingerprinting, provide a 
statement including the loan committee member’s name and noting that the 
CDC is retaining the individual’s SBA Form 1081 in the CDC’s files. 
JX019.67
a. 
b. 
C. 
d. 
e. 
f. 
g. 
App.3324
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 68 
iii. If SBA’s character determination has not been received prior to submitting the 
application, include a statement that the original SBA Form 1081 and any 
supporting documentation have been forwarded to OCA and that individuals 
have been fingerprinted. Note: A CDC may not be approved to begin 504 
Loan Program operations until all staff have been cleared by SBA in 
accordance with paragraph B. of this Chapter, Form 1081 CDC Character 
Determinations; 
 Certificate of Incorporation; 
 Articles of Incorporation; 
 Bylaws, which must include the regulatory requirements regarding the Board of 
Directors and Membership (if applicable); 
 Board Resolution authorizing the CDC’s creation; 
 Plan of Operation - a detailed narrative describing the applicant’s ability to 
package, process, close, and service the loans. The plan must identify the 
applicant’s financial and legal capacity and identify how it plans to market the 
504 program, the geographic area it plans to serve, and include plans for 
investment in economic development in their Area of Operations; 
 Operating budget, approved by the applicant’s Board of Directors; financial 
statements; and detailed projections with assumptions demonstrating the CDC’s 
financial ability to operate (See paragraph D.8 of this Chapter, Financial Ability 
to Operate), how the CDC can operate in a positive net asset position by the end 
of its two-year probationary period; and 
 Information regarding any affiliates. 
2. Submission of Application 
The completed application must be electronically submitted to the Lead District Office 
serving the proposed Area of Operations for review. If the Lead District Office 
determines that the application is complete and eligible, the Lead District Office will 
forward its recommendation to the 504 Loan Program Division for further review and 
recommendation to the Director, Office of Financial Assistance (D/FA). 
 In addition to the items listed above, the application package must include:  
i. SBA Form 1246, Application to Become a CDC; 
ii. An assessment of the application by the Lead District Office with a 
recommendation for application approval.  
 Decline at the Lead District Office: If the Lead District Office review determines 
that the CDC is not eligible for certification, it should decline the CDC 
application. If a CDC application is declined by the Lead District Office, the CDC 
will be notified in writing outlining the reasons for decline and the CDC’s rights 
of appeal, with a copy to the appropriate SBA official, including the D/FA. The 
CDC applicant has 60 days to send an appeal to the Lead District Office for action 
by the next higher authority. 
JX019.68
h. 
1. 
J. 
k. 
I. 
m. 
n. 
a. 
b. 
App.3325
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 69 
 Final Decision: The final decision on CDC applications is determined by the 
D/FA. SBA will send a letter to the CDC applicant notifying it of the decision 
with a copy to the Lead District Office’s District Director. If the decision is a 
decline by the D/FA, SBA will notify the CDC applicant and Lead District Office 
in writing of the decision and the reason(s) for decline. There is no process for 
appeal of a final decision of decline. The CDC may submit a new application to 
the Lead District Office after a waiting period of 6 months from the date of 
notification of the decline by SBA. 
3. Probationary Period and Requests for Permanent Status 
13 CFR § 120.812 
The probationary period is meant for newly certified CDCs to establish their operation 
and demonstrate to SBA their ability to perform in accordance with the mission of the 
504 Loan Program and comply with all Loan Program Requirements. Newly certified 
CDCs will be on probation for a period of 2 years. While in probationary status, the CDC 
is not eligible to apply for delegated authority, request expansions to their Area of 
Operations, receive portfolio transfers, or merge with another entity.  
Ninety days prior to the end of the probationary period, the CDC must either apply for 
permanent status or a single one-year extension. SBA will consider failure to apply for 
permanent status or a single one-year extension of probation before the end of the 
probationary period as a voluntary withdrawal from the 504 program. In such case, or if 
the CDC otherwise voluntarily withdraws from the 504 program, it must transfer all 
funded and/or approved loans to another CDC, SBA, or other servicer approved by SBA, 
including all related servicing fees, as directed by SBA. 
 To be considered for permanent CDC status or an extension of probation. The 
CDC must have satisfactory SBA performance as determined by SBA. SBA will 
consider, among other factors: 
i. The CDC’s Risk Rating; 
ii. Review/examination assessments; 
iii. Historical performance measures (e.g. default rate, purchase rate and loss 
rate); 
iv. Compliance with 504-specific Program requirements (e.g. loan volume, loan 
portfolio diversification, Job Opportunity average, and reporting 
requirements). 
 The request for permanent CDC status or a single 1-year extension of the CDC’s 
probationary status should be sent to the Lead District Office with a copy to the 
504 Loan Program Division at 504Requests@sba.gov and contain: 
i. A current Board of Directors List, identifying each Director’s area of 
expertise;  
ii. A list of all members of all Board-established committees (if established); 
iii. A list of all current staff, including a description of each individual’s duties 
and an organizational chart;  
JX019.69
C. 
a. 
b. 
App.3326
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 70 
iv. Current bylaws, including any amendments; and 
v. Current Articles of Incorporation, including any amendments. 
 The Lead District Office must obtain comments from the SBA processing and 
servicing centers as to the quality of the CDC’s processing and servicing. The 
Lead District Office must include the centers’ comments and its own comments 
on the CDC’s performance in its recommendation and must submit the 
request/recommendation to the 504 Loan Program Division at 
504Requests@sba.gov. 
 The CDC must have appropriate personnel attend industry training in credit 
analysis, 504 packaging, closing, and servicing within 1 year of certification. 
 SBA will notify the CDC in writing of its decision, and, if the petition is declined, 
the reason(s) for the decision. If the petition is declined, the CDC must transfer all 
funded and/or approved loans to another CDC, SBA, or other servicer approved 
by SBA, including all related servicing fees, as directed by SBA. 
B. FORM 1081 CDC CHARACTER DETERMINATIONS 
SBA uses the character determination process to clear individuals (i.e., CDC manager, officer, 
Board member, CDC staff, loan committee member) to participate in a CDC’s activities. 
Individuals may not begin activities at the CDC until the clearance process is complete. When 
fingerprints are required, the clearance process is complete when SBA provides written 
notification to the CDC. Once an individual is cleared by SBA, the clearance does not need to be 
renewed as long as the individual maintains uninterrupted service with the same CDC, and the 
CDC or SBA has no indication that the individual would need to update SBA Form 1081 due to 
a change in circumstances. 
For the protection of personally identifiable information (PII) such as names, tax identification 
numbers, addresses, financial information, etc., the CDC must limit access to PII to only those 
who have been cleared through this process. 
1. For each new CDC manager; officer; Board member; and CDC staff (including 
contractors who are providing services to the CDC under a professional services contract 
that requires prior SBA approval under 13 CFR 120.824) the CDC must submit to SBA 
the SBA Form 1081 and any supporting documentation. The Subject Individual must also 
undergo an FBI Fingerprint Background Check. 
However, if a professional services contractor has been cleared by SBA within the past 
12 months for employment with a different CDC, and if the contractor answers “no” to 
question numbers 10a, 10b, 10c, 11a, and 11b on SBA Form 1081 (signed within 90 days 
of submission to SBA), a fingerprint background check is not required. The CDC must 
retain the signed SBA Form 1081 in the CDC’s files. Do not submit the SBA Form 1081 
for such an individual to SBA. 
JX019.70
C. 
d. 
e. 
App.3327
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 71 
2. For each new Loan Committee Member that is not serving on the CDC’s Board of 
Directors, the CDC must collect an SBA Form 1081. 
 For those Loan Committee members who answer “no” to question numbers 10a, 
10b, 10c, 11a, and 11b, the CDC must retain the signed SBA Form 1081 in the 
CDC’s files. No FBI Fingerprint Background Check is required. Do not submit 
SBA Form 1081 to SBA. 
 If a Loan Committee member answers “yes” to question numbers 10a, 10b, 10c, 
11a, or 11b on SBA Form 1081, the CDC must submit to SBA the SBA Form 
1081 and any supporting documentation. The Subject Individual must also 
undergo an FBI Fingerprint Background Check. 
3. The following are not required to be cleared and do not have to complete SBA Form 
1081: 
 Attorneys providing legal services in connection with loan liquidation or 
litigation; 
 Contractors providing services under co-employment contracts for payroll and 
employee benefits (although the staff co-employed through these contracts are not 
exempt). 
4. FBI Fingerprint Background Check: When required, the Subject Individual must provide 
one of the following: 
 Fingerprint Submission. 
i. SBA will use an FBI-approved, SBA-contracted channeler to conduct 
fingerprint background checks via Electronic Fingerprint Submission. The 
current SBA-contracted channeler for Electronic Fingerprint Submissions to 
the FBI is Biometrics4ALL. 
ii. After a CDC determines that a fingerprint background check is required, the 
CDC will refer the Subject Individual to the approved channeler’s website 
where they must create an account and register. The Subject Individual will 
select the “SBA Form 1081” option and complete the fingerprint process by 
following the directions on the approved channeler’s website: 
www.applicantservices.com/sba. 
iii. The channeler will provide expedited fingerprint processing by directing 
Subject Individuals to approved electronic fingerprinting facilities listed on 
the channeler’s website based on the Subject Individual’s location. 
Depending on the circumstances, the channeler will also provide additional 
locations where hard-copy fingerprints may be taken and will provide the 
FBI Form FD-258 Fingerprint Card for the Subject Individual to capture the 
fingerprints along with instruction on submitting the fingerprint cards to the 
SBA-contracted channeler for continued processing. 
iv. The channeler will electronically submit the fingerprints to the FBI, and the 
FBI will provide the results of the background check to the channeler who 
will, in turn, provide the results to SBA via a secure portal; or 
JX019.71
a. 
b. 
a. 
b. 
a. 
App.3328
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 72 
 Evidence of a Federal clearance (e.g. FDIC, OCC, Federal Reserve) from the 
individual’s current employer. 
5. Submission to SBA. 
SBA Form 1081 must be signed and dated within 90 days of submission to SBA. After 
the CDC has verified that the Subject Individual has submitted fingerprints to the 
channeler, the CDC must submit SBA Form 1081 along with supporting documents such 
as resume and court documents (if applicable) to SBA either by: 
 Email: OCA1081@sba.gov; or 
 Hard copy: Overnight mail or courier to U.S. Small Business Administration, 
Office of Capital Access, Attn: 1081 Processing, 409 3rd Street SW, 8th Floor, 
Washington, DC, 20416. 
NOTE: CDCs must also notify SBA at 504Requests@sba.gov of the following: changes 
in CDC’s management, compensated and uncompensated officers, Board members, 
Executive Committee members, Loan Committee members, and staff (including 
contractors who are providing services to the CDC under a professional services contract 
that requires prior SBA approval under 13 CFR 120.824). See paragraph E, Reporting 
Requirements below.  
6. CDC Certification Applications: Clearances made by SBA during the CDC certification 
application process will remain valid while the certification application is being 
processed; however, if the application is pending and more than 1 year has lapsed since 
an individual was cleared by SBA, the individual must certify under penalty of perjury 
either that nothing has changed on any of the responses to the questions in SBA Form 
1081 or, if there have been changes, the individual must identify any such change(s) that 
have occurred since the individual signed and submitted the SBA Form 1081 that was 
used by SBA to clear the individual. The CDC must submit the certification to SBA at 
504Requests@sba.gov and maintain a copy in the CDC’s files. 
C. TYPES OF AUTHORITIES 
1. Priority CDCs 
13 CFR § 120.802 
 A Priority CDC is a CDC with permanent status that SBA has approved to 
participate in an expedited 504 loan and Debenture closing process. A Priority 
CDC must apply separately for delegated authority. For more information on 
delegated authority, see paragraph C.4, Premier Certified Lenders Program - 
Delegated Authority below). 
 To become a Priority CDC, a CDC must have: 
i. At least one 504 Designated Attorney (for more information, see Part 2, 
Section C, Ch. 2, Para. C.5, Designated Attorney, of this SOP); 
ii. Adequate experience and expertise in 504 loan closings; 
iii. A history of presenting complete and accurate closing packages; 
JX019.72
b. 
a. 
b. 
a. 
b. 
App.3329
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 73 
iv. Satisfactory SBA performance (see first paragraph of Chapter 2 below for 
more information); 
v. A qualified and knowledgeable staff;  
vi. A satisfactory working relationship with its Lead District Office; and 
vii. Evidence of Directors’ and Officers’ Liability and Errors and Omissions 
insurance in form and substance satisfactory to SBA as provided in paragraph 
D.17, CDC Insurance below. 
 Application Process – CDCs may obtain Priority Status either through the 
submission of an Application or by nomination from their Lead District Office. 
i. Application by the CDC: 
a) 
The CDC submits the complete application to the 504 Loan Program 
Division to 504Requests@sba.gov or by overnight mail or courier to 
SBA Headquarters (409 3rd Street SW, 8th Floor, Washington, DC 
20416). The application must address each of the items in the previous 
paragraphs to ensure that the CDC remains in compliance with these 
requirements. 
b) 
The 504 Loan Program Division will solicit comments and a 
recommendation from the Lead District Office’s District Director, 
District Counsel, SLPC, the appropriate loan servicing center, and other 
SBA District Offices, if applicable. 
c) 
If the application contains both a request for Designated Attorney 
delegation and a request for Priority Status, the CDC should send the 
complete package to the 504 Loan Program Division, who will forward 
the attorney information to the Office of General Counsel (OGC). 
ii. Nomination by the Lead District Office: 
The Lead District Office sends a nomination to the 504 Loan Program 
Division with a copy to the CDC. The nomination must be signed by the 
District Counsel and the District Director. The nomination should address all 
of the conditions above and include evidence of the required insurance 
coverage and the name of the Designated Attorney.  
 Notification to the CDC: 
The D/FA will make the final decision, with the concurrence or non-concurrence 
of the Director of the Office of Credit Risk Management (D/OCRM). The D/FA 
will notify the CDC in writing of its approval with a copy to the Lead District 
Office and the attorney will receive a separate approval letter from OGC. 
 Termination of Priority CDC Status: 
The D/FA or designee, with the concurrence or non-concurrence of the D/OCRM 
or designee, may terminate a CDC’s Priority designation for good cause, 
including, but not limited to: the CDC’s failure to use a Designated Attorney; 
failure to maintain adequate insurance coverage; submission of unsatisfactory 
JX019.73
C. 
d. 
e. 
App.3330
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SOP 50 10 6 
 
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closing packages; failure to maintain a good working relationship and good 
communications with SBA District Office personnel; and/or failure to comply 
materially with an SBA Loan Program Requirement.  
2. Accredited Lenders Program (ALP) 
13 CFR § 120.840 and 120.841 
SBA may designate a CDC as an Accredited Lender, which gives the CDC increased 
authority to process, close, and service 504 loans and provides expedited processing of 
loan approval and servicing actions. ALP CDCs are accountable for thorough credit and 
eligibility analysis on loan applications and on servicing actions. The Agency relies on 
the ALP CDC’s credit analysis in making the decision to guarantee the debenture and 
complete the documentation in a reduced timeframe. 
To be eligible for ALP status, a CDC must have permanent CDC status and meet all of 
the requirements of a Priority CDC set forth in this SOP.  
A CDC may submit an ALP application electronically into the Corporate Governance 
Repository or may apply in writing to its Lead District Office, providing all applicable 
information for SBA Review. When the CDC chooses to upload the ALP application into 
the Corporate Governance Repository, it must also submit an email to 
504Requests@sba.gov to notify OFA of the submission.  
At a minimum, the following items must be included in the application package (NOTE: 
this list may not be all-inclusive, and the reviewing SBA official may request further 
information from the CDC in order to make a recommendation): 
 CDC Submission Requirements 
The application must include, at a minimum, the following documentation: 
i. A certified copy of the CDC's Board of Directors' resolution authorizing the 
application for ALP status.  
ii. A current list of the CDC’s staff with organizational chart and description of 
each staff member’s responsibilities and experience. If any of the 
professional staff is obtained under contract from a third party, the CDC must 
certify that it has already provided a copy of the executed contract to SBA 
(with the date and person to whom the copy was provided) or provide a copy 
of the executed contract;  
iii. A current list of CDC Board of Directors, to include the name and address of 
the entity represented (if applicable) and each Director’s area(s) of expertise. 
Board composition must comply with 13 CFR § 120.823; 
iv. A current list of Executive Committee and Loan Committee members (if 
applicable); 
v. A copy of CDC’s current bylaws and Articles of Incorporation; 
vi. A copy of CDC’s internal control policy in compliance with 13 CFR § 
120.826(b); 
JX019.74
a. 
App.3331
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vii. A copy of certificate and policy evidencing the Directors’ and Officers’ 
Liability and Errors and Omission insurance required by SBA in paragraph 
D. 17, CDC Insurance below;  
viii. A copy of certificate and policy evidencing Designated Attorney’s 
malpractice insurance. If the CDC has Multi-State or Local Expansion Area 
(LEA) authority, include verification that designated attorneys are licensed to 
practice law in each State represented; and 
ix. A copy of the CDC’s most current loan policy in compliance with 13 CFR § 
120.823(d)14. 
 Lead District Office Submission Requirements 
The Lead District Office will review the ALP application and submit a 
recommendation to OFA to 504Requests@sba.gov within 2 weeks of receipt of 
the CDC’s letter. The Lead District Office’s recommendation will include 
comments:  
i. On its relationship and experience with the CDC, based on the criteria listed 
as part of the Lead District Office Review in the current version of the SOP 
50 10; and 
ii. From the District Counsel on Loan Closings. 
 504 Loan Program Division Review 
The Lead District Office forwards the application and its recommendation to the 
Chief, 504 Loan Program Division, at 504Requests@sba.gov. The 504 Loan 
Program Division reviews the application and recommendation, and considers the 
criteria listed as part of the 504 Program Division analysis in the current version 
of the SOP 50 10, along with the following: 
i. Comments from the Office of Credit Risk Management (OCRM) on: 
a) 
ALP qualifications; and 
b) 
Compliance with program reviews including SMART Reviews and 
Annual Reports. 
ii. Comments from Sacramento Loan Processing Center and Fresno/Little Rock 
Commercial Loan Servicing Center 
The 504 Loan Program Division will forward its recommendation to the D/FA for 
final determination. The D/OCRM will concur or non-concur on the 
recommendation to the D/FA. 
 D/FA Review 
The D/FA will make the final decision. The D/FA may consider any information 
submitted or available related to the applicant and the application and will notify 
the CDC and the Lead District Office, OCRM, Sacramento Loan Processing 
Center, and Fresno/Little Rock Commercial Loan Servicing Center of the final 
decision. If the application is denied, the notification will include the reason(s) for 
denial. 
JX019.75
b. 
C. 
d. 
App.3332
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If the application is approved, the 504 Loan Program Division will update SBA’s 
internal systems to reflect the CDC’s ALP status. 
 Term of ALP Designation 
SBA generally will designate a CDC as an ALP CDC for a 2-year period. SBA 
may renew the designation for additional 2-year periods if the CDC continues to 
meet the ALP program eligibility requirements.  
 Renewal of an ALP CDC’s designation: 
A CDC with ALP authority requesting renewal of its ALP designation must 
submit the information and documentation identified in paragraph 2.a., CDC 
Submission Requirements, to OCRM at CDCAnnualReports@sba.gov. The 
required information and documentation should be submitted at least 120 days 
prior to expiration of the CDC’s ALP status to ensure sufficient processing time. 
After receipt of the required information and documentation, OCRM will ask for 
comments from the Lead District Office, SBA’s processing, servicing, and 
liquidation centers. SBA’s review will address all of the requirements found at 13 
CFR §§ 120.840-120.841 and the items noted above. The D/OCRM will make the 
final decision. 
3. Abridged Submission Method (ASM) 
SBA has established a streamlined loan application processing procedure known as the 
Abridged Submission Method (ASM). (Note: ASM is a streamlined application process 
and does not involve the exercise of any delegated authority.) For more information on 
delegated authority, see paragraph C.4, Premier Certified Lenders Program - Delegated 
Authority below. 
Under this process, the CDC is required to collect and retain all exhibits to SBA Form 
1244, but is only required to submit certain documents to SBA. See SBA Form 1244 and 
Part 2 of this SOP, Submission of Loan Application. 
SLPC selects CDCs to participate in ASM. To be selected, CDCs must submit complete, 
quality loan applications 
 To be eligible for ASM, a CDC must be selected by SLPC and: 
i. Have either Accredited Lender Program (ALP) status or Premier Certified 
Lenders Program (PCLP) status; 
ii. Have submitted at least 10 loans in the last 12 months, and have passed 
benchmark measures using the most recent loans processed; and 
iii. Earn an average “loan package score” (LPS) numeric equivalent rating of no 
more than “2.0” among the most recent 25 loans submitted as determined by 
the SLPC upon the review of the comprehensiveness and quality of the loan 
application package. 
 Monitoring. SBA will monitor CDC’s continued eligibility to use ASM by 
reviewing one loan out of 10 loan applications based upon the following: 
i. Each CDC will have at least one loan reviewed during a 12-month period. 
JX019.76
e. 
f. 
a. 
b. 
App.3333
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
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ii. No CDC will have more than 12 loans reviewed during a 12-month period. 
iii. SLPC will send CDC a written notice for review, and CDC will have 
3 business days to submit the entire file to the SLPC. 
 The CDC will lose its ASM status if: 
i. The average “loan package score” (LPS) for the most recent 25 applications 
(or all applications since inception as ASM, if fewer than 25) submitted to 
the SLPC exceeds 2.0, the CDC will lose its ASM status until the average 
LPS returns to 2.0 or less. 
ii. The average LPS of the ASM loans reviewed in the CDC’s annual review of 
ASM applications by SLPC exceeds 2.0, the CDC will lose its ASM status 
for a period of not less than 90 days. 
iii. A CDC fails to meet the required portfolio performance standards or any 
other criteria for ASM. 
iv. SBA will rely more heavily on the analysis of the CDCs therefore, continued 
quality performance of the CDCs portfolio is essential. 
v. The SLPC Center Director or designee may approve or remove ASM status 
at any time for good cause including, but not limited to, misrepresentation, 
quality of post-approval actions and findings of internal or external audits of 
the CDC. 
vi. CDCs submitting applications using the ASM may upload documents using 
E-Tran. 
4. Premier Certified Lenders Program – Delegated Authority 
Under the Premier Certified Lenders Program (PCLP), SBA designates qualified CDCs 
as PCLP CDCs and delegates to them increased authority to process, close, service and 
liquidate 504 loans (13 CFR § 120.848). SBA also may give PCLP CDCs increased 
authority to litigate 504 loans (13 CFR § 120.845). As an SBA Lender with delegated 
authority, PCLP CDCs are responsible for all loan approval decisions except eligibility as 
set forth in SBA Loan Program Requirements. Loans processed under a PCLP CDC’s 
delegated authority are subject to the same loan terms and conditions as other 504 loans. 
 Application for PCLP Status: 
A CDC may apply in writing to its Lead District Office providing all applicable 
information set forth in paragraph C.2.a., CDC Submission Requirements above 
and the following:  
i. Documentation of meeting all ALP requirements to be eligible to obtain or 
retain PCLP status; 
ii. A certified copy of the Board of Directors' resolution authorizing the 
application for PCLP status (this is only required for new PCLP CDC 
applications not for renewals);  
JX019.77
C. 
a. 
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Part 1, Section B, Ch 1: CDC Participation 
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iii. Evidence that the CDC:  
a) 
Has established a Loan Loss Reserve Fund (LLRF) in compliance with 
the requirements set forth in 13 CFR § 120.847; 
b) 
Has a demonstrated ability to process, close, service and liquidate 504 
and/or PCLP loans; and 
c) 
Has satisfactory SBA performance as determined by SBA in its 
discretion. Factors may include, but are not limited to, 
review/examination assessments, SMART metrics, historical 
performance measures (such as 60 days delinquent reports, 90 days or 
more past due reports, catch up reports, liquidation rates, past 12 month 
active purchase rates, Small Business Predictive Score (SBPS) average 
used by SBA’s Office of Credit Risk Management, default rate, 
purchase rate and loss rate), and the CDC’s Risk Rating. 
iv. Summary of experience of each of the CDC’s processing, closing, servicing, 
and liquidation staff members with significant authority; and 
v. Name, address, and summary of experience of the CDC’s Designated 
Attorney. 
 SBA Review and Determination: 
The D/FA makes the final Agency decision with the D/OCRM concurring or non-
concurring in the recommendation. 
 Notification of PCLP Status: 
D/OCRM or designee will notify the CDC in writing and will notify all 
appropriate SBA offices. 
 Loan Guaranty Agreement - Premier Certified Lenders Program (PCLP): 
Upon approval as a PCLP CDC, D/OCRM or designee will send the CDC an 
SBA Form 2006, “Loan Guaranty Agreement - Premier Certified Lenders 
Program (PCLP).” The CDC must sign and return the agreement before it can 
begin processing PCLP loans.  
 PCLP Term: 
SBA will confer PCLP status for a period of up to 2 years and may renew the 
designation for additional periods of up to 2 years. The D/ORCRM approves or 
declines the renewal. 
 Area of Operations: 
The PCLP CDC may exercise its PCLP authority in its entire Area of Operations.  
 Loan Loss Reserve Fund (LLRF) 13 CFR § 120.847: 
i. A PCLP CDC must establish and maintain an LLRF for its financings with a 
federally-insured depository institution. All documents must be satisfactory to 
SBA in both form and substance. SBA may require changes in, or 
supplements to, the documentation from time to time. If a depository 
JX019.78
b. 
C. 
d. 
e. 
f. 
g. 
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institution will not enter into any agreement required by SBA or violates the 
terms of any such agreement, the PCLP CDC may not maintain an LLRF with 
that institution. 
ii. The LLRF will be used to reimburse the SBA for 10 percent of any loss 
sustained by SBA as a result of a default in the payment of principal or 
interest on a PCLP debenture.0F0F1 For each PCLP debenture a PCLP CDC 
issues, it must establish and maintain an LLRF equal to 1% of the original 
principal amount of each PCLP debenture. The amount the PCLP CDC must 
maintain in the LLRF for each PCLP Debenture remains the same even as the 
principal balance of the PCLP Debenture is paid down over time except that, 
after the first 10 years of the term of the Debenture, the amount maintained in 
the LLRF may be based on 1% of the current principal amount of the PCLP 
Debenture (the declining balance methodology), as determined by SBA. All 
withdrawals must be made in accordance with the requirements of 13 CFR § 
120.847(g). 
iii. A CDC may not use the declining balance methodology: 
a) 
With respect to any Debenture that has been purchased. Within 30 days 
after purchase, the CDC must restore the balance maintained in the 
LLRF for the Debenture that was purchased to 1% of the original 
principal amount of that Debenture; or 
b) 
With respect to any other Debenture if SBA notifies the CDC in writing 
that it has failed to satisfy the requirements in 13 CFR § 
120.847(e),(f),(h),(i), or (j). In such case, the CDC will not be required 
to restore the balance maintained in the LLRF to 1% of the original 
principal amount of the Debenture but must base the amount maintained 
in the LLRF on 1% of the principal amount of the Debenture as of the 
date of notification. The CDC may not begin to use the declining 
balance methodology again until SBA notifies the CDC in writing that 
SBA has determined, in its discretion, that the CDC has corrected the 
noncompliance and has demonstrated its ability to comply with these 
requirements.  
iv. The PCLP CDC must grant SBA a first priority perfected security interest in 
its LLRF. The security interest in the PCLP CDC’s LLRF must be granted 
pursuant to a security agreement between the PCLP CDC and SBA. The 
 
 
1 For PCLP debentures issued while a PCLP CDC elected to participate in the Alternative Loan Loss Reserve Pilot 
Program (ALLR) authorized under Section 508(c)(7) of the Small Business Investment Act of 1958, the PLCP CDC 
is required to reimburse SBA for 15 percent of any loss sustained by SBA as a result of a default in the payment of 
principal or interest on those PCLP debentures. The statutory authority for the ALLR lapsed on July 31, 2011. As a 
result of the statutory lapse, PCLP CDCs that had elected to participate in the ALLR are now required to maintain a 
Loan Loss Reserve Fund in an amount sufficient to meet the Standard Loan Loss Reserve Requirement set forth in 
13 C.F.R. § 120.847(b), which is one percent of the original principal amount of the PCLP Debenture for the life of 
the loan. 
JX019.79
App.3336
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Effective October 1, 2020 
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security interest in the PCLP CDC’s LLRF must be perfected pursuant to a 
control agreement between the PCLP CDC, SBA and the applicable 
depository institution. 
v. When establishing an LLRF, a PCLP CDC must coordinate with OCRM to 
execute and deliver the required documentation. SBA created SBA Form 
2230, “Control Agreement,” and SBA Form 2229, “Security Agreement,” 
that must be used in connection with the LLRF. The fully executed original 
control and security agreements, as well as any applicable financing 
statements, must be provided to OCRM. 
vi. Other LLRF Requirements: 
a) 
A PCLP CDC must contribute at least 50% of the required LLRF for a 
PCLP Debenture on or about the date that it issues the PCLP Debenture. 
b) 
A PCLP CDC must contribute at least an additional 25% of the required 
LLRF for a PCLP Debenture no later than 1 year after it issues the 
PCLP Debenture. 
c) 
A PCLP CDC must contribute any remainder of the required LLRF for 
a PCLP Debenture no later than 2 years after it issues the PCLP 
Debenture. 
d) 
In the event of default on the payment of any PCLP Debenture and upon 
the conclusion of liquidation efforts, SBA will determine the amount of 
any loss owed by the PCLP CDC to SBA and notify the CDC of the 
amount. If the PCLP CDC agrees with SBA’s calculation of the loss, it 
must reimburse SBA for ten percent of the amount of the loss no later 
than 30 days after notice from SBA.  
e) 
If the PCLP CDC disputes SBA’s calculations, it must reimburse SBA 
for ten percent of any loss amount that is not in dispute no later than 30 
days after SBA’s notice. No later than 30 days after SBA’s notification, 
the PCLP CDC may submit to the D/FA (or his or her delegee) a written 
appeal of any disagreement regarding the calculation of SBA’s loss. The 
PCLP CDC must include with the appeal an explanation of its reasons 
for the disagreement. Upon the D/FA’s final decision as to the disputed 
amount of the loss, the PCLP CDC must promptly reimburse SBA for 
ten percent of that amount. 
f) 
A PCLP CDC must diligently monitor the LLRF to ensure that it 
contains sufficient funds to cover its Exposure for its entire portfolio of 
PCLP Debentures. If, at any time, the LLRF does not contain sufficient 
funds, the PCLP CDC must, within 30 days of the earliest of the date it 
becomes aware of this deficiency or the date it receives notification 
from SBA of this deficiency, make additional contributions to the LLRF 
to make up this difference.  
g) 
A PCLP CDC must report to and reconcile with OCRM any 
discrepancies between the Quarterly PCLP List of Required LLRF 
Deposits and its records as noted in paragraph E., Reporting 
JX019.80
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Effective October 1, 2020 
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Requirements, below, no later than 45 days after the end of each quarter. 
This report may be made either by sending an email to 
PCLPQuarterlyReport@sba.gov or via the Corporate Governance 
Repository. 
h) 
A PCLP CDC must submit the SBA Form 2233, “Quarterly Loan Loss 
Reserve Report,” no later than 45 days after the end of each quarter, to 
OCRM, either at PCLPQuarterlyReport@sba.gov or via the Corporate 
Governance Repository, and to the Lead District Office serving the 
territory where the 504 Borrowers are located. See paragraph E., 
Reporting Requirements below. 
i) 
A PCLP CDC must submit requests for withdrawals to the Lead District 
Office with a copy to OCRM at PCLPQuarterlyReport@sba.gov. 
vii. Each Lead District Office Must: 
a) 
Notify Sacramento Loan Processing Center (SLPC) when a PCLP CDC 
meets LLRF initial establishment requirements. 
b) 
Process requests to withdraw interest earned on LLRF or excess funds 
in LLRF. 
c) 
Transmit to PCLP CDC the Quarterly PCLP List of Required LLRF 
Deposits. 
d) 
Work with PCLP CDCs to reconcile any differences in quarterly Loss 
Reserve calculations. 
e) 
Review and approve the Quarterly PCLP List of Required LLRF 
Deposits. 
f) 
Provide written notice to the PCLP CDC of SBA’s intent to transfer 
funds from the LLRF. 
 Renewal of a PCLP CDC’s designation: 
A PCLP CDC requesting renewal of its PCLP CDC designation must submit the 
request and the previous quarter’s confirmation of the CDC’s Loan Loss Reserve 
to OCRM at CDCAnnualReports@sba.gov. The required information and 
documentation should be submitted at least 120 days prior to expiration of the 
CDC’s PCLP status to ensure sufficient processing time. After receipt of the 
required information and documentation, OCRM will ask for comments from the 
Lead District Office, SBA’s processing, servicing, and liquidation centers. SBA’s 
review will address all of the requirements found at 13 CFR § 120.846 and the 
items noted above. The D/OCRM will make the final decision. 
D. OPERATING REQUIREMENTS 
1. CDCs must comply with SBA Loan Program Requirements (as defined in 13 CFR § 
120.10) for the 504 Loan Program, as such requirements are revised from time to time. 
SBA Loan Program Requirements in effect at the time that a CDC takes an action in 
connection with a particular loan govern that specific action. For example, although loan 
JX019.81
h. 
App.3338
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Effective October 1, 2020 
Page 82 
closing requirements in effect when a CDC closes a loan will govern closing actions, a 
CDC’s liquidation actions on the same loan are subject to the liquidation requirements in 
effect at the time that a liquidation action is taken (13 CFR § 120.180). SBA Loan 
Program Requirements, Center contacts, and other information can be found at 
https://www.sba.gov/partners/lenders/cdc-504-loan-program; 
2. Non-Profit Status (13 CFR § 120.816): A CDC must be a non-profit corporation (with the 
exception of certain grandfathered CDCs) and must: 
 Be in good standing in the State in which the CDC is incorporated; and 
 Be in compliance with all laws, including taxation requirements, in the State in 
which the CDC is incorporated and any other State in which the CDC conducts 
business. 
3. Other CDC Services (13 CFR § 120.827): 
A CDC may provide a small business with assistance unrelated to the 504 loan program 
as long as the CDC does not make such assistance a condition of the application for a 504 
loan. A CDC is subject to 13 CFR Part 103 when providing such assistance. See Part 2, 
Section A, Ch. 5, Ethics, Fees, and Agents, of this SOP when providing such assistance 
on a 7(a) loan.  
4. CDC Membership: CDC membership is optional. If a CDC elects to have a membership, 
the membership requirements must be included in the CDC’s bylaws. If the members are 
responsible for electing or appointing the voting directors to the CDC’s Board of 
Directors, no person or entity can control more than 25 percent of the voting membership. 
5. CDC Board of Directors Roles and Responsibilities under 13 CFR § 120.823(d)(10): The 
CDC must have a Board of Directors. The Board shall have and exercise all corporate 
powers and authority and be responsible for all corporate actions and business. The Board 
is responsible for ensuring that the structure and operation of the CDC as set forth in the 
CDC’s bylaws complies with SBA’s Loan Program Requirements. The Board must be 
actively involved in encouraging economic development in the CDC’s Area of 
Operations in which it has a portfolio. The initial Board may be created by any method 
permitted by State law. 
6. CDC Board of Directors Composition and Requirements: CDC Boards must comply with 
13 CFR § 120.823, as follows: 
 All CDCs must have a Board of Directors with at least seven voting directors who 
live or work in the CDC’s State of incorporation or in an area that is contiguous to 
that State that meets the definition of a Local Economic Area for the CDC.  
 At a minimum, the CDC’s Board must have directors with background and 
expertise in internal controls; financial risk management; commercial lending: 
legal issues relating to commercial lending; corporate governance; and economic, 
community, or workforce development. Directors may be either currently 
employed or retired. Retirees may either represent the field from which they 
retired or represent the community. For purposes of complying with these 
representational requirements, one director may have more than one area of 
expertise. 
JX019.82
a. 
b. 
a. 
b. 
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 At least two voting Directors, other than the CDC manager, must possess 
commercial lending experience. 
 No person who is a member of a CDC's staff (including contractors) may be a 
voting Director of the Board except for the CDC manager. 
 No CDC Board member may serve on the Board of another CDC. CDC Board 
members may serve on the Boards of civic, charitable, or comparable 
organizations. 
 The Board must meet at least quarterly and shall be responsible for all corporate 
actions and business of the CDC, including any committee(s) established by the 
Board. 
 The Board meetings require a quorum to transact business. A quorum must be 
present for the duration of the meeting. The number of Directors that constitute a 
quorum shall be set by the CDC, provided that a quorum shall not be less than 
50% of the voting Directors of the CDC Board. Attendance may be through any 
format permitted by State law. 
 When the Board votes on SBA Loan approval or servicing actions, at least two 
voting members with commercial loan experience satisfactory to SBA, other than 
the CDC manager, must be present and vote. 
 There must be no actual or appearance of conflict of interest with respect to any 
actions of the Board. The Board must establish a policy in the bylaws of the CDC 
prohibiting an actual conflict of interest or the appearance of same, and enforce 
such policy (13 CFR § 120.823(d)). 
 Other Responsibilities of the CDC Board include, but are not limited to, the 
following: 
i. Approving the mission and policies of the CDC. 
ii. Hiring, firing, supervising, and annually evaluating the CDC manager. 
iii. Setting the salary for the CDC manager and reviewing all CDC staff salaries. 
iv. Establishing committees, at the Board’s discretion. 
v. Ensuring that the CDC’s expenses are reasonable and customary. 
vi. Directly hiring an independent auditor to provide the financial statements of 
the CDC in accordance with SBA Loan Program Requirements. 
vii. Monitoring the CDC’s portfolio performance on a regular basis. 
viii. Reviewing a semi-annual report on portfolio performance from the CDC 
manager, which includes, but is not limited to, asset quality and industry 
concentration. 
ix. Ensuring that the CDC establishes and maintains adequate reserves for 
operations. 
x. Ensuring that the CDC invests in economic development in each of the states 
in its Area of Operations in which it has a portfolio and approving each 
JX019.83
C. 
d. 
e. 
f. 
g. 
h. 
1. 
J. 
App.3340
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investment. (If the investment is included in the CDC’s budget, the Board’s 
approval of the budget may be deemed approval of the investment. If the 
investment is not included in the CDC’s budget, the Board must separately 
approve the investment.) 
xi. Retaining accountability for the actions of the CDC. 
xii. Establishing written internal control policies in accordance with 13 CFR § 
120.826. 
xiii. Establishing written commercially reasonable loan approval policies, 
procedures, and standards. The CDC must establish and set forth in detail in 
a policy manual its credit approval process. All 504 loan applications must 
have credit approval prior to submission to SBA. If a Loan Committee or 
Executive Committee is not established, the CDC Board must provide credit 
approval of all 504 loans. 
xiv. Each member of the Board must annually certify in writing that he or she has 
read and understands 13 CFR § 120.823, and copies of these annual 
certifications must be included in the CDC’s Annual Report. 
xv. Maintaining Directors’ and Officers’ Liability and Errors and Omission 
insurance in amounts required by SBA. See paragraph D.17, CDC Insurance 
below. 
xvi. Ensuring compliance with loan servicing and liquidation requirements as set 
forth in SOP 50 55. 
7. Committees (13 CFR § 120.823(d)):  If the CDC Board exercises its discretion to 
establish committee(s), any such committee must be authorized by the CDC’s bylaws. 
Delegation of authority to a committee(s) does not relieve the Board of its responsibility 
imposed by law or SBA Loan Program Requirements. Delegations of Authority to an 
Executive Committee or a Loan Committee, if established, must be included in the 
CDC’s bylaws. No further delegation or re-delegation of a Board’s authority is permitted. 
 Executive Committee – The CDC Board may establish an Executive Committee 
and delegate management functions to the Executive Committee if this delegation 
is in compliance with 13 CFR § 120.823(d)(4)(i) and is authorized by the CDC’s 
bylaws. 
i. The Executive Committee must: 
a) 
Be chosen by and from the Board of Directors; and 
b) 
Meet the same organizational and representational requirements as the 
Board of Directors, except that the Executive Committee must have a 
minimum of 4 voting members present to conduct business.  
ii. Only the Board or Executive Committee, if authorized by the Board, may 
provide credit approval for 504 loans greater than $2,000,000. 
JX019.84
a. 
App.3341
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 85 
 Loan Committees – The Board may establish a Loan Committee  
(13 CFR § 120.823(d)(4)(ii)). The Loan Committee may exercise the authority of 
the CDC Board as set forth below.  
i. The Loan Committee reports to the Board, and members must: 
a) 
Be chosen by the Board of Directors and consist of individuals with a 
background in financial risk management, commercial lending or legal 
issues relating to commercial lending who are not associated with 
another CDC. 
b) 
Have a quorum of at least four Loan Committee members authorized to 
vote, with attendance by any method allowed by State law; 
c) 
Have at least two Loan Committee members with commercial lending 
experience satisfactory to SBA; 
d) 
Consist only of Loan Committee members who live or work in the Area 
of Operations of the State or in an area that meets the definition of Local 
Economic Area for the CDC, except that, for Projects that are financed 
under a CDC’s multi-state authority, the CDC must satisfy the 
requirements described in paragraph f) below; 
e) 
Not include CDC staff or the CDC manager, and; 
f) 
For multi-state CDCs, there must be either: 
i) A separate Loan Committee for each State into which the CDC 
expands that satisfies the requirements in paragraphs a) through d) 
above (13 CFR § 120.835(c)(1)); or 
ii) For any Project located in the State into which the CDC has expanded, 
the CDC’s Board or Loan Committee (if established in the CDC’s 
State of incorporation) includes at least two members who live or work 
in that State when voting on that Project (13 CFR § 120.835(c)(2)). 
The CDC must submit a listing of the additional members of the 
committee that meets the requirements contained in 13 CFR § 
120.823. Each new Loan Committee member must receive a character 
determination in accordance with paragraph B., Form 1081 CDC 
Character Determinations, in this chapter. 
ii. The Loan Committee, if established, may be delegated the authority to: 
a) 
For loans up to $1,000,000 provide credit approval; and 
b) 
For loans of $1,000,000 to $2,000,000, provide credit approval with the 
ratification of the Board or Executive Committee prior to Debenture 
closing. 
c) 
There must be no actual or appearance of a conflict of interest with 
respect to any actions of the Loan Committee, including for example, a 
Loan Committee member participating in deliberations on a 504 loan 
for which the Third Party Lender is the member’s employer or the 
JX019.85
b. 
App.3342
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 86 
member is otherwise associated with the Third Party Lender. 13 CFR § 
120.823(d)(4)(ii)(D). 
8. Financial Ability to Operate (13 CFR § 120.825): 
A CDC must be able to sustain its operations continuously, with reliable sources of funds 
(such as income from services rendered and contributions from government or other 
sponsors). Any funds generated from 504 loan activity by a CDC remaining after 
payment of staff and overhead expenses must be retained by the CDC as a reserve for 
future operations or for investment in other local economic development activity in its 
Area of Operations. SBA will consider the following factors in determining a CDC’s 
financial ability to operate: 
 Financial statements evidencing: 
i. Positive net cash flow trends. 
ii. Sufficient loan loss reserves, if required. 
iii. Solvency. 
a) 
Assets in excess of liabilities. 
b) 
A CDC must be able to pay its debts when they become due. 
 A CDC must not have received a going concern opinion from its auditor. 
 Other factors as determined by SBA. 
9. Affiliation:  
 A CDC must be independent and must not be affiliated (as determined in 
accordance with 13 CFR § 121.103) with any Person (as defined in 
13 CFR § 120.10), except as authorized under 13 CFR § 120.820, which provides 
that: 
i. 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). 
ii. A CDC must not be affiliated (as determined in accordance with 13 CFR 
§121.l03) with or invest, directly or indirectly, in a 7(a) Lender. A CDC that 
was affiliated with a 7(a) Lender as of November 6, 2003, may continue such 
affiliation. 
iii. A CDC must not be affiliated (in accordance with 13 CFR § 121.103) with 
another CDC except as otherwise approved by SBA in accordance with 13 
CFR § 120.824 and paragraph 18 below. In addition, a CDC must not 
directly or indirectly invest in or finance another CDC, except with the prior 
written approval of D/ FA or designee and D/OCRM or designee if they 
determine in their discretion that such approval is in the best interests of the 
504 Loan Program. 
iv. A CDC may remain affiliated with a for-profit entity (other than a 7(a) 
Lender) if such affiliation existed prior to March 21, 2014. A CDC may also 
JX019.86
a. 
b. 
C. 
a. 
App.3343
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 87 
be affiliated with a for-profit entity (other than a 7(a) Lender) whose function 
is economic development in the same Area of Operations with the prior 
written approval of the D/FA or designee if he or she determines in his or her 
discretion that such approval is in the best interests of the 504 Loan Program. 
v. A CDC must not directly or indirectly invest in a Licensee (as defined in 13 
CFR § 120.820(f)) licensed by SBA under the Small Business Investment 
Company Program. A CDC that has an SBA-approved investment in a 
Licensee as of November 6, 2003, may retain such investment.  
 Affiliation is determined in accordance with 13 CFR § 121.103. General 
principles of affiliation under this section include, but are not limited to the 
following: 
i. Concerns and entities are affiliates of each other when one controls or has the 
power to control the other, or a third party (or parties) controls or has the 
power to control both. It does not matter whether control is exercised, so long 
as the power to control exists. 
ii. SBA considers factors such as ownership, management, previous relationships 
with or ties to another concern, and contractual relationships, in determining 
whether affiliation exists. 
iii. Control may be affirmative or negative. Negative control includes, but is not 
limited to, instances where a minority shareholder has the ability, under the 
concern's charter, bylaws, or shareholder's agreement, to prevent a quorum or 
otherwise block action by the board of directors or shareholders. 
iv. Affiliation may be found where an individual, concern, or entity exercises 
control indirectly through a third party. 
v. In determining whether affiliation exists, SBA will consider the totality of the 
circumstances, and may find affiliation even though no single factor is 
sufficient to constitute affiliation. 
10. Minimum Level of Activity and Restrictions on Portfolio Concentrations (13 CFR § 
120.828): 
A CDC must have at least four different loans approved during the last 2 consecutive 
fiscal years, and the portfolio must be diversified as to type of business. 
11. Job Opportunity Average (13 CFR § 120.829): 
 A CDC must maintain the required average of one Job Opportunity per an amount 
of 504 loan funding as specified by SBA from time to time in the Federal Register 
and must indicate in its annual report the Job Opportunities actually or estimated 
to be created or retained by each Project. 
 A CDC is permitted 2 years from its certification date to meet this average. If a 
CDC does not maintain the required average, it may retain its certification if it 
justifies to SBA's satisfaction its failure to do so in its annual report and shows 
how it intends to attain the required average. 
JX019.87
b. 
a. 
b. 
App.3344
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 88 
12. CDC Place of Business: 
 Must be accessible and open to the public during regular business hours with an 
adequate staff (at least one qualified professional staff member available full-time 
as described in paragraph D.18.a., CDC Staff below) to perform normal business 
transactions; 
 May be located with a sponsoring organization if it is clearly evident to the public 
that the CDC is a separate entity; and 
 Must have a separately listed telephone number. 
13. Internal Control Policies - Each CDC’s Board of Directors must establish and fully 
implement an internal control policy which provides adequate direction to the institution 
for effective control over and accountability for operations, programs, and resources. The 
Board-established internal control policy must, at a minimum, comply with 13 CFR 
§120.826(b) and include Board oversight responsibilities under 13 CFR § 120.823(d) 
such as oversight for CDC operations, financial oversight, annual reports and 
certifications. 
 The internal control policy implemented must ensure satisfactory monitoring and 
management of the SBA Loan portfolio, including but not limited to, providing 
for a periodic loan review function to be performed at a minimum of every 2 
years by a person who is not directly or indirectly responsible for loan making or 
by outside contractors. OCRM, in its discretion, may require an off-cycle 
Independent Loan Review. Guidance for Independent Loan Reviews is available 
on SBA’s website at https://www.sba.gov/document/support-object-object-
independent-loan-review-guide. 
 It must include a list of monthly reports provided by the CDC’s management for 
Board review to support adequate Board oversight. 
 It must provide for internal controls for loan making, closing, disbursing, 
servicing, and liquidation. 
 It must provide for a risk rating system to risk classify SBA Loan assets 
satisfactory to SBA. 
 Internal control policies and procedures must include provisions to ensure 
compliance with SBA’s Loan Program Requirements on eligibility. 
 CDCs must provide documentation demonstrating that the internal control 
policies and procedures are fully implemented and followed. 
14. CDC Loan files: 
 All loan case files and collateral documents must be either at the principal office 
of the CDC or maintained in a manner acceptable to SBA that permits their 
immediate access. 
 A CDC must retain a copy of SBA’s character determination, if any, in the CDC 
loan file for the life of the loan. 
JX019.88
a. 
b. 
C. 
a. 
b. 
C. 
d. 
e. 
f. 
a. 
b. 
App.3345
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 89 
 After closing, the CDC must forward all original loan documents to SBA as 
required by SBA Form 2286 and Part 2, Section C, Ch 2, Para. C.6.a.xii of this 
SOP. The Trustee retains the original Debenture. 
 A CDC must provide, at its own expense, documents or copies when requested by 
SBA. 
 Record Retention Guidelines: See Appendix 11, Record Retention Requirements. 
15. CDC financial and organizational records:  
 The CDC must maintain its own financial records including books of account and 
signed minutes of all meetings of members, stockholders, directors, executive 
committees, and other officials. The CDC financial reports furnished to SBA must 
contain complete disclosure of matters relevant to the act and regulations. Records 
and documents which are the basis for or related to its financial statements or 
loans must be maintained in a manner that permits their immediate availability. 
 SBA Form 1081 and any supporting documents for Loan Committee Members; 
and 
 All organizational files must be accessible to SBA. 
16. CDC fiscal year: CDCs choose their own fiscal year. The CDC must notify its Lead 
District Office of any change.  
17. CDC insurance 
The CDC must obtain and maintain Directors’ and Officers’ (D&O) Liability and Errors 
and Omissions (E&O) insurance in form and substance satisfactory to SBA with: 
 An endorsement covering CDC Board members, committees, staff, and 
contractors engaged in the 504 loan approval, closing, servicing, and liquidation 
process;  
 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, and in accordance with the sliding scale as follows:  
Table: 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 
 At SBA’s discretion, higher levels of D&O and E&O insurance, but in no event in 
excess of $5.5 million, or reduced deductible levels may be required if the 
JX019.89
C. 
d. 
e. 
a. 
b. 
C. 
a. 
b. 
C. 
App.3346
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Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 90 
D/OCRM identifies a CDC as having potentially inadequate coverage to protect 
the CDC or SBA from financial risk; 
 A declaration that SBA will receive at least 20 days prior notice of any lapse of 
coverage, failure to renew, or cancellation; and 
 The CDC must submit to SBA annually with the CDC’s Annual Report a 
certificate from its insurance carrier confirming this coverage.  
 Each CDC must assess its risk factors and may determine that higher levels of 
insurance coverage and/or lower deductibles are prudent.  
18. Staffing Requirements 
 CDC Staff (13 CFR § 120.824): 
i. A CDC must directly employ full-time professional management, including 
an Executive Director (or the equivalent) to manage daily operations. A CDC 
may request that SBA waive the requirement of the manager being employed 
directly only if: 
a) 
The requesting CDC will have full-time professional management that 
is employed by a non-profit entity (not another CDC) that has the 
economic development of the CDC’s Area of Operations as one of its 
principal activities. Such full-time management may also work on and 
operate the other entity’s economic development programs, but must be 
available to small businesses interested in the 504 Loan Program and to 
504 loan Borrowers during regular business hours; or 
b) 
The requesting CDC is rural and has insufficient loan volume to justify 
having management employed directly by the CDC. The rural CDC 
must contract with another CDC located (i.e., incorporated) in the same 
general area. The “same general area” means the rural CDC’s SBA 
Region (Regions I-X) or a State contiguous to the rural CDC’s State. 
SBA will grant the rural CDC’s request in its sole discretion, 
considering factors including but not limited to the number of CDCs for 
which the other CDC is providing the assistance. The management 
contributed by the CDC may work on and operate both CDCs’ 
economic development programs but should be available during regular 
business hours to small businesses interested in the 504 Loan Program 
and to 504 Borrowers located in the rural CDC’s Area of Operations. 
ii. The request for a waiver must be pre-approved by the D/FA (or designee) in 
consultation with the D/OCRM (or designee). If the request for a waiver is 
approved, the contract for management services must also be pre-approved 
by the D/FA (or designee) in consultation with the D/OCRM (or designee). 
iii. A CDC must have qualified full-time professional staff to market, package, 
process, close and service loans and, if authorized by SBA, liquidate the loan 
portfolio, and sustain a sufficient level of service and activity in the CDC’s 
Area of Operations. 
JX019.90
d. 
e. 
f. 
a. 
App.3347
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SOP 50 10 6 
 
Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 91 
iv. When any of the functions referred to in this paragraph are not performed by 
an employee directly employed by the CDC, the CDC must use a written 
professional services contract. 
 Professional Services Contracts: See Part 2, Section A, Ch. 5, Para. E.6.a. 
Professional Services Contractors in this SOP for more information on 
professional services contracts. 
19. Voluntary Withdrawal and Loan Portfolio Transfer 
SBA regulations at 13 CFR § 120.857 discuss the circumstances under which a CDC can 
voluntarily surrender its certification and withdraw from the 504 Loan Program. Upon 
voluntary withdrawal, SBA will direct the transfer of the surrendering CDC’s loan 
portfolio at its discretion. 
 CDC Initial Submission Requirements 
The CDC must notify the Lead District Office, the Director, Office of Financial 
Assistance (D/FA), and the Director, Office of Credit Risk Management 
(D/OCRM) in writing of the intent to withdraw from the program. The letter must 
be signed by a responsible management official and accompanied by a Board of 
Directors resolution stating the intent to withdraw from the program. The 
notification and any required submissions outlined in the below process may be 
emailed to SBA at 504Requests@sba.gov.  
 Lead District Office Submission Requirements 
The Lead District Office may make a recommendation to transfer the files of the 
withdrawing CDC to one or more CDCs. Generally, the Lead District Office will 
consider each CDC that reports to its Office or is incorporated in the state of the 
withdrawing CDC and provide a detailed explanation as to the reasons why or 
why not, in its opinion, each CDC would/would not be recommended to receive 
the portfolio in part or in its entirety. A Multi-state CDC may be considered to 
receive a portfolio transfer outside of its primary Area of Operations if: 
• There are no CDCs in the withdrawing CDC’s primary Area of Operations 
that have been determined to be capable or do not have the capacity to assume 
the additional servicing responsibilities; or 
• There are no other CDCs authorized to operate in the withdrawing CDC’s 
primary Area of Operations. 
The Lead District Office may prepare a recommendation memo on behalf of the 
recipient CDC(s) that should include, but is not limited to, an evaluation of the 
CDC’s: 
i. Quality and completeness of loan packages, including commentary from the 
Sacramento Loan Processing Center; 
ii. Credit analysis abilities as well as knowledge of SBA’s policies and 
procedures; 
iii. Capability and performance related to loan closing, including commentary 
from the District Counsel; and 
JX019.91
b. 
a. 
b. 
App.3348
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Part 1, Section B, Ch 1: CDC Participation 
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Page 92 
iv. Servicing capability and performance, including commentary from the 
appropriate loan servicing center(s). 
This recommendation should be addressed to D/FA and submitted to the 504 
Loan Program Division at 504Requests@sba.gov. The decision regarding the 
transfer of a withdrawing CDC’s portfolio will be made in SBA’s sole discretion. 
 504 Loan Program Division Review 
The 504 Loan Program Division will review the CDC’s request and the Lead 
District Office’s recommendation and: 
i. Obtain the withdrawing CDC’s current active portfolio data and float 
balance. 
ii. Obtain comments from OCRM on the CDC(s) nominated to assume the 
servicing responsibility for the withdrawing CDC’s portfolio. 
iii. Obtain comments from Sacramento Loan Processing Center and 
Fresno/Little Rock Commercial Loan Servicing Center on the capability of 
the CDC(s) identified to assume the servicing of the withdrawing CDC’s 
portfolio. 
iv. Recommend which CDC(s) should assume the responsibility for servicing 
the withdrawing CDC’s portfolio. 
v. Obtain a Board of Directors’ Resolution from the CDC(s) nominated to 
assume the servicing of the withdrawing CDC’s portfolio. 
vi. Submit draft Voluntary Withdrawal and Portfolio Transfer Agreements to the 
Office of General Counsel (OGC) for review. 
 The Chief, 504 Loan Program Division will forward a recommendation to the 
D/FA for a final decision, with concurrence from the D/OCRM. For transfers in 
conjunction with increased supervision or enforcement activity, the D/OCRM will 
determine the transferee. 
 A responsible management official and the CDC Board Chair must execute a 
Voluntary Withdrawal Agreement prepared by SBA. If the Board of Directors is 
no longer functioning, or if no responsible management official is employed by 
the CDC, then either the CDC Board Chair or a responsible management official 
alone may execute the Voluntary Withdrawal Agreement and return it with 
original signature to SBA. (The “original signature” may be a wet signature or 
electronic signature. See Appendix 10, Electronic Signatures, of this SOP for 
more information.) 
 SBA will execute the Voluntary Withdrawal Agreement and return a copy to the 
withdrawing CDC. The transferee CDC(s) will be provided a Portfolio Transfer 
Agreement prepared by SBA, which must be signed by the manager of the 
transferee CDC(s) and returned with an original signature to SBA. 
 Upon submission of the executed Voluntary Withdrawal Agreement to SBA, the 
CDC must follow the requirements of the Voluntary Withdrawal Agreement, 
JX019.92
C. 
d. 
e. 
f. 
g. 
App.3349
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Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 93 
including preparing for review and transfer all active loan files and files subject to 
the record retention requirements in Appendix 11. 
 The Lead District Office will coordinate the transfer of the files. The withdrawing 
CDC, the transferee CDC(s), and a representative from the Lead District Office 
will execute the Physical Inventory Transfer receipt prepared by SBA. The 
transferee CDC is responsible for: 
i. Reviewing each loan file for completeness; and 
ii. Recording any missing required documentation: 
a) 
On the Physical Inventory transfer receipt; and 
b) 
In each loan file. 
The 504 Loan Program Division will provide copies of the fully executed agreements to 
the Central Servicing Agent and the Office of Performance and Systems Management 
(OPSM). 
E. REPORTING REQUIREMENTS 
CDCs must supply to SBA current and accurate information about all certification and 
operational requirements, maintain all records and submit all policies, procedures and reports 
required by SBA. (13 CFR § 120.826 and 13 CFR § 120.830) 
1. Operational changes the CDC must report to SBA: 
The CDC must submit notice of all changes by email to 504Requests@sba.gov. 
 Changes that require prior written approval by OFA: 
i. Changes in CDC legal structure - Any proposed change in the CDC legal 
structure (e.g., a CDC spins off its 504 operations into a separate non-profit 
entity) must have prior written approval and may require a new application 
for CDC certification. 
ii. Changes in CDC Management or Staff - Any changes in the CDC manager, 
compensated officers, or CDC professional staff (including contracted staff 
and interns paid by the CDC) must have prior written approval. Additionally, 
new individuals in these positions must receive a character determination in 
accordance with paragraph B., Form 1081 CDC Character Determinations 
above. 
iii. Changes to CDC Name - Requests for CDC name changes must be submitted 
to OFA for written approval by the D/FA prior to the CDC filing an amended 
Articles of Incorporation with the CDC’s state of incorporation. Note: the 
CDC must use its legal name, not a “doing business as” name on all 
correspondence. 
a) 
CDC legal name changes must be submitted to the D/FA for prior 
approval. CDC must submit a letter of request to the 504 Loan Program 
Division at 504Requests@sba.gov, outlining the reasons for the 
requested change, a Board Resolution authorizing the change, and a 
draft of the amended Articles of Incorporation. 
JX019.93
h. 
a. 
App.3350
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Effective October 1, 2020 
Page 94 
b) 
504 Loan Program Division will review the request and, if acceptable to 
SBA, the CDC will be notified in writing by the D/FA that their request 
is contingently approved. After notification of contingent approval, the 
CDC must file the appropriate documents with their state to complete 
the legal name change and send evidence of the Amendment to the 
Articles of Incorporation approved by the State acknowledging the legal 
name change to OFA. 
c) 
Upon receipt of the state-approved documents, the D/FA will notify the 
CDC in writing of final approval and send written notification of the 
name change to the SLPC, appropriate SBA CLSC, and to the CDC’s 
Lead District Office.  
d) 
The 504 Loan Program Division at Headquarters will update all SBA 
systems and notify the Central Servicing Agent (CSA) of the change. 
 Changes the CDC must report to SBA within 15 business days: 
i. Changes in CDC’s Uncompensated Officers or CDC’s Board of Directors, or 
Executive Committees – Any changes in a CDC’s uncompensated officers, 
or any director, board member, and/or executive committee member must be 
reported to the D/FA no later than 15 business days after the change takes 
place. Additionally, new individuals in these positions must receive a 
character determination in accordance with paragraph B., Form 1081 CDC 
Character Determinations above. For each new Board or Executive 
Committee member, the CDC must identify the area(s) of expertise that he or 
she represents on the Board or committee to satisfy the representational 
requirements of 13 CFR § 120.823(a), including a description of the 
member’s experience that demonstrates that the member is qualified to 
represent that area of expertise. 
ii. Changes to Loan Committees – Any changes in a CDC’s Loan Committee 
must be reported to the D/FA no later than 15 business days after the change 
takes place. Additionally, new Loan Committee members must receive a 
character determination in accordance with paragraph B., Form 1081 CDC 
Character Determinations above. For each new member, the CDC must 
identify the area(s) of expertise that he or she represents on the committee to 
satisfy the representational requirements of 13 CFR § 120.823(a), including a 
description of the member’s experience that demonstrates that the member is 
qualified to represent that area of expertise. 
iii. Changes in CDC Governing Documents or fiscal year – Any changes in a 
CDC’s bylaws, Articles of Incorporation or fiscal year must be reported to 
the D/OCRM no later than 15 business days after the change takes place. All 
documents are subject to SBA review and must comply with all Loan 
Program Requirements. 
iv. Changes in CDC Contact Information – Any changes in CDC address, 
telephone number, or other contact information must be reported to D/FA no 
later than 15 business days after the change takes place.  
JX019.94
b. 
App.3351
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Part 1, Section B, Ch 1: CDC Participation 
Effective October 1, 2020 
Page 95 
 Litigation or other Legal Proceedings – Within 10 business days of the date a 
CDC becomes a party to litigation or other legal proceedings, it must submit a 
written report, by certified or overnight mail or courier, to its local SBA counsel, 
D/FA and D/OCRM. The report must describe the proceedings and identify the 
parties involved and the CDC’s relationship(s) to the other parties. Once 
proceedings are terminated by settlement or final judgment, the CDC must 
promptly advise the same parties listed above of the terms. 
2. Basic Reporting 
 Financial Statements - This includes timely submission of complete financial 
statements audited in accordance with Generally Accepted Accounting Principles 
(GAAP) by an independent CPA for CDCs with 504 loan portfolio balances of 
$30 million or more. CDCs with 504 loan portfolio balances of less than 
$30 million must provide, at a minimum, a review by an independent CPA or 
independent accountant in accordance with GAAP; however, the D/OCRM may 
require audited financial statements if it is determined that such audit is necessary 
or appropriate, such as when the CDC is in material non-compliance with Loan 
Program Requirements.  
When the CDC is providing audited financial statements, the auditor’s opinion 
must state that the financial statements are in conformity with GAAP. See 13 CFR 
§ 120.826(d) for further guidance on auditor qualifications.  
The CDC must also submit a copy of the CDC’s Federal tax return in the Annual 
Report. (13 CFR § 120.830(a)) 
 Annual Reports (See SBA Form 1253, “Certified Development Company (CDC) 
Annual Report Guide”) 
i. CDCs must prepare Annual Reports according to 13 CFR § 120.830 and 
SBA Form 1253. Annual Reports must be submitted to the CDC’s Lead 
District Office within 180 days of the CDC’s fiscal year-end. CDCs are 
requested to submit the Annual Reports to their Lead District Office via 
email with a copy to OCRM at CDCAnnualReports@sba.gov. (If the 
electronic file is larger than 10MB, CDCs may need to separate the electronic 
file into multiple attachments.) CDCs also have the option of submitting their 
Annual Reports through the Corporate Governance Repository located on the 
Capital Access Financial System (CAFS) 
(https://caweb.sba.gov/cls/dsp_loging.cfm) under the CDC Online function. 
Use of the Corporate Governance Repository will avoid email size 
limitations. A CDC that is certified by SBA within 6 months of its fiscal 
year-end will not have to submit financial statements or its Annual Report for 
that year.  
ii. Within 60 days of receipt of the CDC Annual Report, the Lead District 
Office must forward a copy to OCRM at CDCAnnualReports@sba.gov, 
along with the Lead District Office’s analysis and review of the Annual 
Report and a CDC operational review. These Annual Reports must also 
include board certifications, reports on compensation and reports on 
JX019.95
C. 
a. 
b. 
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investment in economic development, as outlined below and detailed in SBA 
Form 1253. 
iii. If the Annual Report is incomplete, the Lead District Office must notify the 
CDC in writing and within 30 days of receipt of SBA’s notice, the CDC must 
submit a complete Annual Report. Incomplete or unacceptable Annual 
Reports will not fulfill the submission requirement. If a CDC does not submit 
a complete, acceptable Annual Report in a timely manner, this non-
compliance will be reported to OCRM for potential supervisory or 
enforcement actions and any request a CDC has submitted will not be 
processed by OFA or OCRM until such time as the complete, acceptable 
report is submitted.  
iv. Lead District Office staff should refer to the Operational Review Example 
Format for guidance on completing their assessment of the Annual Report. 
 Certification of members of the Board - The Annual Report must include a copy 
of the written annual certification by each Board member that he or she has read 
and understands the requirements set forth in 13 CFR § 120.823. 
 Report on compensation - The Annual Report must provide detailed information 
on all compensation (including salary, bonuses, and expenses) paid within the 
CDC’s most recent tax year for: 
i. Current and former officers, directors, and Key Employees (even in cases 
where compensation for the aforementioned individuals is less than 
$100,000); and 
ii. Current and former employees and independent contractors with total 
compensation of more than $100,000 during that period. 
This report must include details of deferred compensation packages where 
applicable. 
 Report on investment in economic development - The Annual Report must 
include a written report on the CDC’s investment in economic development in 
each State in which the CDC has an outstanding 504 loan, including explanation 
of each investment by type and amount. See SBA Form 1253 for specific 
requirements. 
 CDCs may include, along with the Annual Report, a request for renewal of their 
Accredited Lenders Program (ALP) status or Premier Certified Lender Program 
(PCLP) status. If the CDC chooses to do so, the CDC must clearly indicate in its 
Annual Report that a status renewal request is included. Any status renewal 
request submitted along with a CDC’s Annual Report must meet SBA’s Loan 
Program Requirements for the status request. CDCs using the Corporate 
Governance Repository to submit their Annual Reports will need to submit any 
ALP or PCLP renewal requests separately. 
 List of Shareholders – A for-profit CDC must include in its Annual Report a list 
that identifies all of the shareholders of the CDC’s stock and the percentage of 
ownership that each shareholder owns. In calculating the percentage of 
JX019.96
C. 
d. 
e. 
f. 
g. 
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ownership, the CDC’s corporate (or treasury) stock should not be included. No 
person or entity can own or control more than 25 percent of the voting stock. 13 
CFR § 120.818(b) 
 List of Members – A non-profit CDC that has a membership that is responsible 
for electing or appointing voting directors to the CDC’s Board of Directors must 
include in its Annual Report a list that identifies all of the CDC’s members, the 
entity, if any, which the member represents on the membership, and the 
percentage of the CDC’s voting membership that each member controls. No 
person or entity can control more than 25 percent of the voting membership. 13 
CFR § 120.816(d) 
 A PCLP CDC must submit the SBA Form 2233, “Quarterly Loan Loss Reserve 
Report,” to OCRM, either at PCLPQuarterlyReport@sba.gov or via the Corporate 
Governance Repository, and to the Lead District Office serving the territory 
where the 504 Borrowers are located no later than 45 days after the end of each 
quarter. 
3. Notifying SBA of Suspected Fraud or Illegal Activity: 
SBA Lenders, Borrowers, and others must notify both D/OCRM and the SBA Office of 
Inspector General (OIG) of any information that indicates fraud or illegal activity may 
have occurred in connection with a 7(a) or 504 loan. Notify D/OCRM at 
OCRM@sba.gov. Notify the OIG either at https://sbax.sba.gov/oigcss/ or by mail 
(preferably by overnight courier) to the Assistant Inspector General for Investigations, 
Office of Inspector General, U.S. Small Business Administration, 409 3rd Street, SW, 
Washington, DC 20416. Any substantiating evidence should be included when contacting 
the Office of the Inspector General and D/OCRM. 13 CFR § 120.197 
F. EXPANDING SERVICE AREA 
A CDC’s Area of Operations (13 CFR § 120.821) is the State of the CDC’s incorporation. 
There are three ways a CDC may process 504 loans outside its approved area of operation. They 
are: 
• Case-by-case requests based on particular circumstances 
• Expanding based on a Local Economic Area (LEA) 
• Becoming a Multi-State CDC 
1. Case-by-case 
13 CFR § 120.839 
A CDC may apply to make a 504 loan for a Project outside its Area of Operations to the 
Sacramento Loan Processing Center (SLPC). The CDC must demonstrate that it can 
adequately fulfill its 504 Loan Program responsibilities for the 504 loan, including proper 
servicing. The SLPC may approve the application if the CDC has satisfactory SBA 
performance as determined by SBA in its discretion and any of these three conditions are 
met: 
 The applicant CDC has previously assisted the business or its affiliates to obtain a 
504 loan; or 
JX019.97
h. 
1. 
a. 
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 The existing CDC or CDCs serving the area agree to permit the applicant CDC to 
make the 504 loan; or 
 There is no CDC within the Area of Operations. 
2. Local Economic Area (LEA) Expansion 
13 CFR § 120.835 
A Local Economic Area (LEA) (13 CFR §120.802) is an area, as determined by SBA, 
that: 
• Is in a State other than the State in which an existing CDC (or any applicant 
applying to become a CDC) is incorporated; and  
• Is part of a local trade area that is contiguous to the CDC’s State of incorporation. 
Examples of a local trade area would include a city that is bisected by a State line or a 
Metropolitan Statistical Area (MSA), as defined by the Office of Management and 
Budget (OMB), which is bisected by a State line. If the requested county is not classified 
as a metropolitan statistical area, the CDC must provide a justification of how the county 
has shared commerce with the CDC’s state of incorporation in order for SBA to consider 
the county a local trade area. 
 CDC Application 
A CDC that meets all of the requirements to be an Accredited Lender Program 
(ALP) CDC may apply for an LEA expansion by electronically submitting a 
complete application package to the CDC’s Lead District Office and to the Office 
of Financial Assistance (OFA) at 504Requests@sba.gov. The CDC must be able 
to demonstrate that it can competently fulfill its 504 Loan Program 
responsibilities in the proposed area. A complete application consists of the 
following: 
i. A list of the requested area(s) (e.g., a county, parish, incorporated city, or 
MSA) in the contiguous State and information supporting how those area(s) 
meet the definition of an LEA. NOTE: If the proposed expansion area has 
already been approved by the D/FA (for any other CDC) or is part of a 
Metropolitan Statistical Area, then no supporting information is required. 
ii. A copy of the resolution of the Board of Directors approving the proposed 
expansion. 
iii. A copy of any changes to the Articles of Incorporation that are required for 
the CDC to operate in the LEA (or a statement that no changes were 
necessary) NOTE: The Articles of Incorporation must specifically identify 
where the CDC has authority to operate. If the Articles of Incorporation have 
been amended to include the expansion area, the Board must pass a 
resolution to approve the amendment. The amendment must be approved by 
the jurisdiction governing the CDC’s operation, and the CDC must submit 
evidence of approval by the appropriate authority that governs the CDC’s 
State of incorporation. 
JX019.98
b. 
C. 
a. 
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iv. A complete copy of the current bylaws, inclusive of any changes that are 
required for the expansion. If no bylaws changes are required, include a 
statement that no changes are necessary. 
v. A listing of the CDC’s Board members that meets the requirements contained 
in 13 CFR § 120.823.  
vi. Evidence that the CDC’s Director’ and Officers’ and Errors and Omission 
insurance is current, including a Certificate of Insurance reflecting the 
required minimum coverage of insurance. See paragraph D.17, CDC 
Insurance above. 
vii. If the CDC has an Executive Committee, the CDC must submit a listing of 
the members of the committee that meets the requirements contained in 13 
CFR § 120.823.  
viii. If the CDC has established a Loan Committee in its State of incorporation, 
the CDC must submit a listing of the members of the committee that meets 
the requirements contained in 13 CFR § 120.823; 
ix. A list of the CDC’s members, if applicable, and only if the Membership has 
any governance authority (i.e., electing Board Directors, approving 
amendments to the Articles of Incorporation, etc.). 
x. A list of all professional staff, with a summary of the qualifications and 
experience of those loan officers who will be responsible for marketing, 
packaging, processing, closing, servicing, and if applicable, liquidating the 
loans, in the LEA. All new staff must receive a character determination in 
accordance with paragraph B of this Chapter, Form 1081 CDC Character 
Determinations. 
xi. If new employees will be provided under contract to serve in the LEA, CDCs 
must submit a copy of the proposed contract for their services that meets the 
requirements governing professional service contracts. Professional services 
contracts must be pre-approved by SBA in accordance with 13 CFR § 
120.824. See Part 2, Section A, Ch. 5, Para E.6.a., Professional Services 
Contractors, in this SOP for more information. 
xii. A written statement from the CDC’s attorney certifying that the CDC is 
operating in compliance with its articles and bylaws and is in good standing 
with its State of incorporation. The CDC’s designated attorney must review 
the CDC’s corporate documents and minutes of board meetings before 
providing the certification. 
xiii. A Certificate of Good Standing (or equivalent) from its State of 
incorporation. 
xiv. Identification of the CDC’s Designated 504 Closing Attorney who is licensed 
to practice in that jurisdiction, including evidence of the attorney’s current 
professional liability insurance and 504 loan closing training. 
JX019.99
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 Submission Requirements 
The Lead District Office will review the request and prepare a recommendation of 
the request which may include comments on: 
i. Whether the Lead District Office agrees that the area into which the CDC is 
requesting to expand meets the definition of an LEA. In making its 
recommendation on the application, the Lead District Office may consider 
any information presented to it regarding the requesting CDC, the existing 
CDC, or CDCs that may be affected by the application, and the proposed 
area(s) of operation. 
ii. The Lead District Office’s relationship, experience, and any other pertinent 
comments regarding the CDC’s application or operations. The Lead District 
Office will solicit the comments of any other SBA District Office in which 
the CDC operates or proposes to operate. 
iii. From the District Counsel on the CDC’s Designated Attorney’s Loan 
Closings, if applicable. 
The Lead District Office will submit the application, recommendation, and 
supporting materials within 60 days of receipt of the complete application to the 
D/FA at 504Requests@sba.gov. 
 504 Loan Program Division Review 
The 504 Loan Program Division will review the CDC’s request and the Lead 
District Office’s recommendation, and: 
i. Obtain comments from the Office of Credit Risk Management on: 
a) 
ALP qualifications; and 
b) 
Compliance with program reviews including SMART Reviews and 
Annual Reports. 
ii. Solicit the comments from Sacramento Loan Processing Center and the 
Fresno/Little Rock Commercial Loan Servicing Center. 
The 504 Loan Program Division will forward its recommendation to the D/FA. 
 D/FA Review 
The D/FA may consider any information submitted or available related to the 
applicant and the application and will notify the CDC and the CDC’s Lead 
District Office, the SBA District Office into which the expansion is located, the 
Office of Credit Risk Management, the Sacramento Loan Processing Center, and 
the Fresno/Little Rock Commercial Loan Servicing Center of the final decision. If 
the application is denied, the notification will include the reason(s) for denial. 
If the application for LEA expansion is approved, the 504 Loan Program Division 
will update SBA’s internal systems to reflect that the LEA is included in the 
CDC’s Area of Operations. 
JX019.100
b. 
C. 
d. 
App.3357
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3. Multi-State Expansion 
13 CFR § 120.835 
A CDC can expand by applying to be a Multi-State CDC provided the State the CDC 
seeks to expand into is contiguous to the State of the CDC’s incorporation, and the CDC 
has a Loan Committee meeting the requirements of 13 CFR § 120.823.  
For states or territories not directly connected to the 48 contiguous states, the following 
are deemed to be contiguous: 
• Alaska and Washington; 
• Hawaii, Guam, American Samoa, and the Commonwealth of the Northern 
Marianas Islands, and California; 
• Puerto Rico, the U.S. Virgin Islands, and Florida. 
CDCs must be ALP qualified at the time of application. Multi-State CDCs must maintain 
a separate accounting for each State of all 504 fee income and expenses and provide, 
upon SBA’s request, evidence that the funds resulting from its Multi-State CDC 
operations are being invested in economic development activities in each State in which 
they operate, as required by13 CFR §120.825. 
 CDC Submission Requirements 
A CDC may apply for a Multi-State expansion by submitting a complete 
application package to the SBA District Office in the State into which it wishes to 
expand and to the Office of Financial Assistance (OFA) at 504Requests@sba.gov. 
The application should include the following documentation: 
i. A brief description of the geographic location of the State that the CDC seeks 
to expand into to demonstrate that it is contiguous to the State of the CDC’s 
incorporation; 
ii. A copy of the resolution of the Board of Directors approving the proposed 
expansion; 
iii. A copy of any changes to the Articles of Incorporation that are required for 
the CDC to operate in the new State (or a statement that no changes were 
necessary) NOTE: The Articles of Incorporation must specifically identify 
where the CDC has authority to operate. If the Articles of Incorporation have 
been amended to include the expansion area, the Board must pass a 
resolution to approve the amendment. The amendment must be approved by 
the jurisdiction governing the CDC’s operation, and the CDC must submit 
evidence of approval by the appropriate authority that governs the CDC’s 
State of incorporation; 
iv. A complete copy of the current bylaws, inclusive of any changes that are 
required for the expansion. If no bylaws changes are required, include a 
statement that no changes are necessary; 
v. A listing of the CDC’s Board members that meets the requirements contained 
in 13 CFR § 120.823;  
JX019.101
a. 
App.3358
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vi. If the CDC has an Executive Committee, the CDC must submit a listing of 
the members of the committee that meets the requirements contained in 13 
CFR § 120.823. 
vii. A listing of the members of the Loan Committee in the CDC’s State of 
incorporation, if one has been established by the CDC, which must meet the 
requirements contained in 13 CFR § 120.823; 
viii. The CDC has the option of either:  
a) 
Establishing a Loan Committee in the State into which it is expanding 
that consists only of members who live or work in that State and who 
satisfy the other requirements in 13 CFR § 120.823(d)(4)(ii)(E), and 
submitting a listing of these members; or 
b) 
For any Project located in the State into which the CDC is expanding, 
the CDC may add at least two members who live or work in that State to 
the CDC’s Board or Loan Committee (if established in the CDC’s State 
of incorporation) when voting on that Project. The CDC must submit a 
listing of the members to be added to either the Board or the CDC’s 
Loan Committee, which must meet the requirements contained in 13 
CFR § 120.823; 
ix. Evidence of CDC’s Directors’ and Officers’ and Errors and Omission 
liability insurance to include a current Certificate of Insurance reflecting at 
least the required minimum coverage of $1,000,000 Liability coverage or the 
appropriate level of insurance coverage required by SBA. See paragraph 
D.17, CDC Insurance above. 
x. A list of the CDC’s members, if applicable, and only if the Membership has 
corporate powers (i.e., elects Board Members or votes on Amendments to 
Articles of Incorporation). 
xi. A list of Professional Staff with a summary of the qualifications and 
experience of those loan officers who will be responsible for marketing, 
packaging, processing, closing, servicing, and if applicable, liquidating the 
loans in the expanded area. All new staff must receive a character 
determination in accordance with paragraph B., Form 1081 CDC Character 
Determinations above. 
xii. If any of the professional staff is or will be obtained under contract from a 
third party, the CDC must certify that it has already provided a copy of the 
executed contract to SBA (with the date it was provided and the person to 
whom the copy was provided) or provide a copy of the executed contract. 
Professional services contracts must be pre-approved by SBA in accordance 
with 13 CFR § 120.824. See Part 2, Section A, Ch. 5, Para E.6.a., 
Professional Services Contractors, in this SOP for more information; 
xiii. The address where the CDC’s principal office in the new State or Territory 
will be located, and a copy of the lease if the space is to be leased (13 CFR 
§120.835(c)); 
JX019.102
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xiv. A written statement by the CDC’s attorney certifying that the CDC is 
operating in compliance with its articles and bylaws and is in good standing 
with its State of incorporation. CDC’s designated attorney must review the 
CDC’s corporate documents and minutes of board meetings before providing 
the certification; 
xv. A Certificate of Good Standing (or equivalent) from the CDC’s State of 
incorporation; 
xvi. A copy of its Foreign Corporation Registration (or equivalent) or a statement 
from the CDC’s attorney that foreign corporation registration is not required 
in the State into which the CDC seeks to expand; 
xvii. Identification of the CDC’s Designated 504 Closing Attorney who is licensed 
to practice in the new State, including evidence of the attorney’s current 
professional liability insurance and 504 loan closing training, or an 
application for Designated Attorney status that complies with the 
requirements in Part 2, Section C, Ch. 2, Para. C.5, Designated Attorney, in 
this SOP. 
 SBA District Office Submission Requirements 
The SBA District Office for the State or Territory into which the CDC seeks to 
expand will review the request and prepare an analysis that includes comments: 
i. On any previous experience with the CDC, including information regarding 
CDCs that may be affected by the application in the proposed area(s) of 
operation; 
ii. From the District Counsel on the CDC’s Designated Attorney’s Loan 
Closings, if applicable; and 
iii. From the CDC’s Lead District Office in the State or Territory in which the 
CDC currently operates, which may include any information on its 
relationship and experience with the CDC and any other pertinent 
information. 
If the SBA District Office for the State into which the CDC seeks to expand 
determines that the CDC is in compliance with SBA’s regulations and policies 
governing CDCs, the SBA District Office will submit the application, 
recommendation, and supporting materials within 60 days of receipt of the 
complete application to the Director, Office of Financial Assistance (D/FA) at 
504Requests@sba.gov. If the SBA District Office determines that the CDC is not 
in compliance with SBA’s regulations and policies governing CDCs, it will return 
the application to the CDC identifying the outstanding issues to give the CDC an 
opportunity to come into compliance. 
 504 Loan Program Division Review 
The 504 Loan Program Division will review the CDC’s request and the 
recommendation from the SBA District Office for the State or Territory into 
which the CDC seeks to expand, and will: 
JX019.103
b. 
C. 
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i. Obtain comments from the Office of Credit Risk Management (OCRM) on: 
a) 
ALP qualifications; and 
b) 
The CDC’s performance, including SMART Review assessments and 
compliance with Annual Report requirements; 
ii. Solicit comments from Sacramento Loan Processing Center and Fresno/Little 
Rock Commercial Loan Servicing Center; and 
iii. Forward its recommendation to the D/FA. 
 D/FA Review 
The D/FA may consider any information submitted or available related to the 
applicant and the application and will make the final decision. The D/FA will 
notify the CDC of his or her decision as well as the SBA District Office located in 
the State or Territory into which the CDC requested to expand, the Lead District 
Office in the CDC’s State of incorporation, OCRM, Sacramento Loan Processing 
Center, and Fresno/Little Rock Commercial Loan Servicing Center. If the 
application is denied, the notification will include the reason(s) for denial. 
If the application is approved, the 504 Loan Program Division will update SBA’s 
internal systems to reflect the CDC’s new Area of Operations. 
G. MERGERS 
A CDC with permanent status may merge with another CDC with permanent status that has the 
same Area of Operations. CDCs may not merge across State lines unless the surviving entity 
CDC has Multi-State authority to operate in both States. A CDC with a Local Expansion Area 
(LEA) is not eligible for mergers across State lines. All mergers are subject to the process and 
requirements outlined below. 
CDCs wishing to merge must notify the SBA in writing of their desire to merge prior to any 
official action or legal filings. A letter signed by a responsible management official accompanied 
by a Board of Directors’ resolution from each of the CDCs wishing to merge must be sent to the 
Office of Financial Assistance (OFA) at SBA’s headquarters by overnight mail or courier to 409 
3rd Street SW, 8th floor, Washington, DC 20416, or by email to 504Requests@sba.gov. 
1. CDC Submission Requirements 
The following are required to be submitted with the request: 
 The name of the proposed merged entity; 
 A listing of the proposed Board of Directors of the merged entity, identifying 
which entity the Directors previously served; 
 An organizational chart with a listing of proposed merged staff, identifying 
responsibilities of each staff member and which entity they previously served. 
SBA reserves the right to deny merger requests if proposed staff does not 
represent an adequate level of 504 Loan Program experience, as determined by 
SBA in its sole discretion; 
JX019.104
d. 
a. 
b. 
C. 
App.3361
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 A resume for each of the proposed staff that includes a description of the staff’s 
504 lending experience; 
 Documentation that all staff have received a character determination by SBA in 
accordance with paragraph B of this Chapter, Form 1081 CDC Character 
Determinations; 
 An explanation of the purpose of the merger; 
 A Plan of Operations which indicates how the merged entity will provide 
enhanced service in its Area of Operations; 
 Copies of the proposed merger documents and any proposed amendments to the 
Articles of Incorporation and bylaws; 
 A pro forma balance sheet and income statement for the merged entity; 
 A letter from a responsible management official accompanied with Board 
Resolution authorizing the merger from each of the CDCs; 
 Documentation of approved transfer/withdrawal of SBA and non-SBA programs; 
 Explanation of the transfer of assets to and the assumption of liabilities by the 
surviving entity; and 
 A Certificate of Good Standing or equivalent for the merged entity. 
 Financial statements and detailed projections with assumptions demonstrating the 
CDC’s financial ability to operate, and how the CDC can operate in a positive net 
asset position by the end of its two-year probationary period.  
 Information regarding any affiliates. 
 A Board Resolution authorizing the merger from each of the CDCs. 
2. Lead District Office Submission Requirements 
The Lead District Office will review the application and provide a recommendation that 
may include, but not be limited to: 
 Description of the Lead District Office’s relationship with each CDC; 
 Description of each CDC’s level of experience in the 504 loan program; 
 Impact of the merger on other CDCs in the area; 
 Any other pertinent comments regarding the CDC(s) application or operations; 
and 
 District Counsel comments on the CDC(s) loan closings. 
3. 504 Loan Program Division review 
The 504 Loan Program Division will: 
 Review the CDC’s request and the Lead District Office’s recommendation; 
JX019.105
d. 
e. 
f. 
g. 
h. 
1. 
J. 
k. 
I. 
m. 
n. 
0. 
p. 
a. 
b. 
C. 
d. 
e. 
a. 
App.3362
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Page 106 
 Obtain comments from the Office of Credit Risk Management (OCRM) on 
compliance with program reviews including SMART Reviews and Annual 
Reports. 
 Solicit the comments from Sacramento Loan Processing Center and the 
Fresno/Little Rock Commercial Loan Servicing Center. 
 The 504 Loan Program Division Chief will forward the request with a 
recommendation to the D/FA for a final decision. SBA will notify the CDC and 
Lead District Office(s) of the final decision.  
 If SBA supports the merger, the CDCs will be notified of approval, contingent 
upon the CDCs taking any action required by their State(s) to complete the legal 
merger and providing SBA with: 
i. Copies of the merger documents filed with the State(s);  
ii. Any executed or finalized amendments to the Articles of Incorporation and 
bylaws (if applicable); and 
iii. Finalized list of the Members of the merged CDC (if applicable), staff, Board 
of Directors, and any committees (if established), along with the 
corresponding Minutes of the meeting(s) and Board Resolution(s) reflecting 
the approval of the changes. 
4. D/FA Review 
The D/FA may consider any information submitted or available related to the applicant 
and the application and will notify the CDC and the CDC’s Lead District Office, the SBA 
District Office into which the expansion is located, OCRM, Sacramento Loan Processing 
Center, and Fresno/Little Rock Commercial Loan Servicing Center of the final decision. 
If the application is denied, the notification will include the reason(s) for denial. 
5. Final Approval: 
Upon receipt, review, and acceptance of the merger documents, SBA will notify the 
CDCs in writing of final approval (with a copy to the appropriate SBA District Office(s)), 
take the steps necessary to merge the portfolios, and notify the Central Servicing Agent. 
If the merger is approved, the 504 Loan Program Division will update SBA’s internal 
systems to reflect the change.
JX019.106
b. 
C. 
d. 
e. 
App.3363
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Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 107 
CHAPTER 2: SBA OVERSIGHT OF CDCS 
A CDC must have satisfactory SBA performance as determined by SBA in its discretion. 
Factors may include, but are not limited to review/examination assessments, SMART metrics, 
historical performance measures (like default rate, purchase rate and loss rate), the CDC’s Risk 
Rating, loan volume to the extent that it impacts performance measures, and other performance 
related measurements and information (such as contribution toward SBA’s mission). 
SBA oversees CDCs through:  
A. LOAN AND LENDER MONITORING SYSTEM (L/LMS) 
1. L/LMS is an internal SBA data system that includes use of historical data and predictive 
small business credit scoring. All SBA 504 loans with an outstanding balance are credit-
scored quarterly. These data are aggregated, analyzed, and evaluated to assess the credit 
quality of each individual CDC’s portfolio of SBA Loans. SBA uses this information to 
monitor the performance of individual CDCs, CDC peer groups, and the overall 504 loan 
portfolio. 
2. Using SBA’s L/LMS system, SBA assigns all CDCs a composite rating. The composite 
rating reflects SBA’s assessment of the potential risk to the government of that CDC’s 
SBA portfolio. The specific performance factors which comprise the composite rating are 
published from time to time by SBA’s Office of Credit Risk Management (OCRM). In 
general, these factors reflect both historical CDC performance and projected future 
performance. SBA performs quarterly recalculations on the common factors for each 
CDC, so CDCs’ composite risk ratings are updated on a quarterly basis.  
3. SBA established peer groups to minimize the differences in loan performance relative to 
portfolios of different sizes. The peer groups are based upon gross outstanding SBA Loan 
dollars, and for CDCs they are: 
 $350,000,000 or more 
 $100,000,000 to $349,999,999 
 $30,000,000 to $99,999,999 
 $10,000,000 to $29,999,999 
 $5,000,000 to $9,999,999 
 $0 to $4,999,999 
4. SBA assigns a composite rating of “1” to “5” to each CDC generally based upon its 
portfolio performance, as reported in L/LMS. A rating of “1” indicates strong portfolio 
performance, the least risk, and requires the lowest degree of SBA management oversight 
(relative to other CDCs in its peer group). A “5” rating indicates weak portfolio 
performance, the highest risk, and requires the highest degree of SBA management 
oversight. See 13 CFR § 120.10 (definitions related to Risk Rating), 13 CFR § 120.1015 
(Risk Rating System), and 75 FR 9257, March 1, 2010, 75 FR 13145, March 18, 2010, 
JX019.107
a. 
b. 
C. 
d. 
e. 
f. 
App.3364
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SOP 50 10 6 
 
Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 108 
and 79 FR 24053, April 29, 2014, (Risk Rating Notices). As set forth in the Risk Rating 
Notices, SBA may take into account rapid growth that may skew metrics and other 
factors in considering a CDC’s risk. 
B. LENDER PORTAL 
1. SBA communicates CDC performance to individual CDCs through the use of SBA’s 
Lender Portal (Portal). The Portal allows a CDC to view its own quarterly performance 
data, including, but not limited to, its current composite risk rating and peer and portfolio 
metric averages and its SMART score (as discussed below). Portal data includes both 
summary performance and credit quality data. Summary performance data is largely 
derived from data that is provided to SBA through the Central Servicing Agent. If a CDC 
reviews its performance components and finds a discrepancy with its records, the CDC 
should contact OCRM.  
2. CDCs with at least one outstanding SBA Loan may apply for access to the Portal. 
Currently SBA issues only one Portal user account per CDC. Submission of initial 
requests for a Portal user account must be submitted to SBA’s OCRM, and must include 
the following information: 
 Request must be made by a senior officer of the CDC with proper authority 
(Senior Vice President or higher); 
 Request must be sent via overnight mail or courier to OCRM at 409 Third Street 
SW, 8th Floor, Washington DC 20416, ATTN: Director, Office of Credit Risk 
Management; 
 Request must be made using the CDC’s stationery; 
 Request must include the user’s business card; 
 The stationery and business card should include the CDC’s name and address; 
 The request should include the following data: 
i. SBA FIRS ID Number(s); 
ii. Account user’s name and title; 
iii. Account user’s mailing address, telephone number and email address at the 
CDC; 
iv. Requesting officer’s name and title; and  
v. Requesting officer’s mailing address, telephone number and email address at 
the CDC. 
 Once SBA receives and approves the user’s request, SBA will forward the 
approval to SBA’s Portal contractor for issuance of a user account name and 
password. The Portal contractor will email the user his or her username and 
password within approximately 2 weeks of account approval. The user can then 
access its data by logging into the SBA Lender Portal web page. Before accessing 
the Portal, lenders must agree to the terms of a Confidentiality Agreement, which 
is found on the SBA Lender Portal web page. 
JX019.108
a. 
b. 
C. 
d. 
e. 
f. 
g. 
App.3365
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SOP 50 10 6 
 
Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 109 
 CDCs are responsible for complying with and maintaining the Portal user 
accounts and passwords as set forth in the Confidentiality Agreement on the 
Portal web page, and as published by SBA from time to time. CDCs are also 
responsible for submitting a timely request to SBA to terminate or transfer an 
account if the person to whom it was issued no longer holds that responsibility for 
the CDC. CDCs must take full responsibility for protecting the confidentiality of 
the user password and the CDC risk rating, SMART score, and confidential 
information and for ensuring the security of the data. See 13 CFR § 120.1060. 
Unless it first obtains express written permission from OCRM, a CDC is not 
permitted to share access to the SBA Lender Portal or its portal information with 
an individual or entity operating under a professional services contract entered 
into under 13 CFR § 120.824.  
C. MONITORING AND REVIEWS 
(13 CFR §§ 120.1025 and 120.1050-1060): 
L/LMS provides performance information that allows SBA to monitor and conduct reviews of all 
CDCs. L/LMS-related monitoring/reviews serves as the primary means of reviewing CDCs with 
less than $30 million in gross outstanding SBA Loan dollars; however, SBA may determine at its 
discretion to conduct other more in-depth reviews (e.g., Analytical, Targeted, Full, or Delegated 
Authority Renewal reviews) of these CDCs. SBA may also perform Desk Reviews, Loan-by-
Loan Reviews, Other Reviews, and pilot test reviews. (“L/LMS-related” refers to the L/LMS 
reviews and the Lender Profile Assessment (LPA), including the SMART Score.) SBA will 
contact the CDC if the review detects performance issues or trends requiring further discussion.  
1. For CDCs with $30 million or more in gross outstanding SBA Loan dollars L/LMS 
details historical and projected performance data: 
 For use in planning and conducting more in-depth reviews;  
 To assist in prioritizing in-depth reviews, and  
 As a system to monitor CDCs between in-depth reviews. 
2. SBA’s 504 Loan Program risk-based reviews generally feature a composite risk 
measurement methodology and scoring guide, “SMART.” SMART is an acronym for the 
specific risk areas or components that SBA reviews:  Solvency and Financial Condition; 
Management and Board Governance; Asset Quality and Servicing; Regulatory 
Compliance; and Technical Issues and Mission. 
3. Additionally, in accordance with 13 CFR §120.1010, a CDC must allow SBA’s 
authorized representatives access to its SBA files to review, inspect and/or copy all 
records and documents relating to SBA-guaranteed loans or as requested for SBA 
oversight. In keeping with the CDC’s responsibility to maintain complete loan files and 
allow SBA’s authorized representatives access to those files during normal business 
hours, SBA expects that all loan files and related records will be under the direct control 
of the CDC (not an Agent or professional services contractor). 
4. SBA may request reports on a case by case basis. 
JX019.109
h. 
a. 
b. 
C. 
App.3366
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SOP 50 10 6 
 
Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 110 
5. Additional information regarding in-depth reviews can be found in 13 CFR §120.1050-
1060, SBA Policy Notice 5000-1348: Revised Risk-Based Review Protocol for Certified 
Development Companies (August 5, 2015), SBA Information Notice 5000-1398: 
Updated SMART Methodology for Oversight of CDCs (November 9, 2016), and SBA’s 
SOP 51 00. 
D. SUPERVISION AND ENFORCEMENT 
An integral part of overseeing the CDC program is SBA’s authority to supervise and take 
enforcement actions as necessary. (For further guidance on Lender Supervision and 
Enforcement, see SOP 50 53.) 
E. OVERSIGHT AND ENFORCEMENT ACTIONS  
(13 CFR §§ 120.1400-1600) 
1. SBA may take enforcement actions against a CDC if the CDC (for example): 
 Fails to receive approval for at least four loans during last two consecutive fiscal 
years; 
 Fails to comply materially with SBA Loan Program Requirements; 
 Makes a material false statement or fails to disclose a material fact to SBA; 
 Performs actions with respect to the 504 loans in a commercially imprudent or 
unreasonable manner; 
 Fails to correct a deficiency after receiving notice of same from SBA; or 
 Exercises poor behavior or takes actions undermining SBA’s management of the 
504 Loan Program and fails to correct its actions after notice from SBA. 
2. SBA may take enforcement actions against an ALP or PCLP CDC if the CDC (for 
example): 
 Does not continue to meet the requirements for eligibility;  
 Fails to follow SBA Loan Program Requirements; or 
 Fails to maintain a Loan Loss Reserve Fund (LLRF) as required (PCLP only). 
3. SBA identifies the types of enforcement actions in 13 CFR § 120.1500. SBA, in its 
discretion, may undertake (for example): 
 Immediate suspension, upon written notice, when SBA determines that one or 
more grounds set forth in 13 CFR § 120.1400(c)(11) exist and such action is 
necessary to protect program integrity; 
 Suspension or termination of the CDC’s authority to: 
i. Participate in the 504 Loan Program or any pilot or other program within the 
504 Loan Program; or 
ii. Perform any function under the program (processing, closing, servicing, 
liquidation, or litigation). 
JX019.110
a. 
b. 
C. 
d. 
e. 
f. 
a. 
b. 
C. 
a. 
b. 
App.3367
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SOP 50 10 6 
 
Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 111 
 Transfer of some or all of the CDC’s portfolio to another CDC or any other entity 
(13 CFR § 120.1500(e)(1)), including all pending 504 loan applications and all 
rights associated with the foregoing, including any and all processing, closing, 
servicing and other fees associated with the portfolio due and payable to the CDC 
going forward;  
 Instruct the Central Servicing Agent (CSA) to withhold payments to CDC; or 
 For ALP or PCLP CDCs, suspend or terminate the CDCs authority to participate 
as an ALP or PCLP CDC. 
 The term of any suspension will be determined by SBA in its discretion. 
4. Enforcement Procedures (13 CFR § 120.1600): 
 SBA may suspend the authority of a CDC to conduct 504 program activities, in 
accordance with 13 CFR §§ 120.1400-1600.  
 Examples of circumstances that may result in suspension or revocation under the 
above cited regulation include but are not limited to: 
i. Failure to comply materially with any requirement imposed by Loan Program 
Requirements; 
ii. Failure to underwrite SBA Loans in a commercially reasonable and prudent 
manner; 
iii. Failure to maintain CDC eligibility requirements for SBA loan programs or 
delegated authority; 
iv. Engaging in a pattern of uncooperative behavior (after notice); 
v. Any other reason that SBA determines may increase SBA’s financial risk, for 
example, a Less Than Acceptable examination/review assessment, indictment 
on felony or fraud charges of an officer, Key Employee or loan agent involved 
with SBA Loans for CDC, or repeated Less Than Acceptable Risk Rating, the 
latter generally in conjunction with other grounds. 
 SBA will consider the severity and frequency of violations among other facts. 
 SBA will notify the CDC of a proposed suspension or revocation in accordance 
with 13 CFR § 120.1600. The CDC will be provided an opportunity to respond 
prior to final action. 
5. Receiverships in Enforcement Actions Against CDCs.  
 Upon SBA’s determination that grounds for an enforcement action against a CDC 
exist under 13 CFR § 120.1400, SBA may, pursuant to 13 CFR § 120.1500(e)(3), 
apply to a Federal court for the appointment of a receiver. Typically, SBA will 
use its receivership authority as a remedy of last resort. The appointment of a 
receiver is only one of several types of enforcement actions set forth in 13 CFR § 
120.1500. 
 SBA will limit the scope of the receivership to the CDC’s assets related to the 
SBA loan program(s) except where the CDC’s business is almost exclusively 
JX019.111
C. 
d. 
e. 
f. 
a. 
b. 
C. 
d. 
a. 
b. 
App.3368
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SOP 50 10 6 
 
Part 1, Section B, Ch 2: SBA Oversight of CDCs 
Effective October 1, 2020 
Page 112 
SBA-related. Further, SBA will only seek a receivership if either of the following 
circumstances are present:  
i. The existence of fraud or false statements, or  
ii. The CDC has refused to cooperate with SBA enforcement action instructions 
or orders. 
 Under 13 CFR § 120.1400(a)(1), a CDC that obtains approval for 504 loans after 
October 20, 2017, has consented to SBA’s right to seek a receivership in 
appropriate circumstances. Such consent will be deemed to apply only if the CDC 
makes 504 loans on or after January 1, 2018. The CDC’s consent does not in any 
way preclude the CDC from contesting whether or not SBA has established the 
grounds for seeking the remedy of a receivership. A CDC’s consent to 
receivership as a remedy does not require SBA to seek the appointment of a 
receiver in any particular SBA enforcement action. 
JX019.112
C. 
App.3369
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SOP 50 10 6 
 
Part 2, SBA Business Loan Requirements 
Effective October 1, 2020 
Page 113 
PART 2: SBA BUSINESS LOAN REQUIREMENTS 
Failure to comply with SBA Loan Program Requirements may result in repair or denial of the 
SBA guaranty on a 7(a) loan. In 504, SBA may pursue a CDC Recovery Claim under 13 CFR 
120.938, in the case of fraud, negligence, or misrepresentation by the CDC. 
Once an SBA Loan (defined as the full amount of the 7(a) loan or the Gross Debenture amount 
of the 504 loan) is disbursed, SBA Lenders must comply with the servicing and liquidation 
requirements in SOPs 50 57 (for 7(a) loans) and 50 55 (for 504 loans). 
Section A: Core requirements for all 7(a) and 504 loans: 7(a) Lenders and 
CDCs (SBA Lenders) must always start by reviewing the contents of this 
section. These core requirements apply to both 7(a) and 504 loan programs.  
Section B: 7(a) Loan Program Specific Requirements: 7(a) Lenders must comply with the 
Core requirements in Section A and with the detailed guidance provided for each delivery 
method in the applicable chapter of Section B. Requirements for all 7(a) loans from the 
Authorization through loan closing are detailed in Chapter 5. 
Chapter 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Chapter 2: SBA Express Loans 
Chapter 3: 7(a) CAPLines 
Chapter 4: 7(a) Export Trade Finance 
A. Export Express 
B. Export Working Capital Program 
C. International Trade 
Chapter 5: Authorization through Disbursement 
Section C: 504 Loan Program Specific Requirements: CDCs must comply with the Core 
requirements in Section A and with the detailed guidance provided for the delivery of 504 Loan 
Program loans. 
Exceptions to Policy: When the policy set forth in this Part does not adequately address the 
unique circumstances regarding a particular matter, the SBA Lender may submit a request for an 
exception to policy through E-Tran to the SBA loan processing center.  
The loan processing center will analyze the request and make a recommendation to the D/FA for 
504 loans and for 7(a) loans, except Export Working Capital Program (EWCP), Export Express, 
and International Trade (IT) loans, or to the Director, International Trade Finance (D/ITF) for 
EWCP, Export Express, and IT loans. The D/FA or D/ITF, or an individual acting in that 
capacity, will make the final decision (with the concurrence of the D/OCRM for Export Express 
loans). 
JX019.113
App.3370
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SOP 50 10 6 
 
Part 2, SBA Business Loan Requirements 
Effective October 1, 2020 
Page 114 
The D/FA or D/ITF may not approve an exception to policy if such exception would be 
inconsistent with a statute or regulation. This procedure may only be used in situations where a 
minor deviation from standard policy is necessary for the specific situation. Exceptions to policy 
will be considered on a case-by-case basis and the decision will only apply to the specific 
request. The decision must be documented in the appropriate Agency loan file. 
 
JX019.114
App.3371
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SOP 50 10 6 
 
Part 2, Section A. Core Requirements for all 7(a) and 504 Loans 
Effective October 1, 2020 
Page 115 
SECTION A. CORE REQUIREMENTS FOR ALL 7(A) AND 504 LOANS 
Section A: Core requirements for all 7(a) and 504 loans:  
7(a) Lenders and CDCs (SBA Lenders) must always start by reviewing the 
contents of this section. These core requirements apply to both 7(a) and 504 loan 
programs.  
NOTE: “SBA Lender” is defined in 13 CFR 120.10 as a 7(a) Lender or a CDC. This term 
includes SBA Supervised Lenders.  
JX019.115
App.3372
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JX019.116
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SOP 50 10 6 
 
Part 2, Section A, Ch 1: Primary Eligibility Requirements 
Effective October 1, 2020 
Page 117 
CHAPTER 1: PRIMARY ELIGIBILITY REQUIREMENTS 
Determining whether an Applicant is eligible for a loan guaranteed by the Small Business 
Administration is one of the most critical steps in the lending process. Program eligibility should 
be determined as early as possible in the application process and properly documented. 
This chapter addresses the core program eligibility requirements that apply to all loans made 
under either the 7(a) or the 504 Programs. Except for size, the Applicant must meet all core 
requirements at the time of application and throughout loan closing and disbursement. See 
paragraph D of this Chapter for more information on size standards. 
The SBA’s lending programs qualify as “Special-Purpose Credit Programs” under the Equal 
Credit Opportunity Act (ECOA). This regulation stipulates that information pertaining to the 
Applicant’s marital status, sources of personal income, alimony, child support, and spouse’s 
financial resources can be obtained and considered in determining program eligibility. Therefore, 
the SBA Lender has the right to obtain the signature of an Applicant’s spouse (whether an owner 
of the business or not) or other person on an application or credit instrument if it is required by 
Federal or State law. 
Eligibility requirements for all Applicants for SBA business loans are outlined in  
13 CFR § 120.100 and are discussed below. 
The Applicant must: 
A. OPERATING BUSINESS 
Be an Operating Business (except for Eligible Passive Companies). For further guidance on 
Eligible Passive Companies/Operating Companies (EPC/OC), see Chapter 2, Para. A, Eligible 
Passive Companies of this Section. 
B. ORGANIZED FOR PROFIT 
Be organized for Profit. All Applicants must be organized for profit. Non-profit businesses are 
not eligible for SBA business loan assistance. For-profit subsidiaries of non-profits may be 
eligible. 
1. In order to determine an Applicant’s for-profit status, the SBA Lender may review the 
Applicant’s organizational documents, for example: 
 Articles of Incorporation/ Organization (filed with the Secretary of State or 
similar department in the state where the Applicant is organized); 
 Corporate bylaws and any amendments; 
 Partnership Agreements; 
 Association Bylaws; and 
 Tax Returns. 
JX019.117
a. 
b. 
C. 
d. 
e. 
App.3374
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SOP 50 10 6 
 
Part 2, Section A, Ch 1: Primary Eligibility Requirements 
Effective October 1, 2020 
Page 118 
2. If all other eligibility requirements are met, 13 CFR 120.110(a) allows for-profit entities 
that are subsidiaries of a non-profit to be eligible for SBA assistance. 
 The SBA Lender must include the non-profit affiliate’s receipts or employees, as 
applicable, in determining the for-profit entity’s size, except that the size of a 
business concern owned and controlled by a Native Hawaiian Organization 
(NHO) is measured independent of its parent NHO, and of other concerns owned 
by the NHO based on common ownership, management, or the performance of 
common administrative services. 13 CFR 121.103(b)(2). 
 The loan proceeds must be used exclusively for the benefit of the for-profit 
business. 
 If the non-profit affiliate owns 20% or more of the for-profit business but cannot 
or will not guarantee the loan, the for-profit business is not eligible for SBA 
assistance. 
C. LOCATED IN THE UNITED STATES 
Be located in the United States (including its territories and possessions). 
1. The Applicant must be located and primarily operate in the United States (including its 
territories and possessions), be authorized to conduct business in the state, territory, or 
possession where it seeks SBA financial assistance, pay taxes to the United States, and to 
the extent practicable, purchase only American-made equipment and products with the 
proceeds of the SBA loan. 
2. If an Applicant has international operations, the loan proceeds must be used exclusively 
for the benefit of the domestic operations (as a result, the business and its employees are 
subject to U.S. and local taxes). 
3. Businesses involved in international trade are subject to U.S. trade restrictions. 
4. Businesses Owned by Non-U.S. Citizens may be eligible. See Chapter 3, Para. C in this 
Section for more information. 
5. The Applicant may not be owned in whole or part by undocumented (illegal) aliens. 
D. SMALL UNDER SBA SIZE REQUIREMENTS 
Be small under SBA Size Requirements (13 CFR Part 121). The Applicant may qualify under 
either the industry small business size standards or the alternative size standard. 
1. Size Standards 
 “Industry Size Standard.” The Applicant alone (without affiliates) must not 
exceed the small business size standard for the industry in which the Applicant is 
primarily engaged, and the Applicant when combined with its affiliates, must not 
exceed the size standard designated for either the primary industry (defined in 13 
CFR § 121.107) of the Applicant alone or the primary industry of the Applicant 
and its affiliates, whichever is higher. SBA calculates annual receipts for both the 
Applicant and its affiliates based on Federal tax returns (13 CFR § 121.104). The 
table of size standards is found at 13 CFR § 121.201. 
JX019.118
a. 
b. 
C. 
a. 
App.3375
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SOP 50 10 6 
 
Part 2, Section A, Ch 1: Primary Eligibility Requirements 
Effective October 1, 2020 
Page 119 
 “Alternative Size Standard.” The Applicant (including affiliates) must meet the 
following (Small Business Act, § 3(a)(5)): 
i. The maximum tangible net worth may not exceed $15 million; and  
ii. The average net income after Federal income taxes (excluding any carry-over 
losses) for the 2 full fiscal years before the application date may not exceed 
$5.0 million. 
 The applicable size standards are increased by 25 percent when the Applicant 
agrees to use all of the financial assistance within a labor surplus area (labor 
surplus areas are designated by the Department of Labor). (13 CFR § 121.301(e)) 
2. When Applicant size is determined 
(13 CFR § 121.302) 
 The size of an Applicant for SBA financial assistance is determined as of the date 
the application is accepted for processing by SBA. Changes in the size of the 
business subsequent to that date will not disqualify an Applicant for assistance. 
 For 7(a), if the Applicant is an existing business and is using the proposed loan 
proceeds to acquire another business through either the purchase of assets or 
stock, the sizes of the two businesses combined is used to determine if the 
application meets small business size standards. For 504, if the Applicant is using 
the proposed loan proceeds to finance the acquisition of assets in conjunction with 
a change of ownership, the sizes of the two businesses are combined to determine 
if the Applicant meets small business size standards. 
 For applications processed under an SBA Lender’s delegated authority (PLP, 
SBA Express, Export Express, PLP-EWCP, and PCLP CDC), the size of the 
small business is determined as of the date of approval of the loan by the SBA 
Lender. 
3. Formal size determinations 
 By signing the application, an Applicant has certified that it is small under the 
applicable small business size standard. SBA or the SBA Lender may request 
additional information concerning the Applicant’s size based on information 
supplied in the application or any other source. SBA or an SBA Lender 
processing a loan under delegated authority may accept as true the size 
information provided by an Applicant, unless credible evidence to the contrary is 
apparent. (13 CFR § 121.303) 
 Prior to denial of eligibility based on size, a formal size determination may be 
requested by an Applicant or the SBA official with authority to take final action 
on the assistance requested. (13 CFR § 121.1001(b)(1)) 
 The SBA official may also request a determination of whether affiliation exists 
between an Applicant for financial assistance and one or more other entities to 
determine whether the Applicant, together with any affiliates, would exceed the 
maximum loan amount and maximum guaranty amount set out in 13 CFR § 
120.151. 
JX019.119
b. 
C. 
a. 
b. 
C. 
a. 
b. 
C. 
App.3376
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SOP 50 10 6 
 
Part 2, Section A, Ch 1: Primary Eligibility Requirements 
Effective October 1, 2020 
Page 120 
 The request for a size or affiliation determination must be made to the 
Government Contracting Area Director serving the area in which the headquarters 
of the Applicant is located, regardless of the location of the parent company or 
affiliates. 
4. Affiliation 
 Affiliation exists when: 
i. One individual or entity controls or has the power to control another; or 
ii. A third party or parties controls or has the power to control both. 
 SBA considers factors such as ownership, management, identity of interest 
between close relatives, newly organized concerns, and franchise, license or other 
agreements/relationships when determining whether affiliation exists. See 13 CFR 
121.103 and 121.301(f) for SBA’s requirements related to the determination of 
affiliation for the business loan programs. 
5. Affiliation based on Management 
(13 CFR § 121.301(f)(3)) 
 Affiliation arises where: 
i. The CEO or President of the Applicant (or other officers, managing members, 
or partners who control the management of the concern) also controls the 
management of one or more other concerns.  
ii. A single individual, concern, or entity that controls the Board of Directors or 
management of one concern also controls the Board of Directors or 
management of one or more other concerns.  
iii. A single individual, concern or entity controls the management of the 
Applicant through a management agreement. 
 Management agreements that give the management company sole discretion over 
the business operations with minimal oversight of the decision-making by the 
Applicant, while not passive, create affiliation between the management company 
and the Applicant. (For a discussion of management agreements that do result in a 
passive business, see Chapter 3, Para A.3, Passive Businesses in this Section.) 
SBA has determined, however, that affiliation is not created between the 
Applicant and the management company if the management agreement includes 
meaningful oversight by the Applicant over the management company’s 
activities.  
 “Meaningful oversight” by the Applicant means involvement in the decisions 
made concerning the operation of the business, which include a management 
agreement that provides for the Applicant to do all of the following:  
i. Approve the annual operating budget;  
ii. Approve any capital expenditures or operating expenses over a significant 
dollar threshold;  
iii. Have control over the bank accounts; and  
JX019.120
d. 
a. 
b. 
a. 
b. 
C. 
App.3377
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Part 2, Section A, Ch 1: Primary Eligibility Requirements 
Effective October 1, 2020 
Page 121 
iv. Have oversight over the employees operating the business (who must be 
employees of the Applicant). 
 If the Applicant is also operating under a franchise agreement, see paragraph 6.j. 
below for guidance on Franchise Applicants with Management Agreements. 
6. Affiliation Based on Franchise, License, Dealer, Jobber, and Similar Agreements 
The procedures described below apply to all agreements or relationships that SBA 
determines meet the Federal Trade Commission (FTC) definition of “franchise” in 16 
CFR § 436. While a relationship established under a license, jobber, dealer or similar 
agreement is not generally described as a “franchise” relationship, if SBA determines that 
the relationship meets the FTC’s definition of a franchise, SBA will treat the relationship 
as a franchise solely for purposes of affiliation determinations in accordance with  
13 CFR § 121.301(f)(5). All such relationships are referred to in this paragraph as 
“franchises,” the agreements are referred to as “franchise agreements,” and the parties to 
such agreements are referred to as “franchisor” and “franchisee.” 
For purposes of determining whether an Applicant is affiliated through a franchise, 
license, or similar agreement, SBA will only consider franchise, license, or similar 
agreements of the Applicant and not the agreements of any other franchisee or licensee 
owned or controlled by the Applicant. (13 CFR § 121.301(f)(5)) 
 The FTC definition of “franchise.” 
The FTC definition of a “franchise” in 16 CFR § 436.1(h) states as follows: 
Franchise means any continuing commercial relationship or arrangement, 
whatever it may be called, in which the terms of the offer or contract specify, or 
the franchise seller [franchisor] promises or represents, orally or in writing, that:  
i. The franchisee will obtain the right to operate a business that is identified or 
associated with the franchisor's trademark, or to offer, sell, or distribute 
goods, services, or commodities that are identified or associated with the 
franchisor's trademark;  
ii. The franchisor will exert or has authority to exert a significant degree of 
control over the franchisee's method of operation, or provide significant 
assistance in the franchisee's method of operation; and  
iii. As a condition of obtaining or commencing operation of the franchise, the 
franchisee makes a required payment or commits to make a required payment 
to the franchisor or its affiliate. 
When determining whether an agreement or relationship meets the FTC definition 
of a franchise, SBA considers guidance issued from time to time by the FTC (e.g., 
FTC Franchise Rule Compliance Guide, FTC Advisory Opinions, etc.). 
Although exempt from FTC disclosure requirements, all agreements and 
relationships that are covered by the Petroleum Marketing Practices Act (PMPA), 
15 U.S.C. 2801 et al. (e.g., gas stations, dealer/jobber agreements), are included 
within the FTC definition of “franchise” and are, therefore, subject to the 
procedures described below. 
JX019.121
d. 
a. 
App.3378
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SBA is no longer excluding dealer agreements with new car manufacturers from 
affiliation determinations. Therefore, Applicants that are or will be operating 
under a dealer agreement with a new car manufacturer that meets the FTC 
definition of a franchise are subject to the procedures described below. 
 The SBA Franchise Directory: 
SBA has created the SBA Franchise Directory (the “Directory”) of all franchise 
and other brands reviewed by SBA that are eligible for SBA financial assistance. 
The Directory will only include business models that SBA determines are eligible 
under SBA’s affiliation rules and other eligibility criteria. Placement of a brand 
on the Directory is not an endorsement or a guaranty of the success of the brand. 
If the Applicant’s brand meets the FTC definition of a franchise, it must be 
on the Directory in order to obtain SBA financing. (To help minimize 
confusion over brands that may appear to be franchises but that do not meet the 
FTC definition, SBA will include such brands on the Directory at their request if 
they are eligible in all other respects.) SBA Lenders will be able to rely on the 
Directory and will no longer need to review franchise or other brand 
documentation for affiliation or eligibility.  
The Directory will be maintained on SBA’s website at 
www.sba.gov/document/support-object-object-sba-franchise-directory. It will 
contain the following information: 
i. Whether SBA determined that the brand meets the FTC definition of a 
franchise for purposes of determining affiliation between the franchisor and 
franchisee; 
ii. The SBA Franchise Identifier Code, if applicable (a code will only be issued 
if the agreement meets the FTC definition of a franchise);  
iii. Whether an addendum is needed and, if so, whether the franchisor will use 
SBA Form 2462, “Addendum to Franchise Agreement,” or an SBA 
Negotiated Addendum; and 
iv. Whether there are additional issues the SBA Lender must consider with 
respect to the brand (e.g., documentation that the business will be open to all, 
review of any third party management agreement to ensure Applicant is not a 
passive business or affiliated with the management company in accordance 
with paragraph D.5, Affiliation Based on Management above.). 
Franchisors may choose to use SBA Form 2462 even if they are listed on the 
Directory as using an SBA Negotiated Addendum. Certain franchisors, however, 
may not use SBA Form 2462. These franchisors are identified on the Directory in 
the Notes column. It is important to note that franchisors whose agreements are 
governed by other than U.S. law are not able to use SBA Form 2462. 
 Use of the Directory by SBA Lenders: 
i. For applications involving a franchise or similar relationship that meets the 
FTC definition of a franchise, SBA Lenders must check the Directory to 
determine if it includes the Applicant’s brand before: 
JX019.122
b. 
C. 
App.3379
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a) 
Submitting the application to SBA for non-delegated processing; or 
b) 
Approving the loan under the SBA Lender’s delegated authority. 
If the Applicant’s brand is on the Directory, SBA Lenders may proceed with 
submitting the application to SBA or approving the loan under delegated 
authority. 
If the Applicant’s brand is not on the Directory, for non-delegated loans, 
SBA Lenders cannot submit the application to SBA, and for delegated loans, 
SBA Lenders cannot approve the loan under delegated authority. In that case, 
the SBA Lender should advise the Applicant and/or the franchisor of the 
process by which the brand can be added to the Directory as detailed in 
paragraph 6.d. Procedure to add brands to the Directory, below.  
ii. Exception for Applicants Operating under Multiple Agreements:  
a) 
When an Applicant operates under multiple agreements (i.e., multiple 
product lines), SBA Lenders first must check the Directory to ensure all 
of Applicant’s agreements that meet the FTC definition of a franchise 
are on the Directory. If any of the Applicant’s agreements that meet 
the FTC definition of a franchise are not on the Directory, the 
application cannot proceed. If all such agreements are on the 
Directory, SBA Lenders next must determine which agreement(s) 
is(are) “critical” to the Applicant’s business operation. 
As a general rule, SBA considers an agreement to be “critical” if the 
agreement (or the products, services or trademarks covered by it) 
accounts, individually or together with other agreements of the 
Applicant, for more than 50% of the applicant’s revenues. SBA Lenders 
only need to follow the Directory (i.e., obtain an addendum, as 
applicable) for the agreements that meet the FTC definition of a 
franchise AND are critical to the Applicant’s business operation.  
For example, the Applicant is a dealership that sells 10 different brands 
of boats under separate agreements for each brand of boat. First, the 
SBA Lender must check the Directory for all of the Applicant’s 
agreements that meet the FTC definition of a franchise. If, for example, 
7 of the 10 agreements meet the FTC definition of a franchise, all 7 
must be on the Directory for the application to proceed. Next, the SBA 
Lender needs to determine which of the Applicant’s 10 agreements are 
critical to the Applicant’s business operation. In this example, if 5 of the 
10 agreements together represent 51% of the applicant’s revenues, those 
5 agreements are considered critical. If 3 of the 5 critical agreements 
meet the FTC definition of a franchise, the SBA Lender need only 
obtain an addendum, as identified on the Directory, for those 3 
agreements. 
b) 
If one of the Applicant’s brands or agreements has been determined by 
SBA to be ineligible for SBA financial assistance, the loan cannot be 
processed, regardless of whether the brand or agreement meets the FTC 
JX019.123
App.3380
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definition of a franchise or is critical to the Applicant’s business 
operation. 
iii. Exception for Applicants Operating under a Single, Non-critical Agreement: 
If the Applicant is operating under a single agreement that is not considered 
critical to the Applicant’s business operation (i.e., it represents 50% or less of 
the Applicant’s revenues), then the SBA Lender first must check the 
Directory to ensure that, if the Applicant’s agreement meets the FTC 
definition of a franchise, it is on the Directory before processing the 
application. If the agreement meets the FTC definition of a franchise, but is 
not on the Directory, the application cannot proceed. For example, the 
Applicant is an auto body shop that also rents trucks and trailers under an 
agreement. The rental of the trucks and trailers only represents 10% of the 
Applicant’s revenues. The SBA Lender must check the Directory to ensure 
that, if the agreement meets the FTC definition of a franchise, the agreement 
is on the Directory, but the SBA Lender does not need to obtain an 
addendum, if applicable, for that agreement. If the agreement is not listed on 
the Directory and the SBA Lender determines that the agreement does not 
meet the FTC definition of a franchise, the SBA Lender must determine the 
brand is eligible (e.g., does not have discriminatory hiring practices) before 
proceeding with the application. SBA will make the final determination for 
non-delegated applications. For delegated applications, SBA will review the 
SBA Lender’s determination at time of purchase or when conducting lender 
oversight activities for 7(a) loans and prior to closing for 504 loans. The 
delegated SBA Lender bears the risk of an incorrect determination on a 
delegated application. 
 Procedure to add brands to the SBA Franchise Directory: 
i. To add its brand to the Directory, a franchisor must submit the agreement, 
Franchise Disclosure Document (FDD) if applicable, and all other documents 
the franchisor requires the franchisee to sign to franchise@sba.gov for an 
affiliation and eligibility determination. If the documents are submitted to 
SBA by someone other than the franchisor, contact information for the 
Franchisor (name and email address only) must be included in the email. The 
new brands are reviewed in the order in which they are received. Under 
certain circumstances, SBA as part of its review may request the franchise 
operations manual and other documentation explaining business operations. 
a) 
If the franchisor agrees to use SBA Form 2462, “Addendum to 
Franchise Agreement,” SBA will conduct an eligibility review and will 
not conduct an affiliation review. 
b) 
If the franchisor elects not to use SBA Form 2462, SBA will work with 
the franchisor to resolve any affiliation issues, including through the use 
of an SBA Negotiated Addendum, if necessary. 
ii. The SBA Franchise Team will refer agreements involving brands that may be 
engaged in promoting religion, that may have activities of a prurient nature, 
that appear to cater to one gender, that were a party to litigation involving the 
JX019.124
d. 
App.3381
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federal government, or that present such other issues as the SBA Franchise 
Team may, in its discretion, deem appropriate, to the Associate General 
Counsel for Litigation for a final Agency decision. 
iii. Upon completion of SBA’s review and a determination by SBA that the 
brand is eligible, SBA will list the brand on the Directory, along with an 
indication of the type of Addendum being used, if necessary, and will assign 
an SBA Franchise Identifier Code. If SBA determines that the brand does not 
meet the FTC definition of a franchise, SBA will list the brand on the 
Directory but will indicate that it is not a franchise and SBA will not assign 
an SBA Franchise Identifier Code. 
 Annual Certification from Franchisor: 
For those franchises listed on the Directory that either do not need an addendum 
or are using an SBA Negotiated Addendum, in order to continue using no 
addendum or using an SBA Negotiated Addendum, the franchisor must submit to 
SBA each year SBA Form 2464, “Annual Franchisor Certification” (the 
“Certification”). The Franchisor must submit the Certification as soon as it issues 
an updated agreement, but in no event later than April 30 of each year. If the 
Certification is not received by SBA by April 30, or an extended date approved by 
SBA, the SBA will require the Franchisor to use the SBA Addendum to Franchise 
Agreement (SBA Form 2462) for all SBA-guaranteed loans and will update the 
Directory with the change. (For brands listed on the Directory as using SBA Form 
2462, no certification is required to remain on the Directory.) This certification is 
provided by the Franchisor to SBA annually. SBA Lenders do not need to obtain 
SBA Form 2464 or provide it to SBA. 
The Certification requires a duly authorized representative of the Franchisor with 
the authority to sign the Certification to represent that:  
i. The terms of Franchisor’s current agreement that relate to control by the 
Franchisor of its franchisees (resulting in a determination by SBA of 
affiliation between the Franchisor and its franchisees, as defined in 13 CFR 
Part 121 and in this SOP) have not substantively changed from those 
appearing in the most recent franchise agreement reviewed by SBA for 
placement on the Directory; and  
ii. If the Franchisor is using an SBA Negotiated Addendum, no changes have 
been made to its SBA Negotiated Addendum. 
If the Franchisor cannot certify as required or would like to change its addendum, 
the Franchisor will have to follow the procedures in subparagraph 6.d. above to 
add brands to the Directory.  
To ensure the effectiveness of the certification process, SBA intends to inspect, on 
a periodic basis, a sample of updated franchise agreements where a Certification 
has been submitted. Therefore, SBA may request from the Franchisor copies of 
the current franchise agreement and related documents.  
JX019.125
e. 
App.3382
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 Issues that Result in Affiliation: 
SBA has determined that each of the following provisions in a franchise 
agreement results in affiliation between a franchisor and a franchisee:  
i. Transfer or Change of Ownership; 
a) 
Franchisor has the option or right of first refusal (ROFR) to purchase an 
interest in the franchise and become a partial owner of the Franchisee. 
b) 
Franchisor’s consent to the sale or transfer of any interest in the 
franchise (full or partial) is based on the Franchisor’s “sole discretion” 
or the agreement is silent on the standard for consent. 
c) 
Franchisee remains liable for the actions of the transferee after transfer 
of the franchise. 
ii. Sale of Assets; 
a) 
Franchisor or an appraiser selected by the Franchisor solely controls the 
valuation of assets when the Franchisor has the option or ROFR to 
purchase assets, including real estate, upon default or termination of 
agreement. 
b) 
Franchisor has the right to force the Franchisee to sell the Franchisee’s 
real estate upon default or termination of agreement. 
iii. Covenants or Use Restrictions; and 
Franchisor has recorded or has the right to record against the Franchisee’s 
real estate any restrictive covenants, branding covenants or environmental 
use restrictions (e.g., restricting the use of the property upon sale). 
iv. Control of Employees. 
a) 
Franchisor has the authority to directly control (hire, fire, or schedule) 
Franchisee’s employees.  
b) 
For temporary personnel franchises, Franchisor (not the Franchisee) 
employs the temporary employees. 
If a franchise agreement contains any of the provisions identified above, the 
franchisor will be required to execute either SBA Form 2462 or an SBA 
Negotiated Addendum approved by SBA to resolve the affiliation issues. By 
executing the applicable addendum, the franchisor agrees that any provision 
identified above that is represented in the franchise agreement, or any other 
document the franchisor requires the franchisee to sign, will not be enforced 
against the franchisee during the life of the SBA-guaranteed loan. 
 Procedure to Submit Franchise Loan Applications: 
i. For non-delegated loans:  
a) 
If the Applicant’s brand meets the FTC definition of a franchise, the 
SBA Lender must identify the name of the franchise and the SBA 
Franchise Identifier Code when entering the application into E-Tran or 
JX019.126
f. 
g. 
App.3383
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SBA One. The SBA Lender must ensure that the brand name (and, 
where applicable, the type of agreement) the Applicant will be operating 
under matches the brand name (and, where applicable, the type of 
agreement) listed on the Directory. 
b) 
No other franchise documentation must be submitted to the SBA loan 
processing center with the application.  
c) 
SBA will confirm that the brand is listed on the Directory. 
d) 
If the SBA Lender determines that the Applicant’s brand does not meet 
the FTC definition of a franchise, and it is not on the Directory, then the 
SBA Lender needs to explain its determination in its credit 
memorandum when submitting the application to the SBA loan 
processing center and provide the agreement and any additional 
documentation required by the brand. SBA Lender also must provide 
contact information for the franchisor/licensor (name and email address 
only). The SBA loan processing center will forward the documentation 
and contact information to the SBA Franchise Team for review and final 
determination. 
ii. For delegated loans: 
a) 
If the Applicant’s brand meets the FTC definition of a franchise, the 
SBA Lender must document in its file that the Applicant’s brand is on 
the Directory and identify the name of the franchise and SBA Franchise 
Identifier Code when entering the application or request for loan 
number into E-Tran or SBA One. The SBA Lender must ensure that the 
brand name (and, where applicable, the type of agreement) the 
Applicant will be operating under matches the brand name (and, where 
applicable, type of agreement) listed on the Directory. 
b) 
The SBA Lender will need to submit the documentation showing that 
the Applicant’s brand is on the Directory: 
i) For 7(a) loans: With any guaranty purchase request; 
ii) For 504 loans: To SBA counsel (not the Franchise mailbox) for 
approval prior to submitting the closing documents to SBA counsel. 
c) 
If the Applicant’s brand is not on the Directory and the delegated SBA 
Lender determines the brand does not meet the FTC definition: 
i) For 7(a) loans: If the SBA Lender proceeds with approving the loan 
under its delegated authority, SBA will review this decision at time of 
purchase or when conducting lender oversight activities and the 
delegated SBA Lender bears the risk of an incorrect determination. 
ii) For 504 loans: The SBA Lender approving a loan under its delegated 
authority must submit the documents to franchise@sba.gov for a final 
determination by SBA. SBA Lender must provide contact information 
for the franchisor/licensor (name and email address only). After 
JX019.127
App.3384
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receiving SBA’s final determination, the delegated SBA Lender may 
proceed with approving the loan under its delegated authority. 
iii. When an Applicant operates under multiple brands, the SBA Lender must 
enter the name of the franchise and the SBA Franchise Identifier Code for the 
brand that generates the largest amount of the Applicant’s revenue when 
entering the application or request for a loan number in E-Tran or SBA One. 
The SBA Lender must identify all other brands and their SBA Franchise 
Identifier Codes (if applicable) in the SBA Lender’s credit memorandum, 
and must identify which of the Applicant’s brands are critical to the 
Applicant’s business operation, including an explanation of the basis for that 
determination (e.g., a breakdown of revenue by brand). (See subparagraph 
6.c.ii above for further guidance on Applicants with multiple brands.) 
a) 
For non-delegated loans, the SBA loan processing center will confirm 
that all of the Applicant’s brands are eligible for SBA financial 
assistance and those that meet the FTC definition of a franchise that are 
critical to the Applicant’s business operation are on the Directory.  
b) 
For delegated loans, the delegated SBA Lender must document in its 
file that all of the Applicant’s brands are eligible for SBA financial 
assistance and those that meet the FTC definition of a franchise that are 
critical to the Applicant’s business operation are on the Directory.  
Delegated Lenders will be required to submit this supporting 
documentation to SBA with any guaranty purchase request and SBA 
will review this documentation when conducting lender oversight 
activities for 7(a) loans. PCLP CDCs will be required to submit this 
supporting documentation to SBA Counsel (not the franchise mailbox) 
for approval prior to submitting the closing documents to SBA Counsel. 
iv. If the Applicant franchisee has multiple locations and each location operates 
under a separate franchise agreement, each location (i.e., each agreement) 
must have its own SBA Form 2462 or an SBA Negotiated Addendum, if 
applicable.  
v. If the Applicant applies for further assistance under an agreement that 
already has an executed addendum, the SBA Lender will not need to obtain a 
new addendum in connection with the subsequent application for financial 
assistance.  
vi. The SBA Lender must obtain a copy of the executed franchise agreement, the 
executed SBA Form 2462 or SBA Negotiated Addendum (if applicable), and 
any other document the franchisor requires the franchisee to sign. The SBA 
Lender must obtain the SBA Negotiated Addendum directly from the 
Franchisor. (While it is prudent for the SBA Lender to review the Franchise 
Disclosure Document, as it contains financial information on the franchise 
brand, it is not necessary for the SBA Lender to retain a copy in its file.)  
a) 
For 7(a) loans, the SBA Lender must obtain these documents prior to 
any disbursement of loan proceeds. 
JX019.128
App.3385
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b) 
For 504 loans: 
i) Non-delegated loans: The SBA Lender must provide these documents 
to and receive approval from the SLPC prior to submitting the closing 
package for debenture funding; 
ii) Delegated loans: Delegated SBA Lenders must submit these 
documents to and receive approval from SBA counsel (not the 
franchise mailbox) prior to submitting the closing package for 
debenture funding. 
In order to ensure the SBA Lender obtained the required documents and the 
documents were properly executed, SBA may review these documents when 
conducting SBA Lender oversight activities, and they must be provided with 
any request for SBA to honor the guaranty on a defaulted 7(a) loan. 
 Applications involving an applicant franchisor: 
If the Applicant is a franchisor, it must together with all affiliates not exceed the 
size standard designated for either the primary industry of the Applicant alone or 
the primary industry of the Applicant and its affiliates, whichever is higher. A 
franchisor’s relationship with its franchisees under a franchise agreement must be 
considered when making a size determination. If affiliation is found between a 
franchisor and its franchisees based on the franchise agreement, the Franchisor 
may execute a global addendum to resolve any affiliation issue(s) with respect to 
all agreements with its franchisees. To request a determination of affiliation and, 
if necessary, obtain a franchisor global addendum for a franchisor Applicant, 
please contact franchise@sba.gov. The franchisor’s brand must be listed on the 
Directory as an approved brand even if the franchisor will not be executing a 
franchise agreement in connection with the loan transaction. 
 Applications involving Franchise Development Agreements or Area Development 
Rights: 
Franchise Development Agreements (also known as a “Master Franchise 
Agreements”) provide the developer with a geographic area with which to 
establish additional franchise units. These additional franchise units are owned 
and operated by other franchisees, and the developer’s income is derived from the 
royalty payments from each franchisee in the developer’s geographic territory. 
Based on those features, these agreements have been determined to be passive 
and, therefore, an Applicant that is or will be operating under a Franchise 
Development Agreement is not eligible for SBA financial assistance.  
If an Applicant franchisee has an affiliate that operates under an ineligible 
Franchise Development Agreement, the Applicant franchisee may be eligible for 
SBA financial assistance, provided that the Applicant and its affiliates are small, 
and no SBA loan proceeds are used for the benefit of the ineligible affiliate 
franchise developer. 
An Applicant franchisee that is or will be operating under a franchise agreement 
that provides the franchisee with the right to develop additional units that the 
franchisee or its affiliates own and operate within its territory (“area development 
JX019.129
h. 
1. 
App.3386
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rights” or “Multi-Unit Franchise Agreement”), however, may be eligible provided 
that the Applicant and its affiliate franchise units is small. 
 Franchise Applicants with Management Agreements: 
i. If the Applicant will be using a management agreement, for non-delegated 
loans, the SBA Lender must submit the management agreement to the SBA 
loan processing center to determine if it creates affiliation between the 
Applicant and the management company or results in a passive business. The 
SBA Franchise Team does not review management agreements and such 
agreements will not be included on the SBA Franchise Directory. 
If a delegated SBA Lender is processing the loan under its delegated 
authority, the SBA Lender must review the management agreement to 
determine if it creates affiliation between the Applicant and the management 
company or results in a passive business. SBA will review this decision when 
conducting lender oversight activities. The delegated SBA Lender bears the 
risk of an incorrect determination. For 7(a), SBA will also review this 
decision at the time of purchase. 
ii. If the Applicant franchisee is operating under a management agreement 
where the management company is, or is affiliated with, the franchisor, the 
Applicant is not eligible. Such a relationship does not result in the franchisee 
operating as an independent small business. 
iii. See paragraph D.5, Affiliation Based on Management above for guidance on 
affiliation based on management and Chapter 3, Para. A.3, Passive 
Businesses below for guidance on passive businesses. 
 Questions on SBA’s Franchise Policy, Requests for Reconsideration and Appeals: 
i. Questions on SBA’s Franchise Policy should be directed to 
franchise@sba.gov. 
ii. Franchisors that would like to appeal SBA’s decision not to place them on 
the Directory may do so by forwarding a copy of the decision, along with an 
explanation of how the determination is perceived to be inconsistent with 
SBA Loan Program Requirements, to franchise@sba.gov. Franchise appeals 
will be reviewed by the SBA Franchise Committee comprised of OFA and 
OGC personnel.  
iii. There is no right of appeal for final Agency decisions made by the Associate 
General Counsel for Litigation. 
iv. Franchisors that would like to request reconsideration of SBA’s 
determination that they meet the FTC definition of a franchise or that their 
agreement creates affiliation between the franchisor and franchisee may do 
so by forwarding a copy of the decision, along with an explanation of why 
that decision is perceived to be incorrect, as well as any supporting 
documentation, to franchise@sba.gov. 
 
JX019.130
J-
k. 
App.3387
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E. DEMONSTRATE THE NEED FOR DESIRED CREDIT 
(Credit not available elsewhere - 13 CFR § 120.101 
1. The SBA Lender must certify that the Applicant does not have the ability to obtain some 
or all of the requested loan funds on reasonable terms from non-Federal, non-State, or 
non-local government sources, including from the SBA Lender or Third Party Lender, 
without SBA assistance. If the Applicant’s cash flow and collateral, including the 
adequacy of any third party guaranty, would cause the Applicant’s loan to meet 
conventional credit standards of the SBA Lender or Third Party Lender, the Project is not 
eligible for an SBA Loan. Failure of the SBA Lender to adequately address the 
Applicant’s need for the desired credit in the credit memorandum may result in SBA 
declining the application submitted under non-delegated processing or denying liability 
on the guaranty if the application is approved by a 7(a) Lender under its delegated 
authority or, in 504, the pursuit of a CDC Recovery Claim under 13 CFR 120.938 in the 
case of fraud, negligence, or misrepresentation by the CDC. 
2. The SBA Lender must include in its credit memorandum: 
 A determination that some or all of the loan is not available from any of the 
following sources: 
i. The liquidity of owners of 20% or more of the equity of the Applicant, their 
spouses and minor children, and the Applicant itself; or 
ii. Conventional lenders or other non-Federal, non-State, or non-local 
government sources of credit including the SBA Lender, and for 504 loans, 
the Third Party Lender. Note: This includes any commitment by a third party 
to provide financial assistance to the Applicant in the event of a delinquency 
or default on a payment (e.g., a commitment by a franchisor or licensor to 
provide financial assistance to the franchisee or licensee). 
 Substantiate that credit is not available elsewhere by discussing acceptable factors 
that demonstrate an identifiable weakness in the credit. The SBA Lender must 
include in its credit memorandum the specific reasons why the Applicant does not 
meet conventional loan policy requirements, along with relevant supporting 
documentation. The SBA Lender may not cite the Applicant’s inability to meet 
the SBA Lender’s or Third Party Lender’s conventional credit score policy as the 
sole reason that credit is not available elsewhere.  
Acceptable factors that demonstrate an identifiable weakness in the credit or 
exceed policy limits of the SBA Lender or the Third Party Lender include, among 
others: 
i. The business needs a longer maturity than the SBA Lender’s/Third Party 
Lender’s policy permits to reasonably assure the ability of the loan applicant 
to repay the debt from the actual or projected cash flow of the business (for 
example, the business needs a loan that is not on a demand basis); 
ii. The requested loan exceeds the SBA Lender’s/Third Party Lender’s policy 
limit regarding the amount that it can lend to one customer; 
JX019.131
a. 
b. 
App.3388
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iii. The collateral does not meet the SBA Lender’s/Third Party Lender’s policy 
requirements; 
iv. The SBA Lender’s/Third Party Lender’s policy normally does not allow 
loans to new businesses (e.g., a business that has been in operation for a 
period of not more than 2 years) or businesses in the Applicant’s industry; 
and/or 
v. Any other factors relating to the particular credit that, in the SBA 
Lender’s/Third Party Lender’s opinion, cannot be overcome except for the 
guaranty. These other factors must be specifically explained in the SBA 
Lender’s credit memorandum, and relevant supporting documentation must 
be included in the loan file. Examples of “other factors” may include 
business and personal credit history, management experience, leverage ratio, 
global cashflow, and loan size relative to the age of the business.  
3. The SBA Lender/Third Party Lender may not rely on the following factors as the sole 
basis to demonstrate that the Applicant does not have credit available elsewhere: 
 For 7(a) loans, the fact that the liquidity of the SBA Lender depends upon the 
guaranteed portion of the loan being sold on the secondary market; or 
 SBA’s participation will allow the SBA Lender/Third Party Lender to exceed its 
legal lending limit. 
4. The SBA Lender may not rely in any manner on the following factors to demonstrate that 
the Applicant does not have credit available elsewhere: 
 The maintenance or improvement of the SBA Lender’s/Third Party Lender’s 
rating or performance evaluation under the Community Reinvestment Act (CRA) 
or its implementing regulations; or 
 The improvement of the SBA Lender’s/Third Party Lender’s collateral lien 
position.
JX019.132
a. 
b. 
a. 
b. 
App.3389
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Effective October 1, 2020 
Page 133 
CHAPTER 2: SPECIAL TRANSACTION STRUCTURES 
This chapter provides additional details on certain complex transaction structures. This 
information is provided in addition to the SBA Loan Program Requirements detailed in Sections 
A, B, and C of this Part. 
A. ELIGIBLE PASSIVE COMPANIES 
13 CFR § 120.111 
The Eligible Passive Company (EPC) Rule is an exception to SBA regulations that prohibit 
financing assets that are held for their passive income. (13 CFR § 120.130(d)) Because the EPC 
rule is an exception, the EPC and the OC must comply with all of the conditions in 13 CFR § 
120.111 and each condition is interpreted strictly. If all conditions are not complied with, in the 
event of default on a 7(a) loan, SBA may deny liability on the guaranty. In 504, SBA may pursue 
a CDC Recovery Claim under 13 CFR § 120.938 in the case of fraud, negligence, or 
misrepresentation by the CDC. 
An Eligible Passive Company (EPC) must use loan proceeds only to acquire or lease, and/or 
improve or renovate, real or personal property (including eligible refinancing), that it leases to 
one or more Operating Companies (OCs) for conducting the OC's business, or to finance a 
change of ownership between the existing owners of the EPC. An EPC may only use loan 
proceeds to finance a change of ownership between existing owners of the EPC when the real 
estate or personal property has been held by the selling owner(s) for at least 36 months.  
For specific information on change of ownership loans with an EPC/OC structure: 
• For 7(a), see the eligible uses of proceeds section of each delivery method chapter. Note, 
change of ownership is not an eligible use of proceeds for the CAPLines and EWCP 
delivery methods, or for revolving facilities. 
• For 504, see Section C, Ch. 1, Para. C.13, Change of Ownership, in this Part for the 
circumstances under which change of ownership is permitted. Note: See Para. C.13.a.iii. 
of such Section for important restrictions that apply if using a 504 loan to finance a 
change of ownership between existing owners of the EPC. 
With the exception of a change of ownership between existing owners of the EPC, an EPC may 
not use loan proceeds to acquire a business, acquire stock in a business or any intangible assets 
of a business, or to refinance debt that was incurred for those purposes.  
In addition, when the EPC and OC(s) are co-borrowers: 
• A 7(a) loan may include loan proceeds for working capital and/or the purchase of other 
assets, including intangible assets for the OC’s use; and 
• A 504 loan may include loan proceeds for the purchase of fixed assets to be owned by the 
OC(s).  
An EPC can take any legal form or ownership structure (e.g., corporation, partnership, LLC, sole 
proprietor, tenancy in common, etc.)  
JX019.133
App.3390
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A tenancy in common is a form of legal ownership and does not create a new or separate legal 
entity. There may be several individuals or entities in a tenancy in common, but the tenancy in 
common is considered one EPC. The loan documents must be signed by all of the members of 
the tenancy in common. 
Multiple OCs can be separately owned, however, multiple EPCs in one transaction are not 
permitted. 
1. Conditions that apply to all EPCs: 
 The OC(s) must be an eligible small business; 
 The proposed use of proceeds must be an eligible use as if the OC(s) were 
obtaining the financing directly; 
 The EPC (with the exception of a trust) and the OC(s) each must be small under 
the appropriate size standard of 13 CFR Part 121 (see paragraph A.3, Size 
determinations under the EPC rule below); 
 The EPC must lease the project property directly to the OC(s); and 
i. Obtain a fully executed written lease; 
ii. The lease must be subordinated to the SBA’s mortgage, trust deed lien, or 
security interest on the property (Note: This is not the same as a Landlord’s 
Waiver); 
iii. The lease must have a term, including options to renew exercisable solely by 
the OC(s), at least equal to the term of the loan;  
iv. The EPC (as landlord) must furnish as collateral for the loan an assignment 
of all rents paid under the lease. An assignment of the lease is only required 
when necessary to perfect the assignment of rents under applicable law, or to 
enable the SBA Lender to exercise the tenant’s rights upon default;  
v. The rent or lease payments cannot exceed the amount necessary to make the 
loan payment to the Lender and an additional amount to cover the EPC’s 
direct expenses of holding the property, such as routine maintenance, utility 
expenses, insurance, and property taxes.  
For 504 loans, loan payments to the SBA and to the Third Party Lender are 
included in the calculation of “loan payment to the Lender.” Rent or lease 
payments cannot include amounts for accelerated payments on the Third 
Party Loan;  
vi. When calculating repayment ability, the SBA Lender must consider whether 
the OC’s cash flow will be sufficient to cover the loan payment (for 504 
loans, including the loan payment to the Third Party Lender), in addition to 
the expenses of holding the property including the payment of routine 
maintenance, property taxes, utility expenses, insurance, and all other 
ongoing expenses; 
vii. The OC(s) must lease 100% of the property from the EPC, but it can sublease 
a portion of the property under the rules governing occupancy requirements 
JX019.134
a. 
b. 
C. 
d. 
App.3391
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SOP 50 10 6 
Part 2, Section A, Ch 2: Special Transaction Structures 
Effective October 1, 2020 
Page 135 
with which all SBA Borrowers must comply (see Chapter 4, Para. C, 
Occupancy and Leasing Requirements of this Section for more information); 
viii. If, in acquiring the property, the EPC becomes the beneficiary or owner of 
the rights to an existing mineral lease on the property, the EPC must assign 
its interest in the lease (together with its rights to all rental, mineral, royalty, 
bonus, or similar lease payments that might accrue by virtue of the existing 
mineral (oil and gas) lease) to the OC(s); and any such assignment must be 
subordinated to all Deeds of Trust or Mortgages. In addition, the SBA Lender 
must take the following actions if applicable: 
a) 
If subordination is not possible: 
i) For 7(a) loans: The 7(a) Lender must obtain a legal opinion to that 
effect; 
ii) For 504 loans: CDC Closing Counsel must provide a legal opinion to 
that effect; 
b) 
If the mineral lease has been terminated, the SBA Lender should 
attempt to have it removed from the Title Policy; 
c) 
If the SBA Lender is unable to have the mineral lease removed from the 
Title Policy: 
i) For 7(a) loans:  
(a) 
The SBA Lender must provide supporting documentation 
evidencing the proper assignment of the lease to the OC(s) and 
obtain a title endorsement to protect SBA’s interest in the real 
property (see, for example, California Land Title Association 
(CLTA) 100.23 or 100.24). 
(b) 
SBA Lenders processing loans under non-delegated procedures 
must submit a copy of the lease agreement between the EPC and 
OC(s) with the application for loan guaranty to SBA. SBA Lenders 
processing loans under delegated authority must keep a copy of the 
executed lease in their loan file and must submit the lease with any 
request to SBA to purchase the guaranty. 
ii) For 504 loans: The CDC Closing Counsel must include language in 
the Opinion of Counsel indicating that they have examined and relied 
upon the accuracy of the assignment document and obtain a title 
endorsement to protect SBA’s interest in the real property (see, for 
example, California Land Title Association (CLTA) 100.23 or 
100.24). 
 An EPC (excluding a trust) may not engage in any business activity other than 
leasing the property to the OC(s). 
JX019.135
e. 
App.3392
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SOP 50 10 6 
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 The OC(s) must be a guarantor or a co-Borrower on the loan.  
i. Each holder of an ownership interest constituting at least 20% of either the 
EPC or the OC(s) must guarantee the loan (if the holder is a trust, then the 
Trustee shall execute the guarantee on behalf of the trust).  
ii. Each spouse owning less than 20% of an EPC or OC must personally 
guarantee the loan in full when the combined ownership interest of both 
spouses and minor children is 20% or more.  
iii. For a non-owner spouse, the SBA Lender must require the signature of the 
spouse on the appropriate collateral documents. The spouse's guaranty 
secured by jointly held collateral will be limited to the spouse's interest in the 
collateral.  
iv. If a person has executed the Note as a Borrower in an individual capacity, 
that person does not also have to execute a personal guaranty. 
v. When deemed necessary for credit or other reasons, SBA or, for a loan 
processed under an SBA Lender’s delegated authority, the SBA Lender, may 
require other appropriate individuals or entities to provide full or limited 
guaranties of the loan without regard to the percentage of their ownership 
interests, if any. 
vi. The OC(s) must be a co-Borrower if it receives any proceeds or if proceeds 
will be used to purchase any assets for the OC(s) use.  
 The amount of any loan received by an EPC applies to the loan limit of both the 
EPC and the OC. 
2. Conditions that apply when the EPC is owned in whole or in part by a trust. 
 The eligibility status of the Trustor will determine trust eligibility. 
 All donors to the trust will be deemed to have Trustor status for eligibility 
purposes. 
 The Trustee must warrant and certify that the trust will not be revoked or 
substantially amended for the term of the loan without the prior written consent of 
SBA. 
 The Trustor must guarantee the loan. 
i. If an Employee Stock Ownership Plan trust agreement prohibits it from being 
a guarantor or co-Borrower, then it cannot use the EPC form of borrowing. 
ii. Beneficiaries that exercise any control over the actions of the trust also must 
guarantee the loan. 
 The Trustee shall certify in writing to SBA, or to the SBA Lender processing a 
loan under its delegated authority, that: 
i. The Trustee has authority to act; 
ii. The trust has authority to borrow funds, pledge trust assets, and lease the 
property to the OC(s); 
JX019.136
f. 
g. 
a. 
b. 
C. 
d. 
e. 
App.3393
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SOP 50 10 6 
Part 2, Section A, Ch 2: Special Transaction Structures 
Effective October 1, 2020 
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iii. The Trustee has provided accurate, pertinent language from the trust 
agreement confirming the above; and  
iv. The Trustee has provided SBA or the SBA Lender processing a loan under 
its delegated authority with a true and complete list of all trustors and donors 
and will provide an updated list to SBA or the SBA Lender processing a loan 
under its delegated authority any time the list changes. 
 The trust itself does not have to be small by SBA size standards.  
3. Size Determinations under the EPC rule. 
 If the EPC and the OC(s) are affiliated, the two companies are combined for 
determining size. 
i. If there is only one OC, use the OC’s NAICS code. 
ii. If there are multiple, unaffiliated OCs, use the NAICS code of the OC that 
generates the most revenue. Note: Each OC must be small based on its own 
NAICS code. 
iii. If the multiple OCs are affiliated, then use the rules detailed in 13 CFR 
§121.107 for determining the primary industry of affiliated businesses. The 
NAICS Code of the primary industry of the OC shall be the identifying 
NAICS Code. 
 If the EPC and the OC(s) are not affiliated, each entity must be small under the 
size requirement for its particular industry. 
The existence of a lease between the EPC and the OC(s) does not, in and of itself, 
create an affiliation, even if the EPC and OC(s) are co-Borrowers. 
4. When sending data to SBA, use the same NAICS Code that was used to determine size 
for the Applicant. 
5. Submission of Financial Statements by the EPC and the OC(s): 
 The EPC and each OC must submit Financial Statements. The OC’s statements 
are subject to tax verification. 
 The regular requirement for an Aging of receivables and payables is waived for 
EPCs. 
B. LOANS TO EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS) 
For 7(a) loans only: SBA may assist a qualified employee trust (or equivalent trust) that meets 
the requirements and conditions for an ESOP prescribed in all applicable IRS, Treasury, and 
Department of Labor regulations. 13 CFR §§ 120.350 - 120.354  
1. SBA may guarantee a 7(a) loan to an ESOP for two purposes: 
a. Purchasing a controlling interest (at least 51 percent) in the employer small 
business; or  
JX019.137
f. 
a. 
b. 
a. 
b. 
App.3394
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SOP 50 10 6 
Part 2, Section A, Ch 2: Special Transaction Structures 
Effective October 1, 2020 
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b. Re-lending loan proceeds to the employer small business by purchasing qualified 
employee securities. The small business may use the funds for any general 7(a) 
purpose. 
2. SBA may guarantee a 7(a) loan to an eligible employer small business for the sole 
purpose of making a loan to a qualified employee trust (ESOP) that results in the 
qualified employee trust owning at least 51 percent of the employer small business 
concern. 
3. Transaction costs associated with the purchase of the controlling interest by the ESOP or 
equivalent trust may be included in the use of proceeds, but any transaction costs 
associated with setting up the ESOP may not be included in the use of proceeds. 
4. If the seller of the employer small business remains as a partial owner, the seller must 
provide a full, unlimited guarantee regardless of percentage of ownership. 
5. Lenders may not process loans to an ESOP or to an eligible small business owned or 
controlled by an ESOP under delegated authority. 
6. The IRS prohibits ESOPs from guarantying a loan; therefore, SBA does not require the 
ESOP to guarantee the loan. In addition, members of the ESOP are not required to 
personally guarantee the loan. However, all owners of the Applicant who hold an 
ownership interest in the small business outside the ESOP are subject to SBA’s guaranty 
requirements. (See Chapter 6, Para. A, Guaranties, of this Section for more information.) 
7. The application cannot be structured as an EPC/OC. (13 CFR § 120.111(a)(6)) SBA 
regulations require each 20% or more owner of the EPC and each 20% or more owner of 
the OC to guarantee the loan, and the regulation does not provide for an exception. 
8. Prior to first disbursement, the Lender must obtain documentation that the ESOP or 
equivalent trust meets the requirements of all applicable IRS, Treasury, and Department 
of Labor regulations.  
C. COOPERATIVES 
1. Eligibility: All Applicants operating under a cooperative structure must meet SBA’s 
eligibility requirements.  
2. SBA Lenders may not process loans to a cooperative or to an eligible small business 
owned or controlled by a cooperative under delegated authority. 
3. Each loan must be guaranteed by at least one individual or entity. (See Ch. 6, Para. A, 
Guaranties, of this Section for more information.) 
4. For 7(a) only:  
a. SBA may guarantee a loan to a cooperative to purchase a controlling interest 
(51% or more) in the employer small business. Any transaction costs associated 
with the purchase of the controlling interest, but not costs associated with setting 
up the cooperative, may be included in the use of proceeds. 
b. If the seller remains as a partial owner, the seller must provide a full, unlimited 
guarantee regardless of percentage of ownership. 
JX019.138
App.3395
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5. The SBA Lender must submit supporting organizational documents and agreements as 
applicable with the loan application depending on the type of cooperative and the purpose 
of the loan (e.g., a loan to a cooperative to acquire a controlling interest in the employer 
concern), which may include Cooperative Agreement; Organization documents; Articles 
of Incorporation/Organization; Bylaws; Operating/Conversion/Redemption/Membership 
Agreement(s); or any other agreements as necessary. 
D. 401(K) PLANS INCLUDING ROLLOVERS AS BUSINESS START-UPS (ROBS) 
PLANS 
A business that is owned in whole or in part by a 401(k) plan (including a Rollovers as Business 
Startups (ROBS) plan) may be eligible provided the SBA Lender complies with the requirements 
in this section and the plan complies with all applicable IRS, Treasury, and Department of Labor 
requirements.  
When evaluating applications involving such businesses, SBA Lenders must consider that a 
401(k) plan sponsor’s failure to administer the plan properly may result in plan disqualification 
and adverse tax consequences to the plan’s sponsor and its participants, which may impact the 
Borrower’s ability to repay the loan. 
Applications where the Applicant or any owner (including a corporation formed through a ROBS 
plan) is a: 
• Single Employer Plan, including ROBS plans, may be processed under an SBA 
Lender’s delegated authority if the only investment held by the 401(k) plan is the 
equity in the Applicant business. 
• Multiple-Employer Plan, (i.e. plans that hold in trust the assets of other businesses), 
including ROBS plans, must be submitted to the SBA processing center under non-
delegated processing. NOTE: Size standards and maximum SBA guarantee limits to a 
Borrower and its affiliates apply to the multiple-employer plan. 
1. The SBA Lender must: 
 Document 100% of the ownership of the Applicant and the 401(k) plan, including 
but not limited to, the Trust, corporations, individuals, etc.; 
 Verify all sources of equity injection in accordance with Loan Program 
Requirements; 
 Identify in E-Tran or SBA One and in the credit memorandum: 
i. The specific type of 401(k) plan (Single Employer Plan, Multiple Employer 
Plan, etc.); and 
ii. If applicable, that the Applicant is using a ROBS plan for the equity 
contribution or other purpose (if the latter, specify the purpose of the ROBS 
plan). 
 Obtain the full unconditional guaranty of the sponsor(s) of the 401(k) plan 
regardless of the sponsor’s individual ownership interest in the Applicant concern. 
This guaranty must be a secured guaranty if required by SBA’s existing collateral 
policies. For more information on collateral: For 7(a), see the collateral section in 
JX019.139
a. 
b. 
C. 
d. 
App.3396
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each delivery method chapter of Section B of this Part. For 504, see Section C, 
Ch. 1, Para. E.2.a., Collateral, of this Part. 
 The SBA Lender must obtain the following 401(k) plan documentation with the 
loan application:  
i. A favorable determination letter from IRS providing advance assurance that 
the terms of the 401(k) plan satisfies qualification requirements. IRS 
Publication 794 explains the significance of the favorable determination 
letter, points out critical areas that may affect the qualified status of a 401(k) 
plan, and provides general information on the reporting requirements for the 
401(k) plan; 
ii. For an existing 401(k) plan, the Annual Return/Report of Employee Benefit 
Plan (e.g., IRS Form 5500, IRS Form 5500-EZ, etc.); 
iii. For a ROBS plan: 
a) 
C Corporation formation documents; 
b) 
401(k) plan adoption documents; 
c) 
Stock purchase agreements; and 
d) 
Related corporate resolutions. 
2. SBA loan proceeds may not be used for any 401(k) plan formation costs. 
3. The application cannot be structured as an EPC/OC. (13 CFR § 120.111(a)(6)) SBA 
regulations require each 20% or more owner of the EPC and each 20% or more owner of 
the OC to guarantee the loan, and the regulation does not provide for an exception. 
4. Prior to any disbursement of loan proceeds, the SBA Lender must obtain the Borrower’s 
certification that the Borrower and the 401(k) plan are in compliance with all applicable 
IRS, Treasury, and Department of Labor requirements and that it will comply with all 
relevant operating and reporting requirements. 
JX019.140
e. 
App.3397
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SOP 50 10 6 
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Effective October 1, 2020 
Page 141 
CHAPTER 3: INELIGIBLE BUSINESSES 
A. TYPES OF INELIGIBLE BUSINESSES 
The SBA Lender must determine whether the Applicant is one of the types of businesses listed as 
ineligible in SBA regulations (13 CFR § 120.110). Certain business types appearing on this list 
may be eligible under limited circumstances, as discussed below. 
1. Businesses organized as non-profit businesses are ineligible (for-profit subsidiaries may 
be eligible). 13 CFR § 120.110 (a) 
2. Businesses Engaged in Lending 13 CFR § 120.110 (b). 
 SBA cannot guarantee a loan that provides funds to businesses primarily engaged 
in lending, investment, or to an otherwise eligible business engaged in financing, 
factoring, or investment not related or essential to the business. This prohibits 
SBA Loans to: 
i. Banks; 
ii. Life Insurance Companies (but not independent agents); 
iii. Finance Companies; 
iv. Factoring Companies; 
v. Investment Companies; 
vi. Bail Bond Companies; and 
vii. Other businesses whose stock in trade is money. 
 The limited circumstances under which certain businesses engaged in lending 
may be eligible are as follows: 
i. A pawn shop that provides financing is eligible if more than 50% of its 
revenue for the previous year was from the sale of merchandise rather than 
from interest on loans. 
ii. A business that provides financing in the regular course of its business (such 
as a business that finances credit sales) is eligible, provided less than 50% of 
its revenue is from financing its sales. 
iii. A mortgage servicing company that disburses loans and sells them within 14 
calendar days of loan closing is eligible. Mortgage companies primarily 
engaged in the business of servicing loans are eligible. Mortgage companies 
that make loans and hold them in their portfolio are not eligible. 
iv. A check cashing business is eligible if it receives more than 50% of its 
revenue from the service of cashing checks. 
JX019.141
a. 
b. 
App.3398
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v. A business engaged in providing the services of a financial advisor on a fee 
basis is eligible provided they do not use loan proceeds to invest in their own 
portfolio of investments. 
3. Passive Businesses 13 CFR § 120.110(c): 
 Passive businesses owned by developers and landlords that do not actively use or 
occupy the assets acquired or improved with the loan proceeds are not eligible, 
except Eligible Passive Companies under 13 CFR § 120.111. (See Ch. 2, Para. A., 
Eligible Passive Companies, of this Section for more information.) 
 Businesses primarily engaged in subdividing real property into lots and 
developing it for resale on its own account are not eligible.  
 Businesses that are primarily engaged in owning or purchasing real estate and 
leasing it for any purpose are not eligible. For example, shopping centers, salon 
suites, and similar business models that generate income by renting space to 
accommodate independent businesses that provide services directly to the public 
are not eligible.  
 Businesses that lease land for the installation of a cell phone tower, solar panels, 
billboards, or wind turbine also are not eligible. However, the business operating 
the cell phone tower, solar panel, billboard, or wind turbine is eligible. 
 Businesses that have entered into a management agreement with a third party that 
gives the management company sole discretion to manage the operations of the 
business, including control over the employees, the finances and the bank 
accounts of the business, with no involvement by the owner(s) of the Applicant, 
are not eligible. (See Chapter 1, Para. D.5, Affiliation Based on Management in 
this Section for additional guidance on management agreements.) 
 Apartment buildings and mobile home parks are not eligible. 
 Residential facilities that are not licensed as nursing homes or assisted living 
facilities and do not provide healthcare and/or medical services are not eligible. 
 The limited circumstances under which certain businesses engaged in renting or 
leasing may be eligible are as follows: 
i. Hotels, motels, recreational vehicle parks, marinas, campgrounds, or similar 
types of businesses are eligible if more than 50% of the business’s revenue 
for the prior year is derived from transients who stay for 30 days or less at a 
time and the business complies with all zoning and other legal requirements. 
If the Applicant is a Start-Up Business, the Applicant’s projections must 
show that more than 50% of the business’s revenue will be derived from 
transients who stay for 30 days or less at a time. 
ii. Businesses that are licensed as nursing homes or assisted living facilities and 
provide healthcare and/or medical services are eligible. Healthcare and/or 
medical services include but are not limited to services such as wellness 
checks, monitoring and/or helping take medications, monitoring blood sugar 
levels, having medical staff onsite (even on a part-time basis). The SBA 
JX019.142
a. 
b. 
C. 
d. 
e. 
f. 
g. 
h. 
App.3399
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Lender must consider the terms of the license under which the business 
operates or will operate when determining eligibility. 
iii. Businesses that are engaged in leasing equipment, household goods or other 
items are eligible. (See subparagraph A.2. above regarding the eligibility of 
businesses engaged in lending.) 
iv. Businesses such as barber shops, hair salons, nail salons, and similar types of 
personal services businesses are eligible, regardless of whether they have 
employees or contract with individuals to provide the services that the 
business is providing directly to the public. (See subparagraphs a) and c) 
above regarding ineligibility of developers and landlords.) 
 An ineligible passive business cannot obtain an SBA Loan for any purpose, 
including the purchase or construction of a building for its own use. 
4. Life Insurance Companies 13 CFR § 120.110(d): 
 Life insurance companies are not eligible. 
 A life insurance agent may qualify as an eligible independent contractor if in the 
operation of the business, the insurance agent: 
i. Is not subject to the control or direction of another agent in conjunction with 
the sale and servicing of life insurance;  
ii. Has full discretion over the means and method for rendering services;  
iii. Hires, supervises, and pays employees needed to perform his or her services; 
iv. Performs services at his or her own place of business rather than at the life 
insurance company’s place of business; 
v. Is paid by the job or on a commission basis, rather than by the hour, week, or 
month;  
vi. Is responsible for paying his or her own business expenses;  
vii. Provides a significant amount of his or her tools, materials, and other 
equipment, even if the insurance company provides some forms, manuals, or 
other materials;  
viii. Invests in facilities that are used in performing services and are not typically 
maintained by employees (such as the maintenance of an office rented at fair 
market value from an unrelated party); and 
ix. Can realize a profit or incur a loss as a result of his or her services. 
5. Businesses Located in a Foreign Country or Owned in Whole or in Part by 
Undocumented (Illegal) Aliens 13 CFR § 120.110 (e) 
Businesses located in a foreign country or owned in whole or in part by undocumented 
(illegal) aliens are not eligible for SBA assistance. 
6. Businesses Selling Through a Pyramid Plan 13 CFR § 120.110(f) 
JX019.143
I. 
a. 
b. 
App.3400
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Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
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Businesses using pyramid or multilevel sales distribution plans are not eligible for SBA 
assistance. 
7. Businesses Engaged in Legal Gambling Activities 13 CFR § 120.110(g) 
 Small businesses that obtain more than one-third of their annual gross revenue for 
the prior year, including rental income, from legal gambling activities are not 
eligible. 
 If the purpose of the business is gambling, such as a pari-mutuel betting racetrack 
or a gambling casino, the business is not eligible, regardless of the percentage of 
gross revenue derived from gambling. 
 Circumstances exist in which businesses engaged in legal gambling activities may 
be eligible, including if the Applicant obtains one-third or less of their annual 
gross revenue, including rental income from: 
i. Commissions from official State lottery ticket sales under a State license; or 
ii. Gambling activities licensed and supervised by a state authority in those 
states where the activities are legal. 
8. Businesses Engaged in any Illegal Activity 13 CFR § 120.110 (h) 
 Applicants that are engaged in illegal activity under federal, state, or local law are 
not eligible. This includes Applicants who make, sell, service, distribute, or 
promote products or services used in connection with illegal activity, unless such 
use can be shown to be completely outside of the Applicant’s intended market.  
 Marijuana-Related Businesses: 
i. Because federal law prohibits the distribution and sale of marijuana, financial 
transactions involving a marijuana-related business would generally involve 
funds derived from illegal activity. Therefore, businesses that derive revenue 
from marijuana-related activities or that support the end-use of marijuana 
may be ineligible for SBA financial assistance.  
ii. Whether a business is eligible is determined by the nature of the business’s 
specific operations. The following businesses are ineligible:  
a) 
“Direct Marijuana Business” - a business that grows, produces, 
processes, distributes, or sells marijuana or marijuana products, edibles, 
or derivatives, regardless of the amount of such activity. This applies to 
recreational use and medical use even if the business is legal under local 
or state law where the Applicant is or will be located.  
b) 
“Indirect Marijuana Business” - a business that derived any of its gross 
revenue for the previous year (or, if a Start-Up Business, projects to 
derive any of its gross revenue for the next year) from sales to Direct 
Marijuana Businesses of products or services that could reasonably be 
determined to aid in the use, growth, enhancement or other development 
of marijuana. Examples of Indirect Marijuana Businesses include 
businesses that provide testing services, or sell or install grow lights, 
hydroponic or other specialized equipment, to one or more Direct 
JX019.144
a. 
b. 
C. 
a. 
b. 
App.3401
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Effective October 1, 2020 
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Marijuana Businesses; and businesses that advise or counsel Direct 
Marijuana Businesses on the specific legal, financial/accounting, policy, 
regulatory or other issues associated with establishing, promoting, or 
operating a Direct Marijuana Business. However, for purposes of 
illustration, SBA does not consider a plumber who fixes a sink for a 
Direct Marijuana Business or a tech support company that repairs a 
laptop for such a business to be aiding in the use, growth, enhancement, 
or other development of marijuana. 
Indirect Marijuana Businesses also include businesses that sell smoking 
devices, pipes, bongs, inhalants, or other products if the products are 
primarily intended or designed for marijuana use or if the business 
markets the products for such use.  
iii. Consistent with the Agriculture Improvement Act of 2018 (Public Law No. 
115-334), a business that grows, produces, processes, distributes or sells 
products made from hemp is eligible only if the hemp meets the definition in 
section 297A of the Agricultural Marketing Act of 1946 and any applicable 
state definition of hemp. (It is important to note that some states define hemp 
as having a lower level of THC than the federal definition.) 
The SBA Lender is responsible for obtaining from the Applicant 
documentation sufficient to demonstrate that the hemp meets the applicable 
definitions. In addition, for Applicants who will be growing, producing, 
and/or processing hemp, the SBA Lender is responsible for obtaining from 
the Applicant documentation of the testing protocols the business will follow 
to ensure that the hemp and any product(s) they extract or produce from it 
continue to meet the applicable definitions.  
iv. Cannabidiol (CBD) related businesses: The factors to be considered in 
determining the eligibility of CBD-related businesses include, but are not 
limited to, the following:  
a) 
Where the CBD is derived from (hemp or marijuana); 
b) 
What types of products are being produced and/or sold (e.g., topical 
products or products to be ingested); 
c) 
What health claims, if any, are being made about the product(s); and 
d) 
Whether all products being produced and/or sold comply with all 
applicable federal laws and regulations, including those issued by the 
Food and Drug Administration. 
9. Businesses That Restrict Patronage or Have Discriminatory Hiring Practices 13 CFR § 
120.110(i) and 13 CFR § 113.3(a) 
 Businesses that restrict patronage for any reason other than capacity are not 
eligible. For example, a men’s or women’s only health club is not eligible, 
whether or not the business is a franchise.  
JX019.145
a. 
App.3402
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 146 
 Circumstances exist in which certain businesses, like fitness centers that market to 
one gender, may be eligible if they permit both men and women to join and/or use 
the facility. SBA Lenders must document the file with the following: 
i. Affidavit signed by the Applicant that the business is open to both men and 
women; and 
ii. Evidence that the facility is open to both men and women, such as 
appropriate bath/locker rooms, or documented membership demographics. 
 Except as permitted under §702(a) of the Civil Rights Act of 1964 (42 USC § 
2000e-1), businesses that have discriminatory hiring practices are not eligible. For 
example, a restaurant that employs only servers of one gender is not eligible. 
10. Government-Owned Entities, Excluding Native American Tribes 13 CFR § 120.110(j) 
 Businesses owned by municipalities and other political subdivisions are not 
eligible.  
 Special Requirements Applicable to Native American Businesses: 
i. A Native American tribe is a Governmental entity and is not eligible.  
ii. A small business that is owned in whole or in part by a state or federally-
recognized Native American Tribe may be eligible, provided the small 
business meets all other criteria set forth in SBA Loan Program 
Requirements and: 
a) 
Establishes that it is a separate legal entity from the tribe and submits 
the documents authorizing its existence; and  
b) 
For federally-recognized tribes, the tribe waives sovereign immunity 
with respect to the collateral pledged for the loan, and collection of the 
loan from the Applicant, AND agrees to a “sue and be sued” clause 
specifically naming U.S. Federal courts as “courts of competent 
jurisdiction.” (Note: Tribes that are recognized only by a state do not 
have sovereign immunity. Therefore, this requirement is not necessary if 
the tribe is only recognized by a state.) 
 SBA Lenders may seek the advice and assistance of the Bureau of Indian Affairs 
(BIA) personnel when dealing with loans collateralized by Indian lands held in 
trust. 
11. Loan Proceeds for Religious Activity 
 If it appears that the proceeds of a loan sought by an Applicant may be used to 
fund religious activities, the SBA Lender must complete SBA Form 1971, 
“Religious Eligibility Worksheet.” Any questions regarding this worksheet may 
be addressed to the Associate General Counsel for Litigation through 
Form1971Review@sba.gov. 
 Prior to submitting an application to the SBA loan processing center (non-
delegated) or processing a loan under delegated authority, the SBA Lender must 
submit the completed Form 1971 to the Associate General Counsel for Litigation 
JX019.146
b. 
C. 
a. 
b. 
C. 
a. 
b. 
App.3403
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Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
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at Form1971Review@sba.gov for a final Agency decision as to whether SBA-
guaranteed loan proceeds may constitutionally be used in the manner intended by 
the Applicant. SBA may request additional documentation (e.g., SBA Lender’s 
Credit Memorandum, the Applicant’s business plan, and, where applicable, a 
detailed statement of Applicant’s curriculum) to complete its review. Upon 
approval by SBA, the SBA Lender may proceed to submit the application to the 
SBA loan processing center (non-delegated) or process the loan under its 
delegated authority. For non-delegated applications, the SBA Lender must submit 
a copy of SBA’s approval to the SBA loan processing center with the application. 
An SBA Lender processing a loan under its delegated authority must retain Form 
1971, supporting documentation, and evidence of SBA’s approval in its loan file 
and, for 7(a) loans, must submit all of the foregoing to SBA with any request for 
guaranty purchase. SBA also may review the worksheet and supporting 
documentation when conducting SBA Lender oversight activities.  
12. Businesses Engaged in SBA Loan Packaging 13 CFR § 120.110(m) 
An Applicant that receives more than one third of its gross annual revenue from 
packaging SBA Loans, including as a Lender Service Provider, is not eligible. 
13. Equity Interest by SBA Lender or Associates in Applicant Concern 13 CFR § 120.110(o) 
 An SBA Lender or any of its Associates may not obtain an equity interest, either 
directly or indirectly, in the Applicant.  
 The only exception is when the Associate of the Applicant is a Small Business 
Investment Company (SBIC), in which case the requirements of 13 CFR § 
120.104 apply. See also Ch. 5, Para. A, Ethical Requirements, of this Section, and 
13 CFR § 120.140 for a list of ethical requirements that apply to SBA Lenders. 
14. Businesses Providing Prurient Sexual Material 13 CFR § 120.110 (p) 
 SBA has determined that financing lawful activities of a prurient sexual nature is 
not in the public interest. The SBA Lender must consider whether the nature and 
extent of the sexual component causes the business activity to be prurient. 
 A business is not eligible for SBA assistance if: 
i. It presents live or recorded performances of a prurient sexual nature; or 
ii. It derives more than 5% of its gross revenue, directly or indirectly, through 
the sale of products, services or the presentation of any depictions or displays 
of a prurient sexual nature. 
 If an SBA Lender finds that the Applicant may have a business aspect of a 
prurient sexual nature, prior to submitting an application to the SBA loan 
processing center (non-delegated) or processing a loan under delegated authority, 
the SBA Lender must document and submit its analysis and supporting 
documentation to the Associate General Counsel for Litigation at 
PSMReview@sba.gov for a final Agency decision on eligibility. Upon approval 
by SBA, the SBA Lender may submit the application to the SBA loan processing 
center or may proceed to process the loan under its delegated authority. An SBA 
Lender processing a loan under non-delegated procedures must submit a copy of 
JX019.147
a. 
b. 
a. 
b. 
C. 
App.3404
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SBA’s approval with the application to the SBA loan processing center. An SBA 
Lender processing a loan under delegated authority must retain its analysis, 
supporting documentation, and evidence of SBA’s approval in its loan file and, 
for 7(a) loans, must submit all of the foregoing to SBA with any request for 
guaranty purchase. SBA also may review such documentation when conducting 
SBA Lender oversight activities. 
15. Prior Loss to the Government 13 CFR § 120.110 (q)  
 Unless waived by SBA for good cause, an Applicant is not eligible for a 7(a) or 
504 loan if there is a prior loss to the Federal government. A “Prior Loss” has 
occurred when: 
i. The Applicant has previously defaulted on a Federal loan or federally 
assisted financing, resulting in a loss to the Federal government or any of its 
agencies or departments; or 
ii. Any other business owned, operated, or controlled by the Applicant or an 
Associate of the Applicant, previously defaulted on a Federal loan or 
federally assisted financing (or guaranteed a loan which was defaulted), 
resulting in a loss to the Federal government or any of its agencies or 
departments. 
 For purposes of this paragraph, “loss” means any deficiency on a Federal loan or 
federally assisted financing that has been incurred and recognized by a Federal 
agency after it has concluded its write-off and/or close-out procedures for the 
particular account and includes any amount compromised for less than the full 
amount, discharged through bankruptcy, and any unreimbursed advance payment 
under 8(a) or a similar program operated by a Federal agency. 
NOTE: “Loss” does not include unpaid/delinquent taxes or any loss incurred by 
the Federal Deposit Insurance Corporation (FDIC) when it sells a loan at a 
discount. 
 “Federal loan or federally assisted financing” includes: 
i. Any loan that is made for business purposes (including Federal disaster 
loans) by any Federal agency or department either directly or on a guaranteed 
basis; and 
ii. Any advance payments under 8(a) or similar programs operated by any 
Federal agency.  
NOTE: “Federal loan or federally assisted financing” does not include any 
loan purchased, held, or securitized by Fannie Mae or Freddie Mac or any 
Federal loan or federally assisted financing issued to an individual.  
 7(a) Lenders processing a loan under delegated authority and all CDCs are 
responsible for accessing their records in E-Tran and checking the Credit Alert 
Verification Reporting System (CAIVRS), to determine if the Applicant is 
ineligible for a 7(a) or 504 loan because the Applicant or a business owned, 
operated, or controlled by the Applicant or any of its Associates has a Prior Loss. 
JX019.148
a. 
b. 
C. 
d. 
App.3405
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Effective October 1, 2020 
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i. CAIVRS allows the SBA Lender to enter multiple tax identification numbers 
(either SSN or EIN) to conduct a search in connection with a loan 
application. 
ii. SBA Lenders may access CAIVRS at 
https://entp.hud.gov/caivrs/public/home.html. 
 Waiver Requests: 
i. For good cause, SBA may waive the ineligibility of an Applicant due to the 
Prior Loss rule. The SBA Lender may send a written request for a waiver to 
the SBA loan processing center. The SBA Lender must describe the Prior 
Loss, including the agency or department of the Federal Government that 
sustained the loss, and explain the relationship of the Applicant, or the 
Associate(s) of the Applicant, to the business that caused the loss and the 
circumstances justifying the waiver.  
ii. The D/FA or designee will review the request for a waiver of the Prior Loss 
rule and make the final decision. 
 If the Prior Loss to the Government is fully satisfied, the application can be 
processed without a waiver from the D/FA, including under an SBA Lender’s 
delegated authority. The SBA Lender must document its file as to how the loss 
has been fully satisfied. 
 All SBA Lenders must inform the Applicant that if the small business defaults on 
the SBA-guaranteed loan and SBA suffers a loss, the names of the small business, 
the guarantors of the SBA-guaranteed loan, and any Associate(s) that control the 
Applicant, will be referred for listing in the CAIVRS database, which may affect 
the eligibility of a business owned or controlled by any such individual(s) or 
entity(ies) for future financial assistance from SBA or other Federal agencies or 
departments. 
16. Delinquent Federal Debt  
31 CFR § 285.13 
 Unless waived by SBA in accordance with subparagraph f below, an Applicant is 
not eligible for a 7(a) or 504 loan if the Applicant or any guarantor owes an 
outstanding nontax debt to the Federal Government, or any agency thereof, that is 
in delinquent status (hereafter referred to as “Delinquent Federal Debt”). 
 A nontax debt owed to the Federal Government includes any amount of money, 
funds, or property that has been determined by an appropriate official of the 
Federal Government to be owed to the United States, or an agency thereof, by a 
person (including an individual, corporation, partnership or other type of entity), 
including debt administered by a third party as an agent for the Federal 
Government. 
 A debt is in “delinquent status” when the debt has not been paid within 90 days of 
the payment due date. The payment due date is specified in the creditor agency’s 
initial written demand for payment or other applicable agreement. A debt is 
JX019.149
e. 
f. 
g. 
a. 
b. 
C. 
App.3406
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considered “delinquent” even if the creditor agency has suspended or terminated 
collection activity with respect to such debt. 
 A debt is not considered “delinquent” if:  
i. The creditor agency has released the obligor from paying the debt or has 
agreed to accept a compromise amount in lieu of payment in full, or the 
obligor has cured the delinquency under terms acceptable to the creditor 
agency;  
ii. The obligor is subject to, or has been discharged from, the debt in a 
bankruptcy proceeding and, if applicable, the obligor is current on any court 
authorized repayment plan; 
iii. The obligor has entered into a satisfactory written repayment agreement with 
the creditor agency to pay the debt, in whole or in part, under terms and 
conditions acceptable to the creditor agency, and the obligor is paying as 
agreed; or  
iv. The debt is in an administrative or judicial appeal process. 
NOTE: If there was a Loss (as defined in paragraph 15.b. above) associated 
with any of these debts, however, the Applicant remains subject to the Prior 
Loss rule.  
 7(a) Lenders processing a loan under delegated authority and all CDCs are 
responsible for accessing their records in E-Tran, and checking the Credit Alert 
Verification Reporting System (CAIVRS), to determine if the Applicant is 
ineligible for a 7(a) or 504 Loan because the Applicant, or any guarantor or 
Associate of the Applicant, has any Delinquent Federal Debt. CAIVRS allows the 
SBA Lender to enter multiple tax identification numbers (either SSN or EIN) to 
conduct a search in connection with a loan application. SBA Lenders may access 
CAIVRS at https://entp.hud.gov/caivrs/public/home.html. 
 Waiver Requests: 
i. The SBA Lender may send a written request to the SBA loan processing 
center for a waiver of the Applicant’s ineligibility due to Delinquent Federal 
Debt. The SBA Lender must identify the individual or entity that owes the 
debt, the relationship of the debtor to the Applicant, the agency or department 
of the Federal Government to which the debt is owed, and the circumstances 
justifying the waiver.  
ii. The SBA Chief Financial Officer (CFO) has the authority to waive the 
Applicant’s ineligibility due to Delinquent Federal Debt. The CFO may 
redelegate this authority only to the Deputy CFO. 
iii. The CFO should balance the following factors when deciding whether to 
grant a waiver:  
a) 
Whether the denial of the financial assistance to the Applicant would 
tend to interfere substantially with or defeat the purposes of the 7(a) or 
JX019.150
d. 
e. 
f. 
App.3407
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Part 2, Section A, Ch 3: Ineligible Businesses 
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504 Loan Programs or otherwise would not be in the best interests of the 
Federal Government; and 
b) 
Whether granting the financial assistance to the Applicant is contrary to 
the Federal Government’s goal to reduce losses from debt management 
activities by requiring proper screening of potential borrowers. 
iv. In balancing the above factors, the CFO should consider:  
a) 
The age, amount, and cause(s) of the delinquency and the likelihood that 
the Applicant will resolve the delinquent debt; and 
b) 
The amount of total debt, delinquent or otherwise, owed by the 
Applicant and the Applicant’s credit history with respect to repayment 
of debt.  
 If the Delinquent Federal Debt is fully satisfied, the application can be processed 
without a waiver from the CFO, including under an SBA Lender’s delegated 
authority. The SBA Lender must document its file as to how the debt has been 
fully satisfied. 
 All SBA Lenders must inform the Applicant small business that if the small 
business defaults on the SBA-guaranteed loan and the Applicant is deemed to 
have a Delinquent Federal Debt, the names of the small business, the guarantors 
of the SBA-guaranteed loan, and the Associates of the small business, will be 
referred for listing in the CAIVRS database, which may affect their eligibility for 
further financial assistance from SBA or other Federal agencies or departments. 
17. Businesses primarily engaged in political or lobbying activities 13 CFR § 120.110 (r) 
An Applicant that derives over 50% of its gross annual revenue from political or lobbying 
activities is not eligible. 
18. Speculation 13 CFR § 120.110 (s) 
 Speculative businesses are not eligible. This prohibits loans to an Applicant for: 
i. The sole purpose of purchasing and holding an item until the market price 
increases; or  
ii. Engaging in a risky business for the chance of an unusually large profit. 
 Speculative businesses include: 
i. Wildcatting in oil; 
ii. Dealing in stocks, bonds, commodity futures, and other financial instruments;  
iii. Mining gold or silver in other than established fields;  
iv. Research and Development; and 
v. Building homes for future sale (except under the 7(a) Builders CAPLines 
program). Note: Construction of homes for future sale with no sales contract 
in place (spec homes) is eligible under the 7(a) Builders CAPLines program. 
13 CFR § 120.391 
JX019.151
g. 
h. 
a. 
b. 
App.3408
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 Non-speculative businesses that may be eligible include: 
i. A business, such as a grain elevator, that uses a commodity contract to lock 
in a price; 
ii. A farmer who uses a commodity contract to lock in the sale price of his or 
her harvest; 
iii. A business engaged in drilling for oil in established fields; and 
iv. A business engaged in building a home under contract with an identified 
purchaser.  
19. Small Business Lending Company (SBLC) 
An SBLC may not make a loan to an Applicant that has received financing (or a 
commitment for financing) from a Small Business Investment Company (SBIC) that is an 
Associate of the SBLC. 13 CFR § 120.476 
20. Coastal Barrier Islands 
SBA Lenders may not make any loan within the Coastal Barrier Resource System. 13 
CFR § 120.175 
B. CHARACTER DETERMINATIONS 
The Agency requires that every proprietor, general partner, officer, director, managing 
member of a limited liability company (LLC), owner of 20% or more of the equity of the 
Applicant, Trustor (if the Applicant is owned by a trust), and any person hired by the 
Applicant to manage day-to-day operations (“Subject Individual”) must be of good 
character. 13 CFR § 120.110(n) 
A Subject Individual may not reduce his/her ownership in an Applicant within 6 months 
prior to the date of the application for the purpose of avoiding compliance with this 
section. The only exception to the 6-month rule is when a Subject Individual completely 
divests his/her interest prior to the date of application. Complete divestiture includes 
divestiture of all ownership interest and severance of any relationship with the Applicant 
(and any associated Eligible Passive Company) in any capacity, including being an 
employee (paid, unpaid, or contracted). 
The Agency cannot provide financial assistance to businesses with Associates who are: 
• Incarcerated, on probation, or on parole (an individual with a deferred prosecution, 
conditional discharge, order of protection, or who is on a sex offender registry is 
treated as if the individual is on probation or parole); or 
• Currently subject to an indictment, criminal information, arraignment, or other means 
by which formal criminal charges are brought in any jurisdiction. 
JX019.152
C. 
App.3409
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The character determination process to determine eligibility under this section begins 
with Subject Individuals answering the applicable questions on one of the following 
forms: 
• For all 7(a) loans: SBA Form 1919, “Borrower Information Form;” or 
• For all 504 loans: SBA Form 1244, “Application for Section 504 Loan.” 
NOTE: A Subject Individual must respond “Yes” even when the individual believes the 
record is sealed, expunged or otherwise unavailable. SBA Lenders must keep this 
information private and confidential. There are no exceptions or waivers to this policy. 
 The loan application may be processed and a character determination is not 
required if all Subject Individuals respond “No” on: 
i. SBA Form 1919, to Questions 17, 18, and 19; 
ii. SBA Form 1244, to Section Two, Questions 2, 3, and 4. 
  The Applicant is not eligible for an SBA 7(a) or 504 loan if: 
i. The Subject Individual responds “Yes” on: 
a) 
SBA Form 1919, Question 17; 
b) 
SBA Form 1244, Section Two, Question 2; or 
ii. Any Subject Individual is currently on parole or probation (including 
probation before judgment). 
 A character determination for the Subject Individual is required to establish 
eligibility under this section if any Subject Individual responds “Yes” on: 
i. SBA Form 1919, Question 18 or 19; or 
ii. SBA Form 1244, Section Two, Question 3 or 4. 
 A character determination begins when the Subject Individual provides the SBA 
Lender with a complete Character Determination Package, which must include: 
i. A completed SBA Form 1919 or 1244, as applicable, signed and dated within 
90 days of submission to SBA; and 
ii. A detailed written statement, which is separately signed and dated by the 
Subject Individual, describing the events and circumstances of any “Yes” 
response, which must include the following: 
a) 
Date(s) of each offense; 
b) 
City or county and State where the offense(s) occurred;  
c) 
The specific charge(s) and final conviction(s) (e.g. DUI, assault, 
forgery, etc.) and the level of each charge and conviction (either a 
misdemeanor or felony); and 
d) 
Disposition of the charge(s) and conviction(s), including all sentencing, 
conditions, or requirements of the court. This includes conditions such 
JX019.153
a. 
b. 
C. 
d. 
App.3410
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as registration on the Sex Offenders Registry, which provides for 
incarceration upon failure to comply with the conditions. 
iii. Court documentation evidencing that any sentencing or other conditions of 
the court have been met. If sentencing and other conditions of the court have 
not been satisfied, then the Applicant is not eligible. 
a) 
Court documentation may include but is not limited to:  
i) Evidence of the status (paid/unpaid) of fines or restitution imposed; 
ii) Evidence of attendance or completion of any class or workshop 
required by the court; 
iii) Jail time served; or 
iv) If applicable, the terms of probation including evidence and dates of 
successful conclusion of the probation. 
b) 
If court documentation is not available, the Subject Individual must 
submit: 
i) A written statement from the applicable court indicating documents 
are not available; and 
ii) Verification that there are no outstanding warrants, unpaid fines, or 
other conditions of the court that have not been satisfied. 
 Character Determination by the SBA Lender: 
The SBA Lender must process the application without review of the Character 
Determination Package by SBA if, after review of all of the information described 
above, the SBA Lender determines that the case(s) resulted in: 
i. One or multiple misdemeanor convictions whose conditions were met more 
than 6 months prior to receipt of the application, and the convictions did not 
involve a crime against a minor (for example, child abuse or endangerment, 
possession of child pornography, etc.); 
ii. Reduction of the original felony charge(s) to misdemeanor(s); or 
iii. Dismissal of the charges. 
The SBA Lender must retain the supporting information and court documentation, 
including the original complete Character Determination Package in the file for 
the life of the loan. 
 Circumstances Requiring an FBI Fingerprint Background Check and a Character 
Determination by SBA: 
The SBA Lender must submit to SBA a copy of the complete Character 
Determination Package for a background investigation by SBA and the Subject 
Individual must complete an FBI fingerprint background check in accordance 
with the following paragraph if, after review of all of the information described 
above, the SBA Lender determines that the case(s) resulted in: 
i. Felony conviction(s); 
JX019.154
e. 
f. 
App.3411
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 155 
ii. Misdemeanor conviction(s) within 6 months of the date of the loan 
application; 
iii. Charge(s) filed and final disposition against the Subject Individual has been 
completed within 6 months of the date of the loan Application; and/or 
iv. Misdemeanor conviction(s) for crime(s) against a minor (for example, child 
abuse or endangerment, possession of child pornography, etc.). 
For 7(a) loans, the Lender may not disburse the loan until it has received 
written clearance from SBA. 
For 504 loans, the SLPC will not approve the loan until written clearance is 
received from OFA. 
 FBI Fingerprint Background Check: 
i. SBA will use an FBI-approved, SBA-contracted channeler to conduct 
fingerprint background checks via Electronic Fingerprint Submission. The 
current SBA-contracted channeler for Electronic Fingerprint Submissions to 
the FBI is Biometrics4ALL. 
ii. After the SBA Lender has obtained the complete Character Determination 
Package and determined that a fingerprint background check is required, the 
SBA Lender will refer the Subject Individual to the approved channeler’s 
website where they must create an account and register. The Subject 
Individual will select the “Non-Disaster” option and complete the fingerprint 
process by following the directions on the channeler’s website: 
www.applicantservices.com/sba. 
iii. The channeler will provide expedited fingerprint processing by directing 
Subject Individuals to approved electronic fingerprinting facilities listed on 
the channeler’s website based on the Subject Individual’s location. 
Depending on the circumstances, the channeler will also provide additional 
locations where hard-copy fingerprints may be taken and will provide the 
FBI Form FD-258 Fingerprint Card for the Subject Individual to capture the 
fingerprints along with instruction on submitting the fingerprint cards to the 
SBA-contracted channeler for continued processing. 
iv. SBA Lenders may not directly submit fingerprint cards associated with a 
loan application to the Office of Capital Access (OCA) or any other SBA 
office. All required fingerprints from Subject Individuals associated with a 
loan application must be submitted through the FBI-approved SBA-
contracted channeler as directed on the channeler’s website. The channeler 
will electronically submit the fingerprints to the FBI and the FBI will provide 
the results of the background check to the channeler who will, in turn, 
provide the results to SBA via a secure portal. 
 SBA Lender Submission of Character Determination Package to SBA:  
i. After the SBA Lender has verified with the Subject Individual that the 
fingerprint submission process has been completed, the SBA Lender must 
upload the complete signed Character Determination Package into E-Tran, 
JX019.155
g. 
h. 
App.3412
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 156 
inclusive of all court documentation. The file name format for the Character 
Determination Package must not have any spaces or special characters (e.g., 
JohnDoeApp123456). 
ii. The SBA Lender is not required to complete the entire application file in E-
Tran at this time; however, the SBA Lender may choose to complete and 
save (not submit) the entire file if the SBA Lender needs to keep the data set 
intact for a third-party software product. Character Determination Packages 
must be uploaded via E-Tran; however, after completion of the character 
determination process, SBA Lenders may upload loan applications via either 
E-Tran or SBA One. 
iii. The SBA Lender must notify SBA that the fingerprint submission process 
has been completed and the complete Character Determination Package has 
been uploaded into E-Tran by sending an email to OCA912@sba.gov with 
the Subject Individual’s last name and the E-Tran application identification 
number in the email subject line. The email must state: 
a) 
The Subject Individual has completed the fingerprint submission 
process; and  
b) 
The SBA Lender has uploaded the complete Character Determination 
Package in E-Tran. 
iv. When SBA receives the results of the FBI fingerprint background check from 
the channeler, SBA will complete the character determination. 
 Character Determination by SBA: 
The Director, Office of Financial Assistance (D/FA), or designee, will make the 
character determination as follows: 
i. Based on the information received from the FBI fingerprint check, OCA will 
determine either that the Subject Individual has good character, or is not 
eligible for SBA financial assistance; and 
ii. OCA will advise the SBA Lender in writing of the Agency’s character 
determination. 
 Record Retention: SBA Lenders must retain a copy of the Agency’s character 
determination in their loan file for the life of the loan.  
 If the Subject Individual was cleared by the D/FA or designee on a previous 
application submitted within 6 months of the date of the current application, and 
the Subject Individual certifies that no other offenses have occurred since the 
previous application was cleared by the D/FA or designee: 
i. SBA Lenders processing the loan non-delegated may submit a copy of the 
prior clearance and the Subject Individual’s certification with the application. 
ii. An SBA Lender processing a loan under its delegated authority must retain 
this documentation in the loan file and may proceed to process the 
application. 
JX019.156
1. 
J. 
k. 
App.3413
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 157 
 Character Determination Appeals: A Subject Individual may request a 
reconsideration of an adverse character determination within 6 months of the date 
of SBA’s decision. 
i. Any request for reconsideration must include additional information or 
documentation supporting the request to reconsider the adverse character 
determination. Factors that contribute to a favorable reconsideration include: 
a) 
Additional information provided by the Subject Individual that 
satisfactorily explains the circumstances of the prior offense(s); 
b) 
The passage of time between the date of the disclosed offense(s) and the 
date of the application, during which the Subject Individual has not 
committed additional offenses and has generally led a responsible life 
and contributed to the community; and/or 
c) 
Any additional law enforcement and/or court documentation that 
supports the request. 
ii. The request for reconsideration must be submitted to OCA912@sba.gov. The 
email subject line must start with “Reconsideration” followed by the Subject 
Individual’s last name and the E-Tran application identification number. For 
example: Reconsideration Smith 11XXXXXX. 
C. BUSINESSES OWNED BY NON-U.S. CITIZENS 
SBA can provide financial assistance to businesses that are at least 51% owned and controlled by 
persons who are not citizens of the U.S., provided the persons are Lawful Permanent Residents 
(LPRs) and comply with the requirements in this paragraph. The processing procedures and the 
terms and conditions will vary depending upon the status of the owners as assigned by the United 
States Citizenship and Immigration Services (USCIS).  
SBA requires all participating SBA Lenders, including SBLCs, to comply with the U.S. 
Department of the Treasury regulations for Customer Identification Programs (CIP) for banks, 
savings associations, credit unions, and certain non-federally-regulated banks found at 31 CFR § 
1020.220. 
For 504 loans: SBA does not expect CDCs to duplicate the procedures of the Third Party Lender 
if the Third Party Lender is regulated by a Federal functional regulator (as defined in 31 CFR § 
1010.100(r)) and submits annual certifications to the CDC that it (the Third Party Lender or its 
agent) will comply with the CIP requirements of 31 CFR § 1020.220 with respect to all third 
party financings of 504 loans. Under these circumstances, it is acceptable to SBA if a CDC’s CIP 
states that the CDC will rely on the Third Party Lender to verify the identity of the SBA 
Applicant. The CDC has the option of performing its own verification of the identity of the SBA 
Applicant even if a Third Party Lender has already complied with 31 CFR § 1020.220. If the 
Third Party Lender has not submitted the requisite annual certification to the CDC, the CDC 
must perform its own verification of identity. 
1. Businesses owned by Naturalized Citizens are eligible and the naturalized citizens are not 
subject to any special restrictions or requirements. No further verification of status is 
required if an individual is reflected as a U.S. Citizen on the SBA application. 
JX019.157
I. 
App.3414
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 158 
2. Businesses owned by Lawful Permanent Residents (LPRs) are eligible. LPRs are persons 
who may live and work in the U.S. for life unless their status is revoked through an 
administrative hearing. 
 The USCIS Form I-551 (551), Lawful Permanent Resident Card, commonly 
referred to as the “green card,” is evidence of LPR status. USCIS has two versions 
of the 551: 
i. Resident Alien Card (issued through 1997); and 
ii. Permanent Resident Card. (This is the most recent version and has been 
issued since 1997.) 
iii. Because it can take up to a year for a newly arrived immigrant to receive a 
551, new immigrants are issued an immigrant visa with a Customs and 
Border Protection (CBP) stamp evidencing their lawful permanent residence 
for a full year from the date the new immigrant entered the U.S. This visa 
with CBP stamp serves as evidence of LPR status, so long as the visa is not 
expired. 
 Since 1997, USCIS has issued the 551 with a 10-year validity, at which time it 
expires and must be renewed. A 551 issued between 1979 and August 1989, 
however, does not have an expiration date.  
Replacing the 551 may be necessary if the 551 is lost, the individual changes 
his/her name, etc. Replacement of the 551 may take more than a year. The 
expiration of the immigrant’s 551 does not affect the LPR status of the immigrant. 
Acceptable forms of evidence when the 551 has been submitted to USCIS for 
replacement or renewal upon expiration include the following: 
i. Temporary I-551 stamps. A temporary stamp, issued by USCIS to replace 
lost or expiring 551s, either on the immigrant’s unexpired foreign passport 
(that reads “Upon endorsement, serves as temporary I-551 evidencing 
permanent residency for 1 year”), or in cases where there is no passport or it 
is expired, on Form I-94 with passport photo (that reads “Processed for I-551 
– Temporary Evidence of Lawful Permanent Residence”); 
ii. USCIS Form I-327, “Re-entry Permit,” issued to LPRs in lieu of a visa, 
which is valid for only 2 years (the I-327 is issued for LPRs who need to be 
overseas for longer than 1 year); or 
iii. USCIS Form I-797, Notice of Action. Aliens with Conditional LPR status 
(those who married a U.S. citizen and were married for less than 2 years at 
the time of being granted LPR status) must file Form I-751 to remove 
conditional status within 90 days of their 551 expiration. LPRs awaiting 
approval of their I-751 should be issued Form I-797, which along with the 
expired 551, is proof of current LPR status. Please note that there are 
numerous types of Form I-797 (e.g., I-797A, I-797-B, I-797C, etc.). For 
purposes of removing conditional status, only I-797 is acceptable. 
 SBA requires the 551 or an acceptable substitute be current at the time it is 
submitted with an application or it will be returned and not processed. SBA 
JX019.158
a. 
b. 
C. 
App.3415
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 159 
Lenders processing a loan under delegated authority or through a Pilot Loan 
Program must have a copy of the current 551 or acceptable substitute prior to 
requesting a loan number. 
3. Documentation to evidence and verify an alien’s status. 
 At time of application, for any individual who is not a U.S. citizen and is located 
in the U.S., and is required to complete the SBA application, the following 
applies: 
i. The individual must provide his or her alien registration number on the SBA 
application. If the individual does not have an alien registration number, he 
or she may provide an I-94 card/document which has a departure record 
number issued on the card.  
ii. SBA Lenders must obtain a copy of the individual’s USCIS documentation 
and maintain all documentation in the loan file. 
iii. SBA Lenders must request Document Verification from the Sacramento 
Loan Processing Center (SLPC). 
a) 
In order to request Document Verification from the SLPC, all SBA 
Lenders must register designated personnel with the SLPC at 
Sacramento504Register@sba.gov.  
b) 
The SLPC will respond to such requests by providing instructions on 
how to complete registration and to use the electronic verification 
process.  
c) 
The SBA Lender submits a USCIS Form G-845, “Document 
Verification Request,” (G-845) with supporting information to the 
SLPC. The SBA Lender must state on the G-845 that the request is for 
an SBA loan. 
d) 
As required by USCIS, SBA will release information about the status of 
an alien to SBA Lenders or other non-governmental entities ONLY 
when a signed and dated authorization from the alien is attached to and 
submitted with the G-845 on that alien providing name, address, and 
date of birth. 
e) 
As required by USCIS, SBA accepts either of the following 
authorization statements: 
i) “I authorize the U.S. Citizenship and Immigration Services to release 
information regarding my immigration status to [name of SBA 
Lender], because I am applying for a U.S. Small Business 
Administration loan.” 
ii) “I authorize the U.S. Citizenship and Immigration Services to release 
alien verification information about me to [name of SBA Lender], 
because I am applying for a U.S. Small Business Administration loan.” 
iv. As required by USCIS, all verification requests must include an authorization 
with the original signature of the alien for SBA to release information to 
JX019.159
a. 
App.3416
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SOP 50 10 6 
Part 2, Section A, Ch 3: Ineligible Businesses 
Effective October 1, 2020 
Page 160 
SBA Lenders on the status of a verification. The original Document 
Verification Request (G-845) and authorization for release must be 
maintained by the SBA Lender in the Applicant’s file for review by SBA and 
USCIS, if requested. 
v. The authorization statement must not be on SBA or SBA Lender stationery. 
vi. The information provided to SBA by the USCIS system is intended solely for 
the purpose of determining eligibility for SBA financial assistance. This 
information is governed by the Privacy Act, 5 U.S.C. 552(a)(i)(1), and any 
person who obtains this information under false pretenses or uses it for any 
purpose other than for determining eligibility may be subject to criminal 
penalties. 
 SBA Lenders must receive verification of the status of each alien required to 
submit USCIS documents prior to submission of the application to SBA or, for 
delegated processing, prior to submission of the request for loan number. The 
SBA Lender must document the findings in the loan file and delegated SBA 
Lenders must retain the notification from the SBA in the Borrower’s loan file. 
 Verification of the status of an LPR is required if 6 months has elapsed since the 
last verification with one exception: if the individual reported an offense on, for 
7(a), SBA Form 1919, Questions 17, 18, or 19, or for 504, SBA Form 1244, 
Section Two, Questions 2, 3, or 4, then verification would be required even if 
6 months had not elapsed, as the offense may put their status at risk. For non-
LPRs, verification is required with each loan application, as their status can be 
revoked at any time. 
 Businesses with ownership that includes foreign nationals or foreign entities may 
be eligible only if the business is at least 51% owned by U.S. citizens and/or those 
who have LPR status from USCIS and control the management and daily 
operations of the business. 
JX019.160
b. 
C. 
d. 
App.3417
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 161 
CHAPTER 4: USES OF PROCEEDS 
A. ELIGIBLE USES OF PROCEEDS 
13 CFR 120.120  
1. A Borrower may use loan proceeds from any SBA Loan to: 
 Acquire land (by purchase or lease) as part of an eligible project; 
 Improve a site (e.g., grading, streets, parking lots, landscaping) including up to 5 
percent for community improvements such as curbs and sidewalks; 
 Purchase one or more existing buildings; 
 Convert, expand, or renovate one or more existing buildings; 
 Construct one or more new buildings;  
 Acquire (by purchase or lease) and install fixed assets; 
 Refinance certain outstanding business debts; and/or 
 Finance a Lender’s Other Real Estate Owned (OREO): 
When loan proceeds will be used to finance the purchase of real estate owned by 
the 7(a) Lender; or for 504, the Third Party Lender, making the loan, the 
application must: 
i. Be submitted to the SBA loan processing center (delegated authority may not 
be used to process these applications); 
ii. Include an independent real estate appraisal that meets the SBA Loan 
Program Requirements (the appraisal requirement cannot be delayed until 
loan closing). For 7(a), the appraisal must also provide the liquidation value 
of the real estate.  
Note: For 7(a), the appraisal requirements are found in the collateral section 
of each 7(a) delivery method chapter found in Section B, Chapters 1 through 
4 of this Part. For 504, the appraisal requirements are found in Section C, Ch. 
1, Para. E.2 of this Part; 
iii. Include an explanation of the circumstances surrounding the 7(a) Lender or 
Third Party Lender’s acquisition of the real estate. If the acquisition of the 
property was triggered by a business failure at that particular location, the 
SBA Lender must submit a detailed explanation of why the new Applicant 
will succeed at that same location; and 
iv. For 7(a): Identify the SBA Lender’s cost in the real estate. In order to get the 
full SBA guaranty, the sales price may not exceed the mortgage balance plus 
care and preservation expenses or the liquidation value, whichever is less. If 
JX019.161
a. 
b. 
C. 
d. 
e. 
f. 
g. 
h. 
App.3418
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 162 
the sales price is greater than the mortgage balance plus care and preservation 
expenses or the liquidation value (whichever is less), then the SBA guaranty 
will be reduced accordingly.  
For example: 
 
OREO Sales Price: 
$1.2 million 
 
Lender’s costs or liquidation value (whichever is less): 
$1.0 million 
 
Guaranty amount: 75% of $1.0 million: 
$750,000 
 
Effective SBA guaranty: $750,000/$1,200,000: 
62.5% 
2. For 7(a) only, Borrower may also use loan proceeds for: 
 Inventory; 
 Supplies; 
 Raw materials (including work-in-progress); 
 Working capital (if the Operating Company is a co-Borrower with the Eligible 
Passive Company, part of the loan proceeds may be applied for working capital 
and/or the purchase of other assets, including intangible assets, for use by the 
Operating Company). Working capital proceeds may not be used to refinance 
existing debt or to finance any ineligible purpose; 
 Revolving lines of credit under CAPLines, SBA Express, Export Express, and the 
Export Working Capital Program (EWCP); 
 Standby Letter of Credit when required as a bid bond, performance bond, or 
advance payment guarantee under Export Express or EWCP. 
3. Farm Enterprises 
13 CFR § 120.103 
 The purchase of land, buildings, and land improvements (fencing, irrigation 
systems, construction of dikes, silos, barns, hog and dairy facilities, etc.) as part of 
an eligible project; 
 Construction, renovation, or improvement (including water systems) of farm 
buildings other than residences; 
 For 7(a) only:  
i. The purchase of farm machinery and equipment; 
ii. The purchase of seed and the acquisition of animals; 
iii. Operating expenses directly related to the farming operation, excluding 
personal or family living expenses; and 
 The refinancing of debt related to the farming operation, excluding personal or 
family debt, provided the refinancing meets SBA Loan Program Requirements. 
Note: For 7(a), the requirements for eligibility of debt refinancing are found in the 
Eligible Uses of Proceeds section of each 7(a) delivery method chapter found in 
JX019.162
a. 
b. 
C. 
d. 
e. 
f. 
a. 
b. 
C. 
d. 
App.3419
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 163 
Section B, Chapters 1 through 4 of this Part. For 504, the requirements for 
eligibility of debt refinancing are found in Section C, Ch. 1, Para. C of this Part; 
Note: The acquisition of land in excess of the farming operation’s needs is not an eligible 
use of proceeds. In addition, the Applicant must not use loan proceeds to purchase vacant 
or row crop land for possible future use, future construction, or to lease to third parties. 
For example, a concentrated animal feedlot operation (CAFO) that only requires 10 acres 
of land for its operation (including housing and feeding of the animals, service and access 
roads, and waste management facilities) may not use SBA-guaranteed loan proceeds to 
obtain excess farmland that is not used in the operation of the Applicant. If excess land is 
being acquired at the same time as the SBA Loan, the excess land must be financed from 
sources other than SBA and the source of the financing must be documented in the loan 
file. 
B. RESTRICTIONS ON USES OF PROCEEDS 
13 CFR § 120.130 
Loan proceeds may not be used for any of the following purposes (including the replacement of 
funds used or borrowed for any such purpose):
1. A purpose that does not benefit the Applicant small business, including a loan to an 
Applicant for the benefit of an affiliated business; 
2. Payments, distributions, or loans to an Associate of the Applicant (as defined in 13 CFR 
§ 120.10), except for compensation for services actually rendered at a fair and reasonable 
rate;  
3. Refinancing debt owed to an SBIC or a New Markets Venture Capital Company 
(NMVCC); 
4. Floor plan financing; 
5. Revolving lines of credit, except under the Export Working Capital Program (EWCP), 
CAPLines, SBA Express, and Export Express programs; 
6. Investments in real or personal property acquired and held primarily for sale, lease, or 
investment; 
7. Payment of Delinquent Taxes; or 
 Loan proceeds must not be used to pay past-due Federal, state, or local payroll 
taxes, sales taxes, or similar taxes that are required to be collected by the 
Applicant and held in trust on behalf of a Federal, state, or local government 
entity.  
 Payment of delinquent business income taxes may be permitted if the Applicant 
has an approved payment arrangement with the IRS and the Applicant is current 
on the payments in the arrangement. 
8. To finance the relocation of the Applicant out of a community, if there will be a net 
reduction of one-third of its jobs or a substantial increase in unemployment in any area of 
the country. An exception may be allowed if the SBA Lender can justify the relocation 
because: 
JX019.163
a. 
b. 
App.3420
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 164 
 The relocation is for key economic reasons and crucial to the continued existence, 
economic wellbeing, and/or competitiveness of the Applicant; and  
 The economic development benefits to the Applicant and the receiving 
community outweigh the negative impact on the community from which the 
Applicant is moving. 
9. To pay any creditor in a position to sustain a loss causing a shift to SBA of all or part of a 
potential loss from an existing debt 13 CFR 120.201 and 13 CFR 120.884(b). 
10. Any use restricted by 13 CFR §§ 120.201, 120.202, and 120.884 (specific to 7(a) loans 
and 504 loans respectively) 
C. OCCUPANCY AND LEASING REQUIREMENTS 
1. Occupancy 
13 CFR § 120.131 
 Amount of Rentable Property that can be leased: 
i. When the real estate is owned by the eligible small business concern: 
a) 
For an existing building, the Applicant must occupy 51% of the 
Rentable Property and may lease to a third party up to 49%; or 
b) 
For new construction, the Applicant must occupy 60% of the Rentable 
Property, may permanently lease to a third party up to 20% and 
temporarily lease an additional 20% with the intention of using some of 
the additional 20% within 3 years and all of it within 10 years. 
ii. When the real estate is owned by an EPC: 
a) 
The EPC must lease 100% of the Rentable Property to an eligible 
OC(s). 
b) 
For an existing building, the OC(s) must occupy 51% of the Rentable 
Property and may sublease up to 49%; or 
c) 
For new construction, the OC(s) must occupy 60% of the Rentable 
Property, may permanently sublease to a third party up to 20% and 
temporarily sublease an additional 20% with the intention of using some 
of the additional 20% within 3 years and all of it within 10 years. 
 “Rentable Property” is the total square footage of all buildings or facilities used 
for business operations (13 CFR § 120.10) excluding vertical penetrations 
(stairways, elevators, and mechanical areas that are designed to transfer people or 
services vertically between floors), and including common areas (dining areas, 
lobbies, passageways, vestibules, and bathrooms). Rentable Property may also 
include exterior space (except parking areas) that is actively used in Borrower’s 
business operations. Examples of exterior space that is actively used in 
Borrower’s business operations include: outdoor storage yards for general 
contractors, trucking companies, and moving and storage companies; or boat slips 
and docks for marinas. 
JX019.164
a. 
b. 
a. 
b. 
App.3421
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 165 
i. To determine the occupancy percentage allocated to the Applicant or OC(s), 
the SBA Lender may include the square footage of all common areas. 
ii. In an existing building zoned for both commercial and residential use, the 
business owner may either occupy or rent to a third party the space zoned for 
residential use. However, if the business owner occupies this space, it is not 
considered as occupied by the business, unless the residential portion of the 
property meets the requirements of subparagraph h, Residential Space as Part 
of the Business, below. 
iii. The SBA Lender must document in its loan file the basis for determining that 
the exterior space is actively used in Borrower’s business operations. 
 The SBA Lender must independently substantiate projected rental income when it 
is included in the global cash flow analysis. 
 Circumstances may justify allowing the Applicant a period of time after closing of 
the SBA Loan to comply with the above occupancy requirements. For example, a 
pre-existing lease may have a few more months to run. In no case may the small 
business have more than 1 year to meet occupancy requirements.  
For 504 loans, generally, closing and funding of the 504 loan must not take place 
until the Borrower is occupying the required amount of the Project property and 
the Borrower is operating at the Project property. A CDC may request SBA’s 
approval to allow the Borrower additional time after closing and funding to meet 
the occupancy requirements by either: 
i. Under non-delegated authority: Submitting information regarding the timing 
of the borrower’s compliance with the occupancy requirements in the CDC 
Credit Memo; or 
ii. Under non-delegated or delegated authority: Submitting a 327 action through 
E-Tran before the 504 loan closes and funds. 
The underlying premise is that an SBA 504 loan is permanent, take out financing. 
A CDC must not submit a 504 closing package where the Borrower is not 
occupying and operating upon funding, unless facts to the contrary have been 
submitted to and approved by the SLPC in advance. 
If SLPC approves such request under either i. or ii. above, once the Borrower is 
occupying the property in accordance with the Authorization, the CDC must 
submit a 327 action certifying the Borrower’s compliance within the approved 
timeframe. 
 The restrictions above apply regardless of whether the Rentable Property is leased 
to a commercial or residential tenant. 
 The Borrower may not use loan proceeds to improve or renovate any of the 
Rentable Property to be subleased to a third party. For 504 loans, such 
improvements may not secure the Third Party Loan. 
 During the life of the loan, the real estate pledged as collateral for the loan, or 
where the Borrower or Operating Company conducts its business operations, may 
JX019.165
C. 
d. 
e. 
f. 
g. 
App.3422
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SOP 50 10 6 
Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 166 
not be leased to or occupied by any business that the Borrower or Operating 
Company knows is engaged in any activity that is illegal under Federal, state or 
local law or any activity that can reasonably be determined to support or facilitate 
any activity that is illegal under Federal, state or local law (such as a marijuana 
dispensary). If a Borrower or Operating Company does lease space to such a 
business, for 7(a) loans, the Lender must notify SBA counsel as soon as the 
Lender becomes aware of the lease and advise of the action(s) the Lender intends 
to take and, for 504 loans, the CDC must notify SBA counsel as soon as the CDC 
becomes aware of the lease to determine what action(s) should be taken. 
 Residential Space as Part of the Business 
If the nature of the business requires a resident owner or manager, loan proceeds 
may be used for the purchase of an existing building(s) or construction of a new 
building(s) that includes residential space essential to the business. The square 
footage of the residential space must be appropriate to the needs of the business 
and may not exceed 49% of the total property. For example, a horse-boarding 
facility may require that someone be on premises at all times to care for the 
horses. In this case, the residential property would be considered to be occupied 
by the business. 
2. Responsibilities When Leasing Space 
 An assignment of lease and Landlord’s waiver should be obtained either when a 
substantial portion of the loan proceeds are to be used for leasehold improvements 
or a substantial portion of the collateral consists of leasehold improvements, 
fixtures, machinery, or equipment that is attached to leased real estate.  
i. The SBA Lender should obtain an Assignment of Lease with:  
a) 
A term including renewal options, exercisable only by the lessee, that 
equals or exceeds the term of the loan; 
b) 
A requirement that the lessor provide a 60-day written notice of default 
to the SBA Lender with option to cure the default; 
ii. In the event that the SBA Lender is unable to obtain an Assignment of Lease 
in accordance with paragraph i. above, the lease term, including renewal 
options exercisable only by the lessee, must equal or exceed the term of the 
loan; 
iii. The SBA Lender should obtain a Landlord’s Waiver for all loans with 
tangible personal property as collateral. The Landlord's Waiver should: 
a) 
Waive the lessor’s right to the collateral; 
b) 
Provide for written notice of default and a reasonable opportunity to 
cure; and 
c) 
Grant the SBA Lender access to the leased premises to facilitates the 
liquidation of the collateral on the Borrower's premises.  
JX019.166
h. 
a. 
App.3423
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Part 2, Section A, Ch 4: Uses of Proceeds 
Effective October 1, 2020 
Page 167 
 If the loan proceeds will finance existing or new improvements on a leasehold 
interest in land, the underlying ground lease must include, at a minimum, detailed 
clauses addressing the following: 
i. Tenant's right to encumber leasehold estate;  
ii. No modification or cancellation of lease without SBA Lender's or assignee's 
approval;  
iii. SBA Lender's or assignee's right to:  
a) 
Acquire the leasehold at foreclosure sale or by assignment and right to 
reassign the leasehold estate (along with right to exercise any options) 
by SBA Lender or successors; lessor may not unreasonably withhold, 
condition, or delay the reassignment;  
b) 
Sublease;  
c) 
Share in hazard insurance proceeds resulting from damage to 
improvements;  
d) 
Share in condemnation proceeds; and  
e) 
SBA Lender’s or assignee’s rights upon default of the tenant or 
termination.  
 For lease requirements concerning EPCs and OCs, see Chapter 2, Para. A, 
Eligible Passive Companies of this Section above. 
 For loans collateralized by Indian lands held in trust, if the owner of the land 
cannot get approval for a lien on the property, you may consider requiring an 
Assignment of Lease. The Assignment of Lease also has to be approved by the 
Secretary of the Interior or his/her authorized representative. 
 If the SBA Lender is unable to obtain the assignment of lease or landlord’s 
waiver, SBA Lender must document its file with the attempt to obtain the 
assignment and the landlord’s reason(s) for not providing it.
 
JX019.167
b. 
C. 
d. 
e. 
App.3424
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JX019.168
App.3425
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 169 
CHAPTER 5: ETHICS, FEES, AND AGENTS 
13 CFR Parts 103, 105, and 120. 
Any person or entity applying for SBA assistance does not need an Agent to conduct business 
with SBA. The term “conduct business with SBA” is defined at 13 CFR § 103.1(b). 
A. ETHICAL REQUIREMENTS 
1. Conflicts of Interest:  
Neither an SBA Lender nor its Associates may have a real or apparent conflict of interest 
with a small business with which it is dealing or SBA (13 CFR § 120.140 and 13 CFR 
Part 105). SBA Lenders must exercise care and judgment in determining whether a 
conflict of interest exists and document the file in detail. SBA will not guarantee a loan if 
the SBA Lender, its Associates, partner(s), or a close relative: 
• Has a direct or indirect financial or other interest in the Applicant; or 
• Had such interest within 6 months prior to the date of application. 
SBA is released from liability on its guaranty, in its discretion, if the SBA Lender, its 
Associates, partner(s) or a close relative acquires such an interest at any time during the 
term of the loan. 
2. Standards of Conduct Reviews for Applicants 
 The Standards of Conduct Counselor for the Agency is the Designated Agency 
Ethics Official. 13 CFR § 105.402(a) 
 If an Applicant has, as an employee, owner, general partner, managing member, 
attorney, agent, owner of stock, officer, director, creditor or debtor, an individual 
who, within 1 year prior to the loan application, was an SBA Employee (as 
defined by 13 CFR § 105.201(a)), the loan application must be approved by the 
Standards of Conduct Counselor. 13 CFR § 105.203(a) 
 If an Applicant has, as its sole proprietor, general partner, managing member, 
officer, director, or stockholder with a 10% or more interest, an individual who is 
an SBA Employee (as defined by 13 CFR § 105.201(a)) or a Household Member 
of an SBA Employee, the loan application must be approved by the Standards of 
Conduct Committee at SBA Headquarters. (13 CFR § 105.204) A “Household 
Member” of an SBA Employee includes: 
i. The spouse of the Employee; 
ii. The minor children of the Employee; and  
iii. The blood relatives of the Employee, and the blood relatives of the 
Employee’s spouse, who reside in the same place of abode as the Employee. 
13 CFR § 105.201(d) 
JX019.169
a. 
b. 
C. 
App.3426
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 170 
 If an Applicant has, as its sole proprietor, general partner, managing member, 
officer, director, or stockholder with a 10% or more interest, or a Household 
Member of such individual, an individual who is a Member of Congress, an 
appointed official or employee of the legislative or judicial branch of the Federal 
Government, a member or employee of a Small Business Advisory Council, or a 
SCORE volunteer, the loan application must be approved by the Standards of 
Conduct Committee. 13 CFR §§ 105.301(c) and 105.302(a). 
 When a Standards of Conduct approval is required, the application should be 
processed by the appropriate processing center and, if appropriate, be 
conditionally approved and forwarded to the Standards of Conduct Counselor or 
Standards of Conduct Committee (through the Standards of Conduct Counselor). 
The Standards of Conduct Counselor will notify the processing center of the final 
Agency decision and the processing center will notify the SBA Lender 
accordingly.  
3. Other Government Employees: 
 The Applicant must submit to the SBA Lender a statement of no objection signed 
by the appropriate ethics official of the pertinent department or military service if 
its sole proprietor, general partner, managing member, officer, director, or 
stockholder with a 10% or more interest, or a Household Member of such 
individual, is an employee of another department or agency of the Federal 
Government (Executive Branch) in a grade of at least GS-13 (or its equivalent).  
 SBA Lenders must submit the statement as a PDF attachment to 
SNOMemos@sba.gov and receive written clearance from SBA prior to 
submitting the application to the SBA loan processing center (non-delegated) or 
processing the application under their delegated authority. SBA Lenders 
processing a loan under non-delegated procedures must submit a copy of SBA’s 
written clearance with the application to the SBA loan processing center. (13 CFR 
§ 105.301(a)) SBA Lenders processing a loan under delegated procedures must 
retain SBA’s written clearance in the loan file. SBA will review the statements 
when conducting lender oversight activities and, for 7(a) loans, the statement 
must be included in any request for SBA to honor its guaranty in the event of 
default by the Borrower. 
B. DEBARMENT, SUSPENSION, AND EXCLUSION (SAM.GOV) 
Individuals and entities suspended, debarred, revoked, or otherwise excluded under the SBA or 
Government-wide debarment regulations are not permitted to conduct business with SBA. See 2 
CFR Part 180, adopted by reference in 2 CFR Part 2700 (SBA Debarment Regulations). 
SBA Lenders are responsible for consulting the System for Award Management’s Exclusions 
(SAM Exclusions) or any successor system to determine if any of the following have been 
suspended, debarred, revoked, or otherwise excluded by SBA or another Federal agency. 
(www.sam.gov/SAM/).  
JX019.170
d. 
e. 
a. 
b. 
App.3427
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 171 
1. Evidence of the SAM Exclusions search (for example, a screen shot of the search results) 
for each of the following must be documented in the loan file: 
 Agents; 
 Small business Applicant; 
i. For a sole proprietorship, the sole proprietor; 
ii. For a partnership, all general partners; limited partners owning 20% or more 
of the equity of the firm; or any partner that is involved in management of the 
Applicant business; 
iii. For a corporation, all owners of 20% or more of the corporation, and each 
officer and director; 
iv. For limited liability companies, all members owning 20% or more of the 
company; each officer; director; and managing member; 
v. Any Key Employee;  
vi. Any Trustor (if the Applicant business is owned by a trust); and 
vii. The legal entity, when 20% or more ownership interest in the applicant is 
held by a corporation, partnership, or other form of legal entity. 
2. Evidence of the SAM Exclusions search (for example, a screen shot of the search results) 
for each of the following must be documented in the SBA Lender’s files. The SAM 
Exclusions search is only required once and must be completed prior to the entity or 
person’s first day of work on SBA-related business. 
 SBA Lender’s employees; 
 For 7(a), Lender Service Providers (LSP) and LSP employees; and 
 For 504, contractors who are providing services to the CDC under an SBA-
approved professional services contract in accordance with 13 CFR § 120.824. 
See Para E.6.a., Professional Services Contractors, in this Chapter for more 
information. 
C. 7(A) LOAN PROGRAM FEES 
1. Fees the Lender Pays SBA 
SBA Guaranty Fee and the 7(a) Lender’s Annual Service Fee. (13 CFR § 120.220) The 
7(a) Lender is responsible for payment to SBA of the upfront SBA guaranty fee and the 
Annual Service fee (also known as the “SBA On-Going Guaranty Fee”) in order to obtain 
and maintain the SBA guaranty.  
 SBA Guaranty Fee (Upfront fee). 
The SBA guaranty fee is the fee a 7(a) Lender must pay to SBA for each loan 
guaranteed under the 7(a) program. The 7(a) Lender is permitted to pass the cost 
of the SBA upfront guaranty fee to the Borrower. The Agency automatically 
calculates the guaranty fee for each individual loan. This calculation is modified 
in SBA’s loan accounting system and E-Tran to include changes to the fee that are 
JX019.171
a. 
b. 
a. 
b. 
C. 
a. 
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 172 
necessary due to other loans approved within the past 90 days. Short-term loans 
are not included in this calculation. For more information, see below or contact 
the processing center or Lead District Office. 
The Borrower may use loan proceeds to pay the guaranty fee; however, the first 
disbursement may not be made primarily for the purpose of paying the guaranty 
fee. If the Borrower plans to use loan proceeds to pay the guaranty fee, the 
Authorization must include a Use of Proceeds category for this purpose. Note: 
When an escrow closing is used, the 7(a) Lender may charge the Borrower the 
guaranty fee only when all loan funds have been disbursed to the Borrower from 
the escrow account.  
i. Calculation of the SBA Guaranty Fee. 
The total loan amount determines the percentage that is used to calculate this 
fee. However, the guaranty fee is based on the guaranteed portion of the loan 
and not the total loan amount. The chart below describes the applicable fees. 
SBA 7(a) GUARANTY FEE CHART 
Gross Loan Size 
FEES (See Note 1) 
Loans of $150,000 or less  
(Maturity more than 12 months) 
(See Note 2) 
2% of guaranteed portion 
7(a) Lender is authorized to retain 25% of the fee. 
$150,001 to $700,000 
(Maturity more than 12 months) 
3% of guaranteed portion 
$700,001 to $5,000,000 
(Maturity more than 12 months) 
(See Note 3) 
3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of 
the guaranteed portion over $1,000,000 
Short-Term Loans – up to $5 million 
(Maturity of 12 months or less) 
0.25% of the guaranteed portion 
Note 1: SBA specifies the amount of certain fees each fiscal year for all loans 
approved during that year. 
Note 2: 
For example, the guaranty fee on a $100,000 loan with an 85% 
guaranty would be 2% of $85,000 or $1,700, of which the 7(a) Lender may 
retain $425. 
Note 3: 
For example, the guaranty fee on a $5,000,000 loan with a 75% 
guaranty ($3.75 million guaranteed portion) would be 3.5% of $1,000,000 
($35,000) PLUS 3.75% of $2,750,000 ($103,125), which totals $138,125. 
ii. Guaranty Fee Calculation for Multiple Loans Within 90 Days. 
a) 
If more than one loan (with maturities exceeding 12 months) is 
approved for an Applicant, including loans approved to its affiliates, 
within 90 days of each other, the loans are considered as one loan for 
the purpose of determining the percentage of guaranty and the guaranty 
fee calculation. This rule applies regardless of whether the loans were 
approved by the same or different 7(a) Lenders. 
JX019.172
App.3429
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 173 
b) 
When two or more loans are approved within 90 calendar days of each 
other, the applicable fee for the subsequent loans is equal to the 
guaranty fee that would have been charged had all the loans been 
combined into one loan. The applicable fee for the subsequent loan(s) 
will equal the amount of the fee that would have been charged had the 
loans been combined, less the amount of the fee from the first loan 
approved. 
c) 
When the Applicant receives both a short and long term 7(a) loan, the 
percentage of guaranty is calculated as if the loans are combined, but the 
guaranty fee is based solely on the maturity of each loan.  
d) 
If a short-term loan that was made within 90 days of a long term loan is 
renewed and the maturity is extended beyond 12 months, the guaranty 
fee calculated at the time of renewal would equal the fee that would 
have been charged if both loans were originally long term. The amount 
owed SBA at the time of renewal would equal the recalculated guaranty 
fee less the amount paid at the time of original approval.  
e) 
This rule also applies to any subsequent increases to either of the loans 
made within the 90 day period, even if one of the loans subsequently is 
paid in full. 
iii. When the Guaranty Fee Must be Paid (13 CFR § 120.220(b)): 
The 7(a) Lender must pay the guaranty fee to SBA as follows: 
a) 
Short-term loans (maturities of 12 months or less):  
i) The 7(a) Lender must pay the guaranty fee through www.pay.gov 
within 10 business days from the date the SBA Loan Number is 
assigned. If the fee is not received within 10 business days after 
issuance of the SBA Loan Number, SBA will cancel the guaranty.  
ii) For EWCP loans re-issued after 12 months, each time the loan is re-
issued it is a new loan, and another guaranty fee is due. SBA earns the 
short-term guaranty fee when the SBA loan number is issued.  
iii) The 7(a) Lender may only charge the guaranty fee to the Borrower 
after the 7(a) Lender has paid the guaranty fee.  
b) 
Loans with maturities in excess of 12 months:  
i) The 7(a) Lender must pay the guaranty fee to SBA within 90 days of 
the date of loan approval. If the guaranty fee is not paid within 90 
days, the guaranty will be cancelled. The 7(a) Lender may charge the 
guaranty fee to the Borrower after initial disbursement; however, the 
first disbursement may not be made solely or primarily for the purpose 
of paying the guaranty fee. 
ii) Notification of Fee Due: The Authorization is the SBA Lender’s 
notification that a guaranty fee is due and payable within 90 days of 
approval. SBA may, but is not required to, inform the 7(a) Lender 
JX019.173
App.3430
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 174 
when the guaranty fee has not been received by SBA within the 
required time frame. Neither the issuance by SBA of any notice of 
non-payment nor the receipt of any notice of non-payment by the 7(a) 
Lender waives the 7(a) Lender’s obligation to pay the fee within 90 
days of approval. In addition, the obligation to pay the guaranty fee to 
SBA is not contingent upon the Borrower having paid the fee to the 
7(a) Lender. 
c) 
THE DUE DATE FOR GUARANTY FEE PAYMENT MAY NOT BE 
WAIVED OR EXTENDED EVEN IF THE DISBURSEMENT 
PERIOD IS EXTENDED. 
iv. Additional Guaranty Fee for Loan Increases. 
a) 
When a 7(a) loan is increased, additional appropriations are committed, 
and an additional guaranty fee is due. The additional fee is based on the 
rules in effect at the time the loan was originally approved. Therefore, 
the amount of the additional guaranty fee due for an increase will equal 
what the guaranty fee would have been if the increase was part of the 
original loan amount, less the amount of the original fee (if already 
remitted). 
b) 
The additional guaranty fee associated with the increase must be paid 
electronically within 30 days from the date the increase was approved, 
or the total loan guaranty will be cancelled. 
c) 
On loans that have been initially disbursed, the guaranty fee associated 
with any increase approved by SBA must be paid to SBA, whether or 
not the increase is subsequently cancelled. 
v. Additional Guaranty Fee for Extensions of Short-Term Loans.  
a) 
When the maturity of a short-term 7(a) loan is extended beyond 
12 months, an additional guaranty fee is due. The 7(a) Lender may 
contact the appropriate SBA CLSC for assistance. The additional fee 
must be paid electronically within 30 days from the date the 7(a) Lender 
agrees to the extension or the total loan guaranty will be cancelled. The 
7(a) Lender may charge the additional fee to the Borrower after the 7(a) 
Lender has notified SBA that the maturity has been extended and has 
paid the additional guaranty fee. 
b) 
No additional guaranty fees will be owed for loans extended beyond 
their original maturity date when SBA determines the extension is to 
effect collection and no new funds are disbursed, regardless of the 
original maturity. 
vi. Method of Guaranty Fee Payment. 
The 7(a) Lender must electronically pay the guaranty fee either by using their 
existing SBA-approved bulk ACH method or through www.pay.gov. When 
using www.pay.gov, select “form type 1544” and select “guaranty.” The loan 
must have been approved and an SBA Loan Number issued in order to use 
JX019.174
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 175 
www.pay.gov. Any questions regarding this requirement can be emailed to 
payment.services@sba.gov. 
vii. Reinstatement of Guaranty After Cancellation. 
If SBA cancelled its guaranty because the 7(a) Lender did not pay the 
guaranty fee, the 7(a) Lender may request that SBA consider reinstating its 
guaranty. The 7(a) Lender must submit a written request to either the LGPC 
or the appropriate SBA CLSC in accordance with Section B, Ch 5, 
“Authorization through Disbursement for all 7(a)Loans” of this Part. If SBA 
reinstates the guaranty, the required guaranty fee must be electronically paid 
within 30 days from the date of reinstatement or the guaranty will be 
cancelled. The request must include the following: 
a) 
SBA Loan Number and the SBA Loan Name; 
b) 
A certification that there has been no unremedied adverse change in the 
financial condition, organization, operations, or fixed assets of the 
Borrower or Operating Company since the date of application for 
guaranty; 
c) 
If the loan has been disbursed in whole or in part, a certification that the 
loan is current, the 7(a) Lender has been reporting the loan on all SBA 
Form 1502 monthly reports since the loan was disbursed, and the 7(a) 
Lender has been paying the SBA on-going guaranty fee in a timely 
manner on this loan; and 
d) 
A complete written explanation as to why the 7(a) Lender failed to pay 
the guaranty fee and what the 7(a) Lender has done to correct any 
deficiencies in its procedures. 
viii. Guaranty Fee Refunds (13 CFR §120.220(c)). 
The guaranty fee is based on the amount that SBA has approved prior to the 
loan being closed and initially disbursed. Any request by the 7(a) Lender to 
decrease the approved amount must be approved by SBA prior to the date the 
loan is closed and initially disbursed by the 7(a) Lender in order for the 
guaranty fee to be reduced. The 7(a) Lender must submit a request to the 
appropriate SBA CLSC via E-Tran for an adjustment to the approved amount 
of the loan and guaranty fee.  
a) 
Full refund: The guaranty fee may be refunded only for a loan with a 
maturity of more than 12 months and when the loan has not been closed 
and initially disbursed and the 7(a) Lender submits a written request to 
SBA to cancel the guaranty. Once a loan has been initially disbursed, no 
refund is permitted.  
b) 
Partial refund: If SBA approves the cancellation of a portion of the loan 
prior to the loan being closed and initially disbursed, SBA will adjust 
the guaranty fee payable to reflect the new loan amount and refund the 
excess amount if the fee has already been paid. If the loan has been 
closed and initially disbursed, no refund is permitted.  
JX019.175
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
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Page 176 
 7(a) Lender’s Annual Service Fee (“SBA On-Going Guaranty Fee”) (13 CFR § 
120.220(f)). 
The 7(a) Lender is required to pay SBA an annual service fee (“on-going guaranty 
fee”). The fee is based on the outstanding principal balance of the guaranteed 
portion of the loan at the time of SBA Loan approval. SBA specifies the amount 
of the fee each fiscal year for all loans approved during that year. This fee cannot 
be charged to the Borrower. 
The 7(a) Lender pays this fee on a monthly basis with submission of SBA Form 
1502, “Guaranty Loan Status and Remittance Form.” (For further guidance on 
SBA Form 1502 reporting, see Part 1, Section A, Ch 3, Lender Financing and 
Operations of this SOP.) SBA may charge the 7(a) Lender a late fee if the on-
going guaranty fee is not paid timely.  
For EWCP payment options, see Section B, Ch. 4, Para. B.5.e., Payment Options 
for EWCP Ongoing Guaranty Fee of this Part. 
Note: The fee will be listed in the Authorization and, unless SBA drafts and 
executes the Authorization, it is the 7(a) Lender's responsibility to ensure that the 
Authorization includes the correct fee. 
2. Fees and Expenses the Lender May Collect from the Applicant or Borrower 
In 13 CFR § 120.221, SBA provides specific guidance on the fees a 7(a) Lender or its 
Associates may collect from an Applicant or Borrower in connection with an SBA-
guaranteed loan.  
 Packaging Fees 13 CFR § 120.221(a) 
A 7(a) Lender may charge an applicant reasonable fees (customary for similar 
Lenders in the geographic area where the loan is being made) for packaging. 
“Packaging services” include assisting the Applicant with completing one or more 
applications, preparing a business plan, cash flow projections, and other 
documents related to the application. The 7(a) Lender must complete an SBA 
Form 159 in accordance with Paragraph D.8., Disclosure of Fees – SBA Form 
159, in this Chapter.  
The fees a 7(a) Lender may charge an Applicant for packaging services: 
i. Must be reasonable and customary for the services actually performed; 
ii. Must be consistent with those fees the 7(a) Lender charges on its similarly-
sized, non-SBA guaranteed loans; and 
iii. May be based on an hourly rate or on a percentage of the loan amount. In 
either case, all fees over $2,500 must be supported by documenting the 
service performed. 
a) 
For fees charged on an hourly rate, there is no maximum, but the fees 
must be reasonable and customary for the services actually performed. 
The hourly rate and time spent on each service must be documented. 
JX019.176
b. 
a. 
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b) 
For fees charged based on a percentage of the loan amount, the fee may 
not exceed: 
i) 3% on loans of $50,000 or less; 
ii) 2% for loans between $50,000 and the first $1,000,000 and 0.25% on 
the portion over $1,000,000; however,  
iii) The maximum fee that may be charged to an Applicant on a 
percentage basis is $30,000. 
iv. SBA does not allow a 7(a) Lender to charge an Applicant: 
a) 
A standard or flat fee charged to all Applicants; 
b) 
A contingency fee (fees paid only if the loan is approved or closed); 
c) 
For services that are not reasonably necessary in connection with an 
application;  
d) 
For costs associated with underwriting the loan, including the 
completion of the 7(a) Lender’s analysis and SBA Form 1920, 
“Lender’s Application for Guaranty for all 7(a) Loan Programs.”; or 
e) 
For consulting as to what financing is needed and what type, or broker 
or referral fees. This prohibition also applies to Associates of the 
7(a) Lender. 
The 7(a) Lender may not split a loan into two loans for the purpose of charging an 
additional fee to the Applicant. Even if there is a legitimate business need for the 
Applicant’s loan request to be split into two loans (e.g., a term loan and a line of 
credit), the 7(a) Lender may only charge the Applicant one fee within the 
maximums set forth above, based on the combined loan amounts. However, it is 
not SBA’s intention to restrict a 7(a) Lender from charging a new fee if an 
Applicant subsequently returns to the 7(a) Lender to apply for a new loan for a 
different project or purpose. (Loans approved more than 90 days apart are 
considered to be for a different project or purpose.) 
 Extraordinary Servicing Fee. 13 CFR § 120.221(b) 
i. A 7(a) Lender may not charge the Borrower a servicing fee on an SBA-
guaranteed loan unless the servicing fee is to cover expenses for 
extraordinary servicing requirements connected with the loan. Such a fee 
may not exceed 2% per year on the outstanding balance of the part of the 
loan requiring special servicing. Examples of extraordinary servicing fees 
include amounts to service construction loans or monitor accounts receivable 
and inventory collateral in asset-based lending. In addition, if the 7(a) Lender 
charges an extraordinary servicing fee on its similarly-sized, non-SBA 
guaranteed commercial loans, it may not charge a higher fee on its SBA-
guaranteed loans. If the 7(a) Lender does not charge an extraordinary 
servicing fee on its similarly-sized, non-SBA guaranteed commercial loans, it 
may not charge an extraordinary servicing fee on its SBA-guaranteed loans. 
JX019.177
b. 
App.3434
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ii. A 7(a) Lender may charge extraordinary servicing fees in excess of 2% for 
EWCP or Working Capital CAPLine loans that are disbursed based on a 
Borrowing Based Certificate. The fees charged must be reasonable and 
prudent based on the level of extraordinary effort required and must not be 
higher than the fees charged on the 7(a) Lender’s similarly-sized, non-SBA 
guaranteed commercial loans. 
iii. 7(a) Lenders must obtain SBA’s prior written approval for the fees in 
subparagraph b.i. and b.ii. above and must include the extraordinary 
servicing fees to be charged to administer the loan/line in its credit 
memorandum. 7(a) Lenders submitting applications under delegated 
authority must enter the amount of the fee to be charged in E-Tran and certify 
in the credit memorandum that the fee is reasonable and prudent based on the 
level of extraordinary effort required. SBA’s issuance of a loan number will 
constitute its prior written approval of the fees, subject to SBA’s subsequent 
review of the fees for reasonableness. SBA will review such fees when 
conducting 7(a) Lender oversight activities and at time of guaranty purchase. 
If SBA determines the fee is excessive, the 7(a) Lender must reduce the fee 
to an amount SBA deems reasonable, refund any sum in excess of that 
amount to the Borrower, and refrain from charging or collecting from the 
Borrower any funds in excess of the amount SBA deems reasonable. SBA’s 
guaranty does not extend to extraordinary servicing fees and, at time of 
guaranty purchase, SBA will not pay any portion of such fees. 
iv. The following actions do not qualify as extraordinary servicing and therefore 
a participating 7(a) Lender is prohibited from collecting fees for these 
services: 
a) 
Changing the installment amount to avoid circumstances where the 
required payment amount will not be sufficient to pay the loan in full by 
the maturity date; 
b) 
Changing the installment amount after a deferment; 
c) 
Providing the release or exchange of collateral (standard out-of-pocket 
expenses such as recordation fees are permitted); or 
d) 
Any modification to the repayment terms of the note. 
v. Past due financial statements: SBA does not permit a 7(a) Lender to charge a 
default interest rate or a separate servicing fee for past due financial 
statements. 7(a) Lenders should make note in their loan files as to the 
attempts it has made (following prudent lending standards) to obtain the 
required financial statements. At some point the Borrower may require a 
servicing action by the 7(a) Lender. At that time, the 7(a) Lender can require 
past due financial statements. 
 Out-of-Pocket Expenses. 13 CFR § 120.221(c) 
i. 7(a) Lenders may be reimbursed by the Borrower for all direct costs 
including UCC filings or recording fees, photocopying, delivery charges, 
collateral appraisals and environmental investigation reports that are obtained 
JX019.178
C. 
App.3435
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Effective October 1, 2020 
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in compliance with SBA policy, and other direct charges related to loan 
closing. These costs must be itemized and kept in the loan file for SBA’s 
review. 
ii. 7(a) Lenders may be reimbursed by the Applicant for the direct costs 
(including reasonable overhead) of legal services performed by the 7(a) 
Lender’s in-house counsel in connection with an SBA-guaranteed loan, but 
in no event may the 7(a) Lender be reimbursed for an amount that would 
exceed the cost of outside counsel.  
iii. In accordance with 13 CFR § 120.221(e), charges for legal services 
(regardless of who provides the service) must be charged on an hourly basis. 
The 7(a) Lender or its Associate may not pass on to the Applicant/Borrower 
any cost of legal services not calculated on an hourly basis for services 
provided in connection with the Applicant/Borrower’s transaction. 
iv. Fees associated with technology services (whether developed internally or 
purchased from a third party) are not considered to be out-of-pocket expenses 
and may not be passed on to the Borrower or paid for out of SBA-guaranteed 
loan proceeds. Examples of technology services fees that may not be passed 
on to the Borrower or paid for out of SBA-guaranteed loan proceeds include: 
a) 
The costs or fees for software or technology used in connection with 
preparing SBA loan documents, underwriting, or closing the SBA-
guaranteed loan; 
b) 
Acquisition costs or fees for licensing software or software platforms to 
7(a) Lenders solely for the purpose of performing administrative 
functions (not including any underwriting functions), such as generating 
SBA-required forms; and  
c) 
Fees associated with entities that develop systems or lending platforms 
to automate the 7(a) Lender’s internal loan decision making process, 
including but not limited to the use of basic credit algorithms or data-
based scoring/models where the 7(a) Lender inputs Applicant data in 
order to determine eligibility or creditworthiness.  
Note: SBA does not consider entities providing technology services that do 
not include underwriting to be Agents. Entities providing technology services 
that include underwriting are considered to be LSPs and must be providing 
their services to the 7(a) Lender under an SBA-reviewed LSP Agreement. 
See Paragraph D.6, Lender Service Provider Agreements, in this Chapter for 
more information. 
v. Direct costs associated with out-of-pocket expenses described in this section 
in connection with the loan closing should not be reported on SBA Form 159, 
but must be itemized in the loan file and available for SBA review either at 
time of guaranty purchase or when conducting lender oversight activities. 
JX019.179
App.3436
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 Late Payment Fee. 13 CFR § 120.221(d) 
7(a) Lenders may charge the Borrower a late payment fee not to exceed 5% of the 
regular loan payment when the Borrower is more than 10 days delinquent on its 
regularly scheduled payment. The fee is the property of the 7(a) Lender and is not 
shared with the investor if the loan is sold into the Secondary Market. SBA’s 
guaranty does not extend to late fees and, at time of guaranty purchase, SBA will 
not pay any portion of such fees.  
 Assumption Fee. 
7(a) Lenders should review SBA’s SOP 50 57, 7(a) Loan Servicing and 
Liquidation, for procedures to process an assumption request. 
i. In the case of an assumption of the loan by another entity, SBA does not 
require a new guaranty fee, and lien positions are often maintained 
eliminating the need for recording fees. As an incentive for a 7(a) Lender to 
retain an existing loan, SBA allows a 7(a) Lender to charge an assumption 
fee that is consistent with its assumption fee the 7(a) Lender charges on its 
non-SBA guaranteed loans. The fee must be reasonable in relation to services 
provided and cannot exceed 1 percent of the principal balance outstanding at 
time of assumption. SBA’s guaranty does not extend to assumption fees and, 
at time of guaranty purchase, SBA will not pay any portion of such fees.  
ii. This fee may be paid by the seller or the assumptor.  
 SBA Express and Export Express Fee Policy. 
i. The SBA guaranty and on-going servicing fees are the same for SBA Express 
and Export Express as for Standard 7(a) Loans. The policy regarding 
packaging fees is the same as for Standard 7(a) Loans as set forth in 
paragraph C.2. Fees and Expenses the Lender May Collect from the 
Applicant or Borrower, in this Chapter above. In addition, the 7(a) Lender 
may charge the same fees for SBA Express and Export Express loans as it 
charges for its similarly-sized non-SBA guaranteed commercial loans as long 
as the fees are directly related to the service provided and are reasonable and 
customary for the services performed. Examples include application fees and 
reasonable transaction fees such as cash advance fees, late fees, returned 
check charges, currency conversion fees, over limit fees (assuming the 
Borrower did not exceed SBA’s approved loan amount), and organizational 
change fees. If packaging or application fees are charged, they must be 
disclosed on SBA Form 159 in accordance with paragraph D.8., Disclosure 
of Fees – SBA Form 159, in this Chapter below. 
ii. As with Standard 7(a) Loans, 7(a) Lenders may not charge servicing fees 
unless the fees are to compensate for extraordinary servicing requirements 
connected with the loan; for example, monitoring the levels of accounts 
receivable for a line of credit. Such fees must comply with paragraph 2.b. 
above.  
iii. Renewal fees are not permitted. 
JX019.180
d. 
e. 
f. 
App.3437
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
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iv. SBA reserves the right to disallow fees that are not customary and/or which 
do not bear a relationship to the actual service provided. Also, if the 7(a) 
Lender requests that SBA honor its guaranty on an SBA Express and Export 
Express loan, with the exception of the SBA guaranty fee, the Agency will 
not purchase any portion of the loan balance that consists of fees charged to 
the Borrower. 
3. Fees the Borrower Pays to SBA 
Subsidy Recoupment Fee 13 CFR § 120.223 
For loans with a maturity of 15 years or longer, the Borrower must pay to SBA a Subsidy 
Recoupment Fee when the Borrower voluntarily prepays more than 25% of its loan in 
any 1 year during the first 3 years after first disbursement. The fee is 5% of the 
prepayment amount during the first year, 3% the second year, and 1% in the third year. 
SBA does not consider death that results in a prepayment a voluntary occurrence. No 
determination by SBA is required in this circumstance, and the 7(a) Lender must confirm 
and document their file. If the 7(a) Lender otherwise believes that the prepayment of the 
loan is not voluntary, the 7(a) Lender may submit a request for a determination, with the 
7(a) Lender’s supporting analysis, to the appropriate CLSC. The CLSC will submit the 
request, along with its recommendation to the Director of the Office of Financial Program 
Operations (D/OFPO) and the D/FA for a joint determination as to whether a prepayment 
is involuntary. 
4. Prohibited Fees 
Any fee not expressly permitted in 13 CFR § 120.221 is prohibited. For example, 7(a) 
Lenders and/or their Associates may not: 
 Require the Applicant or Borrower to pay the 7(a) Lender, a 7(a) Lender’s 
Associate, or any party designated by either, any fees or charges for goods or 
services, including insurance, as a condition for obtaining an SBA-guaranteed 
loan;  
 Charge the Borrower any commitment, bonus, origination, broker, commission, 
referral, or similar fees; 
 Charge points or add-on interest;  
 Charge prepayment fees; 
 Charge renewal fees; or 
 Share any portion of the premium received from the sale of an SBA-guaranteed 
loan in the Secondary Market with a Service Provider, Packager, or other non-
employee loan referral source. 
D. 7(A) LOAN PROGRAM AND USE OF AGENTS 
SBA permits a third party to charge an Applicant fees for packaging and other services. Prior to 
any services being provided, the 7(a) Lender must advise the Applicant in writing that the 
Applicant is not required to obtain or pay for unwanted services. 
JX019.181
a. 
b. 
C. 
d. 
e. 
f. 
App.3438
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
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1. Use of Agents in the 7(a) Loan Program 
 SBA regulations at 13 CFR Part 103 govern the activities of Agents, the 
disclosure of fees, and the circumstances that would result in revocation or 
suspension of the Agent’s privilege to conduct business with SBA.  
i. SBA expects 7(a) Lenders to exercise due diligence and prudent oversight of 
their third party vendors, including LSPs, and other loan agents.  
ii. Prudent oversight should include having written policies governing such 
relationships and monitoring performance of loans referred by an Agent or 
where an Agent provided assistance.  
iii. SBA will review evidence of such due diligence and oversight of such 
relationships when conducting lender oversight activities.  
iv. Federally-regulated 7(a) Lenders are reminded that they must comply with the 
requirements of their primary Federal Financial Institution Regulator 
regarding third party vendors. 
 The Director of SBA’s Office of Credit Risk Management may, for good cause, 
suspend or revoke the privilege of an Agent to conduct business with the 
government. The suspension or revocation will remain in effect during any 
administrative proceedings under SBA regulations at 13 CFR Part 134. The 
meaning of “good cause” can be found at 13 CFR § 103.4. 
 Agents and Privacy Act Considerations. 
Proprietary information is protected by the Right to Financial Privacy Act and the 
Privacy Act. Private information about a loan cannot be discussed with anyone 
who claims to be an Agent for an Applicant or 7(a) Lender without evidence of 
representation. SBA may require that an Agent supply written evidence of his or 
her authority to act on behalf of an Applicant or 7(a) Lender as a condition of 
revealing any information about the Applicant’s or 7(a) Lender’s current or prior 
dealings with the SBA. 
 Employment of Agent Initiated by Applicant. 
7(a) Lenders and Agents must clearly inform any Applicant that the SBA does not 
require the use of an Agent for packaging or referring a loan application. When an 
Applicant employs an Agent: 
i. The Agent may bill and be paid by the Applicant for providing packaging 
services as long as compensation is reasonable and customary for those 
services; the compensation complies with SBA Loan Program Requirements; 
and the compensation is not contingent on the loan being approved or closed. 
ii. The Agent who works for an Applicant as a packager may also work as a 
Loan Referral Agent for the Applicant and receive a referral fee from the 
Applicant. However, if the Agent performs multiple services for the 
Applicant, the total fee for all services may not exceed the stated maximums 
in paragraph D.7. below. 
JX019.182
a. 
b. 
C. 
d. 
App.3439
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SOP 50 10 6 
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Page 183 
iii. The Agent may be a Loan Referral Agent for a 7(a) Lender and a Packager 
for an Applicant, provided both the Applicant and the 7(a) Lender are aware 
of both relationships, and the Agent does not receive a referral fee from the 
Applicant or a packaging fee from the 7(a) Lender. 
 Employment of Agent by 7(a) Lender (not an LSP). 
i. When a 7(a) Lender has decided to approve a loan application and needs 
assistance with the preparation of the paperwork for the application to SBA, 
the loan closing, or preparation of the loan to sell it on the Secondary Market, 
the 7(a) Lender may use an Agent. 
ii. The compensation for these services should be reasonable and customary for 
the services actually provided and compensation for services associated with 
preparation of the application through loan closing cannot be contingent upon 
the loan being approved or closed by SBA. 
iii. The Agent must bill and be paid by the 7(a) Lender for all services and the 
7(a) Lender may not pass these charges through to the Applicant or pay them 
with SBA-guaranteed loan proceeds under any circumstances. 
2. Agents 
13 CFR § 103.1(a) 
 SBA defines an “Agent” to mean an authorized representative, including an 
attorney, accountant, consultant, packager, lender service provider, or any other 
individual or entity representing an Applicant or participant by conducting 
business with SBA.  
 For Lender Service Providers, SBA reviews the written agreement between the 
Lender and the Lender Service Provider, thus SBA Form 159 is not required for 
the services provided by the Lender Service Provider to the Lender. (13 CFR § 
103.5(c)) Fees paid by the Lender to the Lender Service Provider cannot be 
passed onto the Applicant.  
 For all other Agents paid by either an Applicant or a Lender, SBA Form 159 must 
be completed and signed by the Applicant and the Lender. For each Agent paid by 
the Applicant to assist it in connection with its application, the Agent also must 
complete and sign the form. When an Agent is paid by the Lender, the Lender 
must identify the Agent on SBA Form 159 and the Lender and Applicant must 
sign the form.  
 The only situation where an Agent can receive compensation from both the 
Lender and the Applicant is when the Agent is providing different services by 
providing packaging services to the Applicant and receiving a referral fee from 
the Lender. (13 CFR § 103.4(g)) 
 The SBA does not allow contingency fees (fees paid only if the loan is approved 
or closed) or charges for services which are not reasonably necessary in 
connection with an application.  
JX019.183
e. 
a. 
b. 
C. 
d. 
e. 
App.3440
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
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3. Referral Agents 
13 CFR § 103.1(f) 
“Referral Agent” means a person or entity that identifies and refers an Applicant to a 
Lender or a Lender to an Applicant. The referral agent may be employed and 
compensated by either an Applicant or a Lender, but not both. Each referral agent, 
including loan packagers, must disclose the name of its customer and all fees charged in 
connection with the SBA loan transaction on SBA Form 159. 
4. Packager 
13 CFR § 103.1(e) 
 “Packager” means an Agent who is employed and compensated by an Applicant 
or Lender to prepare the Applicant’s application for financial assistance from 
SBA. The packager may be the Lender. 
 For 7(a) loans, if a CDC employee performs packaging or loan referral services 
within the scope of their CDC employment, both the CDC and the employee are 
Agents. If a CDC employee acts as a Packager or Referral Agent outside the 
scope of his or her employment, the CDC is not considered an Agent. 
5. Lender Service Provider 
13 CFR § 103.1(d) 
 “Lender Service Provider” means an Agent who carries out Lender functions in 
originating, disbursing, servicing, or liquidating a specific SBA business loan or 
loan portfolio for compensation from the Lender. 
 A Lender must have a continuing ability to evaluate, process, close, service, 
liquidate and litigate small business loans (13 CFR § 120.410). A Lender may 
contract with a third party (Lender Service Provider (LSP)) to assist the Lender 
with one or more of these functions. However, the Lender itself, not the LSP, 
must be able to demonstrate that it exercises day-to-day responsibility for 
evaluating, processing, closing, disbursing, servicing, liquidating, and litigating its 
SBA portfolio. SBA determines whether or not an Agent is an LSP on a loan-by-
loan basis. If an Agent meets the definition of an LSP, a formal agreement 
between the Agent and Lender is required and must be reviewed by SBA. 
 All participating Lenders must submit each LSP agreement to the LGPC for 
review. Lenders may submit the agreements to LSPagreements@sba.gov. If there 
are any changes to an LSP agreement after review by SBA, the Lender must 
submit the revised agreement to SBA for review. 
 SBA will investigate any complaint by an Applicant, Lender, or any other 
participant in an SBA program, concerning the activity, services completed, or 
fees charged by any LSP. 
 SBA reserves the right to audit compliance with any SBA-reviewed LSP 
agreement.  
JX019.184
a. 
b. 
a. 
b. 
C. 
d. 
e. 
App.3441
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6. Lender Service Provider Agreements 
13 CFR § 103.1(d)  
A 7(a) Lender may contract with a third party LSP to assist the 7(a) Lender with one or 
more lender functions. The LSP must perform these services under a written LSP 
Agreement between the 7(a) Lender and the LSP that must be submitted to SBA for 
review. 
 A 7(a) Lender must have a continuing ability to evaluate, process, close, service, 
liquidate and litigate small business loans (13 CFR § 120.410). 
 The 7(a) Lender itself, not the LSP, bears full responsibility for all aspects of its 
SBA Loan operation and must be able to demonstrate that it exercises day-to-day 
responsibility for evaluating, processing, closing, disbursing, servicing, 
liquidating, and litigating its SBA portfolio. 
 An LSP may only receive compensation from the 7(a) Lender for services 
provided under an SBA-reviewed LSP Agreement. Such charges must not be 
passed on to the Applicant or paid out of the SBA-guaranteed loan proceeds.  
 Services performed by the LSP for the 7(a) Lender in accordance with the LSP 
Agreement are not reported on SBA Form 159. (13 CFR § 103.5(c)). 
 The following are examples of when SBA considers an Agent to meet the 
definition of an LSP: 
i. An individual or entity engaged by a 7(a) Lender to provide services for the 
purposes of obtaining Federal financial assistance that include interaction 
with the Applicant either in-person or through the use of technology, to 
request or obtain eligibility and/or financial information that will be provided 
to the 7(a) Lender. This includes Agents who:  
a) 
Perform any pre-qualification review based on SBA’s eligibility and 
credit criteria or the 7(a) Lender’s internal policies prior to submitting 
the Applicant’s information to the 7(a) Lender; or 
b) 
Provide to the 7(a) Lender an underwritten application, whether through 
the use of technology or otherwise. 
ii. Entities providing technology services to a 7(a) Lender that include 
underwriting. 
iii. An individual or entity generates a significant number of the 7(a) Lender’s 
loan originations. As a general rule, SBA considers a “significant number” to 
be two-thirds (66%) or more of the 7(a) Lender’s loan originations for the 
prior 12 months. 
Note: SBA does not consider entities providing technology services that do not 
include underwriting to be Agents. 
 SBA will investigate any complaint by an Applicant, 7(a) Lender or any other 
participant in an SBA program concerning the activity, services completed, or 
fees charged by any LSP. 
JX019.185
a. 
b. 
C. 
d. 
e. 
f. 
App.3442
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 An LSP Agreement may not grant the LSP power of attorney to act on behalf of 
the 7(a) Lender.  
 If the 7(a) Lender engages an LSP to handle its SBA Borrower payments: 
i. The funds must be held in an account in the 7(a) Lender’s name, not the 
name of the LSP; however, consistent with the LSP Agreement, the LSP may 
be permitted limited access to the account in order to process Borrower 
payments; 
ii. For those loans where the guaranteed portion has been sold on the secondary 
market, the account also must be properly titled in accordance with SBA 
Form 1086, “Secondary Participation Guaranty Agreement.”  
iii. The LSP may not commingle any funds from multiple lenders; there must be 
separate accounts for each of its lender clients.  
iv. The LSP may not net its fee out of any Borrower payments or other funds 
collected on the 7(a) Lender’s behalf.  
 All participating 7(a) Lenders must submit each LSP agreement to the LGPC for 
review at LSPagreements@sba.gov. If there are any changes to an LSP agreement 
after review by SBA, the 7(a) Lender must submit the revised agreement to SBA 
for review. SBA reserves the right to audit compliance with any SBA-reviewed 
LSP agreement. 
 Upon the termination or cancellation of any LSP Agreement, a copy of the 
notification of termination must be sent to LSPagreements@sba.gov. The 
notification must include the date of termination and the 7(a) Lender’s SBA 
Location ID. 
 SBA does not provide a form of LSP Agreement but expects 7(a) Lenders and 
LSPs to negotiate the terms of the contract to meet the needs of the 7(a) Lender. 
Each agreement must include the following: 
i. Identification of both parties including full legal name, trade name or dba, 
address, and contact person’s name, address, phone number, email address, 
and the 7(a) Lender’s Location ID Number.  
ii. Services: The contract must specifically identify the services that will be 
performed by the LSP.  
iii. 7(a) Lender’s responsibility: There must be a statement that the 7(a) Lender 
bears full responsibility for all aspects of its 7(a) loan operation, including, 
but not limited to, approvals, closings, disbursements, servicing actions and 
due diligence. The LSP only provides assistance to the 7(a) Lender. If an 
LSP is authorized to access SBA’s Capital Access Financial System (CAFS), 
including E-Tran, on behalf of a 7(a) Lender, the 7(a) Lender acknowledges 
it is responsible for all entries and certifications made into CAFS by the LSP.  
iv. If the 7(a) Lender plans to engage an LSP to handle its SBA Borrower 
payments, the LSP Agreement must describe the specific parameters 
governing the LSP’s access to the funds; 
JX019.186
g. 
h. 
I. 
J. 
k. 
App.3443
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v. Compensation: The compensation must be specifically explained as to what 
will be charged for each type of service and must state that the fees are for 
services actually performed.  
a) 
Fees related to assisting the 7(a) Lender with packaging, processing, or 
underwriting cannot be contingent on whether the loan is approved or 
closed.  
b) 
The contract must state that all compensation paid to the LSP will be 
paid by the 7(a) Lender and that the 7(a) Lender and the LSP are 
prohibited from charging the Applicant for the same services. 
c) 
The 7(a) Lender and the LSP cannot share in any Secondary 
Market premium. 
d) 
The billing for loan packaging or for other loan processing services 
must identify the Applicant’s name.  
vi. Term: The full term of the contract including renewal options must be stated 
in order for SBA to determine if it is reasonable. In addition, the contract 
must clearly identify terms and conditions satisfactory to SBA that permit 
either party to terminate the contract prior to its expiration date on a 
reasonable basis (usually 60 days or sooner for cause). 
vii. The contract also must include the following statements or disclosures:  
a) 
The LSP will not assume a portion of the risk of the un-guaranteed 
portion of any loan. 
b) 
Disclosure by the LSP of any affiliations with other financial 
institutions, commercial lenders, CDCs, CUSOs, other LSPs, or loan 
brokers. 
c) 
Disclosures of any prior or existing relationship other than the 
contractual one created by the agreement, or a statement that no such 
relationship exists. 
d) 
The agreement is subject to all applicable laws, regulations, and policies 
including all SBA Loan Program Requirements. 
e) 
In the event this Lender Service Provider Agreement conflicts with any 
other contract or agreement between the parties, now or in the future, 
this Lender Service Provider Agreement will control with respect to the 
7(a) Lender’s SBA Loan portfolio. 
viii. 7(a) Lenders are responsible for the actions of their LSPs and must ensure 
that they comply with all applicable laws and regulations governing 
confidentiality. 7(a) Lenders should consult with their Counsel on 
appropriate language to be included in their LSP Agreements. 
ix. The contract must not evidence any actual or apparent conflict of interest or 
self-dealing on the part of any of the 7(a) Lender’s officers, management, or 
staff. 
JX019.187
App.3444
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
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7. Fees an Agent May Charge an Applicant for Packaging and Other Services 
 An Agent may charge an Applicant for: 
i. Packaging services to assist the Applicant with completing one or more 
applications, preparing a business plan, cash flow projections, and other 
documents related to the application; and 
ii. Other services that include consulting as to the amount and type of financing 
needed and broker or referral fees. (As stated above, the 7(a) Lender and its 
Associates are prohibited from charging an Applicant for these services.) 
 Regardless of who pays the Agent, the fees must be reasonable and customary for 
the services actually performed and, for those Lenders with non-SBA guaranteed 
portfolios, must be consistent with those fees charged on the 7(a) Lender’s 
similarly-sized, non-SBA guaranteed commercial loans. If the 7(a) Lender does 
not charge a particular fee on its similarly-sized, non-SBA guaranteed commercial 
loans, it may not charge the fee on its SBA guaranteed loans.  
 An Agent may charge an Applicant fees for packaging and other services based 
on an hourly rate or on a percentage of the loan amount. In either case, all fees 
over $2,500 must be supported by documenting the service performed. 
i. For fees charged to an Applicant on an hourly rate, there is no maximum, but 
the fees must be reasonable and customary for the services actually 
performed. The hourly rate and time spent on each service must be 
documented.  
ii. For fees charged to an Applicant based on a percentage of the loan amount, 
the fee may not exceed (if multiple services are provided to the Applicant, 
the combined fee for all services cannot exceed the stated maximums below): 
a) 
3 percent on loans of $50,000 or less;  
b) 
2 percent for loans between $50,000 and the first $1,000,000 and  
0.25 percent on the portion over $1,000,000; however, 
c) 
The maximum fee that may be charged in the aggregate to an Applicant 
on a percentage basis is $30,000. 
iii. SBA does not allow an Agent to charge an Applicant: 
a) 
A standard or flat fee charged to all Applicants; 
b) 
Contingency fees (fees paid only if the loan is approved or closed); or  
c) 
For services that are not reasonably necessary in connection with an 
application. 
 SBA may review these fees at any time. Agents must refund any fee considered 
unreasonable or impermissible by SBA. 
JX019.188
a. 
b. 
C. 
<l. 
App.3445
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 189 
 Review of Agent Fees. 
i. 7(a) Lenders must review all services and related fees charged to either the 
7(a) Lender or the Applicant by any Agent to determine if the fees are 
necessary and reasonable when: 
a) 
There is an indication from a third party that an Agent’s fees might be 
excessive; or  
b) 
An Applicant complains about the fees charged by an Agent. 
ii. In cases where fees appear to be unreasonable or impermissible, 7(a) Lenders 
should contact the D/OCRM to report the fees.  
iii. If an SBA investigation determines an Agent fee is excessive, the Agent must 
reduce the fee to an amount SBA deems reasonable, refund any sum in 
excess of that amount to the Applicant, and refrain from charging or 
collecting from the Applicant any funds in excess of the amount SBA deems 
reasonable. 
8. Disclosure of Fees – SBA Form 159 
Section 13 of the Small Business Act (15 U.S.C. § 642) requires that an Applicant 
identify the names of Persons (as defined in 13 CFR 120.10) engaged by or acting on 
behalf of the Applicant for the purpose of expediting the application and the fees paid or 
to be paid to any such Person. SBA regulations at 13 CFR § 103.5 require the Applicant, 
7(a) Lender, and any Agent to execute and provide to SBA a compensation agreement 
(“Agreement”). Each Agreement governs the compensation charged for services rendered 
or to be rendered to the Applicant or 7(a) Lender in any matter involving SBA assistance. 
 7(a) Lenders must identify in E-Tran whether the 7(a) Lender charged any fees 
and whether an Agent was involved in any way with the transaction.  
 When an Agent was involved in the transaction, the 7(a) Lender must provide the 
name, street address, city, state, and zip code of the Agent. Failure to do so may 
result in a finding by OCRM when conducting lender oversight activities. SBA 
Form 159 can be generated using E-Tran.  
 For Agents other than LSPs performing duties under an SBA-reviewed LSP 
Agreement, if the Agent is paid by an Applicant or a 7(a) Lender, an SBA Form 
159 must be completed in accordance with form instructions and signed by the 
Applicant, the Agent, and the 7(a) Lender. Separate SBA Forms 159 are required 
for each Agent who provides services to the Applicant. Failure of an Agent to 
fully complete and execute the required SBA Form 159 may result in suspension 
or revocation of the Agent’s privilege to conduct business with SBA under13 
CFR Part 103. 
 SBA Form 159 “Fee Disclosure Form and Compensation Agreement” 
i. Information on this form will be used to monitor fees charged by Agents and 
the relationship between Agents and 7(a) Lenders. 7(a) Lenders must 
complete all appropriate data fields on SBA Form 159 in accordance with the 
JX019.189
e. 
a. 
b. 
C. 
d. 
App.3446
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 190 
form instructions. For example, the seven-digit FIRS number must be 
included exactly as assigned by SBA and without any extra characters. 
ii. If the aggregate compensation for all fees provided by the same Agent 
exceeds $2,500, the compensation must be itemized.  
a) 
When an Agent charges an Applicant in connection with multiple 
applications (for example, an Applicant is seeking a term loan and a 
revolver): 
i) Separate SBA Forms 159 must be completed for each application . 
ii) Fees are aggregated to establish the $2,500 threshold for itemization.  
b) 
When the Agent provides multiple services to an Applicant in 
connection with the same loan application (for example, an Agent is 
providing both loan packaging and referral services to the Applicant), 
each service must be separately reported on the same SBA Form 159. 
For example: 
i) In the “Type of Agent” section, select both the “Independent Loan 
Packager” and the “Referral Agent/Broker” boxes; and 
ii) In the “Type of Service” table, separately itemize the amounts paid in 
each appropriate box. 
c) 
In-kind compensation (i.e., non-monetary contributions for goods or 
services) paid or to be paid to the 7(a) Lender must be itemized. 
iii. The following are not considered Agents for purposes of this Agreement and 
are not required to complete SBA Form 159: 
a) 
Applicant’s accountant for the preparation of financial statements 
required by the Applicant in the normal course of business and not 
related to the loan application;  
b) 
A state-certified or state-licensed appraiser employed by the 7(a) Lender 
to appraise collateral in connection with the SBA Loan; 
c) 
An LSP performing services for the 7(a) Lender under an SBA-
reviewed LSP agreement; 
d) 
An individual who is a Qualified Source (see definition in Appendix 3) 
and employed by the 7(a) Lender to conduct an independent business 
valuation in connection with the SBA Loan; 
e) 
An environmental professional employed by the 7(a) Lender to conduct 
an environmental assessment of the collateral in connection with the 
SBA Loan; 
f) 
Any attorney in connection with the SBA Loan closing; and 
g) 
A real estate agent who is receiving a commission for the sale of real 
estate in connection with the SBA Loan. 
JX019.190
App.3447
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 191 
 7(a) Lenders must submit all SBA Forms 159 to the Fiscal Transfer Agent 
(“FTA”). This submission is required after the initial disbursement on the loan 
and must be submitted with the 7(a) Lender’s SBA Form 1502 report within two 
SBA Form 1502 reporting cycles. The information must be emailed in either pdf 
or tif format to Form159@ColsonServices.com. 7(a) Lenders are required to 
retain an original signature version of the form in their files for compliance 
review purposes. 
E. 504 LOAN PROGRAM FEES AND USE OF AGENTS 
1. Borrower’s Deposit 
 At the time of application, the CDC may require a deposit from the Borrower of 
$2,500 or 1% of the Net Debenture Proceeds, whichever is less. For additional 
information relating to this fee, see 13 CFR § 120.935. 
 Agreements Regarding the Deposit: 
A written agreement between the CDC and the Applicant should include the 
following: 
i. If the CDC or SBA declines the application, the deposit will be refunded in 
full within 10 business days after decline, including any period for 
reconsideration; 
ii. If SBA approves the loan, the deposit may be applied toward the CDC 
processing fee described in 13 CFR § 120.883; and 
iii. If the Applicant withdraws its loan application at any time before SBA issues 
the Authorization, the CDC may deduct its reasonable and necessary costs 
incurred in packaging and processing the loan application. Such costs must 
be documented and cannot be a percentage of the loan. Any remaining 
deposit balance must be remitted to the Applicant within 10 business days of 
the withdrawal. 
 A copy of the agreement must be placed in the CDC’s file. 
2. Allowable Fees 
The fees that a 504 Borrower may be charged can be found at: 13 CFR §§ 120.971, 
120.972, 120.883(e) and 120.882(g)(4) and are described in the table below. 
Fees that a 504 Borrower May be Charged 
CDC Fees 
(1) Processing fee (Packaging fee) 
Up to 1.5% of the Net Debenture 
Paid by Borrower to CDC.  
JX019.191
e. 
a. 
b. 
C. 
App.3448
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 192 
Fees that a 504 Borrower May be Charged 
(2) Closing Fee 
Maximum of $2,500 may be 
financed from the debenture 
proceeds.  
CDC may charge a reasonable 
closing fee --sufficient to 
reimburse it for the expenses 
of its in-house or outside legal 
counsel, and other 
miscellaneous closing costs. 
Paid by Borrower. 
(3) Servicing fee (monthly) 
 
Minimum of 0.625%/year. 
Maximum of 2%/year Note: 
Maximum 1.5% for rural areas 
and 1% for everywhere else 
without prior SBA approval. 
Based on the unpaid principal 
balance of the loan – paid by 
Borrower to CDC 
 
 
(4) Late fees 
 
Loan payments received after the 
15th of each month may be 
subject to a late payment fee of 
5% of the late payment or $100, 
whichever is greater. 
Collected by CSA (Central 
Servicing Agent) on behalf of 
the CDC.  
(5) Assumption fee 
Not to exceed 1% of the 
outstanding principal balance of 
the loan being assumed. 
Upon SBA’s written approval– 
paid by Borrower to CDC. 
CSA Fees  
Initiation fee 
In accordance with the contract 
between the CSA and SBA. 
 
On-going fee 
In accordance with the contract 
between the CSA and SBA. 
 
Underwriter’s Fees 
Underwriter’s fee for 20 and 25-year 
Debenture 
Upfront fee of 0.4% 
Paid by Borrower to 
Underwriter. 
Underwriter’s fee for 10-year 
Debenture 
Upfront fee of 0.375% 
Paid by Borrower to 
Underwriter. 
SBA Fees  
(1) SBA Guaranty Fee - (up-front 
fee) 
Refer to www.sba.gov for notices 
on fee updates by fiscal year 
One-time fee 
(2) Annual Fee -- (Ongoing fee) 
Refer to www.sba.gov for notices 
on fee updates by fiscal year  
Fee is adjusted annually by 
cohort year (based on date the 
individual loan was approved) 
and is charged on the unpaid 
principal balance of the loan. 
JX019.192
App.3449
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 193 
Fees that a 504 Borrower May be Charged 
(3) Participation Fee -- Senior 
Lienholder 
0.50 % of the senior mortgage 
loan -- One -time fee 
A one-time fee from the Third 
Party Lender if in a senior lien 
position to SBA in the project. 
The fee may be paid by the 
Third Party Lender, CDC, or 
Borrower. 
(4) CDC Fee 
On-going fee to SBA of 0.125% 
of the outstanding principal 
balance of the debenture -- Annual 
Fee 
The fee must be paid from the 
servicing fees collected by the 
CDC and cannot be paid from 
any additional fees imposed on 
the Borrowers (loans approved 
by SBA after 9/30/1996). 
(5) Debt Refinancing Without 
Expansion Supplemental Fee 
Refer to www.sba.gov for notices 
on fee updates by fiscal year 
Paid by Borrower.  
Funding Fee 
0.25% of the net Debenture 
Proceeds 
Changed to cover the costs 
incurred by the trustee, fiscal 
agent, and transfer agent.  
3. Fees for Other Services 
 The CDC may be compensated for other services such as packaging and servicing 
a 7(a) loan or providing assistance unrelated to the 504 loan program to a small 
business. Such fees are to be charged pursuant to a written agreement, between 
the CDC and the entity for which the CDC is providing services, setting forth the 
roles and relationships of the parties as well as terms and conditions and must be 
in compliance with SBA Loan Program Requirements. The CDC may not make 
such assistance a condition of the CDC accepting from a small business an 
application for a 504 loan.  
 CDC referral fees for locating third party financing (13 CFR § 120.926):  
The CDC may earn a fee for this service provided it is: 
i. Based upon a contractual agreement between the Third Party Lender paying 
the referral fee and the CDC; and 
ii. Not paid by the Borrower or funded from the debenture proceeds. 
 Fees associated with technology services (whether developed internally or 
purchased from a third party) may not be passed on to the Borrower. Examples of 
technology services fees that may not be passed on to the Borrower include: 
i. The costs or fees for software or technology used in connection with 
preparing SBA loan documents, CDC underwriting, or closing the SBA-
guaranteed loan; 
JX019.193
a. 
b. 
C. 
App.3450
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 194 
ii. Acquisition costs or fees for licensing software or software platforms to 
CDCs solely for the purpose of performing administrative functions (not 
including any underwriting functions), such as generating SBA-required 
forms; and  
iii. Fees associated with entities that develop systems or lending platforms to 
automate the CDC’s internal loan decision making process, including but not 
limited to the use of basic credit algorithms or data-based scoring/models 
where the CDC inputs Applicant data in order to determine eligibility or 
creditworthiness.  
Note: SBA does not consider entities providing technology services that do 
not include underwriting to be Agents. Entities providing technology services 
that include underwriting are considered to be professional services 
contractors and must be providing their services to the CDC under an SBA-
approved professional services contract. See Paragraph E.6.a, Professional 
Services Contractors, in this Chapter for more information. 
4. Use of Agents in the 504 Loan Program 
SBA expects CDCs to exercise due diligence and prudent oversight of their third party 
vendors, including professional service contractors and other loan agents, which should 
include having written policies governing such relationships and monitoring performance 
of loans referred by an Agent or where an Agent provided assistance. SBA will review 
evidence of such due diligence and oversight of such relationships when conducting CDC 
oversight activities. 
SBA regulations at 13 CFR Part 103 govern the activities of Agents, the disclosure of 
fees, and the circumstances that would result in revocation or suspension of the Agent’s 
privilege to conduct business with SBA. 
In 13 CFR § 103.1(a), SBA defines an “Agent” to mean an authorized representative, 
including an attorney, accountant, consultant, packager, lender service provider, or any 
other person representing an Applicant or participant by conducting business with SBA. 
Note: The term Agent in 13 CFR 103.1(a) includes Lender Service Providers, which are 
used only in the 7(a) Loan Program. Professional Services Contractors are used in the 
504 Loan Program and are described in Paragraph 5. below 
 For individuals or entities operating under a professional services contract with a 
CDC, SBA approves the written agreement or contract with the CDC and the 
SBA Form 159 is not required. (13 CFR §§ 103.5(c) and 120.824) (Professional 
Services Contracts are used under the 504 Program rather than Lender Service 
Provider Agreements. See paragraph 6.a. Professional Services Contractors, 
below, for guidance on professional service contracts.) Fees paid by the CDC in 
accordance with the professional services contract cannot be passed onto the 
Applicant. 
 For all other Agents, paid by either an Applicant or a CDC, an SBA Form 159 
must be completed and signed by the Applicant, the CDC, and the Agent. See 
paragraph 6. Disclosure of Fees – SBA Form 159, below, for more information on 
SBA Form 159. 
JX019.194
a. 
b. 
App.3451
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 195 
 The only situation where an Agent can receive compensation from both the CDC 
and the Applicant is when the Agent is providing different services by providing 
packaging services to the Applicant and receiving a referral fee from the CDC.  
 The SBA does not allow contingency fees (fees paid only if the loan is approved 
or closed) or charges for services which are not reasonably necessary in 
connection with an application. 
 The Director of SBA’s Office of Credit Risk Management (D/OCRM) may, for 
good cause, suspend or revoke the privilege of an Agent to conduct business with 
the government. The suspension or revocation will remain in effect during any 
administrative proceedings under SBA regulations at 13 CFR Part 134. The 
meaning of “good cause” can be found at 13 CFR § 103.4. 
 Agents and Privacy Act Considerations: 
Private information about a loan cannot be discussed with anyone who claims to 
be an Agent for an Applicant or CDC without evidence of representation. 
Proprietary information is protected by the Right to Financial Privacy Act and the 
Privacy Act. Without proper authorization, SBA and CDCs may not discuss 
private information with even a spouse or other close relative of the Applicant. 
SBA may require that an Agent supply written evidence of his or her authority to 
act on behalf of an applicant or CDC as a condition of revealing any information 
about the applicant’s or CDC’s current or prior dealings with the SBA. 
5. Fees an Agent May Charge an Applicant for Packaging and Other Services 
CDCs and Agents must clearly inform any Applicant in writing that the SBA does not 
require the use of an Agent for packaging or referring a loan application. 
 An Agent may charge an Applicant for: 
i. Packaging services to assist the Applicant with completing one or more 
applications, preparing a business plan, cash flow projections, and other 
documents related to the application; and 
ii. Other services that include consulting as to the amount and type of financing 
needed and broker or referral fees. 
 The fees must be reasonable and customary for the services actually performed. 
 An Agent may charge an Applicant fees for packaging and other services based 
on an hourly rate or on a percentage of the loan amount. In either case, all fees 
over $2,500 must be supported by documenting the service performed. 
 For fees charged to an Applicant on an hourly rate, there is no maximum, but the 
fees must be reasonable and customary for the services actually performed. The 
hourly rate and time spent on each service must be documented.  
 For fees charged to an Applicant based on a percentage of the loan amount, the 
fee may not exceed (if multiple services are provided to the Applicant, the 
combined fee for all services cannot exceed the stated maximums below): 
i. 3 percent on loans of $50,000 or less;  
JX019.195
C. 
d. 
e. 
f. 
a. 
b. 
C. 
d. 
e. 
App.3452
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 196 
ii. 2 percent for loans between $50,000 and the first $1,000,000 and  
0.25 percent on the portion over $1,000,000; however, 
iii. The maximum fee that may be charged in the aggregate to an Applicant on a 
percentage basis is $30,000. 
 If an Agent or Agents charge an Applicant fees in connection with obtaining a 
504 loan, the Agent(s) must disclose the fees to SBA by completing SBA 
Form 159 in accordance with paragraph E.7 below. 
 SBA does not allow an Agent to charge an Applicant: 
i. A standard or flat fee charged to all Applicants; 
ii. Contingency fees (fees paid only if the loan is approved or closed); or  
iii. For services that are not reasonably necessary in connection with an 
application. 
 SBA may review these fees at any time. Agents must refund any fee considered 
unreasonable or impermissible by SBA. 
 Review of Agent Fees: 
i. CDCs must review the Agent’s services and related fees to determine if the 
fees are necessary and reasonable when: 
a) 
There is an indication from a third party that an Agent’s fees might be 
excessive; or 
b) 
When an Applicant complains about the fees charged by an Agent. 
ii. In cases where fees appear to be unreasonable, CDCs should contact the 
D/OCRM to report the fees. 
iii. If an SBA investigation determines an Agent fee is excessive, the Agent must 
reduce the fee to an amount SBA deems reasonable, refund any sum in 
excess of that amount to the Applicant, and refrain from charging or 
collecting from the Applicant any funds in excess of the amount SBA deems 
reasonable. 
6. Professional Services Contractors 
13 CFR § 120.824 
 Pre-approval of a professional services contract by the D/FA is required prior to 
engaging the services of a contractor for any of the following functions: 
• Managing (a request for a waiver of the requirement that the manager be 
employed directly by the CDC must be submitted in accordance with Part 1, 
Section B, Ch. 1, Para. D.18, Staffing Requirements, of this SOP); 
• Marketing; 
• Packaging; 
• Processing; 
• Closing; 
• Servicing; 
JX019.196
f. 
g. 
h. 
I. 
a. 
App.3453
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
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• Liquidating; 
• Legal services in connection with loan liquidation or litigation; 
• Independent Loan Reviews to be conducted by another CDC. CDCs may not 
review each other’s portfolios or exchange any other services, nor may they 
enter into any other arrangement with each other that could appear to bias the 
outcome or integrity of the independent loan review; or 
• Co-employment contracts (e.g., for paying wages and taxes and providing 
retirement and health benefits to the CDC’s staff under which the CDC and 
the contractor are deemed to be co-employers of the CDC’s staff). 
 CDCs may contract for the following functions without SBA approval: 
• Accounting; 
• Legal services (except in connection with loan liquidation or litigation); 
• Information technology; and 
• Independent loan review services performed by a non-CDC.  
 CDCs entering into a contract to provide services to another CDC: 
i. Must be located in the same SBA Region (except for contracts for liquidation 
services or independent loan reviews); or 
ii. If not located in the same SBA Region, must be located in a contiguous State 
(except for contracts for liquidation services or independent loan reviews); 
and 
iii. May provide assistance to only one CDC per State (except for contracts for 
liquidation services or independent loan reviews); 
iv. Must not provide assistance to another CDC in its State of Incorporation or 
any State in which the CDC has multi-state authority (except for contracts for 
liquidation services or independent loan reviews); 
v. Must have a separate and independent Board of Directors; 
vi. If either CDC is for-profit, neither may own stock in the other CDC; 
vii. CDCs are prohibited from comingling any funds. 
viii. Notwithstanding the prohibition in 13 CFR § 120.820(d) against a CDC 
affiliating with another CDC, a CDC may, with SBA’s prior written 
approval, obtain services through a contract with another CDC even if the 
arrangement would give rise to an affiliation between the CDCs based on an 
“identity of interest,” as defined under 13 CFR §121.103(f). However, 
affiliation between CDCs based on grounds other than identify of interest, 
including but not limited to, through ownership or common management 
under §121.103(c) and (e), respectively, would continue to be prohibited.  
 Review and Pre-Approval: 
i. For all contracts that require prior approval (except for contracts involving 
legal services in connection with loan liquidation or litigation), the 504 Loan 
JX019.197
b. 
C. 
d. 
App.3454
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Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
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Program Division reviews the contracts and provides its recommendation to 
the D/FA, or designee, who makes the final decision.  
ii. With respect to contracts for management or independent loan reviews 
performed by another CDC, the D/FA’s final decision will be made in 
consultation with the D/OCRM (or designee).  
iii. The Office of Financial Assistance (OFA) will notify the CDC in writing of 
the D/FA’s final decision and will provide a copy of the decision to the Lead 
District Office.  
iv. For contracts involving legal services in connection with loan liquidation or 
litigation, Fresno/Little Rock Commercial Loan Servicing Center will review 
and approve the contracts. 
v. If a CDC engages the services of a contractor without obtaining SBA’s 
approval in accordance with the process described below, the CDC’s non-
compliance will be reported to OCRM. In addition to any other appropriate 
action, any loan application requests sent to the SLPC by an individual 
employed under the contract may be delayed for processing and approval 
until such time as the professional services contract is approved by the D/FA. 
 Submission Process: 
i. At least 60 days prior to the date on which the CDC intends to engage the 
contractor’s services, the CDC must submit to OFA at 
504Requests@sba.gov: 
a) 
A request from a responsible CDC management official to review the 
draft materials;  
b) 
An unsigned draft of the contract; and  
c) 
A justification from the CDC’s Board of Directors explaining its 
reasoning for why the Board believes it is in the best interest of the 
CDC to contract for CDC functions. (13 CFR § 120.824(2)(e)). 
ii. The request for SBA’s approval of a contract may not be submitted with the 
CDC’s Annual Report. (The Annual Report must include a list of all CDC 
contracts by status (e.g. current, not current, expired) with renewal dates 
and/or expiration dates.) 
iii. If the D/FA approves the contract, the CDC must submit a copy of the fully 
executed contract to OFA upon its execution by the parties. 
iv. If the CDC wishes to renew a professional services contract, the CDC must 
re-submit the contract at least 60 days prior to the end of the approved 
contract term (including any approved optional renewal years) for review and 
pre-approval. 
JX019.198
e. 
App.3455
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
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 The professional services contract: 
i. Must state the following: 
a) 
The CDC’s Board of Directors specifically acknowledges and retains 
the ultimate responsibility for all loan approvals and loan servicing 
actions, and that such responsibility must be carried out independently 
of any control by the contractor, 13 CFR §120.823; 
b) 
No contractor or any officer, director, 20 percent or more equity owner, 
or Key Employee of a contractor may be a voting or non-voting member 
of the CDC’s Board of Directors; 
c) 
All compensation paid to the contractor will be paid by the CDC and the 
contractor cannot charge the Borrower for the same services; and 
d) 
The contractor is prohibited from requiring a 504 Applicant or Borrower 
to purchase other services from the contractor as a condition of the 
contractor’s performing CDC staff or management functions; 
e) 
Each individual performing services must receive a character 
determination in accordance with Part 1, Section B, Ch. 1, Para. B., 
Form 1081 CDC Character Determinations, of this SOP. 
f) 
CDCs are responsible for the actions of their contractors and must 
ensure that they comply with all applicable laws and regulations 
governing confidentiality. CDCs should consult with their Counsel to 
obtain appropriate language to be included in the contracts. 
ii. Must include the following: 
a) 
A description of services that the contractor will perform; 
b) 
A description (resume or summary of work history/relevant experience) 
of each individual providing services under the contract; 
c) 
A breakdown of compensation by individual if more than one person is 
being compensated under the contract;  
d) 
The rate of compensation for all parts of the contract except servicing 
stated at an hourly rate (the servicing portion may be based on a 
percentage not to exceed the amount authorized by the regulations 13 
CFR §120.971(a)(3)); 
e) 
The basis for its determination that the fees are customary and 
reasonable for similar services in the area; 
f) 
A statement that additional compensation from CDC fee income such as 
multipliers or bonuses is not permitted; 
g) 
A provision that allows the CDC procuring the services to terminate the 
contract with written notice (usually a 30 to 60 day notice) without 
penalty and with or without cause at any time prior to the expiration 
date of the contract; 
JX019.199
f. 
App.3456
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 200 
iii. Must not: 
a) 
Include any contractual services provided by the Executive Director of a 
CDC; 
b) 
 Evidence any actual or apparent conflict of interest or self-dealing on 
the part of any of the CDC’s officers, management, and staff, including 
any members of the Board or any Loan Committee;  
c) 
Diminish the responsibility of the Board of Directors for the operations 
of the CDC; 
iv. Must be accompanied by a Board of Directors’ Resolution containing the 
following statements: 
a) 
The contract is in compliance with 13 CFR §§ 120.823, 120.824 and 
120.825 and SBA Loan Program Requirements;  
b) 
Of understanding that the contract is subject to pre-approval by SBA 
D/FA upon each new contract term; and  
c) 
Of understanding that approved contracts are subject to yearly review 
by SBA. 
7. Disclosure of Fees – SBA Form 159 
Section 13 of the Small Business Act (15 U.S.C. § 642) requires that an Applicant 
identify the names of Persons (as defined in 13 CFR 120.10) engaged by or acting on 
behalf of the Applicant for the purpose of expediting the application and the fees paid or 
to be paid to any such Person. SBA regulations at 13 CFR § 103.5 require the Applicant, 
CDC, and any Agent to execute and provide to SBA a compensation agreement 
(“Agreement”). Each Agreement governs the compensation charged for services rendered 
or to be rendered to the Applicant or CDC in any matter involving SBA assistance. 
 CDCs must identify in E-Tran whether an Agent was involved in any way with 
the transaction and provide the name, street address, city, state, and zip code of 
the Agent. For Applications involving an Agent, SBA Form 159 can be generated 
using E-Tran. 
 For Agents other than professional services contractors performing duties for the 
CDC under an SBA-approved professional services contract, if the Agent is paid 
by an Applicant or CDC, an SBA Form 159 must be completed in accordance 
with form instructions and signed by the Applicant, the Agent, and the CDC. Do 
not report fees paid for the Third Party Lender’s loan on SBA Form 159. Separate 
SBA Forms 159 must be completed for each Agent who provides services to the 
Applicant. Failure of an Agent to fully complete and execute the required SBA 
Form 159 may result in suspension or revocation of the Agent’s privilege to 
conduct business with SBA under 13 CFR Part 103. 
 SBA Form 159 “Fee Disclosure Form and Compensation Agreement” 
i. Information on this form will be used to monitor fees charged by Agents and 
the relationship between Agents and CDCs. CDCs must complete all 
appropriate data fields on SBA Form 159 in accordance with the form 
JX019.200
a. 
b. 
C. 
App.3457
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SOP 50 10 6 
Part 2, Section A, Ch 5: Ethics, Fees, and Agents 
Effective October 1, 2020 
Page 201 
instructions. For example, the seven-digit FIRS number must be included 
exactly as assigned by SBA and without any extra characters.  
ii. If the aggregate compensation for all fees provided by the same Agent 
exceeds $2,500, the compensation must be itemized.  
a) 
When an Agent charges an Applicant in connection with multiple 
applications (for example, an Applicant is seeking a 504 loan and a 7(a) 
loan): 
i) Separate SBA Forms 159 must be completed for each application and 
for each Agent. 
ii) Fees are aggregated to establish the $2,500 threshold for itemization. 
b) 
When the Agent provides multiple services (for example, an Agent is 
providing both loan packaging and referral services to the Applicant), 
each service must be separately reported on the same SBA Form 159. 
For example: 
i) In the “Type of Agent” section, select both the “Independent Loan 
Packager” and the “Referral Agent/Broker” boxes; and 
ii) In the “Type of Service” table, separately itemize the amounts paid in 
each appropriate box. 
c) 
In-kind compensation (i.e., non-monetary contributions for goods or 
services) paid or to be paid to the CDC must be itemized. 
iii. The following are not considered Agents for purposes of this Agreement and 
are not required to complete SBA Form 159: 
a) 
Applicant’s accountant for the preparation of financial statements 
required by the Applicant in the normal course of business and not 
related to the loan application;  
b) 
A state-certified or state-licensed appraiser employed by the CDC to 
appraise collateral in connection with the SBA Loan; 
c) 
A professional services contractor performing services for the CDC 
under an SBA-approved professional services contract; 
d) 
An environmental professional employed by the CDC to conduct an 
environmental assessment of the collateral in connection with the SBA 
Loan; 
e) 
Any attorney in connection with the SBA Loan closing; and 
f) 
A real estate agent who is receiving a commission for the sale of real 
estate in connection with the SBA Loan. 
iv. CDCs must upload SBA Form(s) 159 into E-Tran within 30 calendar days 
after the debenture funds. 
JX019.201
App.3458
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JX019.202
App.3459
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 203 
CHAPTER 6: OTHER CORE REQUIREMENTS 
A. GUARANTIES 
13 CFR § 120.160(a) 
Each loan must be guaranteed by at least one individual or entity. If no one individual or entity 
owns 20% or more of the Applicant, at least one of the owners must provide a full unconditional 
guaranty. In addition, if the guaranty will be provided by a trust, the requirements of paragraph 3, 
Corporate/Other Guaranties below must be met. 
1. Personal Guaranties:  
 Individuals who own 20% or more of an Applicant must provide an unlimited full 
guaranty. (SBA Form 148 or, for 7(a) loans, equivalent Lender’s form). If a 
person has executed the Note as a Borrower in an individual capacity, that person 
does not also have to execute a personal guaranty. 
 When ownership interest of an Applicant is held by a corporation, partnership or 
other form of legal entity, the ownership interests of all individuals must be 
disclosed.  
 When deemed necessary for credit or other reasons, SBA or, for a loan processed 
on a delegated basis, the SBA Lender, may require other appropriate individuals 
or entities to provide full or limited guaranties of the loan without regard to the 
percentage of their ownership interests, if any. For example, an individual with a 
minority ownership or no ownership interest in the Applicant or OC who is 
critical to the operation of the business may be required to provide a personal 
guaranty.  
 If a limited guaranty is used, the SBA Lender must choose one of the payment 
limitation options in SBA Form 148L (Unconditional Limited Guaranty) or, for 
7(a) loans, equivalent Lender’s form and specify the option in the Authorization. 
 The SBA Lender must obtain a personal financial statement from all individuals 
guaranteeing the loan. 
 The guaranty may be secured or unsecured but must meet SBA’s collateral 
requirements. For more information on collateral requirements: For 7(a), see the 
Collateral section of each delivery method chapter in Section B of this Part. For 
504, see Section C, Ch.1, Para. E.2.a., Collateral, of this Part. 
2. Guaranty of Spouse: 
 Each spouse owning less than 20% of an Applicant must personally guarantee the 
loan in full when the combined ownership interest of both spouses and minor 
children is 20% or more. 
 For a non-owner spouse, the SBA Lender must require the signature of the spouse 
on the appropriate collateral documents. The spouse's guaranty secured by jointly 
held collateral will be limited to the spouse's interest in the collateral. 
JX019.203
a. 
b. 
C. 
d. 
e. 
f. 
a. 
b. 
App.3460
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Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 204 
3. Corporate/Other Guaranties: 
 All entities that own 20% or more of an Applicant must provide an unlimited full 
guaranty. If the entity that owns 20% or more of the Applicant is a trust 
(revocable or irrevocable), the trust must guarantee the loan with the trustee 
executing the guaranty on behalf of the trust and providing the certifications 
required in Section A, Ch 2, paragraph A.3., Conditions that apply when the EPC 
is owned in whole or in part by a trust, of this Part. In addition, if the trust is 
revocable, the Trustor also must guarantee the loan.  
 The SBA Lender must obtain financial statements from all entities guaranteeing 
the loan in order to determine the assets available to support the guaranty.  
 When deemed necessary for credit or other reasons, SBA or, for a loan processed 
on a delegated basis, the SBA Lender, may require other appropriate entities to 
provide full or limited guaranties of the loan without regard to the percentage of 
their ownership interests, if any. This may include entities who manage the day-
to-day operations of the Applicant or OC through a Management Agreement 
without an ownership interest in the Applicant or OC. 
4. Reducing Ownership Interest: 
 Any Person (as defined in 13 CFR 120.10) subject to the guaranty requirements 6 
months prior to the date of the loan application would continue to be subject to 
the requirements even if that Person has changed their ownership interest to less 
than 20%. 
 The only exception to the 6-month rule is when that Person completely divests 
their interest prior to the date of application. Complete divestiture includes 
divestiture of all ownership interest and severance of any relationship with the 
Applicant (and any associated Eligible Passive Company) in any capacity, 
including being an employee (paid or unpaid). 
B. IRS TAX TRANSCRIPT/VERIFICATION OF FINANCIAL INFORMATION 
1. The purpose of SBA’s Tax Verification process is to determine if: 
 The Applicant filed business tax returns; and 
 The Applicant’s financial statements provided as part of the application agree 
with the business tax returns submitted to the IRS. 
2. For a sole proprietorship, the SBA Lender must verify the Schedule C. 
3. For a change of ownership, the SBA Lender must verify the seller’s business tax returns 
or a sole proprietor’s Schedule C. For 7(a) loans, when there is an acquisition of a 
division or a segment of an existing business, other forms of verification acceptable to 
SBA may be used in lieu of the IRS Form 4506-T (e.g. Sales tax payment records). 
4. SBA Lender must obtain, for 7(a) loans, prior to first disbursement of loan proceeds, or 
for 504 loans, prior to submitting the closing documents to SBA counsel: 
JX019.204
a. 
b. 
C. 
a. 
b. 
a. 
b. 
App.3461
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 205 
 Borrower’s/Seller’s Consent:  
In order to comply with Section 2202 of the Taxpayer First Act (P.L.  116-
25), SBA Lenders submitting an IRS Form 4506-T must obtain the borrower’s 
and seller’s (as applicable) written consent to the use of the tax return 
transcript(s) for the purpose of compliance with SBA Loan Program 
Requirements, including verification of financial information, verification of 
tax return filing, and verification of tax return information.  Additionally, SBA 
Lenders must obtain the borrower’s and seller’s (as applicable) written 
permission for the SBA Lender to share the tax return transcript(s) with SBA 
and its agents for the purpose of compliance with SBA Loan Program 
Requirements, including discrepancy resolution, lender oversight activities, 
purchase reviews, complete file reviews, and other SBA reviews. 
 Verification of Financial Information: 
i. SBA Lenders must obtain tax return transcripts through the IRS’s Income 
Verification Express Service (IVES) program. (For 504 loans, the CDC must 
submit IRS Form 4506-T to the IRS within 10 days of receipt of the 
Authorization.) 
a) 
SBA Lenders may either enroll in IVES or contract with an IVES 
participant. Additional information on IVES enrollment is available at 
www.irs.gov/individuals/ives-enrollment-procedures.  
b) 
IVES currently requires the March 2019 version of Form 4506-T, 
“Request for Transcript of Tax Return,” available at: 
www.irs.gov/pub/irs-prior/f4506t--2019.pdf. (Note: Although the IRS 
has a more recent version of the form on its website, it is not compatible 
with IVES at this time.) All fields on the form must be completed, or the 
form will not be processed. The back of Form 4506-T contains 
instructions and user tips, and the IRS website has more information on 
completing the form. 
ii. SBA Lenders must obtain tax return transcripts for the following:  
a) 
The Applicant, or the Operating Company if the Applicant is an EPC: 
i) For the last 3 years, (unless Applicant or Operating Company is a 
Start-Up Business). If the business has been operating for less than 3 
years, the SBA Lender must obtain the information for all years in 
operation. Or: 
ii) If the SBA Lender is using the Alternative Size Standard for 
determining eligibility under the SBA size requirements, only 2 years 
are required. If the business has been operating for less than 2 years, 
the SBA Lender must obtain the information for all years in operation. 
See Chapter 1, Para. D, Small Under SBA Size Requirements of this 
Section for more information. 
b) 
The SBA Lender is required to document in its file confirmation of 
collection of business tax returns and verification and reconciliation of 
JX019.205
a. 
b. 
App.3462
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 206 
the Applicant’s financial data against income tax data received in 
response to IRS Form 4506-T for 7(a) loans prior to first disbursement, 
or for 504 loans prior to submitting the closing documents to SBA 
counsel.  
c) 
This requirement does not include tax information for the most recent 
fiscal year if the fiscal year-end is within 6 months of the date SBA 
received the application. If the Applicant has filed an extension for the 
most recent fiscal year, the SBA Lender must obtain a copy of the 
extension along with evidence of payment of estimated taxes. 
iii. Except for the SBA Express and Export Express Programs, the SBA Lender 
must compare the tax data received from the IRS with the financial data or 
tax returns submitted with the loan application. 
iv. The Applicant must resolve any significant differences to the satisfaction of 
the SBA Lender and the SBA loan processing center. Failure to resolve 
differences may result in cancellation of the loan. 
v. For 7(a) loans, for a change of ownership, the SBA Lender must verify 
financial information provided by the seller of the business in the same 
manner as above. 
vi. For 7(a) loans, if an SBA Lender processing a loan under its delegated 
authority does not receive a response from the IRS or the copy of the tax 
transcript within 10 business days, the SBA Lender: 
a) 
May proceed to close and disburse the loan; however, if the SBA 
Lender disburses the loan and is unable to reconcile the IRS 
information, the guaranty may be subject to repair or denial; 
b) 
Must follow-up with the IRS to obtain and verify the tax data by 
resubmitting a copy of IRS Form 4506-T to IRS with the notation 
“Second Request” in the top right hand side; 
c) 
Must document its file with a dated copy of the second submission; and 
d) 
Must perform the verification and resolve any significant differences 
discovered as soon as the IRS response is received. 
 For 7(a) loans and for 504 loans where 3 years of transcripts are required: If the 
IRS transcript reflects “Record Not Found” for the middle year of the 3 years 
requested, the SBA Lender has verified the other 2 years, AND the Applicant has 
some record of either receiving a refund or paying the taxes for the missing year, 
then the SBA Lender may reasonably assume that the Applicant filed a return for 
the missing year. If the SBA Lender documents all these steps in its loan file, the 
SBA Lender has demonstrated to SBA that it has made a good faith effort to 
satisfy the verification requirement. 
 If the IRS advises that it has no record on the Applicant, no record of year 1 
and/or year 3, or the SBA Lender is unable to reconcile the IRS information to the 
Applicant’s financial information, either the loan must be cancelled or the closing 
must be postponed until the issue is resolved: 
JX019.206
C. 
d. 
App.3463
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
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i. For 7(a) loans: SBA Lenders processing a loan under non-delegated 
procedures must report the issue to the LGPC via E-Tran. If an SBA Lender 
processing the loan under its delegated authority has disbursed the loan and is 
unable to reconcile the IRS information, the guaranty may be subject to 
repair or denial. 
ii. For 504 loans: the SBA Lender must report the issue to SLPC via E-Tran. 
 If an Applicant has not filed required Federal tax returns, the Applicant is not 
eligible for SBA financial assistance. 
 SBA Express and Export Express Programs: 
i. If the Lender uses business financial information to determine the 
creditworthiness of an SBA Loan, the Lender must follow the IRS tax 
verification process set out in this section.  
ii. If the Lender does not use business financial information to determine 
creditworthiness, such as with some credit scoring models, Lender must 
obtain IRS tax transcripts in order to verify that the returns were filed and for 
the purpose of determining the Applicant’s size, but reconciliation of the tax 
transcripts is not required. 
iii. SBA Express and Export Express Lenders are authorized to close and 
disburse a loan immediately if disbursement is requested by the Borrower; 
however, Lenders must follow-up and verify the business financial data with 
IRS tax data and must document the loan file accordingly. If, after loan 
disbursement, a material discrepancy appears or the IRS advises that it has no 
record on the Applicant, the Lender must report it immediately to the 
appropriate SBA CLSC and document the loan file of the action taken. SBA 
will consider appropriate action. 
C. INSURANCE REQUIREMENTS 
SBA Lenders must ensure all appropriate insurance requirements are included in the 
Authorization. 
1. Hazard Insurance 
13 CFR § 120.160(c) 
 SBA requires hazard insurance on all assets pledged as collateral. The 
Applicant/Borrower must also maintain a separate policy if the business is located 
in a state that requires additional coverage such as wind, hail, earthquake, or 
other. 
 Real Estate 
i. Coverage must be in the amount of the full replacement cost. 
ii. If full replacement cost insurance is not available, coverage must be for the 
maximum insurable value. 
iii. Insurance coverage must contain a MORTGAGEE CLAUSE (or substantial 
equivalent) in favor of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). 
JX019.207
e. 
f. 
a. 
b. 
App.3464
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 208 
This clause must provide that any action or failure to act by the mortgagor or 
owner of the insured property will not invalidate the interest of the 7(a) 
Lender (for 7(a)), or the CDC/SBA (for 504). The policy or endorsements 
must provide for at least 10 days prior written notice to the 7(a) Lender (for 
7(a)), or the CDC/SBA (for 504), of policy cancellation.  
 Personal Property 
i. Coverage must be in the amount of full replacement cost. 
ii. If full replacement cost insurance is not available, coverage must be for 
maximum insurable value. 
iii. Insurance coverage must contain a LENDER'S LOSS PAYABLE CLAUSE 
(or substantial equivalent) in favor of the 7(a) Lender (for 7(a)), or the 
CDC/SBA (for 504). This clause must provide that any action or failure to act 
by the debtor or owner of the insured property will not invalidate the interest 
of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). The policy or 
endorsements must provide for at least 10 days prior written notice to the 7(a) 
Lender (for 7(a)), or the CDC/SBA (for 504), of policy cancellation. 
2. SBA Express and Export Express 
If the Lender does not require hazard insurance (for example, if it would impose an undue 
burden on an Applicant given the small size of a loan), the Lender must document the 
reason in its loan file. 
3. Marine Insurance 
 When a vessel(s) is(are) the collateral on the loan, SBA Lender must obtain 
coverage in the amount of the full insurable value on the vessel(s) with the 7(a) 
Lender (for 7(a)), or the CDC/SBA (for 504), designated as "Mortgagee." 
 The policy must contain a Mortgagee clause providing that the interest of the 7(a) 
Lender (for 7(a)), or the CDC/SBA (for 504), will not be invalidated by any: 
i. Act, omission, or negligence of the mortgagor, owner, master, agent, or crew 
of the vessel; 
ii. Failure to comply with any warranty or condition out of mortgagee’s control; 
or 
iii. Change in title, ownership, or management of the vessel. 
 The policy must include Protection and Indemnity, Breach of Warranty, and 
Pollution coverage. 
 The policy or endorsements must provide for at least 10 days prior written notice 
of policy cancellation to the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). 
4. Flood Insurance 
 SBA flood insurance requirements are based on the Standard Flood Hazard 
Determination (FEMA Form 086-0-32 or its successor). CDCs must obtain a 
FEMA Form 086-0-32 (or its successor) or a copy of the form obtained by the 
Interim or Third Party Lender. The mandatory purchase of flood insurance, as set 
JX019.208
C. 
a. 
b. 
C. 
d. 
a. 
App.3465
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Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 209 
forth by the requirements of the National Flood Insurance Program (NFIP), 
applies with equal force to condominium and cooperative units. Policies for such 
units will consist of separate policies obtained by the individual unit owner for the 
particular unit and the condominium or cooperative association for the exterior of 
the entire building. 
 Private flood insurance will be accepted; however, it must meet the same 
requirements as the standard NFIP policy. If used, private flood insurance must: 
i. Provide coverage that is at least as broad as the coverage provided under the 
standard NFIP policy, including when considering deductibles, exclusions, 
and conditions offered by the insurer; 
ii. Include an endorsement that the insurer must give 45 days’ notice of 
cancellation for non-renewal to the insured and the 7(a) Lender (for 7(a)), or 
the CDC/SBA (for 504); 
iii. Include information about the availability of flood insurance coverage under 
the NFIP; 
iv. Contain a mortgage interest clause similar to the one in the standard NFIP 
policy; 
v. Contain a provision requiring an insured to file suit not later than 1 year after 
date of a written denial of all or part of a claim under the policy; and 
vi. Contain cancellation provisions that are as restrictive as the provisions 
contained in the standard NFIP policy. 
 If any portion of a building that is collateral for the loan is located in a special 
flood hazard area, the SBA Lender must require the Applicant to obtain flood 
insurance for the building under the NFIP or comparable private flood insurance 
(see subparagraph b above). 
 If any equipment, fixtures or inventory that is collateral for the loan (“Personal 
Property Collateral”) is in a building of which any portion is located in a special 
flood hazard area and that building is collateral for the loan, SBA Lender must 
require Applicant to also obtain flood insurance for the Personal Property 
Collateral either under the NFIP or through comparable private flood insurance 
(see subparagraph b above). 
 If any Personal Property Collateral is in a building of which any portion is located 
in a special flood hazard area and that building is not collateral for the loan, SBA 
Lender must require Applicant to obtain available flood insurance for the Personal 
Property Collateral. For non-delegated loans, the SBA Lender may request a 
waiver of this requirement from the SBA loan processing center. The SBA Lender 
must submit with its request a written justification that fully explains why flood 
insurance is not economically feasible or, if flood insurance is not available, the 
steps taken to determine that it is not available. For loans processed under an SBA 
Lender’s delegated authority, the SBA Lender may waive this requirement when 
the building is not collateral for the loan if it: 
JX019.209
b. 
C. 
d. 
e. 
App.3466
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 210 
i. Uses prudent lending standards to determine that flood insurance is not 
economically feasible or not available; and 
ii. Includes a written justification in the loan file that fully explains why flood 
insurance is not economically feasible or, if flood insurance is not available, 
the steps taken to determine that it is not available. 
 Insurance coverage must be at least equal to the outstanding principal balance of 
the loan or the maximum limit of coverage made available under the National 
Flood Insurance Act of 1968, as amended (42 U.S.C. 4001 et seq.), whichever is 
less. (“Maximum limit of coverage available” is the lesser of the maximum limit 
available under the NFIP for the type of structure or the insurable value of the 
structure.) 
 Insurance coverage must contain a MORTGAGEE CLAUSE/LENDER'S LOSS 
PAYABLE CLAUSE (or substantial equivalent) in favor of the 7(a) Lender (for 
7(a)), or the CDC/SBA (for 504). This clause must provide that any action or 
failure to act by the debtor or owner of the insured property will not invalidate the 
interest of the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504). The policy or 
endorsements must provide for at least 10 days prior written notice of policy 
cancellation to the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504), or 45 days 
in the case of private flood insurance. 
5. Life Insurance 
 If the SBA Lender determines that the principal is uninsurable, the SBA Lender 
must obtain written documentation from a licensed insurer of the same. 
 For each policy required under this paragraph, SBA Lenders must obtain a 
collateral assignment identifying the 7(a) Lender (for 7(a)), or the CDC/SBA (for 
504), as assignee that is acknowledged by the Home Office of the Insurer. SBA 
Lenders must ensure that the Applicant/Borrower pays the premiums on the 
policy (13 CFR § 120.970(c)). 
 SBA Lenders may accept the pledge of an existing life insurance policy. Credit 
life insurance or whole life insurance should not be required. 
 7(a) Loans 
i. For Standard 7(a), EWCP, and CAPLines loans, 7(a) Lenders may follow 
their internal policy for similarly-sized non-SBA guaranteed commercial 
loans, except: 
a) 
If the loan is not fully secured, life insurance is required for the 
principals of sole proprietorships, single member LLCs, or for 
businesses otherwise dependent on one owner’s active participation, 
consistent with the size and term of the loan.  
b) 
The amount and type of collateral available to repay the loan may be 
factored into the determination of the appropriate amount of life 
insurance. 
JX019.210
f. 
g. 
a. 
b. 
C. 
d. 
App.3467
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ii. For 7(a) Small Loans, SBA Express and Export Express loans, SBA Lenders 
may follow their internal written policy for their similarly-sized, non-SBA 
guaranteed commercial loans. 
 504 Loans 
i. CDCs must assess whether the viability of the business is tied to an 
individual or individuals. Life insurance is required for the principals of sole 
proprietorships, single member LLCs, or for businesses otherwise dependent 
on one owner’s active participation when the SBA Loan is not fully 
collateralized. 
ii. When required, the minimum term of life insurance is: 
a) 
10 years for a 10 year debenture. 
b) 
20 years for a 20 or 25 year debenture. 
iii. For the purpose of life insurance calculation, the loan is considered fully 
collateralized when the value of the discounted collateral is equal to or 
greater than the net debenture amount. When the loan is not fully 
collateralized, the amount of life insurance required is equal to the difference 
between the net debenture amount and the value of the discounted collateral. 
iv. For life insurance only, the calculation of discounted collateral is as follows: 
a) 
Improved real estate at 85% of fair market value determined in 
accordance with the appraisal requirements in Section C, Chapter 1, 
paragraph E.2.b., Appraisals, of this Part. 
b) 
New machinery and equipment (excluding furniture and fixtures) at 
75% of price minus any prior liens. 
c) 
Used or existing machinery and equipment (excluding furniture and 
fixtures) at a maximum of 50% of Net Book Value or 80% with an 
Orderly Liquidation Appraisal minus any prior liens. 
6. Other Insurance Included in the Authorization 
SBA Lender must require and include in the Authorization any other insurance 
appropriate to the loan, including but not limited to: 
 Product liability insurance; 
 Dram shop/host liquor liability insurance; 
 Disability insurance; 
 Workers’ compensation insurance; and 
 Malpractice insurance. 
D. HISTORIC PROPERTIES 
Section 106 of the National Historic Preservation Act requires Federal agencies to consider 
whether their federally-funded projects directly or indirectly adversely impact properties and 
sites that are listed or eligible to be listed on the National Register of Historic Places (NRHP). 
JX019.211
e. 
a. 
b. 
C. 
d. 
e. 
App.3468
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(54 U.S.C. § 300101 et seq.; 36 CFR §§ 60.1 et seq. and 800.1 et seq.) An SBA Loan is 
considered to directly or indirectly impact such a property or site if the SBA Loan transaction 
involves the purchase or renovation of a property or site (including installation of equipment). As 
set forth below, SBA will conduct a Section 106 review to determine whether the impact is 
adverse. 
For all SBA Loan transactions involving the purchase or renovation of a property or site, all SBA 
Lenders must conduct due diligence to determine whether the SBA Loan transaction involves a 
property or site that is listed on the NRHP or has historic significance such that it may be eligible 
to be listed on the NRHP (either individually or as part of a historic district). The due diligence 
conducted must follow prudent lending practices and be documented in the SBA Loan file. 
1. If the SBA Lender’s due diligence does not yield information indicating that the property 
or site is listed on the NRHP or has historic significance such that it may be eligible to be 
listed on the NRHP (either individually or as part of a historic district), the SBA Lender 
must document its file and does not need to request a Section 106 review by local SBA 
counsel. However, the SBA Lender may request a Section 106 review by local SBA 
counsel if it subsequently receives a screen out notice from the SBA loan processing 
center. 
2. If the SBA Lender’s due diligence yields information indicating that the property or site 
is listed on the NRHP or has historic significance such that it may be eligible to be listed 
on the NRHP (either individually or as part of a historic district), the SBA Lender must 
take the following actions: 
 For SBA Loan transactions involving property or site acquisition where the 
Borrower, Co-Borrower, and/or Operating Company has no intention of altering, 
renovating, rehabilitating, restoring, and/or demolishing any part of the property 
or site: 
i. Prior to submitting the SBA Loan application to the SBA loan processing 
center (non-delegated) or requesting an SBA Loan Number when processing 
the SBA Loan under delegated authority, the SBA Lender must obtain a 
Historic Property Borrower Certification executed by the Borrower, Co-
Borrower, and/or Operating Company. This is a self-certification that no 
modifications will be made to the property or site during the term of the SBA 
Loan. This self-certification must be made on SBA Form 2481, Historic 
Property Borrower Certification. 
ii. The SBA Lender must provide a copy of the executed SBA Form 2481 to 
local SBA counsel for review and clearance. This clearance will become null 
and void and a Section 106 review will be required if, between the date the 
SBA Form 2481 is executed and the date the SBA Loan is disbursed, the 
Borrower, Co-Borrower, and/or Operating Company changes its intentions or 
it is determined the property or site requires any alteration, addition, 
renovation, rehabilitation, restoration, and/or demolition.  
iii. SBA Lenders processing the loan under their delegated authority must retain 
the executed SBA Form 2481 and clearance from local SBA counsel in the 
SBA Loan file. The executed SBA Form 2481 and clearance from local SBA 
JX019.212
a. 
App.3469
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counsel must be provided with any guaranty purchase request and may be 
reviewed by SBA when conducting lender oversight activities. 
iv. SBA Lenders processing the loan under non-delegated procedures must 
include the executed SBA Form 2481 and clearance from local SBA counsel 
with the application for review by the SBA loan processing center. 
 For SBA Loan transactions where the Borrower, Co-Borrower, and/or Operating 
Company intends to alter, renovate, rehabilitate, restore, and/or demolish any part 
of the property or site (regardless of the source of the funds to finance these 
modifications), the SBA Lender must request a Section 106 review by local SBA 
counsel. All SBA Loans falling within this category must be processed non-
delegated through the SBA loan processing center. 
i. In its request for a Section 106 review to local SBA counsel, the SBA Lender 
must provide: 
a) 
The names of the Borrower, Co-Borrower, and/or Operating Company; 
b) 
The SBA Loan Name; 
c) 
The results of its due diligence;  
d) 
A full and complete description of the planned modifications; and 
e) 
A statement regarding whether any of the planned modifications have 
commenced. If so, SBA Lender must instruct the Borrower, Co-
Borrower, and/or Operating Company to stop work, otherwise the SBA 
Loan may not be approved and/or disbursed. 
f) 
If the Borrower, Co-Borrower, and/or Operating Company is under 
contract for the purchase of the property or site and the seller will not 
agree to extend the closing deadline to accommodate the Section 106 
review process or other extenuating circumstances exist that would 
cause a hardship if the loan authorization were not issued until after the 
completion of the Section 106 review process, the SBA Lender may 
identify these circumstances in the request. Depending upon the 
circumstances, SBA may exercise its discretion to issue the loan 
authorization with a Section 106 review condition consisting of the 
following or similar language: “Historic Property / Section 106 Review: 
Pursuant to section 106 of the National Historic Preservation Act and its 
implementing regulations, prior to the SBA Loan closing and the 
commencement of any renovations, modifications, or repairs to the 
Property, Borrower, Co-Borrower, and Operating Company (if 
applicable) must obtain a historic property review clearance from SBA.” 
ii. Local SBA counsel will review the request and may request additional 
information from the SBA Lender to facilitate the review. 
a) 
If local SBA counsel determines during the review that the property or 
site is not listed on the NRHP and is not eligible to be listed on the 
NRHP because the property or site does not have any historic 
significance, local SBA counsel will provide a response to the SBA 
JX019.213
b. 
App.3470
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Lender indicating that a Section 106 review is not required. The 
response must be retained in the SBA Loan file and may be requested 
by the SBA loan processing center during application processing. 
b) 
If local SBA counsel determines during the review that the property or 
site is listed on the NRHP or may be eligible to be listed on the NRHP 
because the property or site has historic significance, and the 
modifications to the property or site have already commenced, local 
SBA counsel is required to perform a Section 110(k) review before 
proceeding with a Section 106 review under 54 U.S.C. § 306113 and 36 
C.F.R. § 800.9(c). If the modifications to the property or site have not 
yet commenced, local SBA counsel is not required to perform a section 
110(k) review and instead will proceed directly to the Section 106 
review.  
c) 
If local SBA counsel determines during the review that the property or 
site is listed on the NRHP or may be eligible to be listed on the NRHP 
because the property or site has historic significance, local SBA counsel 
will perform a Section 106 review following the procedures set forth in 
36 CFR § 800.4 et seq. 
i) Among other things, the Section 106 review will involve evaluation of 
the property or site under the NRHP criteria (located at 36 CFR § 60.4) 
and consultation with the relevant State Historic Preservation Office 
(SHPO) regarding the historic significance of the property or site and 
whether the planned modifications will adversely affect the property or 
site, including any associated historic district. 
ii) Depending upon the nature of the review, consultation with additional 
parties (e.g., Native American Tribes, Native Hawaiian Organizations, 
local governments) may be required by 36 CFR § 800.4(d)(2). 
iii) Pursuant to 36 CFR § 800.4(d), the SHPO has thirty (30) days to 
provide a response to local SBA counsel. The SHPO’s response may 
consist of a statement of no objection or concurrence with SBA’s 
determination; an objection to SBA’s determination; or a request for 
additional information. 
iv) After receiving the SHPO’s response, local SBA counsel will consult 
with the Associate General Counsel for Litigation or designee, and 
advise the SBA Lender of the next steps in the review. 
d) 
If consultation with the SHPO results in a determination that the 
property or site does not satisfy the NRHP criteria, or that the property 
or site satisfies the NRHP criteria but there will not be an adverse effect, 
local SBA counsel will receive an approval from the Associate General 
Counsel for Litigation or designee indicating that the SBA Loan 
transaction may proceed and will issue a Section 106 review clearance 
to the SBA Lender.  
JX019.214
App.3471
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e) 
SBA Lenders processing the loan under their delegated authority must 
retain the clearance from local SBA counsel in the SBA Loan file. The 
clearance must be provided with any guaranty purchase request and may 
be reviewed by SBA when conducting lender oversight activities. 
f) 
SBA Lenders processing the loan under non-delegated procedures must 
include the clearance from local SBA counsel with the application for 
review by the SBA loan processing center. 
g) 
If consultation with the SHPO results in a determination that the 
property or site satisfies the NRHP criteria and there will be an adverse 
effect, SBA must further consult with SHPO and, depending upon the 
review, other parties to resolve the adverse effect. This may result in a 
Memorandum of Agreement between SBA and SHPO, and other parties 
as applicable, regarding the resolution of the adverse effect. 
E. ENVIRONMENTAL POLICIES AND PROCEDURES 
SBA’s environmental policies and procedures apply to all SBA Lenders on all 7(a) and 504 loan 
programs, except where otherwise indicated. For 7(a) loans, failure to comply with the 
provisions of this paragraph may result in a denial of SBA’s guaranty. Prudent lending practices 
may dictate additional Environmental Investigations or safeguards. 
Definitions: Terms that are capitalized in this paragraph are defined in Appendix 4. 
1. Environmental Contamination Risks 
The risks of environmental contamination include: 
 The costs of Remediation could impair the Borrower’s ability to repay the loan 
and/or continue to operate the business; 
 The value and marketability of the Property could be diminished. If the Borrower 
defaults, the SBA Lender or SBA might have to abandon the Property to avoid 
liability or accept a reduced price for the Property; 
 The SBA Lender or SBA could be liable for environmental clean-up costs and 
third-party damage claims arising from Contamination if title to contaminated 
Property is taken as a result of foreclosure proceedings and/or the SBA Lender or 
SBA exercises operational control at the Property; and 
 If a Governmental Entity cleans a site, it may be able to file a lien for recovery of 
its costs which may be superior to SBA’s lien. 
2. Environmental Investigations 
SBA requires an Environmental Investigation of all commercial Property upon which a 
security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as 
security for a loan or debenture. The type and depth of an Environmental Investigation to 
be performed varies with the risks of Contamination. This paragraph provides minimum 
standards. Prudent lending practices and internal lending policy may dictate additional 
Environmental Investigations or safeguards. 
JX019.215
a. 
b. 
C. 
d. 
App.3472
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3. Submission of Environmental Investigation Reports 
The SBA Lender must submit the Environmental Investigation Report to the SBA Center 
processing the application, except on loans processed under delegated authority, 7(a) 
Small Loans, SBA Express, and Export Express loans. SBA Lenders processing 
delegated, 7(a) Small Loans, SBA Express and Export Express loans do not have to 
submit Environmental Investigation Reports to the SBA Center, but they must keep a 
copy of any Environmental Investigation Report in the loan file. All SBA Lenders must 
comply with and meet the requirements of the Environmental Policies and Procedures as 
set forth in this SOP. For example, all Transaction Screens, Phase I and Phase II ESAs 
must be performed by an Environmental Professional and be accompanied by the 
Reliance Letter in Appendix 5. (A Reliance Letter is required even if the Environmental 
Investigation Report is addressed to the SBA Lender.) Any request for an exception to 
SBA’s Environmental Policies and Procedures must be directed to the Environmental 
Committee, regardless of the method of processing used for the loan. 
4. Environmental Investigation Steps 
 NAICS Codes. For all Property except a unit in a Multi-Unit Building, the SBA 
Lender must begin by making a Good Faith effort to determine the NAICS 
code(s) for the Property’s current and known prior uses and compare the NAICS 
code(s) to the list of environmentally sensitive industries in Appendix 6. For a 
unit in a Multi-Unit Building, the SBA Lender may proceed directly to 
subparagraphs ii.a) and b) of this paragraph below. 
i. If there is a NAICS code match to an environmentally sensitive industry 
identified in Appendix 6, the Environmental Investigation must begin with a 
Phase I, regardless of the amount of the loan. 
If the NAICS code begins with 447 (gas stations with or without convenience 
stores), the Environmental Investigation must begin with a Phase I and the 
SBA Lender must also refer to and, if applicable, comply with 
“Environmental Investigation Requirements for Gas Station Loans” in 
Appendix 7. 
ii. If there is not a NAICS code match to an environmentally sensitive industry, 
or if the Property is a unit in a Multi-Unit Building, the SBA Lender must 
proceed as follows: 
a) 
If the loan amount is up to and including $250,000, the Environmental 
Investigation may begin with an Environmental Questionnaire. 
b) 
If the loan amount is more than $250,000, the Environmental 
Investigation must, at a minimum, begin with an Environmental 
Questionnaire and Records Search with Risk Assessment. 
 Environmental Questionnaire Results. If the Environmental Questionnaire reveals 
it is unlikely that there is environmental contamination at the Property and that no 
further investigation is warranted, the SBA Lender must submit the results of the 
Environmental Investigation to SBA with recommendations and seek SBA’s 
concurrence. 
JX019.216
a. 
b. 
App.3473
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If at any time an Environmental Questionnaire reveals that further investigation is 
warranted, the SBA Lender must obtain, at a minimum, a Records Search with 
Risk Assessment. 
 Environmental Questionnaire and Records Search with Risk Assessment Results: 
i. If the Environmental Questionnaire reveals it is unlikely that there is 
environmental contamination at the Property and that no further investigation 
is warranted, and the Records Search with Risk Assessment concludes that 
the Property is a “low risk” for Contamination, the SBA Lender must submit 
the results of the Environmental Investigation to SBA with recommendations 
and seek SBA’s concurrence. 
ii. If the Records Search with Risk Assessment concludes that the Property is 
anything other than “low risk” for Contamination, the SBA Lender must 
obtain a Phase I ESA. 
 Transaction Screen Results: 
i. If the Environmental Professional conducting the Transaction Screen 
concludes that no further investigation is warranted, the SBA Lender must 
submit the results of the Environmental Investigation to SBA with 
recommendations and seek SBA’s concurrence. 
ii. If the Environmental Professional conducting the Transaction Screen 
concludes that further investigation is warranted, the SBA Lender must 
obtain a Phase I ESA. If an Environmental Professional recommends 
proceeding directly from the Transaction Screen to a Phase II (thus bypassing 
the Phase I), and the SBA Lender concurs, the SBA Lender must seek in 
advance an exception to policy from the SBA Environmental Committee, 
which may be granted on a case-by-case basis. 
 Phase I ESA Results: 
i. If the Environmental Professional conducting the Phase I ESA concludes that 
no further investigation is warranted, the SBA Lender must submit the results 
of the Environmental Investigation to SBA with recommendations and seek 
SBA’s concurrence. 
If the Environmental Professional conducting the Phase I ESA concludes that 
further investigation is warranted (typically a Phase II), and the SBA Lender 
still wants to make the loan, the SBA Lender must proceed as recommended 
by the Environmental Professional, or in the alternative submit the results of 
the Environmental Investigation to the SBA with recommendations and seek 
SBA’s concurrence. In general, SBA will require compliance with all of an 
Environmental Professional’s recommendations (including “housekeeping 
measures,” such as secondary containment, decommissioning monitoring 
wells, sealing floor drains, etc.). 
ii. In the rare instance where an exception to policy may be warranted, SBA 
Lenders must provide the SBA Environmental Committee with justification 
JX019.217
C. 
d. 
e. 
App.3474
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for not wanting to follow the Environmental Professional’s recommendations 
and obtain committee approval. 
 Phase II ESA Results: 
i. If the Environmental Professional conducting the Phase II ESA concludes 
that no further investigation is warranted, the SBA Lender must submit the 
results of the Environmental Investigation to SBA with recommendations 
and seek SBA’s concurrence. 
ii. If the Phase II ESA reveals Contamination and the SBA Lender still wishes 
to make the loan, the SBA Lender must ensure that the Environmental 
Professional has documented: 
a) 
Whether the Contamination quantities exceed the reportable or 
actionable levels; 
b) 
Whether Remediation is necessary; 
c) 
An estimate of any Remediation costs (Environmental Professionals 
may use ASTM E2137-01 Standard Guide for Estimating Monetary 
Costs and Liabilities for Environmental Matters); and 
d) 
The projected completion date of any Remediation. 
iii. If the Environmental Investigation reveals Contamination, the SBA Lender 
should determine whether disbursement is appropriate under one or more of 
the factors identified below in paragraph 6, Property Contamination or 
Remediation. 
iv. If at any stage of the Environmental Investigation SBA concurs with an SBA 
Lender’s recommendation that environmental risk has been sufficiently 
minimized and that no further investigation is required, the loan may be 
disbursed. 
5. Lead District Office and Center Counsel Responsibilities 
With respect to environmental investigations that are required to be submitted to an SBA 
Loan Processing Center, SBA loan processing personnel must obtain SBA District 
Counsel or Center Counsel’s opinion as to the adequacy of an Environmental 
Investigation and whether the risk of Contamination, if any, has been sufficiently 
minimized. 
6. Property Contamination or Remediation 
Loans may not be approved or disbursed if there is known Contamination or on-going 
Remediation at the Property unless the risks have been minimized to the satisfaction of 
SBA Loan Processing Center personnel after consulting with and obtaining the 
concurrence of SBA District Counsel or Center Counsel. SBA Lenders seeking loan 
approval or disbursement authority despite Contamination or on-going Remediation at 
the Property must submit a recommendation to SBA that includes, at a minimum, a 
discussion of the following: 
JX019.218
f. 
App.3475
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 Nature and Extent of the Contamination including copies of the following 
documents pertaining to the Property: 
i. All relevant Environmental Investigation Reports;  
ii. All publicly available Governmental Entity correspondence. 
 Remediation: 
i. Recommended method of Remediation; 
ii. Status of on-going Remediation, if any; 
iii. Environmental Professional’s estimated cost of Remediation; 
iv. Environmental Professional’s estimated completion date; 
v. Governmental Entity’s designation of responsible Person(s) (as defined in 13 
CFR 120.10); 
vi. Person(s) paying for on-going Remediation; 
 Collateral Value: 
i. Proposed loan amount and proposed use of proceeds; 
ii. Appraised or the estimated value of the Property; 
iii. Institutional Controls and Engineering Controls, if any, and their impact on 
repayment ability, collateral value, and marketability of the Property; and 
 Mitigating Factors: 
SBA will rely upon one or more of the following factors when deciding to 
disburse before completion of Remediation or monitoring. 
i. Indemnification. If any Person (as defined in Appendix 4) who possesses 
sufficient financial resources to cover the costs of completing Remediation 
executes the SBA Environmental Indemnification Agreement in Appendix 8, 
approval or disbursement may be considered. The SBA Lender must conduct 
an analysis of the proposed indemnitor to ensure that it has sufficient assets 
to honor an indemnification agreement. The Third Party Indemnitor cannot 
be the Applicant or the operating company. 
The SBA Environmental Indemnification Agreement: 
a) 
Cannot be modified; 
b) 
Must be executed by the Applicant and (if applicable) Operating 
Company; 
c) 
Must have a copy of the Environmental Investigation Report attached to 
it; and 
d) 
Must be properly recorded in the memorandum format in Exhibit C to 
Appendix 8. 
For 7(a) loans: All 7(a) Lenders (except when submitting requests through 
PLP, 7(a) Small Loans, SBA Express and Export Express) must submit the 
JX019.219
a. 
b. 
C. 
d. 
App.3476
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finalized SBA Environmental Indemnification Agreement to SBA for review 
and approval prior to a request that SBA fund the loan. 
For 504 loans: All CDCs, including PCLP CDCs, must submit each finalized 
SBA Environmental Indemnification Agreement (located in Appendix 8 of 
this SOP) to the SLPC for review and approval no less than 2 weeks in 
advance of submission of the loan closing package if they want the loan to be 
considered in that closing cycle. 
ii. Completed Remediation. If the Governmental Entity has affirmed in writing 
that active Remediation is complete but additional monitoring is required, 
approval or disbursement may be considered after the following occurs:  
a) 
Monitoring results for the first year are obtained;  
b) 
An Environmental Professional concludes that the results show no 
unacceptable increase in Contamination since Remediation; and  
c) 
An Environmental Professional concludes that the owner/operator of the 
Property is in compliance with any continuing obligations, including 
activity and use limitations, Engineering and Institutional Controls, and 
post-Remedial monitoring required by the Governmental Entity. 
iii. No Further Action. If an SBA Lender obtains a “no further action letter” or 
“closure letter” from a Governmental Entity (or state equivalent of a “no 
further action letter” or “closure letter”) stating that no further Remediation 
or monitoring of Contamination previously found is required, approval or 
disbursement may be considered. A state equivalent of a closure letter 
includes a written determination from a licensed professional in those 
jurisdictions that delegate authority to such professionals for site closures. 
iv. Minimal Contamination with Minimal Remediation. If the extent of 
Contamination and cost of Remediation are de minimis in relation to the 
value of the Property and/or the resources of the Person responsible for 
Remediation, and the Remediation is projected to be completed within 
1 year, approval or disbursement may be considered. The SBA Lender 
should identify the Environmental Professional that will supervise the 
Remediation and discuss: 
a) 
The nature of the Contamination; 
b) 
The reliability of the Remediation estimates; 
c) 
The projected completion date; and 
d) 
The duration of ongoing monitoring. 
v. Clean-up Funds. If the SBA Lender provides evidence from a Governmental 
Entity that the Applicant or Property has been approved by a fund to pay for 
or reimburse Remediation costs, and the amount allocated is sufficient to 
cover the costs of Remediation, approval or disbursement may be considered. 
The SBA Lender must also address any conditions of Remediation that might 
preclude payment or reimbursement and the financial capability of the fund. 
JX019.220
App.3477
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vi. Escrow Account. If an escrow account is available that equals a minimum of 
150 percent of the total estimated cost of required Remediation and is 
controlled by a 7(a) Lender or first mortgage holder in a 504 loan as trustee, 
approval or disbursement may be considered. The Governmental Entity must 
concur with the Remediation’s scope. The Loan Authorization and escrow 
agreement for the escrow account must ensure that escrow funds will only be 
used for Remediation costs. The source of the escrow funds may not be SBA 
Loan proceeds. Depending upon the circumstances, an escrow account with 
more than 150 percent of the estimated costs of Remediation may be 
appropriate. The escrowed funds may be used for Remediation. Any 
remaining funds in the account may not be released until the appropriate 
“closure letter” or “no further action letter” is received or, in the case of 
monitoring, when all monitoring wells related to the Property have been 
decommissioned. 
Note: The SBA Lender’s, or for 504 loans, the Third Party Lender’s role as 
trustee of the escrow account is solely to release funds upon the satisfactory 
completion of Remediation work – the SBA Lender or Third Party Lender 
must not control or manage the Property being remediated. 
vii. Groundwater Contamination Originating from another Site. If groundwater 
Contamination on the Property is shown to have come from another property, 
approval or disbursement may be considered if: 
a) 
Another Person with sufficient resources is performing Remediation 
pursuant to a Remediation action plan that has been approved by the 
appropriate Governmental Entity; or 
b) 
The state has laws or regulations that provide that an owner or operator 
of property will not be responsible for Contamination from another site; 
or 
c) 
The Governmental Entity provides satisfactory written assurance that it 
will not hold the Property owner liable for the Contamination. The SBA 
Lender should attempt to have the SBA Lender and SBA included by 
name in the letter along with the Property owner and future purchasers. 
viii. Additional or Substitute Collateral. If additional or substitute collateral is 
being pledged, or an additional equity contribution is being made, sufficient 
to overcome the potential loss due to Contamination, then approval or 
disbursement may be considered. 
ix. Other Factor(s). The SBA Lender and SBA may rely on factors other than or 
in addition to the eight referenced above when considering approval or 
disbursement. For example, the existence of adequate environmental 
insurance that is already in place and already paying remediation costs, 
bonds, agreements not to sue present and future property owners from the 
Governmental Entity, brownfields agreements, Engineering and Institutional 
Controls, etc. However, reliance solely upon “Other Factor(s)” requires 
clearance from the SBA Environmental Committee. This requirement 
JX019.221
App.3478
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 222 
extends to loans processed under PLP, 7(a) Small Loans, SBA Express and 
Export Express. 
For 7(a) loans processed under delegated authority, 7(a) Small Loans, SBA 
Express and Export Express, 7(a) Lenders must follow these guidelines, but they 
do not have to submit documentation or obtain SBA’s concurrence prior to 
approval or disbursement of the loan, unless they are relying solely upon 
paragraph d.ix, Other Factor(s) immediately above. 
7. Special Use Facilities 
 Child-Occupied Facilities 
Prudent lending practices dictate that specific additional environmental 
assessments be performed for Child-Occupied Facilities (see definition in 
Appendix 3). Such facilities, constructed prior to 1978, must undergo a lead risk 
assessment and also testing for lead in drinking water at all taps and fountains 
potentially used as a drinking water source for children. All lead assessments 
must be conducted in conformance with U.S. Environmental Protection Agency 
(EPA) regulations at 40 CFR 745 and U.S. Department of Housing and Urban 
Development (HUD) Guidelines for the Evaluation and Control of Lead-Based 
Paint Hazards in Housing Second Edition, July 2012. The results of these 
assessments must be submitted to the SBA. Disbursement will not be authorized 
unless the risk of lead exposure to infants and small children has been sufficiently 
minimized. 
 Drycleaners 
On-site dry cleaning facilities, which may have utilized chlorinated solvents such 
as tetrachloroethene (PCE) and trichloroethene (TCE) and/or petroleum-based 
solvents in the course of their business operations, may present significant clean-
up costs if these contaminants have entered the soil, soil vapor and/or 
groundwater. Prudent lending practices dictate and SBA requires that for any 
Property with on-site dry cleaning facilities, whether currently in operation or 
operated historically at the site, that uses, used, or likely used chlorinated and/or 
petroleum-based solvents, a Phase I followed by a Phase II Environmental 
Assessment is required. (Any deviation from this requirement must be directed to 
EnvironmentalAppeals@sba.gov as a request for an exception to policy). For on-
site dry cleaners, the investigation must address soil, groundwater, and soil vapor. 
A Phase II performed in connection with an on-site dry cleaning facility must be 
conducted by an independent Environmental Professional who holds a current 
Professional Engineer’s or Professional Geologist’s license and has the 
equivalent of 3 years of full time relevant experience. 
 Gasoline Stations 
Gasoline stations also present significant clean-up costs if contaminated (for 
specific requirements pertaining to gasoline stations, please refer to Appendix 7). 
JX019.222
a. 
b. 
C. 
App.3479
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SOP 50 10 6 
 
Part 2, Section A, Ch 6: Other Core Requirements 
Effective October 1, 2020 
Page 223 
8. Release of Rights to Indemnification from SBA/Lender 
If any Person has a right to indemnification from subsequent owners of the Property (e.g., 
SBA or SBA Lender after acquiring Property through foreclosure or other means), then 
they must execute either the SBA Indemnification Agreement or another document in 
which they waive all known and unknown rights and release all claims and causes of 
action whether now or hereafter in existence against SBA and the SBA Lender related to 
Contamination at the Property including the right to indemnification. The document 
containing the waiver and release must be recorded. 
Additionally, for 504 loans: SBA Lenders must submit all waiver and release documents 
to the SBA center processing the loan for review and approval by SBA counsel, along 
with a copy of the title report, the document providing for indemnification, and the 
purchase and sale documents, if any. PCLP CDCs must also submit the waiver and 
release to the SBA for review and approval prior to a request that SBA fund the loan. 
9. Brownfields Sites 
SBA encourages the redevelopment of brownfields, and SBA Loan guarantees are 
available to small businesses interested in locating on revitalized brownfields. Typically, 
this occurs through utilization of one or more of the nine Mitigating Factors in paragraph 
6.d. above. 
10. Questions on SBA’s Environmental Policy and Appeals 
Questions on SBA’s Environmental Policy should be directed to local SBA counsel for 
the area where the Property is located. 
SBA Lenders who believe that an environmental decision that has been rendered by SBA 
is inconsistent with this SOP may appeal the decision by forwarding a copy of the 
decision, along with an explanation of how the determination is perceived to be 
inconsistent with this SOP to EnvironmentalAppeals@sba.gov.  
(NOTE: This email address cannot receive submissions larger than 15MB. If the email 
and attachments exceed this size, the appeal must be sent in more than one email.)  
Environmental appeals, including exceptions to Agency environmental policy, will be 
reviewed by the SBA Environmental Committee comprised of OGC attorneys appointed 
by the Associate General Counsel for Litigation, who may consult with an environmental 
engineer. The Associate General Counsel for Litigation retains the authority to overrule 
decisions rendered by the SBA Environmental Committee.
JX019.223
App.3480
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JX019.224
App.3481
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SOP 50 10 6 
 
Part 2, Section B: 7(a) Loan Program Specific Requirements 
Effective October 1, 2020 
Page 225 
 
SECTION B. 7(A) LOAN PROGRAM SPECIFIC REQUIREMENTS 
This section, along with section A, Core Requirements for all 7(a) and 504 Loans, contains the 
policies and procedures governing SBA’s 7(a) business loan programs. Because Paycheck 
Protection Program (PPP) loans authorized under § 7(a)(36) of the Small Business Act are 
7(a) loans, this SOP applies to the making of PPP loans, to the extent that the SOP is not 
superseded by or in conflict with PPP-specific requirements. Lenders must always start 
by reviewing the contents of Section A, Core Requirements for all 7(a) and 
504 Loans.
JX019.225
App.3482
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JX019.226
App.3483
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 227 
CHAPTER 1: BASIC 7(A) LOANS 
This chapter covers Basic 7(a) Loans, which consist of Standard 7(a) Loans and 7(a) Small 
Loans. These loans may be processed under Preferred Lender Program (PLP) authority or 
non-delegated through the Loan Guaranty Processing Center (LGPC).  
See Part 1, Section A, Chapter 1, paragraph E, Delegated Authority in the 7(a) Loan Program of 
this SOP for information on PLP. 
Basic 7(a) Loans are Standard 7(a) Loans and 7(a) Small Loans. 
• Standard 7(a) Loans are: 
• Greater than $350,000; 
• $350,000 or less that do not meet SBA’s minimum acceptable credit score 
requirement for 7(a) Small Loans; and 
• 7(a) Small Loans are loans of $350,000 or less that meet the minimum acceptable credit 
score set by SBA and are eligible for abbreviated credit underwriting. 
Basic 7(a) Loans exclude SBA Express, Export Express, CAPLines, Export Working Capital 
Program (EWCP), International Trade loans, and Community Advantage Pilot Program loans. 
Lenders must always start by reviewing the contents of Section A, Core 
Requirements for all 7(a) and 504 Loans, in this Part. 
A. ELIGIBLE USES OF PROCEEDS 
In addition to the eligible uses of proceeds in the Core requirements, Standard 7(a) Loans and 
7(a) Small Loans may use loan proceeds for: 
1. Debt Refinancing 
SBA-guaranteed loan proceeds may not be used to pay a creditor in a position to sustain a 
loss (including the same institution’s debt). This includes any refinancing that will shift 
all or part of a potential loss from the original Lender to the SBA. 13 CFR §§ 
120.140(j)(1) and 120.201 
 SBA-guaranteed loan proceeds may not be used to refinance debt: 
i. Originally used to finance a loan purpose that would have been ineligible for 
SBA financing at the time it was originally made unless the condition that 
would have made the loan ineligible no longer exists; or 
ii. That is already on reasonable terms.  
 Debt reflected on the Applicant’s business balance sheet may be eligible for 
refinancing if it is reflected on the Applicant’s business tax returns (Schedule C 
for sole proprietorships) showing the interest expense associated with the debt. 
JX019.227
a. 
b. 
App.3484
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 228 
i. The Lender must document and the Applicant must certify that the proceeds 
from the debt were used exclusively for the Applicant’s business and were 
not used for any ineligible purpose as set forth in 13 CFR § 120.130; and 
ii. If the debt to be refinanced was used in whole or in part to refinance a prior 
debt, the loan being refinanced, including the associated interest, must be 
reflected on the Applicant’s balance sheet and business tax returns (Schedule 
C for sole proprietorships) for two full tax cycles prior to application. The 
Applicant must certify that the debt to be refinanced was used exclusively for 
the Applicant business and was not used for any ineligible purpose as set 
forth in 13 CFR 120.130. 
iii. Except for interim debt in accordance with paragraph A.1.l.ii, Interim 
Advances below, the Lender must not refinance a short-term obligation that 
was created with the intent of refinancing it with a 7(a) loan. 
 The loan must be secured with at least the same collateral and lien priority as the 
debt that is being refinanced. However: 
i. When the current balance of the debt being refinanced is considered over 
collateralized relative to SBA collateral requirements and the SBA Loan will 
remain fully secured, the Lender is not required to take the excess collateral. 
ii. Different collateral may be taken to secure the new loan if it is of comparable 
value and useful life and is determined to be acceptable by SBA or the 
Lender under its PLP authority. 
 Loan proceeds may be used to refinance the following types of business debt (see 
paragraph A.1.h. below for additional requirements if refinancing same institution 
debt). 
i. Any debt structured with a demand note or balloon payment; 
ii. Debt with an interest rate that exceeds the SBA maximum interest rate based 
on size or term;  
iii. Business Credit Card Debt - Loan proceeds must not be used to refinance any 
personal expenses. The Lender may refinance credit card debt if the credit 
card is in the name of the business and the Applicant certifies in writing that 
any credit card debt being refinanced was incurred exclusively for business 
related purposes. If the business credit card was also used for personal 
purposes, the Lender must ensure that those charges are deducted from the 
credit card balance proposed to be refinanced; 
iv. Debt that is over-collateralized based on SBA’s collateral requirements - see 
paragraph C.3, Collateral below, which describes SBA’s collateral 
requirements used to determine if a loan is “fully secured;” 
v. Revolving lines of credit (short-term or long-term) where the original Lender 
is unwilling to renew the line, or the Applicant is restructuring its financing 
in order to obtain a lower interest rate or longer term; 
JX019.228
C. 
d. 
App.3485
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 229 
vi. Debt with a maturity that was not appropriate for the purpose of the financing 
(e.g. a 3 year term loan to finance a piece of equipment with a useful life of 
15 years);  
vii. Debt used to finance a change of ownership of a going concern business 
(complete change of ownership or an eligible partner buyout – see paragraph 
A.2., Change of Ownership, below for more information on types of changes 
of ownership); 
a) 
Refinancing debt owed to a financial institution or any third party (other 
than the seller) within 12 months of the change of ownership may not be 
processed under a Lender’s PLP authority.  
b) 
To be eligible for refinancing, any seller financed note must have been 
in place and current (not on standby) for at least 24 months following 
the change of ownership. The refinancing request must meet the 
requirements set forth in paragraphs 1.e. and f. below. 
c) 
If the change of ownership is between existing owners of a business and 
existing business debt will be refinanced as part of the transaction, the 
refinancing must meet the requirements set forth in this section.  
d) 
If the existing debt is SBA-guaranteed and with the same Lender (SID), 
the application cannot be processed under PLP authority. 
e) 
Paying off debt as part of a change of ownership is not a refinance of 
debt. In a complete change of ownership situation, the option to assume 
the existing SBA debt should be offered to the buyer. 
viii. Debt that is not identified above but the Lender believes no longer meets the 
needs of the Applicant must be processed through non-delegated procedures 
and the Lender: 
a) 
Must cite in the credit memorandum the specific reasons why the 
existing debt no longer meets the needs of the Applicant; and 
b) 
May not cite “improving the lien position” as the sole reason for the 
refinancing. 
ix. Personal Debt Used Exclusively for Business Purposes. 
a) 
Home Equity Line of Credit (HELOC): It the debt is in the form of a 
HELOC, the Lender must document and the Applicant must certify that 
the amount being refinanced was used exclusively for business 
purposes. For example, a sole proprietor would demonstrate that the 
debt was used for business purposes by providing documentation that 
shows the interest deduction is reported on the Schedule “C” of the 
proprietor’s tax return. If the interest deduction reported on the Schedule 
C includes multiple debts, then the Lender must obtain from the 
Applicant a copy of the appropriate IRS Form 1098 related to the debt 
being refinanced. 
JX019.229
App.3486
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 230 
b) 
Personal Credit Card: If the debt is in the form of an outstanding 
balance on a credit card issued to an individual personally, the Lender 
must confirm which of the credit card obligations were used for 
business purposes. The Lender must document the specific business 
purpose of the credit card debt and ensure that the Applicant certifies 
and documents that the loan proceeds are being used exclusively to 
refinance business expenses. Documentation required for refinancing 
personal credit card debt includes a copy of the credit card statements 
and individual receipts for any business expenses in excess of $500. 
 Ten Percent Payment Improvement. With the exception of debt under paragraphs 
1.d.i (debt with a demand note/balloon payment); 1.d.iii (business credit card 
debt); 1.d.v. (revolving lines of credit with Lender unwilling to renew); and 
1.d.ix.b) (personal credit card debt used for business purposes) above, when 
refinancing debt, the new installment amount must be at least 10 percent less than 
the existing installment amount(s) in the aggregate. 
i. If the note terms include an escalating payment structure, the new installment 
amount must be at least 10 percent less than the expected installment amount 
within the next 12 months. 
ii. If other debt is being refinanced at the same time, such debt may be included 
in the cash flow improvement calculation.  
 When refinancing debt, the loan application must include: 
i. A written analysis that addresses the following issues: 
a) 
The reason the debt was incurred; 
b) 
The factor(s) that support that the proposed refinancing will not pay a 
creditor in a position to sustain a loss; 
c) 
The reason for restructuring the debt (for example, over-obligated or 
imprudent borrowing); 
d) 
The factor(s) that support that the debt being refinanced is not currently 
on reasonable terms; 
e) 
How the new loan will improve the financial condition of the Applicant; 
f) 
The reason(s) the Lender believes the debt to be refinanced no longer 
meets the needs of the Applicant (See paragraph 1.d.viii above); and 
ii. Supporting documentation for each debt to be refinanced: Lenders are 
required to: 
a) 
For PLP loans, retain copies of notes, security agreements, leases, and 
other documentation evidencing the debt to be refinanced; 
b) 
For non-delegated loans, submit with the application to the LGPC, 
copies of all supporting documentation for the debt to be refinanced; 
and 
JX019.230
e. 
f. 
App.3487
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 231 
c) 
Include, when applicable, a copy of the most recent credit card 
statement evidencing the holder of the account and the current balance. 
(See also paragraph 1.d.ix.b) Personal Credit Card.) 
 The Authorization must include: 
i. In the Use of Proceeds section, the refinancing must be specifically 
identified; 
ii. An itemization of all debts being repaid by loan proceeds when the individual 
creditor is to be paid $10,000 or more; and/or 
iii. The loan number and dollar amount of any existing SBA being debt 
refinanced. 
 Refinancing Same Institution Debt (SID). Refinancing of SID may not be 
processed under a Lender’s PLP authority.  
i. An SBA-guaranteed loan may not be used to refinance SID where there is an 
appearance that the Lender will shift to SBA all or part of a potential loss 
from that same debt. (13 CFR § 120.201) 
ii. The Lender must: 
a) 
Include a transcript showing the due dates and when payments were 
received as part of its analysis and recommendation for the prior 36 
months, or the life of the loan, whichever is less; and 
b) 
Explain in writing any late payments and late charges that have occurred 
during the last 36 months. (Late payments are defined as any payment 
made beyond 29 days of the due date.)  
iii. For loans processed under a Lender’s PLP authority, SBA does not consider 
the following to be refinancing of SID: 
a) 
The debt is an interim loan that has been made for other than real estate 
construction purposes and was approved by the Lender within 90 days 
prior to the issuance of a PLP loan number; or 
b) 
The debt is a construction loan that has not been disbursed at the time 
the PLP loan number is issued. 
 Refinancing a same institution SBA 7(a) guaranteed loan. A Lender may 
refinance its own SBA 7(a) guaranteed loans only through the LGPC under non-
delegated authority and only if: 
i. It is unable to modify the terms of the existing loan because a secondary 
market investor will not agree to modified terms, or  
ii. An increase in the amount of an existing SBA-guaranteed loan is not 
possible. 
 Refinancing an SBA-Guaranteed Loan of another Lender. Proceeds may be used 
to refinance existing SBA-guaranteed loans from other Lenders provided the 
conditions of paragraphs 1.d, e, and f above are satisfied and: 
JX019.231
g. 
h. 
1. 
J. 
App.3488
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 232 
i. The Lender obtains evidence from the Lender holding the existing SBA-
guaranteed loan that verifies the Lender has declined to approve an increase 
in loan amount or a second loan and is either unwilling or unable to modify 
the current payment schedule; and 
ii. The Lender must submit this evidence with the application to the LGPC (for 
non-delegated loans) and retain this evidence in the loan file (for loans 
processed under the Lender’s PLP authority). 
 Refinancing of an SBA 504 loan. Refinancing an existing 504 loan must be 
processed in the LGPC under non-delegated authority and may be approved only 
if: 
i. The loan meets the requirements of paragraphs 1.d, e, and f, and either: 
a) 
Both the Third Party Loan and the 504 loan are being refinanced; or 
b) 
The Third Party Loan has been paid in full and the 504 loan needs to be 
refinanced as part of a larger transaction to provide funding for 
expansion of or renovations to the Project Property.  
In either case, the justification to refinance the existing SBA-guaranteed 
504 loan must be included in the credit memorandum and submitted to 
the LGPC with the application.  
ii. Any applicable 504 prepayment penalties will apply. 
iii. The 7(a) Lender may not solely refinance the Third Party Lender’s loan for 
an existing 504 project. 
 Other conditions that apply to debt refinancing: 
i. A 7(a) loan may not be used to refinance a debt owed to an SBIC. 
ii. Interim Advances: For loans processed on a non-delegated basis, after an 
SBA Authorization has been issued, but prior to disbursement, a Lender or an 
affiliate of the Lender may make interim advances (also known as bridge 
loans) and SBA loan proceeds may be used to reimburse the interim 
advances, as long as the interim advances reasonably comply with the terms 
of the SBA Authorization. Such advances are made at the Lender’s risk. 
Lender notification to SBA of such advances is not required. See paragraph 
h.iv.a) above for information on an interim loan processed on a PLP basis. 
iii. The payment of trade payables is not considered to be debt refinancing. 
2. Change of Ownership  
(13 CFR § 120.202) 
 A Borrower(s) (and any individual Co-Borrower as permitted under this 
paragraph), may use loan proceeds for a change of ownership, whether the change 
of ownership is accomplished through a stock purchase (including a stock 
redemption) or an asset purchase, only under the circumstances described under 
this paragraph. An asset purchase will be deemed a change of ownership and must 
comply with all of the requirements of this paragraph if the Applicant(s) is 
JX019.232
k. 
I. 
a. 
App.3489
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 233 
purchasing all or substantially all of the assets of the seller’s business and is 
continuing the operations of the seller’s business. The following requirements 
apply: 
i. The change of ownership must promote the sound development and/or 
preserve the existence of a small business; 
ii. Change of Ownership Between Existing Owners: A change of ownership 
between existing owners may be financed under the following circumstances: 
a) 
One or more current owners is purchasing the entire interest of another 
current owner, resulting in 100% ownership of the business by the 
remaining owner(s).  
b) 
The small business is redeeming the ownership interest of an owner(s), 
resulting in 100% ownership of the small business by the remaining 
owner(s).  
iii. Change of Ownership Resulting in a New Owner: A change of ownership 
resulting in a new owner may be financed under the following circumstances: 
a) 
A small business is purchasing 100% of the ownership interest in 
another business. 
b) 
An individual(s) who is not an existing owner is purchasing 100% of the 
ownership interest in the small business. 
c) 
A small business is acquiring another small business through an asset 
purchase. 
d) 
An Employee Stock Ownership Plan (ESOP) or equivalent trust is 
purchasing a controlling interest (51% or more) in the employer small 
business. (Note: any transaction costs associated with the purchase of 
the controlling interest by the ESOP or equivalent trust, but not costs 
associated with setting up the trust, may be included in the use of 
proceeds.) (13 CFR § 120.352(b)) These loans may not be processed 
under PLP authority. 
e) 
A small business is obtaining a loan for the sole purpose of re-lending 
the funds to an ESOP or equivalent trust to acquire a controlling interest 
(51% or more) in the small business. (Note: any transaction costs 
associated with making the loan to the ESOP or equivalent trust, but not 
the costs associated with setting up the trust, may be included in the use 
of proceeds.) These loans may not be processed under PLP authority. 
f) 
A cooperative is purchasing a controlling interest (51% or more) in the 
employer small business. (Note: any transaction costs associated with 
the purchase of the controlling interest, but not costs associated with 
setting up the cooperative, may be included in the use of proceeds.) 
These loans may not be processed under PLP authority. 
 Except as provided below, the seller may not remain as an officer, director, 
stockholder, or Key Employee of the business. (13 CFR § 120.130) If a short 
JX019.233
b. 
App.3490
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 234 
transitional period is needed to assist the business, the small business may 
contract with the seller as a consultant for a period not to exceed 12 months 
including any extensions. 
The seller may stay on as an owner, officer, director, stockholder or Key 
Employee of the business when the purchaser is an ESOP or equivalent trust or a 
cooperative and is acquiring a controlling interest (51% or more) in the employer 
business (including when the ESOP or equivalent trust or cooperative is acquiring 
100% ownership of the small business). In such cases, any seller who remains as 
an owner, regardless of percentage of ownership interest, must provide his or her 
guaranty. See Section A, Ch. 6, Para. A, Guaranties, of this Part for further 
guidance on guaranty requirements. 
 An SBA-guaranteed loan cannot be made solely to an individual. The small 
business must be either the Borrower or a Co-Borrower as follows: 
i. In a change of ownership under section 2.a.ii.a) or 2.a.iii.b) above, the small 
business and the individual owner(s) who is acquiring the ownership interest 
must be Co-Borrowers. In addition, the Note must be executed, jointly and 
severally, by both the individual(s) who acquires the ownership interest(s) 
and the small business whose ownership interest is being acquired. If the 
small business denies liability for the debt based on an alleged failure of 
consideration under applicable state law, SBA may deny liability on its 
guaranty.  
ii. In a change of ownership under section 2.a.ii.b) above, the small business 
must be the Borrower, and the remaining owner(s) are subject to the 
requirements for guaranties in Section A, Ch. 6, Para. A, Guaranties, of this 
Part. 
iii. In a change of ownership under section 2.a.iii.a) or 2.a.iii.c) above, the 
acquiring entity will be the Borrower. If, however, the business being 
acquired will continue to exist as a separate entity, the acquiring entity and 
the small business being acquired must be Co-Borrowers. All owners of the 
Applicant business, and the business being acquired if it is a Co-Borrower, 
are subject to the requirements for guaranties in Section A, Ch. 6, Para. A, 
Guaranties, of this Part. 
 The Lender must comply with the requirements in Section A, Ch. 6, Para. B, IRS 
Tax Transcript/Verification of Financial Information, of this Part. 
 If the Applicant will be acquiring the small business’s real estate in a separate 
transaction with a non-SBA guaranteed loan, the SBA loan must receive a shared 
lien position (pari passu) on the real estate with the non-SBA guaranteed loan. 
The non-SBA guaranteed loan may not have a maturity that is shorter than the 
SBA-guaranteed loan. 
This provision does not apply if the business real estate is being financed as part 
of a 504 project. 
JX019.234
C. 
d. 
e. 
App.3491
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 235 
 The following changes of ownership are not eligible: 
i. A non-owner who is purchasing less than 100% of the ownership interests in 
the business, except for eligible ESOP or cooperative purchases; or 
ii. An existing owner who is purchasing the ownership of another existing 
owner that will not result in 100% ownership of the business by the 
purchasing owner. 
 SBA considers a change of ownership to be a “new” business because it will 
result in new, unproven ownership/management and increased debt unrelated to 
business operations. 
 The Lender’s loan documentation must include: 
i. A current business valuation (not to include any real estate) that meets SBA 
requirements in paragraph C.3.f.v, Business Valuation Requirements - 
Change of Ownership below. 
ii. A site visit of the business being acquired. The Lender must document in its 
loan file the date of the site visit as well as comments.  
iii. A real estate appraisal for commercial real estate that meets SBA 
requirements. See paragraph C.3.f, Real Estate Appraisal and Business 
Valuation Requirements below. 
iv. An analysis as to how the change of ownership will promote the sound 
development and/or preserve the existence of the business. If the analysis 
cannot support that the change of ownership will be in the best interests of 
the business and its continued, successful operations, the loan is not eligible 
for an SBA guaranty. 
v. Business, stock, and asset purchase agreements.  
vi. Evidence that all assets, including transferable licenses (e.g. liquor license) 
conveyed as a result of purchase are properly secured as collateral by Lender. 
 The “purchase price of the business” includes all assets being acquired such as 
real estate, machinery and equipment, and intangible assets.  
i. Intangible Assets: An SBA-guaranteed loan may be used to finance a change 
of ownership that includes intangible assets (including, but not limited to, 
goodwill, client/customer lists, patents, copyrights, trademarks, intellectual 
property, and agreements not to compete) as long as it is supported by an 
independent business valuation that complies with paragraph C.3.f.v, 
Business Valuation Requirements - Change of Ownership below. 
ii. If any of the loan proceeds will be used to finance intangible assets, the 
amount must be specifically identified in the Use of Proceeds section of the 
application and the Authorization. 
iii. The value of the intangible assets is determined by either the book value as 
reflected on the business’s balance sheet, a separate appraisal for the 
particular asset, or the value of the business as identified in the business 
JX019.235
f. 
g. 
h. 
1. 
App.3492
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Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 236 
valuation minus the sum of the working capital assets and the fixed assets 
being purchased. 
3. Other Restrictions that Apply to PLP Loans 
i. Lenders may use PLP only for 7(a) loans. Lenders may not use PLP for any 
pilot program unless SBA authorizes use of PLP for the pilot. 
ii. The following types of loans are not eligible under PLP processing: 
a) 
Disabled Assistance Loans (DAL); 
b) 
Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to an 
eligible small business owned or controlled by an ESOP (see Section A, 
Ch. 2, Para. B., Employee Stock Ownership Plans, of this Part for more 
information); 
c) 
Loans to a cooperative or to an eligible small business owned or 
controlled by a cooperative (see Section A, Ch. 2, Para. C, 
Cooperatives, of this Part for more information); 
d) 
Loans involving a Single Employer 401(k) plan, including a ROBS 
plan, unless the only investment held by the 401(k) plan is the equity in 
the Applicant business; 
e) 
Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that holds 
in trust the assets of other businesses), including a ROBS plan (see 
Section A, Ch. 2, Para. D, 401(k) Plans Including Rollovers as Business 
Start-Ups (ROBS) Plans, of this Part for more information); and 
f) 
Pollution Control Program Loans. 
B. LOAN TERMS AND CONDITIONS 
1. Maximum Loan Amount 
 Standard 7(a) Loans have a maximum of $5,000,000.  
 7(a) Small Loans have a maximum per loan of $350,000.  
 Maximum Loans to Businesses with Affiliates 
Lenders must determine whether the Applicant has any affiliates and document 
the results in their credit analysis. If affiliation exists, SBA’s loan maximums 
apply to the Applicant, including all affiliates, as if all were a single business. 
 Maximum Loan Amount for multiple loans approved within 90 days of each other 
– “90 Day Rule.” 
i. If two SBA-guaranteed loans to any one business (including affiliates) are 
approved within 90 days of each other, the maximum gross amount of all 
such loans in that time frame cannot exceed $5,000,000.  
ii. Two SBA-guaranteed loans approved within 90 days of each other may 
impact the maximum guaranty percentage available to the Borrower and its 
affiliates as well as the guaranty fee and any fee relief. 
JX019.236
a. 
b. 
C. 
d. 
App.3493
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Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 237 
iii. The 90-day rule does NOT apply if the Borrower is receiving a 7(a) loan and 
a 504 loan. 
2. Maximum Guaranty Amounts and Percentages 
The maximum dollar amount outstanding of SBA’s guaranty to any one business and its 
affiliates must not exceed $3,750,000 (13 CFR 121.151). When calculating the maximum 
guaranty percentage available to a Borrower and its affiliates, the Lender must include 
the approved loan amount and any existing 7(a) or 504 loans, including revolving lines of 
credit. The SBA’s guaranty is also known as the “SBA share” or “guaranteed portion.” 
 The maximum guaranty amount is $3,750,000.  
 The maximum guaranty percentage is: 
i. 85% for loans of $150,000 or less 
ii. 75% for loans over $150,000 
 Combination of 7(a) and 504 loans. 
i. When an Applicant applies for any combination of 7(a) and 504 loans, the 
order in which the loans are approved determines the maximum loan and 
guaranty amount available. Because the 7(a) loan has a lower maximum 
guaranteed amount, the 7(a) loan should be processed and approved first. 
ii. Lenders must advise the SBA processing centers that there is a companion 
504 application to ensure the 7(a) loan is processed and approved prior to the 
504 loan application being processed and approved. 
 Maximum Guaranty Percentage for Multiple 7(a) Loans (13 CFR § 120.210). 
i. Excluding multiple 7(a) loans approved within 90 days of each other, the 
maximum guaranty percentage for 7(a) loans of $150,000 or less is 
85 percent. 
ii. For loans approved within 90 days of each other, the gross dollar amounts of 
the loans are combined. If the combined gross amount exceeds $150,000, 
then the percentage of guaranty on the combined loans must not be more than 
75 percent (subject to the $3,750,000 limit). 
For example, if a business receives an 85 percent guaranty on a loan of 
$140,000, and submits a second application for $50,000 within 90 days of the 
first loan’s approval, the percentage of guaranty on the second loan must be 
reduced to 47 percent so the combined guaranty is no more than $142,500, or 
75 percent of the total amount of both loans ($190,000). 
 Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: 
A 7(a) loan cannot include proceeds for an ineligible purpose or have any portion 
of the loan made to an ineligible business and no part of an SBA 7(a) loan may be 
guaranteed at zero percent. 
JX019.237
a. 
b. 
C. 
d. 
e. 
App.3494
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 238 
3. Loan Maturities 
 The loan term must be the shortest appropriate term based on the use of proceeds 
and the Borrower’s ability to repay. 
i. Working capital or inventory loans and the financing of intangible assets 
(including goodwill) must not exceed 10 years. 
ii. Generally, equipment, fixtures, or furniture loans should not exceed 10 years. 
However, the term may be up to 15 years if the IRS asset class useful life 
supports the term. The Lender must document in the credit memorandum 
justification of any term that exceeds 10 years. 
iii. Real estate loans (including acquisition, rehabilitation, renovation, or 
construction) must not exceed 25 years unless a portion of the loan is used 
for construction or renovation of the real estate. If the use of proceeds on a 
real estate loan includes construction or renovation, an additional period 
reasonably necessary for the construction or renovation period may be added 
to the 25-year maximum maturity.  
iv. Loans for leasehold improvements may not exceed 10 years, plus an 
additional period reasonably necessary to complete the leasehold 
improvements, as determined based on the specific nature of the leasehold 
improvements, but in no case more than 12 months. 
v. Mixed purpose loans (including change of ownership): When loan proceeds 
are used for multiple purposes (land and building, working capital, 
machinery & equipment, or the refinancing of any of these purposes), the 
maturity may be a blended maturity or, if 51% or more of the use of proceeds 
are for real estate, the maximum maturity may be up to 25 years. 
 Establishing the Repayment Period (13 CFR § 120.212): 
When Lenders establish a repayment schedule and loan maturity, they must 
consider the following: 
i. The Borrower’s ability to repay, 
ii. Use of loan proceeds, 
iii. Useful life of the assets being financed, and 
iv. The appropriate maturity for mixed purpose loans (including change of 
ownership). The Lender may use a blended maturity or the maturity up to the 
maximum for the asset class comprising 51% or more of the use of proceeds. 
Lenders must include the calculation used to determine the maturity in the 
credit memorandum. 
v. For loans to farm enterprises: 
a) 
Where land and structures (including poultry houses) for farming 
comprise 51% or more of the use of proceeds, the maximum maturity is 
20 years. 
JX019.238
a. 
b. 
App.3495
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 239 
b) 
Where machinery and equipment comprise 51% or more of the use of 
proceeds, the maximum maturity is the useful life of the machinery and 
equipment, not to exceed 15 years, plus an additional period reasonably 
necessary for installation, which may not exceed 12 months. 
vi. SBA has instructed the fiscal and transfer agent to stop the sale into the 
secondary market of a loan when the maturity exceeds these limits. 
 Establishing the Maturity Date: 
i. Loan maturity must not exceed the period of the guaranty. This prohibits 
structures such as a working capital loan with a 15-year maturity and an SBA 
guaranty limited to 10 years. 
ii. The maturity date for a 7(a) loan is set in terms of the number of months 
from either the date of the Note or the date of initial disbursement to the date 
when final payment is due. 
 Maturity When Refinancing Existing Assets or a Business Acquisition: 
i. The maximum maturity for a loan used to refinance a real estate or fixed 
asset loan must be the remaining useful life of the asset(s). The lender’s loan 
analysis must document and justify that the asset(s) being refinanced has a 
useful life at least as long as the maturity provided. 
ii. The maximum maturity for a loan used to refinance a business acquisition 
shall be 10 years, unless 51% or more of the use of proceeds consist of real 
estate which would permit a maturity up to 25 years. 
4. Interest Rates 
SBA QUICK REFERENCE CHART: Maximum Interest Rates Allowed (See additional 
information below) 
Product 
Standard 7(a) Loans  
and 7(a) Small Loans 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
Loans $25,000 or less  
(Maturity less than 7 years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 4.25% 
Loans $25,000 or less 
(Maturity 7 years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 4.75% 
Loans more than $25,000 up to $50,000 
(Maturity less than 7 Years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 3.25% 
Loans more than $25,000 up to $50,000 
(Maturity 7 Years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 3.75% 
Loans greater than $50,000 
(Maturity less than 7 years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 2.25% 
JX019.239
C. 
d. 
App.3496
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 240 
Product 
Standard 7(a) Loans  
and 7(a) Small Loans 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
Loans greater than $50,000 
(Maturity 7 years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 2.75% 
 General Policy on Interest Rates 13 CFR §§ 120.213; 120.214; 120.215 
i. A loan may have a fixed or variable interest rate. The maximum interest rate 
that may be established for any 7(a) loan is governed by SBA’s regulations 
on interest rates, which preempts any provisions of a state’s constitution or 
law. The Lender negotiates the interest rate with the Applicant, subject to 
SBA’s maximum allowable rates. 
ii. SBA will periodically publish the maximum allowable fixed interest rate in 
the Federal Register. The maximum allowable fixed interest rate will be the 
Prime rate in effect on the first business day of the month, plus an allowable 
spread over Prime, as set forth in the most recent Federal Register Notice. 
For a listing of the current maximum allowable fixed interest rates, go to 
SBA’s Capital Access Financial System homepage. The maximum allowable 
fixed rate may only be used by a Lender if such rate will be in effect for the 
entire term of the loan, without adjustment or reset. Otherwise, the maximum 
rates for variable rate loans will apply. 
iii. For variable interest rate loans, the base rate in effect on the first business 
day of the month will determine the basis for the initial interest rate for any 
complete loan application received by SBA during that month. The initial 
note rate must not exceed SBA’s maximum interest rate. The basis for the 
SBA maximum interest rate is an acceptable base rate plus allowable spread. 
The spread above the base rate as identified in the Note may not be changed 
during the life of the loan without the written agreement of the Borrower. 
iv. Default interest rates are not permitted. 
v. For loans with a variable interest rate, the following terms must be defined: 
a) 
Base Rate: 
i) There are three acceptable base rates: 
(a) 
The Prime Rate; 
(b) 
One Month London Interbank Offered Rate (LIBOR) plus 3 
percentage points (LIBOR Base Rate); or 
(c) 
The SBA Optional Peg Rate. 
ii) The Prime or LIBOR Base Rate will be that rate which is in effect on 
the first business day of the month, as identified in a national financial 
newspaper or website. This rate may be found in the newspaper on the 
second business day of the month. If a website is used, please ensure 
whether it is publishing the current day’s rate or the previous day’s 
JX019.240
a. 
App.3497
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 241 
rate as some newspaper websites publish the previous day’s rate. The 
Optional Peg Rate is a weighted average of rates the Federal 
government pays for loans with maturities similar to the average 7(a) 
loan. SBA calculates and publishes the Optional Peg Rate quarterly in 
the Federal Register. Base Rates will be rounded to two decimal places 
with .004 being rounded down to .00 and .005 being rounded up to .01. 
NOTE: This SOP continues to include the LIBOR Base Rate as an 
option for the calculation of the maximum allowable variable interest 
rate for 7(a) loans in accordance with 13 CFR § 120.214(c). The U.K. 
Financial Conduct Authority announced that it would phase-out 
LIBOR by the end of 2021. SBA encourages Lenders to consider 
LIBOR’s imminent phase-out when selecting a base rate. For existing 
7(a) loans with LIBOR as the base rate, SBA encourages Lenders to 
examine their loan documents to determine whether LIBOR may be 
replaced with a fallback rate. If no such provision exists in individual 
loan documents, Lenders should consider amending the appropriate 
document(s) in anticipation of LIBOR’s phase-out. It is important to 
note that any changes to the interest rate must be made in accordance 
with paragraph c.ii.b) below. The Federal Reserve Alternative 
Reference Rates Committee has drafted recommended fallback 
language for contracts tied to LIBOR: 
https://www.newyorkfed.org/arrc/fallbacks-contract-language. 
b) 
Frequency of change; 
c) 
Range of fluctuation; and 
d) 
Ceiling and floor (if any). 
vi. After approval and prior to final disbursement, Lender must either notify the 
LGPC of any changes to the Note terms related to the interest rate or make 
the change through E-Tran servicing. After final disbursement, Lender must 
either notify the appropriate Commercial Loan Servicing Center of any 
changes to the Note terms related to the interest rate or make the change 
through E-Tran servicing. 
 Loans up to and including $50,000: Base Rate, Allowable Spread, and Allowable 
Variance (13 CFR § 120.214): 
i. A loan may have a variable interest rate. The base rate may be one of the 
following: 
a) 
The Prime Rate; 
b) 
The One Month LIBOR plus 3 percentage points (LIBOR Base Rate); 
or  
c) 
The SBA Optional Peg rate. 
JX019.241
b. 
App.3498
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 242 
ii. The allowable spread is based on the maturity of the loan.  
a) 
For loans with an original maturity less than 7 years, the maximum 
allowable rate cannot exceed 2.25 percentage points over the prime rate.  
b) 
For loans with an original maturity of 7 years or longer, the maximum 
allowable rate cannot exceed 2.75 percentage points over the prime rate.  
c) 
The spread as identified in the Note may not be changed during the life 
of the loan without the Borrower’s written consent.  
iii. Lenders are permitted to add an additional 1 percentage point to the 
maximum interest rate listed above for those loans greater than $25,000 but 
not more than $50,000. 
iv. Lenders are permitted to add an additional 2 percentage points to the 
maximum interest rate listed above for those loans of $25,000 or less.  
v. The Lender must designate on its application for guaranty the amount of the 
percentage spread to be added to the base rate at each adjustment date. 
 Policy on Variable Interest Rates 
i. Standard Policy: 
SBA’s maximum allowable interest rate applies only to the initial Note rate 
on a variable rate loan. Subsequent changes in the base rate are not subject to 
the maximum rate at the time of loan application; however, the maximum 
spread over the base cannot exceed SBA’s stated maximum. 
ii. Post-Approval Changes to the Interest Rate: 
a) 
Pre-Disbursement Changes: After loan approval and prior to first 
disbursement, the Lender may change the initial Note rate, including 
changing the base rate, the spread over the base rate, or changed from a 
fixed rate to a variable rate, or from a variable rate to a fixed rate, 
provided the new interest rate does not exceed the maximum allowable 
interest rate at the time of the loan application. The Lender must obtain 
the Borrower’s written consent to the change in the interest rate 
(separate and apart from executing the loan documents) and must either 
notify the LGPC of the change or make the change through E-Tran 
servicing. 
For example, an SBA-guaranteed loan was approved with a variable 
rate. Since the loan was approved, the prime rate changed. The 
Borrower has asked the Lender if the loan can be switched to a fixed 
rate. If the loan has not been disbursed and the fixed rate selected does 
not exceed the maximum allowable fixed rate at the time of loan 
application, the Lender may make this change per the Borrower’s 
request. 
b) 
Post-Disbursement Changes: After the loan is disbursed, on a variable 
rate loan, the Lender may change the base rate or the spread over the 
base rate as long as the new base rate or spread is based on a method 
JX019.242
C. 
App.3499
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 243 
permitted when the loan was approved and is consistent with the interest 
rate regulations at the time the loan was approved. The Lender must 
obtain the Borrower’s written agreement and must either notify the 
appropriate SBA CLSC of the change or make the change through 
E-Tran servicing. For further guidance see SOP 50 57.  
iii. Frequency of Interest Rate Adjustment: 
a) 
The first adjustment may occur on the first calendar day of the month 
following initial disbursement, using the base rate in effect on the first 
business day of the month. Lenders may delay the initial adjustment 
period. For example, Lenders have used periods as long as 5 years in 
order to provide the Borrower with an interest rate that is set for the first 
5 years of the loan. After that time, the interest rate will begin to 
fluctuate as stated in the Authorization. 
b) 
The Lender must specify in the Note the frequency at which the interest 
rate adjustment will occur. 
i) This adjustment period as identified in the Note may not be changed 
without the written consent of the Borrower. 
ii) Subsequent adjustments may occur no more frequently than monthly. 
All subsequent adjustments will set the interest rate on the first 
calendar day of the adjustment period using the base rate in effect on 
the first business day of the adjustment period. 
iii) The rate of interest will change on the first calendar day of the 
adjustment period even though the rate may not be known until the 
second business day of that period. 
For example, if the first of the month is a Sunday, the base rate is the 
prime rate in effect on Monday. This rate will be reported in the Wall 
Street Journal on Tuesday, the third calendar day and second business 
day of the month. Many lenders use the calendar quarter as the 
adjustment period, especially those that sell the guaranteed portion in 
the Secondary Market. 
c) 
After the interest rate begins fluctuating, the loan can be re-amortized. 
Typically, loans are re-amortized every time the interest rate is adjusted 
to ensure full amortization by the maturity date. 
iv. Interest Rate Requirements for an SBA Note: 
a) 
For fixed rate loans, the Lender must state the specific interest rate in 
the Note. 
b) 
For variable rate loans, the Lender must include the following 
information in the Note: 
i) Identification of the rate being used as the base rate; 
JX019.243
App.3500
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Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 244 
ii) The publication in which the designated base rate appears regularly 
(e.g. Wall Street Journal or the Federal Register if using the SBA 
Optional Peg Rate); 
iii) The permanent percentage spread to be added to the base rate; 
iv) The initial interest rate of the loan (from disbursement to first 
adjustment); 
v) The date or timing of the first rate adjustment; and  
vi) The frequency of rate adjustment. 
v. Interest Rate Ceilings and Floors: 
SBA will permit a Lender to limit the upward and downward adjustments by 
establishing a floor and ceiling provided that:  
a) 
Both the floor and ceiling are stated in the Note; and  
b) 
The difference between the stated rate in the Note and the floor is equal 
to or greater than the difference between the stated rate in the Note and 
the ceiling.  
For example, if the Note rate is 10% and the ceiling is 12%, the floor 
must be 8% or lower. 
vi. Accrual Method: 
SBA does not require a specific accrual method, unless the loan is sold in the 
Secondary Market. Loans sold on the Secondary Market must either use 
30/360 or Actual/365 as the interest accrual methods. While the interest 
accrual method 365/360 is permitted on loans not sold on the Secondary 
Market, Lenders are cautioned that they cannot use this accrual method and 
charge the maximum allowable rate of interest because this will result in an 
Annual Percentage Rate that exceeds SBA’s regulatory maximum. 
vii. Amortization: (13 CFR § 120.214(f)):  
Lender should use an amortization schedule that is appropriate for the type of 
loan. SBA does not allow balloon payments. A fixed interest rate loan must 
use a payment that will fully amortize the loan by the maturity date. 
Typically, variable rate loans are re-amortized every time the interest rate is 
adjusted to ensure full amortization by the maturity date. The amortization 
schedule may also be adjusted to meet the cash flow needs of the business.  
 Fixed and Variable Rate Combinations:  
The Lender may use a fixed rate on either the guaranteed or unguaranteed portion 
and a variable rate on the other portion of the loan. SBA allows such 
combinations as long as neither rate exceeds the SBA maximum interest rate. A 
Lender may use this structure to make a loan that permits it to retain a variable 
interest rate on the unguaranteed portion and sell a fixed rate guaranteed portion 
on the Secondary Market. If the Lender uses a combination, the entire loan is 
JX019.244
d. 
App.3501
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 245 
considered to be a variable interest rate loan. The interest rate on both the 
guaranteed and unguaranteed portions must be based on the variable rate.  
 Interest Rate Swap Contracts: 
i. An interest rate swap is a contract between two parties where one party pays 
a fee in exchange for an agreement by the other party to pay any interest in 
excess of an established amount. The contract may last for all or part of the 
term of the loan. The swap contract only relates to the payment of interest.  
Example: A Borrower has a prime plus 2% interest rate on a 7(a) variable 
rate guaranteed loan. The Borrower could purchase an interest rate swap 
contract that would set the interest rate at 8%. When the Note rate is lower 
than the rate paid by the Borrower on the swap contract (8%), the swap seller 
keeps the extra amount as compensation for the risk that rates will at some 
point exceed 8%. When the Note rate is higher than the rate paid by the 
Borrower on the swap contract, the Borrower would continue to pay the fixed 
rate of 8% and the swap seller would pay the difference above 8% to the 
Lender. The ability to stabilize the amount of the loan payment each month is 
the benefit to the Borrower of an interest rate swap contract. 
ii. In order to use an interest rate swap in the 7(a) program, the interest rate 
swap contract must meet the following conditions: 
a) 
The interest rate swap contract is an agreement between the small 
business Borrower and the Lender or, if the swap seller is not the lender, 
a third party. SBA is not a party to the interest rate swap contract. 
b) 
The interest rate swap contract does not affect the amount of money 
owed by the Borrower to SBA in the event SBA purchases the guaranty. 
In the event of a Borrower default, interest will be calculated using the 
base rate and spread in the variable interest rate Note, not the swap 
contract. 
c) 
SBA will not be responsible if the swap seller defaults during the life of 
the contract. The Borrower will be liable for the interest as required in 
the Note.  
d) 
Loans with accompanying interest rate swap contracts may be sold on 
the secondary market. The Lender is still required under the secondary 
market contract (SBA Form 1086) to forward interest and principal 
pursuant to the original terms of the loan. It is the Lender’s 
responsibility to work with the swap seller to make sure funds are 
available for submission to the fiscal and transfer agent according to the 
time schedule in the Form 1086. 
e) 
The full amount of the principal and interest required under the Note 
must be reported by the lender on the SBA Form 1502. 
f) 
SBA will not review swap contracts for Borrowers or provide guidance 
on their use. While swap contracts should not have a significant impact 
JX019.245
e. 
App.3502
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Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 246 
on the cost of the loan, SBA will not publish any guidelines on the cost 
of these contracts. 
g) 
The Borrower must sign a statement acknowledging that interest will be 
calculated at the Note rate if the swap contract is terminated.  
h) 
The following statement must be included in the swap contract that is 
executed by the Borrower and the swap seller: “The Small Business 
Administration is not a party to this contract and does not guarantee it. 
In the event SBA is called upon to honor its guaranty to the Lender, the 
Borrower’s debt will be determined by the terms of the Note, including 
the variable interest rate provision.” 
i) 
Swap contracts may be used on new or existing loans. 
j) 
The swap contract does not have to last for the entire length of the loan 
agreement. 
k) 
SBA does not have a standard form for an interest rate swap contract. 
l) 
Any fees owed the swap counterparty as a result of the default by the 
Borrower will be subordinated to the SBA 7(a) loan. 
C. CREDIT STANDARDS 
The policies that make up SBA’s credit standards begin with the requirements outlined in 13 
CFR §§ 120.101 and 120.150. This section provides procedural guidance as to what the Lender 
should or must consider when analyzing any request for financial assistance that will be 
guaranteed by SBA. 
A Lender must analyze each application in a commercially reasonable manner, consistent with 
prudent lending standards. The cash flow of the Applicant is the primary source of repayment, 
not any expected recovery from the liquidation of collateral. Thus, if the Lender’s financial 
analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely 
manner from the cash flow of the business, the loan request must be declined, regardless of the 
collateral available or outside sources of repayment. 
1. Processing Methods 
Once submitted to the LGPC, an application withdrawn by a Lender, screened-out, or 
declined by the LGPC may not be approved by any Lender under its PLP Authority. 
E-Tran and SBA One will not permit the submission of such an application under any 
Lender’s PLP authority for a period of 12 months from the date of the withdrawal, 
screen-out, or decline of the application. 
 Non-delegated – When a Lender submits a Standard 7(a) or 7(a) Small loan 
guaranty request under the non-delegated processing method, the Lender submits 
the application and supporting documents to SBA. SBA will make the final 
determination as to the eligibility and creditworthiness of the Applicant, including 
approving the uses of proceeds, the adequacy of the collateral being pledged, the 
structure of the loan, and any equity contribution to be required from the 
Applicant. 
JX019.246
a. 
App.3503
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 247 
 PLP – When a Lender submits a Standard 7(a) or 7(a) Small loan guaranty request 
under the Lender’s PLP authority, the Agency does not review the Lender’s 
determination of eligibility, analysis of the credit, or structure of the loan or line 
of credit prior to issuing a loan number. The Lender must analyze eligibility and 
credit worthiness in accordance with SBA Loan Program Requirements and 
properly document its file. The PLP Lender’s analysis is subject to SBA’s review 
and determination of adequacy, when the Lender requests SBA to purchase its 
guaranty or when SBA is conducting lender oversight activities. 
2. Underwriting 
a. Standard 7(a) Loans (Loans greater than $350,000 and loans of $350,000 or less 
that do not meet SBA’s minimum acceptable credit score): 
i. Lender’s Credit Analysis: 
The Lender’s credit memorandum and analysis must address the Applicant’s 
ability and likelihood to repay the loan from the cash flow of the business 
and past performance by documenting the following: 
a) 
A description and history of the business, including: 
i) Nature of the business; 
ii) Length of time in business under current management; 
iii) Depth of management experience in the industry or a related industry;  
iv) Brief description of the business’s management team including 
principal’s involvement in the daily onsite management of the business 
or how the daily operations will be managed if the principals are not 
there on a daily basis; and  
v) If the daily operations will be handled under a management agreement,  
(a) PLP Lenders processing an application under their delegated 
authority must obtain a copy of the management agreement, review 
it to determine if it creates affiliation between the Applicant and 
the management company or results in a passive business, and 
retain in their loan file. SBA will review this determination at time 
of guaranty purchase or when conducting lender oversight 
activities. The PLP Lender bears the risk of an incorrect 
determination. 
(b) Lenders processing an application on a non-delegated basis must 
submit a copy of the management agreement to the LGPC with 
their application. 
(c) See Section A, Ch. 1, Para. D.5, Affiliation based on Management 
of this Part for further guidance on management agreements. (13 
CFR § 121.301(f)(3)) 
JX019.247
b. 
App.3504
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 248 
b) 
Financial analysis of repayment ability:  
i) For existing businesses based on the three most recent years of 
historical financial information (tax returns or balance sheet with debt 
schedule and income statement) plus an interim financial statement. 
(13 CFR § 120.191) 
ii) For new businesses, based on detailed projections, including the 
supporting assumptions which reflect positive cash flow within 
2 years. 
iii) The financial analysis for all Applicants must address the following as 
applicable: 
(a) Historical cash flow for existing businesses, that demonstrates total 
debt service coverage after the SBA loan; if the historical cash 
flow does not show sufficient debt service coverage, Lender must 
obtain from the Applicant and analyze 2 years of detailed 
projections including the supporting assumptions justifying relying 
on projections instead of historical performance; 
(b) Calculation of operating cash flow (OCF) defined as earnings 
before interest, taxes, depreciation, and amortization (EBITDA); 
(c) Justification for additions and subtractions to cash flow such as the 
following: 
 Unfunded capital expenditures; 
 Non-recurring income; 
 Expenses and distributions; 
 Distributions for S-Corp taxes; 
 Rent payments; 
 Owner’s Draw; and/or 
 Global cash flow analysis that includes assessment of impact 
on cash flow to/from any affiliate business; 
(d) The effect any affiliates may have on the ultimate repayment 
ability of the Applicant. 
c) 
Debt Service (DS) is defined as the future required principal and interest 
payments on all business debt inclusive of new SBA loan proceeds. The 
Applicant’s debt service coverage ratio (OCF/DS) must be equal to or 
greater than 1.15 on a historical and/or projected cash flow basis and 1:1 
on a global basis. To perform a complete analysis of debt service, it is 
important for a Lender to obtain a current debt schedule prepared by the 
Applicant, including any shareholder debt.  
d) 
For cash flow projections, the Lender must calculate the debt service 
coverage and provide the assumptions supporting the projected cash 
flow coverage, including as applicable: 
JX019.248
(i) 
(ii) 
(iii) 
(iv) 
(v) 
(vi) 
(vii) 
App.3505
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 249 
i) Justification for revenue growth, i.e. new product lines, sales channels, 
and new production facilities; 
ii) Justification for any reduction in expenses; and 
iii) A comparison to current industry trends. 
e) 
Spread of pro-forma Business Balance Sheet (current business balance 
sheet adjusted for all changes in assets and liabilities as a result of the 
SBA loan, other debt, any required equity injection and use of loan 
proceeds); 
f) 
Ratio calculations (based on the pro-forma Balance Sheet and historical 
and projected Income Statements) for the following financial ratio 
benchmarks: Current Ratio, Debt/Tangible Net Worth, Debt Service 
Coverage, and any other ratios the Lender considers significant for the 
business/ industry (e.g., inventory turnover, receivables turnover, and 
payables turnover, etc.) including discussion of Lender’s comparison to 
industry trends; 
g) 
Analysis of working capital adequacy, at a minimum over the next 12 
months; 
h) 
Assessment of collateral adequacy adjusted in accordance with 
paragraph C.3.d., Collateral Requirements for Standard 7(a) Loans in 
this Chapter below to offset risk of default; 
i) 
Insurance Requirements, including: 
i) Life Insurance – on whom and how much. If Life Insurance will not be 
required, provide justification. 
ii) Business hazard & liability insurances. 
iii) Other Insurances, such as specialty insurance appropriate for the type 
of business, e.g. malpractice insurance or product liability insurance. 
(See Section A, Ch 6, Para. C, Insurance Requirements, of this Part for 
further guidance.) 
j) 
Explanation of and justification for the refinancing of any debts as part 
of the loan request, along with supporting documentation, in accordance 
with the debt refinancing requirements in paragraph A, 1. above in this 
Chapter. In addition, Lender must include a written explanation for any 
late payments. 
k) 
Lender’s rationale for recommending approval, including a discussion 
and analysis of the following: 
i) The factors demonstrating the Applicant does not have credit available 
elsewhere on reasonable commercial terms from non-Federal, non-
State, non-local government sources, in accordance with Section A, 
Ch. 1, Para. E., Demonstrate the Need for Desired Credit in this Part; 
JX019.249
App.3506
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 250 
ii) When 50 percent or more of the loan proceeds will be used for 
working capital, Lender must explain in its credit memorandum why 
this level of working capital is necessary and appropriate for the 
subject business; 
iii) Competition; 
iv) Seller financing; 
v) Stand-by agreements; 
vi) 90+ day delinquencies; 
vii) Trade disputes and/or; 
viii) Federal, State, or local citations which would preclude the Applicant 
from normal business operations; 
ix) For a change of ownership, discussion/analysis of the business 
valuation used to support the purchase price (see paragraph C.3.f.v, 
Business Valuation Requirements - Change of Ownership below.); 
x) Discussion of any liens, judgments, bankruptcy filings or pending 
litigation including divorce proceedings; and 
xi) Discussion of other relevant information (for example, if the 
application involves a franchise, Lender must review any credit 
information provided such as the number of failed franchisees and 
cash flow projections provided by the franchisor). 
ii. Equity requirements (13 CFR § 120.150(f)): 
a) 
Depending on whether the loan is processed on a non-delegated or PLP 
basis, the Lender or SBA must determine that there is sufficient invested 
equity. To do this, the Lender (for PLP loans) or SBA (for non-
delegated loans) must determine if the equity position, any required 
equity contribution, and the pro forma debt-to-worth are acceptable 
based on the factors related to the type of business, experience of 
management and the level of competition in the market area. The 
Lender must include in its credit memorandum a detailed discussion of 
the equity position (net worth) and any required equity injection. (See 
Chapter 5, Para. D., Loan Closing and Disbursement of this Section for 
requirements concerning documenting and verifying equity injection.) 
b) 
Minimum equity injection requirements for certain Applicants or loans: 
i) Start-Up Businesses – At a minimum, SBA considers an equity 
injection (Applicant contribution) of at least 10 percent of the total 
project costs (all costs required to become operational, regardless of 
the source of funds) to be necessary for a Start-Up Business to operate 
on a sound financial basis. SBA considers a business to be a “start-up” 
for the purpose of determining equity injection requirements if it has 
been in operation (i.e., generating revenue from intended operations) 
for 1 year or less; 
JX019.250
App.3507
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 251 
ii) Changes of ownership: 
(a) Resulting in a new owner (complete change of ownership): At a 
minimum, SBA considers an equity injection of at least 10 percent 
of the total project costs (all costs required to complete the change 
of ownership, regardless of the source of funds) to be necessary for 
such transactions. Seller debt may not be considered as part of the 
equity injection unless it is on full standby for the life of the SBA 
loan and it does not exceed half of the required equity injection; 
(b) Change of ownership between existing owners (“partner buyout”): 
If the 7(a) loan will finance more than 90% of the purchase price 
of a partner buyout, both of the following must be met: 
 The remaining owner(s) must certify that he/she has been 
actively participating in the business operation and held the 
same or an increasing ownership interest in the business for at 
least the past 24 months. Lender must include in the credit 
memorandum confirmation that the Borrower has made the 
required certification and retain such certification in the file. 
 The business balance sheets for the most recent completed 
fiscal year and current quarter must reflect a debt-to-worth 
ratio of no greater than 9:1 prior to the change in ownership.  
In the event the Lender is unable to document that both (i) and (ii) 
above are satisfied, the remaining owner(s) must contribute cash in the 
amount of at least 10% of the purchase price of the business, as 
reflected in the purchase and sale agreement.  
c) 
Source of Equity Injection: 
i) The following may be considered as equity injection: 
(a) Cash that is not borrowed. 
(b) Cash that is borrowed through a personal loan to the business 
owner with repayment demonstrated to come from a source other 
than the cash flow of the business (the salary paid to the owner by 
the business does not qualify). If the personal loan is made by the 
participating Lender, the Lender must submit the application 
through non-delegated 7(a) processing.  
(c) Assets other than Cash – Lenders must carefully evaluate the value 
of assets other than cash that are injected by owners. An appraisal 
or other valuation by an independent third party is required if the 
valuation of the fixed assets is greater than the Net Book Value. A 
valuation of the fixed assets provided as part of a business 
valuation will not meet these requirements. 
(d) Standby debt – Only debt that is on full standby (no payments of 
principal or interest for the term of the SBA-guaranteed loan) may 
JX019.251
(i) 
(ii) 
App.3508
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 252 
be considered as equity for SBA’s purposes. A copy of the note 
must be attached to the standby agreement. 
ii) The following may not be considered as Equity Injection: 
(a) Value or cost of education; and 
(b) Funds that are borrowed and do not meet the exception noted in 
paragraph 2.c)i.(b) above. 
iii) Standby Agreements: 
(a) Lender may use SBA Form 155 or its own Standby Agreement 
form. A copy of the note must be attached to the standby 
agreement. 
(b) Standby Creditor must subordinate any lien rights in collateral 
securing the loan to Lender’s rights in the collateral and take no 
action against Borrower or any collateral securing the Standby 
Debt without Lender’s consent. 
b. 7(a) Small Loans 
(Note: If any requested increase to a 7(a) Small Loan results in a total loan(s) in 
excess of $350,000 (including loans made within 90 days of another), the Lender 
must follow the underwriting procedures for Standard 7(a) loans in paragraph 
C.2.a. above.) 
i. All 7(a) Small Loan applications will begin with a screening for a FICO® 
Small Business Scoring ServiceSM Score (SBSS Score).  
a) 
The SBSS Score is calculated based on a combination of consumer 
credit bureau data, business bureau data, Borrower financials, and 
application data (The SBSS Score is not to be confused with the Small 
Business Predictive Score (SBPS) used by SBA’s Office of Credit Risk 
Management). The minimum credit score is based on the lower end of 
the risk profile of the current SBA portfolio. As of the effective date of 
this SOP, the minimum acceptable SBSS score is 155, but that score 
may be adjusted up or down from time to time. Loans with an SBSS 
score lower than 155 must be fully underwritten under Standard 7(a) 
procedures. SBA will post on its website the minimum acceptable SBSS 
credit score for 7(a) Small Loan applications at 
www.sba.gov/partners/lenders/7a-loan-program.  
b) 
To screen the application for a credit score: 
The credit scoring system is intended as a screening tool to determine 
whether a loan is eligible for an SBA guaranty under expedited small 
loan processing. Because of the costs associated with use of this system, 
Lenders should not score the same loan multiple times or use the 
scoring system for loans that will be processed conventionally without a 
7(a) guaranty.  
JX019.252
App.3509
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 253 
The Lender will enter a minimal set of fields into E-Tran or SBA One 
Loan Origination. At this point, the Lender will not be required to 
complete the entire set of E-Tran/SBA One screens, but the Lender may 
choose to submit the entire set of E-Tran/SBA One loan origination data 
if it is easier to keep the data set intact while processing via a third-party 
software product.  
The below data fields are required to generate a credit score and are part 
of the screens used for the E-Tran/SBA One loan origination process 
and part of the specifications for loan origination software packages, 
which will make it easier to move forward with the loan application if 
the credit score is acceptable. 
i) business_legal_name 
ii) business_address 
iii) business_city 
iv) business_state 
v) business_zip 
vi) business_phone 
vii) fed_tax_id 
viii) DUNs number (if available) 
ix) For all owners of 20% or more equity in the Applicant small business, 
the following is necessary to generate the credit score: 
(a) first_name 
(b) last_name 
(c) SSN 
(d) city 
(e) state 
(f) zip 
c) 
An acceptable SBSS credit score satisfies the requirement to consider 
the following:  
i) The credit history of the Applicant (and the Operating Company if 
applicable), its Associates, and guarantors, including historical 
performance as well as the potential for long term success (character 
and reputation will be determined through the appropriate questions on 
SBA Form 1919);  
ii) The strength of the business;  
iii) Past earnings, projected cash flow, and future prospects; and  
JX019.253
App.3510
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 254 
iv) Subject to the additional analysis required below, the Applicant’s 
ability to repay the loan with earnings from the business.  
d) 
If the Applicant does not receive an acceptable SBSS credit score: 
i) Lenders may submit via E-Tran or SBA One a 7(a) loan application to 
the LGPC following the procedures in paragraph C.2.a., Standard 7(a) 
Loans. 
ii) PLP Lenders may process the application using their PLP authority 
following the procedures in paragraph C.2.a., Standard 7(a) Loans 
above. Lenders with SBA Express authority may submit the 
application via that processing method (see Chapter 2 of this Section). 
ii. Abbreviated Credit Analysis for 7(a) Small Loans: 
The Lender’s credit memorandum must demonstrate reasonable assurance of 
repayment and must include the following: 
a) 
A brief description and history of the business; 
b) 
When 50 percent or more of the loan proceeds will be used for working 
capital, Lender must explain in its credit memorandum why this level of 
working capital is necessary and appropriate for the subject business; 
c) 
A brief description of the management team of the company. Consider 
the length of time in business under current management and, if 
applicable, the depth of management experience in this industry or a 
related industry. If the loan will be for a change of ownership, Lender 
must address the experience of the new management and potential 
impact on the business going forward; 
d) 
Owner/Guarantor analysis, including obtaining personal financial 
statements, consistent with Lender’s policies for their similarly-sized 
non SBA-guaranteed commercial loans; 
e) 
The reason(s) why credit is not available elsewhere on reasonable 
commercial terms from non-Federal, non-State, non-local government 
sources, (see Section A, Ch. 1, Para. E, Demonstrate the Need for 
Desired Credit in this Part); 
f) 
A description of proposed collateral and estimated value, if secured, in 
accordance with paragraph 3, Collateral, below. 
g) 
Insurance – Lender must address whether life insurance or other 
insurances will be required. Lender may follow the same written 
policies and procedures it uses for its similarly-sized non-SBA 
guaranteed commercial loans. 
h) 
Lender must address other specifics relating to the loan as applicable, 
including: 
i) The terms of any seller financing and standby agreements; 
JX019.254
App.3511
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 255 
ii) Discussion of any liens, judgments, or pending litigation including 
divorce proceedings; 
iii) Franchise, dealer, or similar agreements (see Section A, Ch. 1, Para. 
D.6, Affiliation Based on Franchise, License, Dealer, Jobber, and 
Similar Agreements for further guidance); 
iv) Management agreements (see paragraph C.2.a.1, Lender’s Credit 
Analysis above for Standard 7(a) loans and Section A, Ch. 1, Para. 
D.5, Affiliation based on Management of this Part for further 
guidance); and 
v) Any debt refinancing, including justification and original purpose 
(copies of all notes to be refinanced must be submitted with any loan 
submitted to the LGPC), meeting the requirements of Para. A.1 of this 
Chapter. Note: Any debt refinancing must be specifically identified in 
the Use of Proceeds section of the Authorization in accordance with 
Paragraph A.1.g. of this Chapter. 
vi) The effect any affiliates may have on the ultimate repayment ability of 
the Applicant.  
iii. Equity Requirements for 7(a) Small Loans. 
a) 
The Lender must include in its credit analysis a detailed discussion of 
the required equity and its adequacy. (See Chapter 5, Para. D., Loan 
Closing and Disbursement, of this Section, for requirements concerning 
documenting and verifying equity injection). 
b) 
Minimum equity injection requirements for certain Applicants and 
loans: 
i) Start-Up Businesses – At a minimum, SBA considers an equity 
injection (Applicant contribution) of at least 10 percent of the total 
project costs (all costs required to become operational, regardless of 
the source of funds) to be necessary for a Start-Up Business to operate 
on a sound financial basis. SBA considers a business to be a “start-up” 
for the purpose of determining equity injection requirements if it has 
been in operation (i.e., generating revenue from intended operations) 
for 1 year or less; 
ii) Changes of ownership: 
(a) 
Resulting in a new owner (complete change of ownership): At a 
minimum, SBA considers an equity injection of at least 10 percent 
of total project costs (all costs required to complete the change of 
ownership, regardless of the source of funds) to be necessary for 
such transactions. Seller debt may not be considered as part of the 
equity injection unless it is on full standby for the life of the SBA 
loan and it does not exceed half of the required equity injection; 
JX019.255
App.3512
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 256 
(b) 
Change of ownership between existing owners (“partner buyout”):  
If the 7(a) Small Loan will finance more than 90% of the purchase 
price of a partner buyout, the following requirements must be met: 
 The remaining owner(s) must certify that he/she has been 
actively participating in the business operation and held the 
same or an increasing ownership interest in the business for at 
least the past 24 months. Lender must include in the credit 
memorandum confirmation that the Borrower has made the 
required certification and retain such certification in the file. 
 The business balance sheets for the most recent completed 
fiscal year and current quarter must reflect a debt-to-worth 
ratio of no greater than 9:1 prior to the change in ownership.  
In the event the Lender is unable to document that both (i) and (ii) 
above are satisfied, the remaining owner(s) must contribute cash in 
the amount of at least 10% of the purchase price of the business, as 
reflected in the purchase and sale agreement. 
c) 
Source of Equity Injection: Lenders must document and verify the 
Borrower’s equity injection per paragraph C.2.a.ii.c), Source of Equity 
Injection, requirements for Standard 7(a) Loans above and Chapter 5, 
Para. D.3.b, Documentation of Equity Injection of this Section below. 
3. Collateral 
See Section A, Ch. 6, Para. A of this Part for guaranty requirements. 
 Lenders must use commercially reasonable and prudent practices to identify 
collateral, which conforms to procedures at least as thorough as those used for 
their similarly-sized non-SBA guaranteed commercial loans. Decisions regarding 
what collateral must be taken to secure a loan are based on the circumstances of 
the individual loan, including size, and must meet the minimum requirements set 
forth in this section. 
 When loan proceeds from a Standard 7(a) Loan or 7(a) Small Loan will be used to 
refinance existing debt, the loan must be secured with at least the same collateral 
and lien priority as the debt that is being refinanced. When the debt being 
refinanced is considered to be over collateralized based upon SBA collateral 
requirements and the SBA loan will remain fully secured, the Lender may 
approve the release of excess collateral. Substitute collateral may be offered 
providing it is of comparable value and useful life and is determined to be 
acceptable by SBA or a PLP Lender processing the loan under its PLP authority. 
 Adequacy of Collateral. 
i. A loan request is not to be declined solely on the basis of inadequate 
collateral. In fact, one of the primary reasons Lenders use the SBA-
guaranteed program is for those Applicants that demonstrate repayment 
ability but lack adequate collateral to repay the loan in full in the event of 
JX019.256
(i) 
(ii) 
a. 
b. 
C. 
App.3513
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SOP 50 10 6 
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Effective October 1, 2020 
Page 257 
default. However, SBA does not permit its guaranty to be a substitute for 
available collateral. 
ii. When assessing the adequacy of collateral, the Lender must consider the 
impact that covenants and other restrictions recorded against the collateral 
may have on its value and marketability. The Lender must document this 
analysis in the file. Examples of items to review include: 
a) 
Deed restrictions, covenants, easement provisions, reversionary 
interests, subordinations, leases and options, and other provisions that 
restrict the use of the property for the benefit of a third party (note: 
certain deed restrictions pertaining to the use of the property, which are 
intended to protect the health and safety of occupants, may be 
acceptable, e.g., deed restrictions based upon environmental concerns 
including restrictions on residential use, use as a day care center for 
children or seniors, use as a school, or use as a hospital); and 
b) 
Engineering Controls that require the Applicant or subsequent owners to 
install costly devices or structures such as extraction wells or subsurface 
barrier walls prior to constructing a building, remodeling, or otherwise 
improving the property. 
 Collateral Requirements for Standard 7(a) Loans (excludes 7(a) Small Loans). 
i. SBA considers a loan as “fully secured” if the Lender has taken security 
interests in all available fixed assets of the Applicant with a combined Net 
Book Value as adjusted below, up to the loan amount. For 7(a) loans, the 
term “fixed assets” means real estate, including land and structures, 
machinery and equipment owned by the business or an EPC. 
a) 
New machinery and equipment (excluding furniture and fixtures) may 
be valued at no more than 75% of price minus any prior liens for the 
calculation of “fully secured”; 
b) 
Used or existing machinery and equipment (excluding furniture & 
fixtures) may be valued at no more than 50% of Net Book Value or 80% 
with an Orderly Liquidation Appraisal minus any prior liens for the 
calculation of “fully secured”; 
c) 
Improved real estate can be valued at no more than 85% and 
unimproved real estate can be valued at 50% of the market value for the 
calculation of “fully secured” and the value must be determined in 
accordance with the requirements set forth in paragraph C.3.f, Real 
Estate Appraisal and Business Valuation Requirements below; and  
d) 
Furniture and Fixtures may be valued at no more than 10% of Net Book 
Value or appraised value. 
ii. Collateral Shortfall 
If there is a collateral shortfall (not “fully secured”) on the SBA-guaranteed 
loan the Lender:  
JX019.257
d. 
App.3514
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 258 
a) 
Must take available equity in the personal real estate (residential and 
investment property) of any owners of 20% or more of the Applicant 
and guarantors. Liens on personal real estate may be limited to the 
amount of the collateral shortfall. In addition, liens on personal real 
estate may be limited to 150% of the equity in the collateral, if there are 
tax implications associated with the lien amount in the state where the 
lien is filed. 
b) 
May include trading assets as necessary (using no more than 10% of 
current book value for the calculation). 
iii. SBA does not require a Lender to collateralize a loan with real estate 
(including commercial, residential and investment properties owned by the 
Applicant or personally by the owners) to meet the “fully secured” definition 
when the equity in the real estate is less than 25% of the property’s fair 
market value. The Lender must document in their loan file the source (other 
than the personal financial statement) for making the determination of less 
than 25% equity. 
iv. When loan proceeds from a Standard 7(a) Loan will be used to purchase or 
improve assets, a first security interest in those assets must be obtained. 
v. Assets owned by an owner of the Applicant and Spouse: 
a) 
When an individual alone or together with his or her spouse or minor 
children owns 20% or more of the Applicant, the Lender must consider 
taking as collateral a lien on personal real estate (including commercial 
and investment properties not occupied by the Applicant) that is owned 
individually by the Applicant owner, or jointly owned by the individual 
and his or her spouse or minor children. 
b) 
Real estate transferred by the Applicant to the non-owning spouse or 
minor children within 6 months of the date of the application will not be 
exempt from consideration as available collateral. 
vi. For all loans that are collateralized by commercial real estate, Lenders must 
comply with Paragraph C.3.f., Real Estate Appraisal and Business Valuation 
Requirements, below, and with Section A, Ch. 6, Para. E, Environmental 
Policies and Procedures, of this Part. 
 Collateral Requirements for 7(a) Small Loans. 
i. For loans of $25,000 or less, the Lender is not required to take collateral. 
(Guaranties must still be obtained in accordance with Section A, Ch. 6, Para. 
A.1, Guaranties, of this Part); and 
ii. For loans over $25,000, up to and including $350,000, the Lender must 
follow the collateral policies and procedures that it has established and 
implemented for its similarly-sized, non-SBA guaranteed commercial loans, 
but at a minimum: 
a) 
Lender must take a first lien on assets financed with loan proceeds; 
JX019.258
e. 
App.3515
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 259 
b) 
Lender must take a lien on all of the Applicant’s fixed assets, including 
real estate, up to the point that the loan is fully secured, based on the 
collateral valuations used in subparagraph d., “Collateral Requirements 
for Standard 7(a) Loans (excluding 7(a) Small Loans)” above. Lender is 
not required to take a lien against Applicant’s real estate when the 
equity is less than 25% of the fair market value. The Lender may limit 
the lien taken against real estate to the amount necessary to ensure the 
loan is fully secured; and 
c) 
Lender may secure Applicant’s trading assets if it does so for its 
similarly-sized non-SBA guaranteed commercial loans. Lender may 
also take personally-owned investment and/or residential real estate as 
collateral and may limit the liens on that collateral in accordance with 
the provisions in subparagraph d., Collateral Requirements for Standard 
7(a) Loans (excluding 7(a) Small Loans), above. 
 Real Estate Appraisal and Business Valuation Requirements 
The regulation governing real estate appraisal is set forth at 13 CFR § 120.160(b). 
i. Commercial Real Estate: 
a) 
For all Standard 7(a) Loans greater than $500,000 secured by 
commercial real property, all Lenders must obtain an appraisal by a 
State licensed or certified appraiser. Appraisals must be in compliance 
with the Uniform Standards of Professional Appraisal Practice 
(USPAP). Additionally, SBA requires that completed appraisals be 
dated within 12 months of the application for guaranty. For federally-
regulated Lenders, no exemption is granted under the Interagency 
Appraisal and Evaluation Guidelines dated December 2, 2010, for 
Transactions Insured or Guaranteed by a U.S. Government Agency. 
b) 
For all Standard 7(a) Loans $500,000 or less, and 7(a) Small Loans, 
secured by commercial real property: 
i) If the loan finances a transaction involving parties with a close 
relationship (for example, transactions between existing owners or 
family members), or if SBA or the Lender otherwise concludes that an 
appraisal is necessary to appropriately evaluate creditworthiness, the 
Lender must obtain an appraisal. 
ii) If an appraisal is not required under the preceding paragraph, all 
Lenders must obtain an appropriate evaluation of the commercial real 
estate securing the loan that is consistent with safe and sound banking 
practices. Evaluations are not required to be performed in accordance 
with USPAP or by State licensed or certified appraisers but should be 
consistent with the Interagency Appraisal and Evaluation Guidelines 
and the Interagency Advisory on the Use of Evaluations in Real 
Estate-Related Financial Transactions, issued by the Federal Banking 
Regulators. 
JX019.259
f. 
App.3516
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 260 
c) 
The appraiser must be: 
i) Independent and have no appearance of a conflict of interest (such as a 
direct or indirect financial or other interest in the property or 
transaction); and 
ii) Either State-licensed or State-certified, with the following exception: 
when the commercial property’s estimated value is over $1,000,000, 
the appraiser must be State-certified. 
d) 
In order for the appraiser to identify the scope of work appropriately, the 
appraisal must identify the Lender as the client and/or an intended user 
of the appraisal, as those terms are defined in USPAP, except that 
federally-regulated Lenders may follow their primary regulator’s 
FIRREA requirements to the extent they permit otherwise. The Lender 
may not use an appraisal prepared for the seller or the Applicant. The 
cost may be passed on to the Applicant. 
e) 
The appraisal must be an “Appraisal Report” prepared in compliance 
with USPAP. 
f) 
If the loan will be used to finance new construction or the substantial 
renovation of an existing building, the appraisal must estimate what the 
market value will be at completion of construction. (“Substantial” 
means rehabilitation expenses of more than one-third of the purchase 
price or fair market value at the time of the application.) After 
construction is completed, Lender 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. If the Lender cannot obtain such a 
statement, then the Lender may not close the loan without SBA’s prior 
written permission. 
g) 
If the SBA-guaranteed loan was used to cover the construction period, 
the Lender must notify the appropriate SBA CLSC of any deviation(s) 
and work with the SBA CLSC to determine an appropriate course of 
action, including the securing of additional collateral. The Lender’s 
notification to SBA must provide a sufficient understanding of the 
reasons for the differences in values between the estimated and actual 
values as well as a recommendation as to a remedy to offset the 
difference in values such as additional equity or additional collateral. If 
additional collateral is being required, the Lender must identify both the 
fair market and liquidation values of the additional collateral. If the 
Lender is unable to obtain a statement 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, but is able to obtain a 
new appraisal demonstrating that the market value meets or exceeds the 
original estimate of value, then no additional action on the part of the 
Lender is necessary. 
JX019.260
App.3517
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 261 
h) 
If the loan will be used to acquire an existing building that does not 
require construction, the appraiser should estimate market value on an 
as-is basis. If the appraiser estimates the value other than on an as-is 
basis, the narrative must include an explanation of why the as-is basis 
was not used. 
i) 
When valuing the collateral, the Lender must not include the 
contributory value of any rental income or the value of any intangible 
assets contained in the appraisal. 
j) 
An appraisal may be submitted as part of the loan application to assist 
with the underwriting or as part of the loan closing. In no case may the 
Lender rely on an appraisal that was prepared more than 12 months 
prior to the date of the application. 
k) 
If the Lender is going to require the appraisal at closing, the loan 
application must include an estimate of the value of the real estate and 
the estimate must be identified in the loan authorization with the 
requirement for an appraisal that supports the estimated value at time of 
closing. 
l) 
If at time of closing the appraised value: 
i) Is 90% or more of the estimated value, the Lender may close the loan 
but must include a written explanation as to why the appraisal is less 
than the estimated value in the loan file; or 
ii) Is less than 90% of estimated value, the Lender may not close the loan 
without SBA’s prior written permission (see exception below for PLP 
Lenders). The Lender’s justification to SBA must provide a sufficient 
understanding of the reasons for the differences in values between the 
estimated and actual values as well as a recommendation as to a 
remedy to offset the difference in values such as additional equity or 
additional collateral. If additional collateral is being required, the 
Lender must identify both the fair market and liquidation values of the 
additional collateral. 
iii) Exception for PLP Lenders: PLP Lenders are permitted to close a loan 
when the appraisal is less than 90% of the estimated value but the 
Lender must include a written justification as part of its file that may 
be reviewed by SBA at time of guaranty purchase or when conducting 
lender oversight activities. The justification must include a thorough 
analysis by the Lender of the reasons for the appraisal being low and 
an explanation as to what steps the Lender took to offset the risk to 
SBA from the low appraisal such as additional equity or additional 
collateral. 
ii. Non-commercial real estate or real estate securing a personal guaranty: 
SBA has no specific appraisal requirements for non-commercial real estate 
(such as a residence) or real estate (commercial or non-commercial) taken as 
collateral to secure a personal guaranty. 
JX019.261
App.3518
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 262 
iii. Other Fixed Assets: 
If the valuation of fixed assets is greater than their Net Book Value, an 
independent appraisal by a qualified individual must be obtained by the 
Lender to support the higher valuation. A valuation of the fixed assets 
provided as part of a business valuation will not meet these requirements, 
except as part of a going concern appraisal.  
iv. Additional Appraisal Requirements for all Changes of Ownership: 
For businesses that have been transferred within 36 months prior to the date 
of the loan application and the loan amount is more than $500,000, SBA 
requires: 
a) 
An appraisal of the business real estate that meets the appraisal 
requirements above; and 
b) 
Either a “review” of the appraisal by another appraiser selected directly 
by the Lender or a site visit by a senior member of the Lender’s staff. 
The Lender must document the file and include the date of the visit and 
a description of the items reviewed on site. 
v. Business Valuation Requirements – Change of Ownership: 
a) 
Determining the value of a business (not including real estate which is 
separately valued through a real estate appraisal) is the key component 
to the analysis of any loan application for a change of ownership. An 
accurate business valuation is required because the change in ownership 
will result in new debt unrelated to business operations and potentially 
the creation of intangible assets. A business valuation assists the buyer 
in making a determination that the seller’s asking price is supported by 
an independent Qualified Source (see definition in Appendix 3). 
b) 
In order for the individual performing the business valuation to identify 
the scope of work appropriately, the business valuation must be 
requested by and prepared for the Lender. The scope of work should 
identify whether the transaction is an asset purchase or stock purchase 
and be specific enough for the individual performing the business 
valuation to know what is included in the sale (including any assumed 
debt). The business valuation must include the individual’s conclusion 
of value, the qualifications of the individual performing the business 
valuation and their signature certifying to the information contained in 
the business valuation. The Lender may not use a business valuation 
prepared for the Applicant or the seller. The cost of the business 
valuation may be passed on to the Applicant. 
i) Non-Special Purpose Properties: 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
JX019.262
App.3519
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 263 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source.  
(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment is greater than $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
transactions between existing owners or family members), the 
Lender must obtain an independent business valuation from a 
Qualified Source. 
ii) Special Purpose Properties: A “Special Purpose Property” is a limited-
market property with a unique physical design, special construction 
materials, or a layout that restricts its utility to the specific use for 
which it was built. 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source. 
(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is over $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
transactions between existing owners or family members) and the 
business operates from a Special Purpose Property, the Lender 
must obtain an independent business valuation performed by a 
Certified General Real Property Appraiser. 
(c) 
The business valuation must allocate separate values to the 
individual components of the transaction including land, building, 
equipment, and intangible assets. 
(d) 
The Certified General Real Property Appraiser must have 
completed no less than four going concern appraisals of equivalent 
special use property as the property being appraised, within the last 
36 months, as identified in the qualifications portion of the 
Appraisal Report. 
(e) 
Each business valuation assignment under this section must be 
undertaken with a specific instruction for the Certified General 
Real Property Appraiser to conduct the appraisal in compliance 
with current USPAP guidelines. 
iii) If the application will be submitted to the LGPC, the business 
valuation must be submitted as part of the loan application. 
iv) If the application will be submitted under PLP authority, the business 
valuation may be obtained and reviewed after the issuance of an SBA 
JX019.263
App.3520
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 264 
Loan Number and prior to closing. If the Lender is processing the 
application under PLP authority and requests the business valuation 
after issuance of an SBA Loan Number, the credit memorandum must 
include an estimate of the value of the business. The credit 
memorandum must be updated after receipt of the business valuation 
to include a comparison of the loan amount and the business valuation. 
v) Any amount(s) of the loan proceeds that will be used to facilitate a 
change of ownership may not exceed the business valuation. 
vi) Lender Verification of Business valuation Financial Data: 
Lender must obtain a copy of the financial information relied upon by 
the individual who performed the business valuation and verify that 
information against the seller’s IRS transcripts to ensure the accuracy 
of the information. 
D. SUBMISSION OF APPLICATION FOR GUARANTY 
1. Contents of Lender’s Application for Guaranty 
The contents of the Lender’s application for guaranty vary depending on the size of the 
loan and the method of processing chosen by the Lender. Based on the method of 
processing, the Lender may or may not be required to submit the documentation and 
exhibits to SBA, but in all cases must maintain those documents and any that support the 
guaranty request in their loan files.  
The Lender must disclose 100% of the Applicant’s ownership on SBA Form 1919 and in 
E-Tran or SBA One in order to submit a loan application. Each owner must be identified 
in E-Tran or SBA One. 
SBA Form 1919 includes information on the number of employees at the time of 
application and the number of jobs to be created and/or retained as a result of the loan. 
Jobs “created” means the number of full-time (or equivalent) employees that the small 
business expects to hire as a result of the loan. Jobs “retained” means the number of full-
time (or equivalent) employees on the payroll of the business at the time of application 
that will be lost if the loan is not approved. 
 Standard 7(a) Loans and 7(a) Small Loans: 
Program forms can be found at www.sba.gov/document. 
i. Centralized 7(a) Loan Submission Instructions can be found at the 7(a) Loan 
Guaranty Processing Center (“LGPC”) website along with other forms, 
telephone numbers and fax numbers: www.sba.gov/CitrusHeightsLGPC. 
ii. All Standard 7(a) Loan and 7(a) Small Loan files must include the forms and 
information the Lender requires in order to make an informed eligibility and 
credit decision. Any application form obtained by the Lender from the 
Applicant must be certified by the Applicant as true and complete.  
 PLP Lenders processing loans under their PLP authority must obtain and retain 
the documentation listed below in their file.  
JX019.264
a. 
b. 
App.3521
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 265 
 Standard 7(a) Loans (see subparagraph d. below for specific requirements for 
7(a) Small Loans): 
For all loans submitted using the non-delegated process through the LGPC 
(including loans from PLP Lenders using this processing method), Lender must 
obtain and retain in its file all documentation listed below. In addition, Lender 
must submit as part of the application for guaranty those items below emphasized 
in bold.  
i. Lender must complete and sign SBA Form 1920. 
ii. Applicants and Associates must complete and sign SBA Form 1919, 
“Borrower Information Form.” SBA Form 1919 must be signed by the 
following: 
a) 
For a sole proprietorship, the sole proprietor; 
b) 
For a partnership, all general partners, and all limited partners owning 
20% or more of the equity of the firm, or any partner that is involved in 
management of the Applicant; 
c) 
For a corporation, all owners of 20% or more of the corporation and 
each officer and director; 
d) 
For limited liability companies (LLCs), all members owning 20% or 
more of the company and each officer, director, and managing member; 
e) 
Any Key Employee; and 
f) 
Any Trustor (if the Small Business Applicant is owned by a trust). 
g) 
When the combined ownership interest between spouses and minor 
children is 20% or more, both spouses must complete SBA Form 1919. 
When 20% or more ownership interest is held by a corporation, partnership, 
or other form of legal entity in the Applicant or OC, the ownership interests 
of all individuals must be disclosed.  
A separate Section I of SBA Form 1919 is required to be completed and 
signed for each co-applicant (e.g. Eligible Passive Company (EPC) and 
Operating Company (OC)). 
All parties listed in subparagraph c.ii. above are considered “Associates” of 
the Small Business Applicant as defined in 13 CFR 120.10. A separate 
Section II is required to be completed and signed by each principal of the 
Small Business Applicant. 
iii. Lender’s Credit Memo must address all requirements detailed in 
paragraph C, Credit Standards in this chapter. 
iv. Character Determination: 
a) 
If questions 17, 18, and 19 of SBA Form 1919 are all answered “no,” a 
Character Determination is not required. 
b) 
If question 17 is answered “yes,” the loan is not eligible.  
JX019.265
C. 
App.3522
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 266 
c) 
If question 18 or 19 is answered “yes,” the Subject Individual and 
Lender must follow the steps as outlined in Section A, Ch. 3, Para. B, 
Character Determinations, of this Part prior to submission of the 
application to the LGPC for a non-delegated loan and prior to 
submitting the request for a loan number for a PLP loan. 
v. Personal Financial Statement dated within 90 days of submission to SBA, 
for all owners of 20% or more (including the assets of the owner’s spouse 
and minor children), and proposed guarantors. Lenders may use SBA Form 
413 or their own equivalent form. 
vi. Business financial statements and/or tax returns dated within 120 days prior 
to submission to SBA, consisting of: 
a) 
Year End Balance Sheet for the last 3 years, including detailed debt 
schedule; 
b) 
Year End Profit & Loss Statements for the last 3 years; 
c) 
Reconciliation of Net Worth; 
d) 
Interim Balance Sheet; and  
e) 
Interim Profit & Loss Statements; 
vii. Affiliate/Subsidiary financial statement requirements same as above; 
viii. Copy of Lease, if applicable; 
ix. Detailed listing of machinery and equipment to be purchased with loan 
proceeds and cost quotes, if applicable; 
x. Detailed listing of collateral (may be included in the Lender’s credit memo); 
xi. Provide the following if real estate is to be purchased with loan proceeds: 
a) 
Appraisal (See appraisal requirements in paragraph C.3.f, Real Estate 
Appraisal and Business Valuation Requirements in this Chapter; 
b) 
Copy of signed purchase agreement; 
c) 
Lender’s environmental questionnaire (if applicable – see Section A, 
Ch. 6, Para. E, Environmental Policies and Procedures, of this Part); and  
d) 
Cost breakdown where improvements to the real estate are included; 
xii. Provide the following if purchasing an existing business with loan proceeds: 
a) 
Copy of buy-sell agreement; 
b) 
Copy of business valuation that meets the requirements in paragraph 
C.3.f.v, Business Valuation Requirements - Change of Ownership in 
this Chapter; 
c) 
Pro forma balance sheet for the business being purchased as of the 
date of transfer; 
JX019.266
App.3523
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 267 
d) 
Copy of seller’s financial statements for the last 3 complete fiscal 
years or for the number of years in business if less than 3 years. The 
financial statements must be dated and either signed or certified by the 
seller within 120 days prior to submission to SBA; and 
e) 
Seller’s interim financial statements no older than 120 days from date 
of submission to SBA. The financial statements must be dated and 
either signed or certified by the seller. If seller’s financial statements are 
not available, the seller must provide an alternate source of verifying 
revenues. If seller’s financial statements are not available, Lender must 
discuss in its credit analysis: 
i) Why financial statements are not available; and 
ii) How the Lender verified business revenue. 
xiii. Franchise: 
a) 
For non-delegated loans:  
i) If the Applicant’s brand meets the FTC definition of a franchise, 
Lender must identify the name of the franchise and the SBA Franchise 
Identifier Code when entering the application into E-Tran or SBA 
One. Lender must ensure that the brand name (and, where applicable, 
the type of agreement) the Applicant will be operating under matches 
the brand name (and, where applicable, the type of agreement) listed 
on the Directory. The LGPC will confirm that the brand is listed on the 
SBA Franchise Directory; 
ii) If the Lender determines that the Applicant’s brand does not meet the 
FTC definition of a franchise, and it is not on the Directory, Lender 
must explain its determination in its credit memorandum when 
submitting the application to the LGPC and provide the agreement and 
any additional documentation required by the brand. Lender also must 
provide contact information for the franchisor/licensor (name and 
email address only). The LGPC will forward the documentation and 
contact information to the SBA Franchise Team for review and final 
determination; 
iii) If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code for the brand that 
generates the largest amount of the Applicant’s revenue when entering 
the application into E-Tran or SBA One. The Lender must identify all 
other brands and SBA Franchise Identifier Codes (if applicable) in the 
Lender’s credit memorandum, and must identify which of the 
Applicant’s brands are critical to the Applicant’s business operation, 
including an explanation of the basis for that determination (e.g., a 
breakdown of revenue by brand). The LGPC will confirm that all of 
the Applicant’s brands are eligible for SBA financial assistance and 
those that meet the FTC definition of a franchise that are critical to the 
Applicant’s business operation are on the Directory. (See Section A, 
JX019.267
App.3524
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 268 
Ch 1, Para. D.6, Affiliation Based on Franchise, License, Dealer, 
Jobber, and Similar Agreements for further guidance.) 
b) 
For PLP loans:  
i) If the Applicant’s brand meets the FTC definition of a franchise, 
Lender must document in its file that the Applicant’s brand is on the 
Directory and identify the name of the franchise and SBA Franchise 
Identifier Code when entering the request for loan number into E-Tran 
or SBA One. Lender must ensure that the brand name (and, where 
applicable, the type of agreement) the Applicant will be operating 
under matches the brand name (and, where applicable, the type of 
agreement) listed on the Directory. (Lender will need to submit the 
documentation showing that the Applicant’s brand is on the Directory 
with any guaranty purchase request.) 
ii) If the Applicant’s brand is not on the Directory and the PLP Lender 
determines the brand does not meet the FTC definition and proceeds 
with approving the loan under its PLP authority, the Lender must 
document its file and will be required to submit that documentation 
with any guaranty purchase request and the PLP Lender bears the risk 
of an incorrect determination; 
iii) If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code (if applicable) for 
the brand that generates the largest amount of the Applicant’s revenue 
when entering the application into E-Tran or SBA One. The Lender 
must document in its file that all of the Applicant’s brands are eligible 
for SBA financial assistance and those that meet the FTC definition of 
a franchise that are critical to the Applicant’s business operation are on 
the Directory, and must document their file with the basis for their 
determination of which brands are critical to the Applicant’s business 
operation (e.g., a breakdown of revenue by brand). PLP Lenders will 
be required to submit all of this supporting documentation to SBA 
with any guaranty purchase request. (See Section A, Ch 1, Para. D.6, 
Affiliation Based on Franchise, License, Dealer, Jobber, and Similar 
Agreements for further guidance.) 
xiv. IRS Form 4506-T, Request for Transcript of Tax Return: 
xv. IRS Transcripts and complete verification. 
xvi. Debt Refinancing. Lenders must maintain copies of all notes, security 
agreements, leases, or other documentation evidencing the debt to be 
refinanced in the loan file. For non-delegated loans, Lender must submit 
copies of all supporting documentation for the debt to be refinanced to the 
LGPC with the application. 
xvii. Documentation of USCIS status verification – Lenders must receive 
verification of the status of each alien required to submit USCIS documents 
prior to submission of the application or request for loan number to SBA. 
JX019.268
App.3525
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 269 
Lender may submit a copy of the verification received from USCIS or SBA-
SLPC or confirm in its credit memorandum that verification has been 
obtained. 
xviii. Draft Loan Authorization (only required for PLP Lenders using the non-
delegated processing method). The latest version of the Authorization 
Boilerplate and Wizard is available at www.sba.gov/document/support-
object-object-standard-7a-authorization-file-library. 
 Specific 7(a) Small Loans requirements: 
For loans up to and including $350,000 that meet the requirements of a 7(a) Small 
Loan (including the minimum acceptable SBSS credit score), the items identified 
in paragraph D.1.c.i.-iii. above must be submitted to the LGPC. In addition, the 
items identified in paragraph D.1.c.iv, v (if the Lender requires Personal Financial 
Statements for its similarly-sized, non-SBA guaranteed commercial loans), vii, xi, 
xii, xiii, and xvi above may also need to be submitted to the LGPC depending on 
the conditions of the loan.  
2. Where to Submit Applications for Guaranty 
All 7(a) Lenders are permitted to submit applications for guaranty under non-delegated 
processing procedures. 
 Non-delegated applications – Lenders submitting applications using non-
delegated procedures (including loans from PLP Lenders) must submit 
applications for guaranty and all attachments via E-Tran or SBA One to the 
LGPC. Documents greater than 250MB must be separated into multiple 
documents. The system does not support uploads greater than 250MB.  
 PLP applications – Lenders submitting applications using their PLP authority 
must submit guaranty applications via E-Tran or SBA One, retaining all required 
documentation in the Lender’s loan file.  
 Reconsideration of Declined non-delegated Standard 7(a) Loans and 7(a) Small 
Loans Applications (13 CFR § 120.193): 
i. If the Lender believes the reason(s) for decline have been overcome, a 
request for reconsideration may be submitted along with a detailed written 
explanation of how the Applicant has overcome the reason(s) for decline. 
Lender must submit a request for reconsideration to the LGPC within 6 
months of the date of decline. Any request submitted more than 120 days 
after the date of decline must include current financial statements. 
ii. If a request for reconsideration is declined by the LGPC, a second 
reconsideration may be requested from the D/FA, whose decision is final. 
The request to the D/FA must be submitted to the LGPC and must include a 
copy of the Center’s decline letter and include additional information that 
specifically addresses the reason(s) identified for decline and how the 
Applicant has overcome those reason(s). The LGPC will forward the request 
to the D/FA for a final decision. 
JX019.269
d. 
a. 
b. 
C. 
App.3526
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SOP 50 10 6 
Part 2, Section B, Ch 1: Basic 7(a) Loans (Standard 7(a) Loans and 7(a) Small Loans) 
Effective October 1, 2020 
Page 270 
3. See Chapter 5, Authorization through Disbursement, in this Section, for SBA 
requirements for the loan Authorization, post-approval and pre-disbursement requests for 
changes, transfer of guaranty between participating Lenders, and loan closing and 
disbursement.
JX019.270
App.3527
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 271 
CHAPTER 2: SBA EXPRESS LOANS 
SBA Express was established as a permanent SBA program under P.L.108-447 and signed into 
law on December 8, 2004. The program reduces the number of government mandated forms and 
procedures, streamlines the processing, and reduces the cost of smaller, less complex SBA loans. 
The program allows Lenders to utilize, to the maximum extent practicable, their respective loan 
analyses, procedures, and documentation. In return for the expanded authority and autonomy 
provided by the program, Lenders agree to accept a maximum SBA guaranty of 50 percent. 
Lenders must always start by reviewing the contents of Section A, Core 
Requirements for all 7(a) and 504 Loans, in this Part. 
A. ELIGIBLE USES OF PROCEEDS FOR SBA EXPRESS 
SBA Express Lenders must apply and comply with all of SBA’s Loan Program Requirements, 
including the Core Requirements in Part 2, Section A of this SOP. 
SBA Express loan proceeds must be used exclusively for business-related purposes subject to 13 
CFR §§ 120.120 and 120.130 
In addition to the Core Requirements for all 7(a) and 504 Loans identified in Part 2, Section A of 
this SOP, SBA Express Loans loan proceeds may be used for: 
1. Debt Refinancing 
Loan proceeds may not be used to pay a creditor in a position to sustain a loss (including 
the same institution’s debt). This includes refinancing debt that will shift all or part of a 
potential loss from the original Lender to the SBA. 13 CFR §§ 120.140(j)(1) and 120.201 
 A Lender may refinance an existing non-SBA-guaranteed loan or Borrower debt 
from another lender if: 
i. The Lender determines that the existing loan no longer meets the needs of the 
Applicant (for example, if the current loan is a term loan and a revolver is 
needed); and 
ii. The new loan meets the SBA 10 percent improvement to debt service 
coverage requirement in paragraph e. below; however, a new SBA Express 
loan is not subject to SBA’s 10 percent improvement to debt service 
coverage requirement if the debt to be refinanced is a revolving line of credit.  
 A Lender may refinance its own non-SBA guaranteed debt to the Applicant if:  
i. The conditions in a.i) and a.ii) above are met;  
ii. The debt to be refinanced is, and has been, current for at least the last 36 
months or for the life of the loan, whichever is longer. (SBA Form 1920 
includes the relevant Lender certification.) “Current” means that a required 
payment has not remained unpaid for more than 29 days. A loan that has 
JX019.271
a. 
b. 
App.3528
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 272 
matured and not been paid within 29 days of the maturity date is not current 
and is not eligible for refinancing; and 
iii. The Lender’s credit exposure to the Applicant will not be reduced.  
 An SBA Express Lender may refinance an existing SBA-guaranteed loan from 
another lender only if:  
i. The transaction is the purchase of an existing business that has an existing 
SBA loan with the other lender; or  
ii. The Applicant needs additional financing and the existing Lender is unable 
or unwilling to increase the existing SBA loan or make a second loan, and 
the new loan will meet the 10 percent improvement to debt service coverage 
requirements in paragraph e. below. 
 An SBA Express Lender may not refinance its own existing SBA-guaranteed debt 
under SBA Express. 
 Ten Percent Payment Improvement. With the exception of debt (short-term or 
long-term) structured with a demand note or balloon payment, credit card 
obligations used for business-related purposes, and revolving lines of credit 
(short-term or long-term) where the original lender is unable or unwilling to 
renew the line or the Applicant is restructuring its financing in order to obtain a 
lower interest rate or longer term, when refinancing debt, the new installment 
amount must be at least 10 percent less than the existing installment amount(s). If 
other debt is being refinanced at the same time, such debt may be included in the 
cash flow improvement calculation. However, no debt(s) on reasonable terms may 
be refinanced. If the note terms include an escalating payment structure, the new 
installment amount must be at least 10 percent less than the expected installment 
amount within the next 12 months. 
 Lenders must avoid any circumstances that could create a possible conflict of 
interest. Also, in refinancing debt, particularly credit card debt, Lenders must take 
reasonable steps to ensure Applicants are aware and certify that the amount being 
refinanced only comprises business-related debt. (SBA Form 1919, Borrower’s 
Information Form, contains such a certification.)  
 The Authorization must include: 
i. In the Use of Proceeds section, the refinancing must be specifically 
identified; 
ii. An itemization of all debts being repaid by loan proceeds when the individual 
creditor is to be paid $10,000 or more; and/or 
iii. The loan number and dollar amount of any existing SBA-guaranteed debt 
being refinanced. 
 Other conditions that apply to debt refinancing: 
i. An SBA Express loan may not be used to refinance a debt owed to an SBIC. 
ii. The payment of trade payables is not considered to be debt refinancing.  
JX019.272
C. 
d. 
e. 
f. 
g. 
h. 
App.3529
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 273 
2. Change of Ownership  
(13 CFR § 120.202). 
 A Borrower(s) (and any individual Co-Borrower as permitted under this 
paragraph), may use loan proceeds for a change of ownership, whether the change 
of ownership is accomplished through a stock purchase (including a stock 
redemption) or an asset purchase, only under the circumstances described under 
this paragraph. An asset purchase will be deemed a change of ownership and must 
comply with all of the requirements of this paragraph if the Applicant(s) is 
purchasing all or substantially all of the assets of the seller’s business and is 
continuing the operations of the seller’s business. The following requirements 
apply: 
i. The change of ownership must promote the sound development and/or 
preserve the existence of a small business; 
ii. Change of Ownership Between Existing Owners: A change of ownership 
between existing owners may be financed under the following circumstances: 
a) 
One or more current owners is purchasing the entire interest of another 
current owner, resulting in 100% ownership of the business by the 
remaining owner(s);  
b) 
The small business is redeeming the ownership interest of an owner(s), 
resulting in 100% ownership of the small business by the remaining 
owner(s). 
iii. Change of Ownership Resulting in a New Owner: A change of ownership 
resulting in a new owner may be financed using SBA Express under the 
following circumstances: 
a) 
A small business is purchasing 100% of the ownership interest in 
another business. 
b) 
An individual(s) who is not an existing owner is purchasing 100% of the 
ownership interest in the small business. 
c) 
A small business is acquiring another small business through an asset 
purchase. 
 The seller may not remain as an officer, director, stockholder or Key Employee of 
the business. (13 CFR § 120.130) If a short transitional period is needed to assist 
the business, the small business may contract with the seller as a consultant for a 
period not to exceed 12 months including any extensions. 
 An SBA-guaranteed loan cannot be made solely to an individual. The small 
business must be either the Borrower or a Co-Borrower as follows: 
i. In a change of ownership under section 2.a.ii.a) or 2.a.iii.b) above, the small 
business and the individual owner(s) who is acquiring the ownership interest 
must be Co-Borrowers. In addition, the Note must be executed, jointly and 
severally, by both the individual(s) who acquires the ownership interest(s) 
and the small business whose ownership interest is being acquired. If the 
JX019.273
a. 
b. 
C. 
App.3530
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 274 
small business denies liability for the debt based on an alleged failure of 
consideration under applicable state law, SBA may deny liability on its 
guaranty.  
ii. In a change of ownership under section 2.a.ii.b) above, the small business 
must be the Borrower and the remaining owner(s) are subject to the 
requirements for personal guaranties in Section A, Ch. 6, Para. A, 
Guaranties, of this Part. 
iii. In a change of ownership under section 2.a.iii.a) or 2.a.iii.c) above, the 
Borrower will be the acquiring entity. If, however, the small business being 
acquired will remain in existence, the acquiring entity and the small business 
being acquired must be Co-Borrowers. All owners of the Applicant business, 
and the business being acquired if it is a Co-Borrower, are subject to the 
requirements for guaranties in Section A, Ch. 6, Para. A., Guaranties, of this 
Part. 
 The Lender must comply with the SBA Express requirements in Section A, Ch. 6, 
Para. B., IRS Tax Transcript/Verification of Financial Information of this Part. 
 If the Applicant will be acquiring the small business’s real estate in a separate 
transaction with a non-SBA guaranteed loan, the SBA loan must receive a shared 
lien position (pari passu) on the real estate with the non-SBA guaranteed loan. 
The non-SBA guaranteed loan may not have a maturity that is shorter than the 
SBA Express loan.  
This provision does not apply if the business real estate is being financed as part 
of a 504 project. 
 The following changes of ownership are not eligible for SBA Express: 
i. A non-owner who is purchasing less than 100% of the ownership interests in 
the business; 
ii. An existing owner who is purchasing the ownership of another existing 
owner that will not result in 100% ownership of the business by the 
purchasing owner; 
iii. Loans to an Employee Stock Ownership Plan (ESOP) or equivalent trust to 
purchase a controlling interest (51% or more) in the employer small business 
or to the employer small business to re-lend the funds to an ESOP to acquire 
a controlling interest (51% or more) in the employer concern; or 
iv. Loans to a cooperative to purchase a controlling interest (51% or more) in the 
employer small business. 
 SBA considers a change of ownership to be a “new” business because it will 
result in new, unproven ownership/management and increased debt unrelated to 
business operations. 
JX019.274
d. 
e. 
f. 
g. 
App.3531
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 275 
 The Lender’s loan documentation must include: 
i. A current business valuation (not to include any real estate) that meets SBA 
requirements in paragraph C.3.d, SBA Express Real Estate Appraisal and 
Business Valuation Requirements, below . 
ii. A site visit of the business being acquired. The Lender must document in its 
loan file the date of the site visit as well as comments.  
iii. An analysis as to how the change of ownership will promote the sound 
development and/or preserve the existence of the business. If the analysis 
cannot support that the change of ownership will be in the best interests of 
the business and its continued, successful operations, the loan is not eligible 
for an SBA guaranty. 
iv. Business, stock, and asset purchase agreements, as applicable.  
v. Evidence that all assets, including transferable licenses (e.g. liquor license) 
conveyed as a result of purchase are properly secured as collateral by Lender. 
 The “purchase price of the business” includes all assets being acquired such as 
real estate, machinery and equipment, and intangible assets.  
i. Intangible Assets: An SBA Express loan may be used to finance a change of 
ownership that includes intangible assets (including, but not limited to, 
goodwill, client/customer lists, patents, copyrights, trademarks, intellectual 
property, and agreements not to compete) as long as it is supported by an 
independent business valuation that complies with paragraph C.3.d, SBA 
Express Real Estate Appraisal and Business Valuation Requirements, below. 
ii. If any of the loan proceeds will be used to finance intangible assets, the 
amount must be specifically identified in the Use of Proceeds section of the 
application and the Authorization. 
iii. The value of the intangible assets is determined by either the book value as 
reflected on the business’s balance sheet, a separate appraisal for the 
particular asset, or the value of the business as identified in the business 
valuation minus the sum of the working capital assets and the fixed assets 
being purchased. 
3. Other Restrictions on SBA Express Loans 
 Lenders may not use SBA Express for any pilot program unless SBA authorizes 
use of SBA Express for the pilot. 
 The following types of loans are not eligible under SBA Express processing: 
i. Disabled Assistance Loans (DAL); 
ii. Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to an 
eligible small business owned or controlled by an ESOP (see Section A, Ch. 
2, Para. B., Employee Stock Ownership Plans, of this Part for more 
information); 
JX019.275
h. 
I. 
a. 
b. 
App.3532
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 276 
iii. Loans to a cooperative or to an eligible small business owned or controlled 
by a cooperative (see Section A, Ch. 2, Para. C, Cooperatives, of this Part for 
more information); 
iv. Loans involving a Single Employer 401(k) plan, including a ROBS plan, 
unless the only investment held by the 401(k) plan is the equity in the 
Applicant business; 
v. Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that holds in 
trust the assets of other businesses), including a ROBS plan (see Section A, 
Ch. 2, Para. D, 401(k) Plans Including Rollovers as Business Start-Ups 
(ROBS) Plans, of this Part for more information); 
vi. Pollution Control Program Loans; and 
vii. CAPLines program. 
B. LOAN TERMS AND CONDITIONS FOR SBA EXPRESS 
SBA Express Lenders must comply with the requirements in Section A, Ch. 5, Para. C, 7(a) 
Loan Program Fees, and Section A, Ch. 5, Para. D., 7(a) Loan Program and Use of Agents, of 
this Part. 
1. Maximum Loan Amount 
 The maximum aggregate loan amount is $350,000, (gross) inclusive of all 
outstanding SBA Express, Community Express, and Patriot Express loans the 
Applicant and its affiliates may have. 
 Maximum Loans to Businesses with Affiliates. 
Lenders must determine whether the Applicant has any affiliates and document 
the results in their credit analysis. If affiliation exists, SBA’s loan maximums 
apply to the Applicant, including all affiliates, as if all were a single business.  
 Maximum Loan Amount for multiple loans approved within 90 days of each other 
– “90 Day Rule.” 
i. If two SBA-guaranteed loans to any one business (including affiliates) are 
approved within 90 days of each other, the maximum gross amount of all 
such loans in that time frame cannot exceed $5,000,000. 
ii. Two SBA-guaranteed loans approved within 90 days of each other may 
impact the maximum guaranty percentage available to the Borrower and its 
affiliates as well as the guaranty fee. 
2. Maximum Guaranty Amounts and Percentages 
 The maximum dollar amount outstanding of SBA’s guaranty to any one business 
(including affiliates) must not exceed $3,750,000. When calculating the maximum 
guaranty percentage available to a Borrower and its affiliates, the Lender must 
include the approved loan amount for a revolving line of credit. The SBA’s 
guaranty is also known as the “SBA share” or “guaranteed portion.” 
JX019.276
a. 
b. 
C. 
a. 
App.3533
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 277 
 Multiple SBA Express loans are allowed up to $350,000 in the aggregate. The 
guaranteed amount of all SBA Express loans counts toward the $3,750,000 
maximum SBA exposure that may be outstanding for all SBA loans to a Borrower 
and its affiliates at any one time. 
 The maximum SBA Express guaranty percentage is 50 percent. 
 Combination of 7(a) and 504 loans.  
i. When an Applicant applies for any combination of 7(a) and 504 loans, the 
order in which the loans are approved determines the maximum loan and 
guaranty amount available. Because the 7(a) loan has a lower maximum 
guaranteed amount, the 7(a) loan should be processed and approved first.  
ii. Lenders must advise the SBA processing centers that there is a companion 
504 application to ensure that the 7(a) loan is processed and approved prior 
to the 504 loan application being processed and approved.  
iii. The 90-day rule is only for those situations where a Borrower is approved for 
multiple 7(a) loans, including SBA Express loans, within a 90-day period. It 
does NOT apply if the Borrower is receiving a 7(a) loan and a 504 loan. 
 Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: 
A 7(a) loan cannot include proceeds for an ineligible purpose or have any portion 
of the loan made to an ineligible business and no part of an SBA 7(a) loan may be 
guaranteed at zero percent. 
3. Loan Maturities 
 SBA Express loans must have a stated maturity. The loan term must be the 
shortest appropriate term based on the use of proceeds and the Borrower's ability 
to repay. 
i. SBA Express lines of credit: 
a) 
May not exceed 10 years inclusive of a term-out period.  
b) 
Revolving loans: 
i) Revolving loans of more than 12 months must be structured with a 
term-out period that is not less than the draw period, with no draws 
permitted during the term-out period. Under no circumstances may 
there be any advances after the initial 60 month period. 
For example, the loan can have an 8 year maturity with a 2 year draw 
period and a term-out period of 6 years. Conversely, a loan with an 8 
year maturity cannot have a draw period of 6 years and term-out 
period of 2 years. 
ii) May be established as renewable each year, provided they do not 
exceed the maximum maturity. Lender may not charge a renewal fee. 
If the original maturity was for 12 months or less, and the new 
maturity exceeds 12 months, an additional guaranty fee will be due. 
JX019.277
b. 
C. 
d. 
e. 
a. 
App.3534
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 278 
See Section A, Ch. 5, Para. C.1.a.v., Additional Guaranty Fee for 
Extensions of Short-Term Loans, of this Part.  
iii) Revolving loans with maturities of 12 months or less may be initially 
structured without a term-out; however, if the loan is renewed or the 
maturity extended beyond 12 months, the requirements in paragraph 
b)i) above will apply. 
ii. SBA Express Term Loans: 
a) 
Working capital or inventory loans and the financing of intangible 
assets (including goodwill) must not exceed 10 years.  
b) 
Generally, equipment, fixtures, or furniture loans should not exceed 10 
years. However, the term may be up to 15 years if the IRS asset class 
useful life supports the term. The Lender must document in its credit 
memorandum justification of any term that exceeds 10 years. 
c) 
Real estate loans (including acquisition, rehabilitation, renovation, or 
construction) must not exceed 25 years unless a portion of the loan is 
used for construction or renovation of the real estate. If the use of 
proceeds on a real estate loan includes construction or renovation, the 
construction or renovation period may be added to the 25 year 
maximum maturity.  
d) 
Loans for leasehold improvements may not exceed 10 years, plus an 
additional period reasonably necessary to complete the leasehold 
improvements, as determined based on the specific nature of the 
leasehold improvements, but in no case more than 12 months. 
e) 
Mixed purpose loans (including change of ownership): When loan 
proceeds are used for multiple purposes (land and building, working 
capital, machinery & equipment, or the refinancing of any of these 
purposes), the maturity may be a blended maturity; or, if 51% or more 
of the use of proceeds are for real estate, the maximum maturity may be 
up to 25 years. 
f) 
The term of a loan may not exceed the period of the SBA guaranty 
commitment.  
 Establishing the Repayment Period (13 CFR § 120.212): 
When Lenders establish a repayment schedule and loan maturity, they must 
consider the following: 
i. The Borrower’s ability to repay; 
ii. Use of loan proceeds; 
iii. Useful life of the assets being financed; and 
iv. The appropriate maturity for mixed purpose loans (including change of 
ownership). The Lender may use a blended maturity or the maturity up to the 
maximum for the asset class comprising 51% or more of the use of proceeds. 
JX019.278
b. 
App.3535
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 279 
Lenders must include the calculation used to determine the maturity in the 
credit memorandum. 
v. For loans to farm enterprises:  
a) 
Where land and structures (including poultry houses) comprise 51% or 
more of the use of proceeds, the maximum maturity is 20 years.  
b) 
Where machinery and equipment comprise 51% or more of the use of 
proceeds, the maximum maturity is the useful life of the machinery and 
equipment, not to exceed 15 years, plus an additional period reasonably 
necessary for installation, which may not exceed 12 months. 
vi. SBA has instructed the fiscal and transfer agent to stop the sale into the 
secondary market of a loan when the maturity exceeds these requirements.  
 Establishing the Maturity Date: 
i. Loan maturity must not exceed the period of the guaranty. This prohibits 
structures such as a working capital loan with a 15-year maturity and an SBA 
guaranty limited to 10 years. 
ii. The maturity date for an SBA Express loan is set in terms of the number of 
months from either the date of Note or the date of initial disbursement to the 
date when final payment is due. 
 Maturity When Refinancing Existing Assets or a Business Acquisition: 
i. The maximum maturity for a loan used to refinance a real estate or fixed 
asset loan must be the remaining useful life of the asset(s). The lender’s loan 
analysis must document and justify that the asset(s) being refinanced has a 
useful life at least as long as the maturity provided. 
ii. The maximum maturity for a loan used to refinance a business acquisition is 
10 years, unless 51% or more of the use of proceeds consist of real estate 
which would permit a maturity up to 25 years. 
 SBA Express Non-Financial Default Provisions: 
Non-financial default provisions are allowed under SBA Express under the 
following conditions: 
i. Non-financial default provisions are loan conditions that, if violated, would 
cause the loan to be in default even though the Borrower has made all 
payments as agreed.  
ii. Non-financial default provisions must be substantive and must be agreed to 
by the Borrower in writing at loan closing; 
iii. The provisions must be consistent with those used by the Lender on its 
similarly-sized non-SBA guaranteed commercial loans;  
iv. A lender may not request purchase of the guaranty solely based on a 
violation of a non-financial default provision (see 13 CFR § 120.520); and  
JX019.279
C. 
d. 
e. 
App.3536
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 280 
v. A maturity date must be established in the note. For example, a line of credit 
could state that it is payable upon demand under certain conditions, but in no 
case later than a certain date. 
4. Interest Rates 
SBA QUICK REFERENCE CHART: Maximum Interest Rates Allowed (See additional 
information below) 
Product 
SBA Express Loans 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
$50,000 or less (All maturities) 
Cannot exceed Prime + 6.5% 
More than $50,000 (All maturities) 
Cannot exceed Prime + 4.5% 
 General Policy on Interest Rates (13 CFR § 120.213): 
i. A loan may have a fixed or variable interest rate. The maximum interest rate 
that may be established for any 7(a) loan is governed by SBA’s regulations 
on interest rates, which preempts any provisions of a state’s constitution or 
law. The Lender negotiates the interest rate with the Applicant, subject to 
SBA’s maximum allowable rates. 
ii. SBA will periodically publish the maximum allowable fixed interest rate in 
the Federal Register. The maximum allowable fixed interest rate will be the 
Prime rate in effect on the first business day of the month, plus an allowable 
spread over Prime, as set forth in the most recent Federal Register Notice. 
For a listing of the current maximum allowable fixed interest rates, go to 
SBA’s Capital Access Financial System homepage. The maximum allowable 
fixed rate may only be used by a Lender if such rate will be in effect for the 
entire term of the loan, without adjustment or reset. Otherwise, the maximum 
rates for variable rate loans will apply. 
iii. For variable interest rate loans, the basis for the SBA maximum interest rate 
is an acceptable base rate plus an allowable spread. The base rate in effect on 
the first business day of the month will determine the basis for the initial 
interest rate for any complete loan application received by SBA during that 
month. The initial note rate must not exceed SBA’s maximum interest rate. 
The spread above the base rate as identified in the Note may not be changed 
during the life of the loan without the written agreement of the Borrower. 
iv. For loans with a variable interest rate, the following terms must be defined: 
a) 
Base Rate 13 CFR 120.214(c): 
i) There are three acceptable base rates: 
(a) 
The Prime Rate; 
(b) 
One Month London Interbank Offered Rate (LIBOR) plus 3 
percentage points (LIBOR Base Rate); or 
(c) 
The SBA Optional Peg Rate. 
JX019.280
a. 
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ii) The Prime or LIBOR Base Rate will be that rate which is in effect on 
the first business day of the month, as identified in a national financial 
newspaper or website. This rate may be found in the newspaper on the 
second business day of the month. If a website is used, please ensure 
whether it is publishing the current day’s rate or the previous day’s 
rate as some newspaper websites publish the previous day’s rate. The 
Optional Peg Rate is a weighted average of rates the Federal 
government pays for loans with maturities similar to the average 7(a) 
loan. SBA calculates and publishes the Optional Peg Rate quarterly in 
the Federal Register. Base Rates will be rounded to two decimal places 
with .004 being rounded down to .00 and .005 being rounded up to .01. 
Note: This SOP continues to include the LIBOR Base Rate as an 
option for the calculation of the maximum allowable variable interest 
rate for 7(a) loans in accordance with 13 CFR § 120.214(c). The U.K. 
Financial Conduct Authority announced that it would phase-out 
LIBOR by the end of 2021. SBA encourages Lenders to consider 
LIBOR’s imminent phase-out when selecting a base rate. For existing 
7(a) loans with LIBOR as the base rate, SBA encourages Lenders to 
examine their loan documents to determine whether LIBOR may be 
replaced with a fallback rate. If no such provision exists in individual 
loan documents, Lenders should consider amending the appropriate 
document(s) in anticipation of LIBOR’s phase-out. It is important to 
note that any changes to the interest rate must be made in accordance 
with paragraph b.ii. below. The Federal Reserve Alternative Reference 
Rates Committee has drafted recommended fallback language for 
contracts tied to LIBOR: https://www.newyorkfed.org/arrc/fallbacks-
contract-language. 
iii) For variable rate loans, the Lender is not required to use the base rate 
identified above in this paragraph and in 13 CFR § 120.214(c). It may 
use the same base rate of interest it uses on its similarly-sized non-
SBA guaranteed commercial loans, as well as its established change 
intervals, payment accruals, etc. A Lender may charge up to 4.5% over 
the Prime rate on loans over $50,000 and up to $350,000 and up to 
6.5% over the Prime rate for loans of $50,000 or less, regardless of the 
maturity of the loan. However, the interest rate throughout the term of 
the loan may not exceed the maximum allowable SBA Express interest 
rate and the loan may be sold on the Secondary Market only if the base 
rate is one of the base rates allowed in 13 CFR § 120.214(c).. 
b) 
Frequency of change; 
c) 
Range of fluctuation; and 
d) 
Ceiling and floor (if any). 
JX019.281
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v. Default Interest Rates: 
The default interest rate is a change (increase) in the interest rate charged to 
the Borrower as a result of a failure to meet certain conditions specified in 
the loan agreement. 
a) 
A Lender may charge a default interest rate if it does so for its similarly-
sized non-SBA guaranteed commercial loans, as long as the interest rate 
does not exceed the amounts permitted for SBA Express loans.  
vi. The amount of interest SBA will pay to a Lender following default of an 
SBA Express loan is capped at the maximum interest rates for the Standard 
7(a) loan program. 
 Policy on Variable Interest Rates 
i. Standard Policy: 
SBA’s maximum allowable interest rate applies only to the initial Note rate 
on a variable rate loan. Subsequent changes in the base rate are not subject to 
the maximum rate at the time of loan application; however, the maximum 
spread over the base cannot exceed SBA’s stated maximum. 
ii. Post-Approval Changes to the Interest Rate: 
After approval, the Lender may change the initial Note rate, including 
changing the base rate, the spread over the base rate, or change from a fixed 
rate to a variable rate, or from a variable rate to a fixed rate, provided the new 
interest rate does not exceed the maximum allowable interest rate at the time 
of the loan application. The Lender must obtain the Borrower’s written 
consent to the change in the interest rate (if prior to disbursement, 
Borrower’s consent to the change in interest rate must be separate and apart 
from executing the loan documents), and must make the change through E-
Tran servicing. 
For example, an SBA-guaranteed loan was approved with a variable rate. 
Since the loan was approved, the prime rate changed. The Borrower has 
asked the Lender if the loan can be switched to a fixed rate. If the loan has 
not been disbursed and the fixed rate selected does not exceed the maximum 
allowable fixed rate at the time of loan application, the Lender may make this 
change per the Borrower’s request. 
For further guidance see SOP 50 57.  
iii. Frequency of Interest Rate Adjustment: 
a) 
SBA Express Lenders are permitted to use the same change intervals 
used on their similarly-sized, non-SBA guaranteed commercial loans. 
Lenders may delay the initial adjustment period. For example, Lenders 
have used periods as long as 5 years in order to provide the Borrower 
with an interest rate that is set for the first 5 years of the loan. After that 
time, the interest rate will begin to fluctuate as stated in the 
Authorization.  
JX019.282
b. 
App.3539
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b) 
The Lender must specify in the Note the frequency at which the interest 
rate adjustment will occur.  
i) This adjustment period as identified in the Note may not be changed 
without the written consent of the Borrower.  
ii) All subsequent adjustments will set the interest rate on the first 
calendar day of the adjustment period using the base rate in effect on 
the first business day of the adjustment period.  
iii) The rate of interest will change on the first calendar day of the 
adjustment period even though the rate may not be known until the 
second business day of that period.  
For example, if the first of the month is a Sunday, the base rate is the 
prime rate in effect on Monday. This rate will be reported in the Wall 
Street Journal on Tuesday, the third calendar day and second business 
day of the month. Many lenders use the calendar quarter as the 
adjustment period, especially those that sell the guaranteed portion in 
the Secondary Market.  
iv. Interest Rate Requirements for an SBA Note: 
a) 
For fixed rate loans, the Lender must state the specific interest rate in 
the Note. 
b) 
For variable rate loans, the Lender must include the following 
information in the Note:  
i) Identification of the rate being used as the base rate;  
ii) The publication in which the designated base rate appears regularly 
(e.g. Wall Street Journal or the Federal Register if using the SBA 
Optional Peg Rate);  
iii) The permanent percentage spread to be added to the base rate;  
iv) The initial interest rate of the loan (from disbursement to first 
adjustment); 
v) The date or timing of the first rate adjustment; and  
vi) The frequency of rate adjustment. 
v. Interest Rate Ceilings and Floors: 
SBA will permit a Lender to limit the upward and downward adjustments by 
establishing a floor and ceiling provided that both the floor and ceiling are 
stated in the Note. 
vi. Accrual Method: 
SBA does not require a specific accrual method, unless the loan is sold in the 
Secondary Market. Loans sold on the Secondary Market must either use 
30/360 or Actual/365 as the interest accrual method.  
JX019.283
App.3540
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Part 2, Section B, Ch 2: SBA Express Loans 
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vii. Amortization 13 CFR § 120.214(f): 
Lender should use an amortization schedule that is appropriate for the type of 
loan. SBA does not allow balloon payments. A fixed interest rate loan must 
use a payment that will fully amortize the loan by the maturity date. 
Typically, variable rate loans are re-amortized every time the interest rate is 
adjusted to ensure full amortization by the maturity date. The amortization 
schedule may also be adjusted to meet the cash flow needs of the business.  
 Fixed and Variable Rate Combinations:  
The Lender may use a fixed rate on either the guaranteed or unguaranteed portion 
and a variable rate on the other portion of the loan. SBA allows such 
combinations as long as neither rate exceeds the SBA maximum interest rate. A 
Lender may use this structure to make a loan that permits it to retain a variable 
interest rate on the unguaranteed portion and sell a fixed rate guaranteed portion 
on the Secondary Market. If the Lender uses a combination, the entire loan is 
considered to be a variable interest rate loan. The interest rate on both the 
guaranteed and unguaranteed portions must be based on the variable rate.  
 Interest Rate Swap Contracts: 
i. An interest rate swap is a contract between two parties where one party pays 
a fee in exchange for an agreement by the other party to pay any interest in 
excess of an established amount. The contract may last for all or part of the 
term of the loan. The swap contract only relates to the payment of interest.  
Example: A Borrower has a prime plus 2% interest rate on a 7(a) variable 
rate guaranteed loan. The Borrower could purchase an interest rate swap 
contract that would set the interest rate at 8%. When the Note rate is lower 
than the rate paid by the Borrower on the swap contract (8%), the swap seller 
keeps the extra amount as compensation for the risk that rates will at some 
point exceed 8%. When the Note rate is higher than the rate paid by the 
Borrower on the swap contract, the Borrower would continue to pay the fixed 
rate of 8% and the swap seller would pay the difference above 8% to the 
Lender. The ability to stabilize the amount of the loan payment each month is 
the benefit to the Borrower of an interest rate swap contract. 
ii. In order to use an interest rate swap in the 7(a) program, the interest rate 
swap contract must meet the following conditions: 
a) 
The interest rate swap contract is an agreement between the small 
business Borrower and the Lender or, if the swap seller is not the lender, 
a third party. SBA is not a party to the interest rate swap contract. 
b) 
The interest rate swap contract does not affect the amount of money 
owed by the Borrower to SBA in the event SBA purchases the guaranty. 
In the event of a Borrower default, interest will be calculated using the 
base rate and spread in the variable interest rate Note, not the swap 
contract. 
JX019.284
C. 
d. 
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c) 
SBA will not be responsible if the swap seller defaults during the life of 
the contract. The Borrower will be liable for the interest as required in 
the Note.  
d) 
Loans with accompanying interest rate swap contracts may be sold on 
the secondary market. The Lender is still required under the secondary 
market contract (SBA Form 1086) to forward interest and principal 
pursuant to the original terms of the loan. It is the Lender’s 
responsibility to work with the swap seller to make sure funds are 
available for submission to the fiscal and transfer agent according to the 
time schedule in the Form 1086. 
e) 
The full amount of the principal and interest required under the Note 
must be reported by the lender on the SBA Form 1502. 
f) 
SBA will not review swap contracts for Borrowers or provide guidance 
on their use. While swap contracts should not have a significant impact 
on the cost of the loan, SBA will not publish any guidelines on the cost 
of these contracts. 
g) 
The Borrower must sign a statement acknowledging that interest will be 
calculated at the Note rate if the swap contract is terminated.  
h) 
The following statement must be included in the swap contract that is 
executed by the Borrower and the swap seller: “The Small Business 
Administration is not a party to this contract and does not guarantee it. 
In the event SBA is called upon to honor its guaranty to the Lender, the 
Borrower’s debt will be determined by the terms of the Note, including 
the variable interest rate provision.” 
i) 
Swap contracts may be used on new or existing loans. 
j) 
The swap contract does not have to last for the entire length of the loan 
agreement. 
k) 
SBA does not have a standard form for an interest rate swap contract. 
l) 
Any fees owed the swap counterparty as a result of the default by the 
Borrower will be subordinated to the SBA 7(a) loan. 
C. CREDIT STANDARDS FOR SBA EXPRESS 
The policies that make up SBA’s credit standards begin with the requirements outlined in 13 
CFR §§ 120.101 and 120.150. This section provides procedural guidance as to what the Lender 
should or must consider when analyzing any request for financial assistance that will be 
guaranteed by SBA. 
A Lender must analyze each application in a commercially reasonable manner, consistent with 
prudent lending standards. The cash flow of the Applicant is the primary source of repayment, 
not any expected recovery from the liquidation of collateral. Thus, if the Lender’s financial 
analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely 
manner from the cash flow of the business, the loan request must be declined, regardless of the 
collateral available or outside sources of repayment. 
JX019.285
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To the maximum extent practicable, SBA Express Lenders may use their own forms, internal 
credit memoranda, notes, collateral documents, and servicing and liquidation documentation. In 
using their documents and procedures, Lenders must follow their established and proven internal 
procedures used for their similarly-sized non-SBA guaranteed commercial loans. 
1. Processing Method 
Once submitted to the LGPC, an application withdrawn by a Lender, screened-out, or 
declined by the LGPC may not be approved by any Lender under its SBA Express 
authority. E-Tran will not permit the submission of such an application under any 
Lender’s SBA Express authority for a period of 12 months from the date of the 
withdrawal, screen-out, or decline of the application. 
An application that did not receive an acceptable credit score under 7(a) Small Loan 
procedures may be withdrawn prior to submission through E-Tran or SBA One and may 
be processed under SBA Express. 
SBA Express loans are only processed via an SBA Express Lender’s delegated authority. 
When a Lender submits an SBA Express loan guaranty request under the Lender’s SBA 
Express authority, the Agency does not review the Lender’s determination of eligibility, 
analysis of the credit, or structure of the loan or line of credit prior to issuing an SBA 
Loan Number. The Lender must analyze eligibility and credit worthiness in accordance 
with SBA Loan Program Requirements and properly document its file. The SBA Express 
Lender’s analysis is subject to SBA’s review and determination of adequacy, when the 
Lender requests SBA to purchase its guaranty or when SBA is conducting lender 
oversight activities.  
2. Underwriting 
SBA has authorized SBA Express Lenders to make the credit decision without prior 
SBA review.  
 Lenders must not make an SBA Express loan that would be available on 
reasonable commercial terms from either the Lender itself or another source 
without an SBA guaranty. The credit analysis must include the factors 
demonstrating the Applicant does not have credit available elsewhere on 
reasonable commercial terms from non-Federal, non-State, non-local government 
sources, in accordance with Section A, Ch. 1, Para. E, Demonstrate the Need for 
Desired Credit, in this Part; 
 The credit analysis must demonstrate that there is a reasonable assurance of 
repayment. 
 Lenders must use appropriate, prudent, and generally accepted industry credit 
analysis processes and procedures (which may include credit scoring), and these 
procedures must be consistent with those used for the Lender’s similarly-sized 
non-SBA guaranteed commercial loans. 
 SBA Express Lenders may use a business credit scoring model (such a model 
cannot rely solely on consumer credit scores) to assess character, reputation, and 
credit history of the applicant and/or repayment ability if they do so for their 
similarly-sized, non-SBA guaranteed commercial loans.  
JX019.286
a. 
b. 
C. 
d. 
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i. The business credit scoring model may only be used in addition to the 
Lender’s appropriate, prudent, and generally accepted industry credit analysis 
and procedures. 
ii. If used, the business credit scoring results must be documented in each loan 
file and available for SBA review. 
iii. Lenders must validate (and document) with appropriate and accepted 
statistical methodologies that their business credit scoring model is predictive 
of loan performance and they must provide that documentation to SBA upon 
request. 
iv. Although SBLCs do not make non-SBA guaranteed loans, SBA has 
determined they may use credit scoring. SBLCs are required to provide credit 
scoring model validation to SBA on an annual basis. 
 The credit decision on SBA Express loans, including how much to factor in a past 
bankruptcy or whether to require an equity injection, is left to the business 
judgment of the Lender. Also, if the Lender requires an equity injection and, as 
part of its standard processes for similarly-sized, non-SBA guaranteed 
commercial loans verifies the equity injection, it must do so for SBA Express 
loans. While the credit decision is left to the business judgment of the Lender, 
early loan defaults will be reviewed by SBA pursuant to SOP 50 57. 
 Lenders must also address other specifics, such as: 
i. Franchise, license, dealer, or similar agreements (see Section A, Ch 1, Para. 
D.6, Franchise, License, Dealer, Jobber, and Similar Agreements of this Part 
for further guidance); and 
ii. Management agreements: (see Section A, Ch 1, Para. D.5, Affiliation based 
on Management, of this Part for further guidance). 
3. Collateral 
See Section A, Chapter 5, Paragraph A of this Part for guaranty requirements. 
 With respect to collateral, Lenders must use commercially reasonable and prudent 
practices to identify collateral, which conforms to procedures at least as thorough 
as those used for their similarly-sized non-SBA guaranteed commercial loans. 
Decisions regarding what collateral must be taken to secure a loan are based on 
the circumstances of the individual loan, including size, and must meet the 
minimum requirements set forth in this section. 
i. For loans of $25,000 or less, Lenders are not required to take collateral. 
ii. For loans over $25,000, the Lender must, to the maximum extent practicable, 
follow the written collateral policies and procedures that it has established 
and implemented for its similarly-sized, non-SBA guaranteed commercial 
loans. 
JX019.287
e. 
f. 
a. 
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Part 2, Section B, Ch 2: SBA Express Loans 
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 Adequacy of Collateral: 
A loan request is not to be declined solely on the basis of inadequate collateral. In 
fact, one of the primary reasons Lenders use the SBA-guaranteed program is for 
those Applicants that demonstrate repayment ability but lack adequate collateral 
to repay the loan in full in the event of default. However, SBA does not permit its 
guaranty to be a substitute for available collateral. 
 Real Estate Appraisal and Business Valuation Requirements 
The regulation governing real estate appraisal is set forth at 13 CFR § 120.160(b). 
i. Commercial Real Estate: 
a) 
For all SBA Express loans secured by commercial real property: 
i) If the loan finances a transaction involving parties with a close 
relationship (for example, transactions between existing owners or 
family members), or if SBA or the Lender otherwise concludes that an 
appraisal is necessary to appropriately evaluate creditworthiness, the 
Lender must obtain an appraisal. Appraisals must be in compliance 
with the Uniform Standards of Professional Appraisal Practice 
(USPAP). Additionally, SBA requires that completed appraisals be 
dated within 12 months of the application for guaranty. 
ii) If an appraisal is not required under the preceding paragraph, all 
Lenders must obtain an appropriate evaluation of the commercial real 
estate securing the loan that is consistent with safe and sound banking 
practices. Evaluations are not required to be performed in accordance 
with USPAP or by State licensed or certified appraisers but should be 
consistent with the Interagency Appraisal and Evaluation Guidelines 
and the Interagency Advisory on the Use of Evaluations in Real 
Estate-Related Financial Transactions, issued by the Federal Banking 
Regulators. 
b) 
The appraiser must be: 
i) Independent and have no appearance of a conflict of interest (such as a 
direct or indirect financial or other interest in the property or 
transaction); and 
ii) Either State-licensed or State-certified, with the following exception: 
when the commercial property’s estimated value is over $1,000,000, 
the appraiser must be State-certified. 
c) 
In order for the appraiser to identify the scope of work appropriately, the 
appraisal must identify the Lender as the client and/or an intended user 
of the appraisal, as those terms are defined in USPAP, except that 
federally-regulated Lenders may follow their primary regulator’s 
FIRREA requirements to the extent they permit otherwise. The Lender 
may not use an appraisal prepared for the seller or the Applicant. The 
cost may be passed on to the Applicant. 
JX019.288
b. 
C. 
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d) 
The appraisal must be an “Appraisal Report” prepared in compliance 
with USPAP. 
e) 
If the loan will be used to finance new construction or the substantial 
renovation of an existing building, the appraisal must estimate what the 
market value will be at completion of construction. (“Substantial” 
means rehabilitation expenses of more than one-third of the purchase 
price or fair market value at the time of the application.) After 
construction is completed, Lender 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. If the Lender cannot obtain such a 
statement, then the Lender may not close the loan without SBA’s prior 
written permission. 
f) 
If the SBA-guaranteed loan was used to cover the construction period, 
the Lender must notify the appropriate SBA CLSC of any deviation(s) 
and work with the SBA CLSC to determine an appropriate course of 
action, including the securing of additional collateral. The Lender’s 
notification to SBA must provide a sufficient understanding of the 
reasons for the differences in values between the estimated and actual 
values as well as a recommendation as to a remedy to offset the 
difference in values such as additional equity or additional collateral. If 
additional collateral is being required, the Lender must identify both the 
fair market and liquidation values of the additional collateral. If the 
Lender is unable to obtain a statement 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, but is able to obtain a 
new appraisal demonstrating that the market value meets or exceeds the 
original estimate of value, then no additional action on the part of the 
Lender is necessary. 
g) 
If the loan will be used to acquire an existing building that does not 
require construction, the appraiser should estimate market value on an 
as-is basis. If the appraiser estimates the value other than on an as-is 
basis, the narrative must include an explanation of why the as-is basis 
was not used. 
h) 
When valuing the collateral, the Lender must not include the 
contributory value of any rental income or the value of any intangible 
assets contained in the appraisal. 
i) 
An appraisal may be obtained as part of the loan application to assist 
with the underwriting or as part of the loan closing. In no case may the 
Lender rely on an appraisal that was prepared more than 12 months 
prior to the date of the application. 
j) 
If the Lender is going to require the appraisal at closing, the loan 
application must include an estimate of the value of the real estate and 
JX019.289
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the estimate must be identified in the loan authorization with the 
requirement for an appraisal that supports the estimated value at time of 
closing. 
k) 
If at time of closing the appraised value: 
i) Is 90% or more of the estimated value, the Lender may close the loan 
but must include a written explanation as to why the appraisal is less 
than the estimated value in the loan file; or 
ii) Is less than 90% of the estimated value, SBA Express Lenders are 
permitted to close the loan, but the Lender must include a written 
justification as part of its file that may be reviewed by SBA at time of 
guaranty purchase or when conducting lender oversight activities. The 
justification must include a thorough analysis by the Lender of the 
reasons for the appraisal being low and an explanation as to what steps 
the Lender took to offset the risk to SBA from the low appraisal such 
as additional equity or additional collateral. 
ii. Non-commercial real estate or real estate securing a personal guaranty: 
SBA has no specific appraisal requirements for non-commercial real estate 
(such as a residence) or real estate (commercial or non-commercial) taken as 
collateral to secure a personal guaranty. 
iii. Other Fixed Assets: 
If the valuation of fixed assets is greater than their Net Book Value, an 
independent appraisal by a qualified individual must be obtained by the 
Lender to support the higher valuation. A valuation of the fixed assets 
provided as part of a business valuation will not meet these requirements, 
except as part of a going concern appraisal.  
iv. Additional Appraisal Requirements for all Changes of Ownership: 
For businesses that have been transferred within 36 months prior to the date 
of the loan application and the loan amount is more than $500,000, SBA 
requires: 
a) 
An appraisal of the business real estate that meets the appraisal 
requirements above; and 
b) 
Either a "review" of the appraisal by another appraiser selected directly 
by the Lender or a site visit by a senior member of the Lender's staff. 
The Lender must document the file and include the date of the visit and 
a description of the items reviewed on site. 
v. Business Valuation Requirements – Change of Ownership: 
a) 
Determining the value of a business (not including real estate which is 
separately valued through a real estate appraisal) is the key component 
to the analysis of any loan application for a change of ownership. An 
accurate business valuation is required because the change in ownership 
will result in new debt unrelated to business operations and potentially 
JX019.290
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the creation of intangible assets. A business valuation assists the buyer 
in making a determination that the seller’s asking price is supported by 
an independent Qualified Source (See definition in Appendix 3). 
b) 
In order for the individual performing the business valuation to identify 
the scope of work appropriately, the business valuation must be 
requested by and prepared for the Lender. The scope of work should 
identify whether the transaction is an asset purchase or stock purchase 
and be specific enough for the individual performing the business 
valuation to know what is included in the sale (including any assumed 
debt). The business valuation must include the individual’s conclusion 
of value, the qualifications of the individual performing the business 
valuation and their signature certifying to the information contained in 
the business valuation. The Lender may not use a business valuation 
prepared for the Applicant or the seller. The cost of the business 
valuation may be passed on to the Applicant. 
i) Non-Special Purpose Properties: 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source.  
(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment is greater than $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
transactions between existing owners or family members), the 
Lender must obtain an independent business valuation from a 
Qualified Source. 
ii) Special Purpose Properties: A “Special Purpose Property” is a limited-
market property with a unique physical design, special construction 
materials, or a layout that restricts its utility to the specific use for 
which it was built. 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source. 
(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is over $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
JX019.291
App.3548
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 292 
transactions between existing owners or family members) and the 
business operates from a Special Purpose Property, the Lender 
must obtain an independent business valuation performed by a 
Certified General Real Property Appraiser. 
(c) 
The business valuation must allocate separate values to the 
individual components of the transaction including land, building, 
equipment, and intangible assets. 
(d) 
The Certified General Real Property Appraiser must have 
completed no less than four going concern appraisals of equivalent 
special use property as the property being appraised, within the last 
36 months, as identified in the qualifications portion of the 
Appraisal Report. 
(e) 
Each business valuation assignment under this section must be 
undertaken with a specific instruction for the Certified General 
Real Property Appraiser to conduct the appraisal in compliance 
with current USPAP guidelines. 
iii) The business valuation may be obtained and reviewed after the 
issuance of an SBA Loan Number and prior to closing. If the Lender 
requests the business valuation after issuance of an SBA Loan 
Number, the credit memorandum must include an estimate of the value 
of the business. The credit memorandum must be updated after receipt 
of the business valuation to include a comparison of the loan amount 
and the business valuation. 
iv) Any amount(s) of the loan proceeds that will be used to facilitate a 
change of ownership may not exceed the business valuation. 
v) Lender Verification of Business valuation Financial Data: 
Lender must obtain a copy of the financial information relied upon by 
the individual who performed the business valuation and verify that 
information against the seller’s IRS transcripts to ensure the accuracy 
of the information. 
D. SUBMISSION OF APPLICATION FOR GUARANTY FOR SBA EXPRESS 
1. Contents of Lender’s Application for Guaranty 
Lenders must maintain in their loan files all application documents and any 
documentation and exhibits that support the guaranty request. 
Lender must disclose 100% of the Applicant’s ownership on SBA Form 1919 and in 
E-Tran or SBA One in order to submit a loan application. Each owner must be identified 
in E-Tran or SBA One.  
SBA Form 1919 includes information on the number of employees at the time of 
application and the number of jobs to be created and/or retained as a result of the loan. 
Jobs “created” means the number of full-time (or equivalent) employees that the small 
business expects to hire as a result of the loan. Jobs “retained” means the number of full-
JX019.292
App.3549
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 293 
time (or equivalent) employees on the payroll of the business at the time of application 
that will be lost if the loan is not approved. 
 SBA Express Processing: 
Program forms can be found at www.sba.gov/document. 
All SBA Express loan files must include the forms and information the Lender 
requires in order to make an informed eligibility and credit decision. Any 
application form obtained by the Lender from the Applicant must be certified by 
the Applicant as true and complete.  
 SBA Express Lenders must obtain and retain the documentation listed below in 
their file.  
i. Lender must complete and sign SBA Form 1920. 
ii. Applicants and Associates must complete and sign SBA Form 1919, 
“Borrower Information Form.” SBA Form 1919 must be signed by the 
following: 
a) 
For a sole proprietorship, the sole proprietor; 
b) 
For a partnership, all general partners, and all limited partners owning 
20% or more of the equity of the firm, or any partner that is involved in 
management of the Applicant; 
c) 
For a corporation, all owners of 20% or more of the corporation and 
each officer and director; 
d) 
For limited liability companies (LLCs), all members owning 20% or 
more of the company and each officer, director, and managing member; 
e) 
Any Key Employee; and 
f) 
Any Trustor (if the Small Business Applicant is owned by a trust). 
g) 
When the combined ownership interest between spouses and minor 
children is 20% or more, both spouses must complete SBA Form 1919. 
When 20% or more ownership interest is held by a corporation, partnership, 
or other form of legal entity in the Applicant or OC, the ownership interests 
of all individuals must be disclosed.  
A separate Section I of SBA Form 1919 is required to be completed and 
signed for each co-applicant (e.g. Eligible Passive Company (EPC) and 
Operating Company (OC)).  
All parties listed in subparagraph b.ii. above are considered “Associates” of 
the Small Business Applicant as defined in 13 CFR § 120.10. A separate 
Section II is required to be completed and signed by each principal of the 
Small Business Applicant. 
iii. Lender’s Credit Memo must address all requirements detailed in 
paragraph C, Credit Standards for SBA Express in this chapter. 
JX019.293
a. 
b. 
App.3550
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iv. Character Determination (if applicable): 
a) 
If questions 17, 18, and 19 of SBA Form 1919 are all answered “no,” a 
Character Determination is not required. 
b) 
If question 17 is answered “yes,” the loan is not eligible.  
c) 
If question 18 or 19 is answered “yes,” the Subject Individual and 
Lender must follow the steps as outlined in Section A, Ch. 3, Para. B, 
Character Determinations, of this Part prior to submitting the request for 
a loan number. 
v. If the Lender uses business financial statements and/or tax returns for 
purposes of credit underwriting, all financial statements, tax returns and 
schedules reviewed and required by Lender’s policy for its similarly-sized, 
non-SBA guaranteed commercial loans must be maintained in the Lender’s 
SBA Express loan file. All financial documents must comply with the 
Lender’s policies on collection and review of financial information. 
vi. If Lender does not use business financial information to determine 
creditworthiness, such as with some credit scoring models, Lender must 
obtain IRS tax transcripts in order to verify that the returns were filed and for 
the purpose of determining the Applicant’s size (but reconciliation of the tax 
transcripts as set forth in Section A, Ch. 6, Para. B, IRS Tax 
Transcripts/Verification of Financial Information, of this Part is not 
required). 
vii. Franchise: 
a) 
If the Applicant’s brand meets the FTC definition of a franchise, Lender 
must document in its file that the Applicant’s brand is on the Directory 
and identify the name of the franchise and SBA Franchise Identifier 
Code when entering the request for loan number into E-Tran or SBA 
One. Lender must ensure that the brand name (and, where applicable, 
the type of agreement) the Applicant will be operating under matches 
the brand name (and, where applicable, the type of agreement) listed on 
the Directory. (Lender will need to submit the documentation showing 
that the Applicant’s brand is on the Directory with any guaranty 
purchase request.) 
b) 
If the Applicant’s brand is not on the Directory and the SBA Express 
Lender determines the brand does not meet the FTC definition and 
proceeds with approving the loan under its delegated authority, the 
Lender must document its file and will be required to submit that 
documentation with any guaranty purchase request and the SBA 
Express Lender bears the risk of an incorrect determination; 
c) 
If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code (if applicable) for 
the brand that generates the largest amount of the Applicant’s revenue 
when entering the application into E-Tran or SBA One. The Lender 
must document in its file that all of the Applicant’s brands are eligible 
JX019.294
App.3551
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SOP 50 10 6 
 
Part 2, Section B, Ch 2: SBA Express Loans 
Effective October 1, 2020 
Page 295 
for SBA financial assistance and those that meet the FTC definition of a 
franchise that are critical to the Applicant’s business operation are on 
the Directory, and must document their file with the basis for their 
determination of which brands are critical to the Applicant’s business 
operation (e.g., a breakdown of revenue by brand). SBA Express 
Lenders will be required to submit all of this supporting documentation 
to SBA with any guaranty purchase request. (See Section A, Ch 1, Para. 
D.6, Franchise, License, Dealer, Jobber, and Similar Agreements for 
further guidance.) 
viii. Debt Refinancing. Lenders must maintain copies of all notes, security 
agreements, leases, or other documentation evidencing the debt to be 
refinanced in the loan file. 
ix. 
Documentation of USCIS status verification - Lenders must receive 
verification of the status of each alien required to submit USCIS documents 
prior to submission of the request for loan number to SBA. Lender must 
retain a copy of the verification received from USCIS or SBA-SLPC in its 
loan file. 
2. Where to Submit Applications for Guaranty 
SBA Express Lenders must submit guaranty applications via E-Tran or SBA One, 
retaining all required documentation in the Lender’s loan file.  
3. See Chapter 5, Authorization through Disbursement, in this Section, for SBA 
requirements for the loan Authorization, post-approval and pre-disbursement requests for 
changes, transfer of guaranty between participating Lenders, and loan closing and 
disbursement. 
JX019.295
App.3552
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JX019.296
App.3553
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Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 297 
CHAPTER 3: 7(A) CAPLINES 
13 CFR § 120.390 
Lines of credit under CAPLines finance the short-term operating capital needs (revolving and 
non-revolving) of eligible small businesses.  
Lenders must always start by reviewing the contents of Section A, Core 
Requirements for all 7(a) and 504 Loans, in this Part. 
A. ELIGIBILITY AND ELIGIBLE USES OF PROCEEDS FOR ALL CAPLINES 
CAPLines proceeds can be used to finance the cyclical, recurring, or other identifiable short-
term operating capital needs of small businesses. Proceeds can be used to create current 
assets or to provide financing against the current assets that already exist. CAPLines cannot 
be used to finance a change of ownership. 
In order to be eligible for any of the CAPLines subprograms, the Applicant must be 
eligible under the requirements identified in Section A of this Part, AND what is listed 
below for each subprogram: 
1. Working Capital CAPLines 
 Eligibility 
To be eligible for a Working Capital CAPLine, the Applicant must generate 
accounts receivable (not notes receivable), and/or have inventory. 
 Eligible Uses of Proceeds 
i. Borrowers may only use the loan proceeds for short-term working capital/ 
operating needs. Proceeds must not be used to pay delinquent withholding 
taxes or similar funds held in trust (e.g., state or local sales taxes), or for floor 
plan financing. In the event that Working Capital CAPLine proceeds are used 
to acquire fixed assets, Lender must refinance the portion of the line used to 
acquire the fixed asset into an appropriate term facility no later than 90 days 
after Lender discovers that the line was used to finance a fixed asset. 
ii. Debt Refinancing under Working Capital CAPLines 
a) 
Loan proceeds may not be used to pay a creditor (including the same 
institution’s debt) in a position to sustain a loss. This includes shifting 
all or part of a potential loss from the original Lender to the SBA. 13 
CFR §§ 120.140(j)(1) and 120.201 
b) 
Proceeds from a Working Capital CAPLine may refinance existing 
short-term revolving debt under the following conditions: 
i) The short-term revolving debt must be terminated after it is paid off 
with the CAPLine;  
JX019.297
a. 
b. 
App.3554
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
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ii) Depending on whether the CAPLine will be disbursed based on a 
Borrowing Base Certificate (BBC) or not, the Borrower has either a 
borrowing base or collateral sufficient to support the Working Capital 
CAPLine plus any other short-term debt that is not being refinanced; 
iii) If the application includes the refinancing of same-institution short-
term revolving debt: 
(a) 
The application must be submitted to the LGPC for processing. 
Such applications may not be processed under PLP authority; and 
(b) 
If the Applicant defaults on the SBA-guaranteed Working Capital 
CAPLine within 90 days of initial disbursement, there will be a 
presumption that the loan proceeds were used to pay a creditor in a 
position to sustain a loss causing a shift of all or part of the loss to 
SBA in violation of 13 CFR § 120.201 and SBA may deny liability 
on the guaranty; 
c) 
If the application includes the refinancing of same-institution, SBA-
guaranteed short-term revolving debt, in addition to the requirements of 
paragraphs 1.b.iii.b)i)-iii) above, the Lender’s exposure to the Applicant 
will not be reduced; 
d) 
Short-term revolving debt reflected on the Applicant’s business balance 
sheet may be eligible for refinancing if it is reflected on the Applicant’s 
business tax returns (Schedule C for sole proprietorships) showing the 
interest expense associated with the debt and: 
i) The Lender documents and the Applicant certifies that the proceeds 
from the short-term revolving debt were used exclusively for the 
Applicant’s business and were not used for any ineligible purpose as 
set forth in 13 CFR § 120.130; and 
ii) If the debt to be refinanced was used in whole or in part to refinance a 
prior debt, the loan being refinanced, including the associated interest, 
is reflected on the Applicant’s balance sheet and business tax returns 
(Schedule C for sole proprietorships) for two full tax cycles prior to 
application, and the Applicant certifies that the debt to be refinanced 
was used exclusively for the Applicant business and was not used for 
any ineligible purpose as set forth in 13 CFR § 120.130; and 
e) 
The loan must be secured with at least the same collateral and lien 
priority as the debt that is being refinanced. However: 
i) When the current balance of the debt being refinanced is considered 
over collateralized relative to SBA collateral requirements and the 
SBA loan will remain fully secured, the Lender is not required to take 
the excess collateral.  
ii) Substitute collateral may be taken to secure the new loan if it is of 
comparable value and useful life and is determined to be acceptable by 
SBA or the Lender under its delegated authority. 
JX019.298
App.3555
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Part 2, Section B, Ch 3: 7(a) CAPLines 
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iii. SBA-guaranteed Working Capital CAPLine loan proceeds may not be used to 
refinance debt that: 
a) 
Was originally used to finance a loan purpose that would have been 
ineligible for SBA Working Capital CAPLine financing at the time it 
was originally made unless the condition that would have made the loan 
ineligible no longer exists;  
b) 
Is already on reasonable terms;  
c) 
Is short-term revolving debt that is not revolving in accordance with the 
terms of the note; or  
d) 
Is Term debt. 
iv. 
When refinancing short-term revolving debt with a Working Capital 
CAPLine, the loan application must include: 
a) 
A written analysis that addresses the following issues: 
i) The reason the debt was incurred; 
ii) The factor(s) that support that the proposed refinancing will not pay a 
creditor in a position to sustain a loss; 
iii) The reason for restructuring the debt (for example, over-obligated or 
imprudent borrowing); 
iv) The factor(s) that support that the debt being refinanced is not 
currently on reasonable terms; 
v) How the new loan will improve the financial condition of the 
Applicant, and is not refinancing debt owed to a creditor in a position 
to sustain a loss; 
vi) The reason(s) the Lender believes the debt to be refinanced no longer 
meets the needs of the Applicant; and 
b) 
Supporting documentation for each debt to be refinanced. Lenders are 
required to: 
i) For loans processed on a non-delegated basis, submit the following 
with the application to the LGPC: 
(a) 
A copy of the note(s), security agreements, leases, and other 
documentation evidencing the debt to be refinanced, and an 
explanation of the terms and conditions of any debt(s) being 
refinanced. 
(b) 
A copy of the transcript of account showing the due dates and 
when payments were received as part of its analysis and 
recommendation for the prior 36 months, or the life of the loan 
whichever is less. 
JX019.299
App.3556
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
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(c) 
A written explanation of any late payments and late charges that 
have occurred during the last 36 months. (Late payments are 
defined as any payment made beyond 29 days of the due date.) 
(d) 
A BBC with Aging of Receivables and List of Inventory, as 
necessary. 
ii) For loans processed under a Lender’s PLP authority, retain copies of 
the items in subparagraphs i)(a)-(d) in the loan file. 
v. The Authorization must include: 
a) 
In the Use of Proceeds section, the refinancing must be specifically 
identified; 
b) 
An itemization of all debts being repaid by loan proceeds when the 
individual creditor is to be paid $10,000 or more; and 
c) 
The loan number and dollar amount of any existing SBA-guaranteed 
short-term revolving debt being refinanced. 
vi. The payment of trade payables is not considered to be debt refinancing. 
2. Contract CAPLines 
 Eligibility 
To be eligible for a Contract CAPLine, the Applicant must: 
i. Be able to demonstrate the ability to operate profitably based upon the prior 
completion of similar contracts; 
ii. Possess the overall ability to bid, accurately project costs, and perform the 
specific type of work required by the contract(s); and 
iii. Have the financial capacity and technical expertise to complete the contract 
on time and at a profit. 
 Eligible Uses of Proceeds 
i. The contractor must use loan proceeds only to finance the costs of one or 
more specific contracts, including overhead or general and administrative 
expenses, allocable to the specific contract(s).  
ii. Contract CAPLine proceeds may not be used: 
a) 
For permanent working capital; 
b) 
To acquire fixed assets; 
c) 
To pay delinquent taxes or similar funds held in trust (directly or 
indirectly); 
d) 
To refinance existing debt; 
e) 
To finance a contract in which significant performance has already 
begun; 
f) 
To finance a change of ownership;  
JX019.300
a. 
b. 
App.3557
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 301 
g) 
For floor plan financing; or 
h) 
To cover any mark-up or profit. 
 Advances of loan proceeds financing performance of one contract or sub-contract 
under a master agreement may not be used to finance the performance of another 
contract or sub-contract.  
 Progress payments or proceeds received in the performance of a contract or sub-
contract financed with this line must not be applied in repayment of a different 
contract or sub-contract. Funding and payment applications must be accounted for 
in conjunction with the specific contract or sub-contract to which they relate. 
 A single Contract CAPLine may be used to fund a single or multiple contracts. 
Once the overall line amount has been approved by SBA, the lender may advance 
against additional contracts without SBA approval, provided that the Borrower 
and Lender are in compliance with all terms of the Authorization. The contracting 
parties, as a result of a properly executed change order, may agree to increase the 
contract price subsequent to the approval of the Contract CAPLine. In such event, 
if the overall line amount needs to be increased, the Lender must comply with 
Ch. 5, Para. B.5, For SBA loans that have been fully disbursed, in this Section 
below to obtain SBA’s approval of the increase in the line. The contracting 
parties, as a result of a properly executed change order, also may agree to 
decrease the contract price subsequent to the approval of the Contract CAPLine 
and/or after a progress advance was made. In such event, the lender must ensure 
the Borrower is aware that the next future advance or future advances, if 
necessary, will be at the decreased amount. 
3. Seasonal CAPLines 
 Eligibility 
To be eligible for a Seasonal CAPLine, the Applicant must: 
i. Have been in operation for at least 12 calendar months; and 
ii. Be able to demonstrate a definite pattern of seasonal activity. 
 Eligible Uses of Proceeds 
i. Borrowers must use the loan proceeds solely to finance the seasonal 
increases of accounts receivable and inventory (or in some cases associated 
increased labor costs).  
ii. Funds must not be used to: 
a) 
Maintain activity during the slow periods of the business’s cycle; or 
b) 
Refinance existing debt 
4. Builders CAPLines 
13 CFR §§ 120.391 – 120.397 
Builders CAPLines provide financing to small general contractors to construct or 
rehabilitate residential or commercial property for resale. This program provides an 
JX019.301
C. 
d. 
e. 
a. 
b. 
App.3558
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Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 302 
exception under specified conditions to the general rule against financing investment 
property. “Construct” and “rehabilitate” mean only work done on-site to the structure, 
utility connections, and landscaping. 
 Eligibility 
To be eligible for a Builders CAPLine, the Applicant must: 
i. Be a construction contractor or homebuilder under NAICS codes 236220, 
236115, 236116, or 236118 with demonstrated managerial and technical 
ability in profitable construction or renovation; 
ii. Must either perform the construction/renovation work or manage the job with 
at least one supervisory employee on the job site during the entire 
construction phase;  
iii. Renovations must be “prompt and significant.” Construction must begin 
within a reasonable time after loan approval and the cost of renovation must 
equal or exceed one-third (1/3) of the purchase price of the property. The cost 
of renovation of buildings already owned by the Applicant must equal or 
exceed one-third (1/3) of the fair market value at the time of loan application;  
iv. Demonstrate a successful performance record in bidding and completing 
construction/renovation at a profit within the estimated construction period, 
and the prior successful performance must have been of comparable type and 
size to the proposed project (prior experience in single family construction is 
not comparable to high-rise apartment construction); and 
v. Be able to demonstrate prior prompt payments to suppliers and 
subcontractors. 
 Eligible Uses of Proceeds 
13 CFR 120.394 and 120.397 
i. Borrowers must use the loan proceeds solely for direct expenses related to 
the construction and/or “substantial” renovation costs of a specific eligible 
project (residential or commercial buildings for resale), including labor, 
supplies, materials, equipment rental, direct fees (building permits, interim 
disbursement inspection fees, etc.), utility connections (above or below 
ground), construction of septic tanks, and landscaping. (“Substantial” means 
rehabilitation expenses of more than one-third of the purchase price or fair 
market value at the time of application.) 
ii. Proceeds paid to a subcontractor can include the subcontractor’s profit. The 
cost of land is eligible if the land cost does not exceed 33 percent of the 
project cost. Up to 5% of the project cost can be allocated for improvements 
that benefit all properties in a subdivision, such as streets, curbs, sidewalks, 
or open spaces.  
iii. Proceeds must not be used to: 
a) 
Purchase vacant land for possible future construction; 
JX019.302
a. 
b. 
App.3559
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 303 
b) 
Operate or hold rental property for future rehabilitation; or 
c) 
Refinance existing debt. 
 A single line may be used to fund multiple projects. Once the overall line amount 
has been approved by SBA, the Lender may advance against additional projects 
without SBA approval, providing the Borrower and Lender are in compliance 
with all terms of the loan Authorization. 
 SBA may allow the finished property to be rented pending sale only in cases 
where the rental will enhance the ability to sell the property. 
 The final sale of the property must be an arm’s length transaction with legal 
transfer to an unaffiliated third party. 
5. Restrictions that Apply to PLP Loans 
The following types of loans are not eligible under PLP processing: 
 Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to an eligible 
small business owned or controlled by an ESOP (see Section A, Ch. 2, Para. B., 
Employee Stock Ownership Plans, of this Part for more information); 
 Loans to a cooperative or to an eligible small business owned or controlled by a 
cooperative (see Section A, Ch. 2, Para. C, Cooperatives, of this Part for more 
information); 
 Loans involving a Single Employer 401(k) plan, including a ROBS plan, unless 
the only investment held by the 401(k) trust is the equity in the Applicant 
business; and 
 Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that holds in trust 
the assets of other businesses), including a ROBS plan (see Section A, Ch. 2, 
Para. D, 401(k) Plans Including Rollovers as Business Start-Ups (ROBS) Plans, 
of this Part for more information). 
B. LOAN TERMS AND CONDITIONS FOR ALL CAPLINES 
1. Maximum Loan Amount 
 The maximum loan amount is $5,000,000. 
 Maximum Loans to Businesses with Affiliates 
Lenders must determine whether the Applicant has any affiliates and document 
the results in their credit analysis. If affiliation exists, SBA’s loan maximums 
apply to the Applicant, including all affiliates, as if all were a single business. 
 Maximum Loan Amount for multiple loans approved within 90 days of each other 
– “90 Day Rule.” 
i. If two SBA-guaranteed loans to any one business (including affiliates) are 
approved within 90 days of each other, the maximum gross amount of all 
such loans in that time frame cannot exceed $5,000,000. 
JX019.303
C. 
d. 
e. 
a. 
b. 
C. 
d. 
a. 
b. 
C. 
App.3560
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Part 2, Section B, Ch 3: 7(a) CAPLines 
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Page 304 
ii. Two SBA-guaranteed loans approved within 90 days of each other may 
impact the maximum guaranty percentage available to the Borrower and its 
affiliates as well as the guaranty fee. 
 Working Capital CAPLines 
To determine the maximum line amount, the Lender must either: 
i. Follow its established policies and procedures used on its similarly-sized, 
non-SBA guaranteed commercial lines of credit; or 
ii. Use the following formula: 
i) Divide Prior Year Net Sales by 365 to calculate the daily sales figure; 
ii) Multiply Daily Sales figure by number of days to finance (whatever 
number is the business sales cycle) 
The result will be the estimated working capital needs. 
 Contract CAPLines 
i. For single contract financing with a single payment, the loan amount is equal 
to the sum of the costs of the contract (excluding profit), as evidenced by the 
project cost schedule.  
ii. For a single contract with multiple payments, the loan amount is the amount 
projected by the Borrower necessary to cover 20% over the greatest cash 
deficit projected for the subject contract. This permits the line to revolve 
within the term of the contract. 
iii. For multiple contract financing, the master note amount is equal to the sum 
of the costs of all contracts (excluding profit) to be financed under the 
CAPLine, as evidenced by the project cost schedules. For future projects not 
yet identified, at the time the contract is obtained all costs by line item should 
be identified. The amount of the sub-note for each specific contract should 
equal the total costs of that contract (excluding profit). 
 Seasonal CAPLines  
The loan amount is based on the cash flow projections. The amount should 
correlate to the costs of the seasonal buildup of inventory and/or receivables. 
 Builders CAPLines 
i. For a non-revolving loan, the loan amount is based on the written proposal of 
costs (not anticipated selling price) provided by the applicant for a single 
project. 
ii. For a revolving loan, the master note amount is based on the cash flow 
projection provided by the applicant for ALL work to be performed by the 
small business (not just a specific project). The amount of a sub-note (for 
each specific project) is based on the written proposal of costs (not 
anticipated selling price) provided by the Applicant for that particular 
project. 
JX019.304
d. 
e. 
f. 
g. 
App.3561
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2. Maximum Guaranty Amounts and Percentages 
The maximum dollar amount outstanding of SBA’s guaranty to any one business 
(including affiliates) must not exceed $3,750,000, except when the loan is approved 
under a program which specifically permits higher amounts. When calculating the 
maximum guaranty percentage available to a Borrower and its affiliates, the Lender must 
include the approved loan amount for a revolving line of credit. The SBA’s guaranty is 
also known as the “SBA share” or “guaranteed portion.” 
 The maximum guaranty amount is $3,750,000.  
 The maximum guaranty percentage is: 
i. 85% for loans of $150,000 or less 
ii. 75% for loans over $150,000 
 Combination of 7(a) and 504 loans. 
i. When an Applicant applies for any combination of 7(a) and 504 loans, the 
order in which the loans are approved determines the maximum loan and 
guaranty amount available. Because the 7(a) loan has a lower maximum 
guaranteed amount, the 7(a) loan should be processed and approved first. 
ii. Lenders must advise the SBA processing centers that there is a companion 
504 application to ensure the 7(a) loan is processed and approved prior to the 
504 loan application being processed and approved. 
iii. The 90-day rule is only for those situations where a Borrower is approved for 
multiple 7(a) loans within a 90-day period. It does NOT apply if the 
Borrower is receiving a 7(a) loan and a 504 loan. 
 Maximum Guaranty Percentage for Multiple 7(a) Loans (13 CFR § 120.210). 
i. Excluding multiple 7(a) loans approved within 90 days of each other, the 
maximum guaranty percentage for 7(a) loans of $150,000 or less is 
85 percent. 
ii. For loans approved within 90 days of each other, the gross dollar amounts of 
the loans are combined. If the combined gross amount exceeds $150,000, 
then the percentage of guaranty on the combined loans must not be more than 
75 percent (subject to the $3,750,000 limit). 
For example, if a business receives an 85 percent guaranty on a loan of 
$140,000, and submits a second application for $50,000 within 90 days of the 
first loan’s approval, the percentage of guaranty on the second loan must be 
reduced to 47 percent so the combined guaranty is no more than $142,500, or 
75 percent of the total amount of both loans ($190,000). 
 Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: 
A 7(a) loan cannot include proceeds for an ineligible purpose or have any portion 
of the loan made to an ineligible business and no part of an SBA 7(a) loan may be 
guaranteed at zero percent. 
JX019.305
a. 
b. 
C. 
d. 
e. 
App.3562
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3. Loan Maturities 
13 CFR § 120.212 The loan term must be the shortest appropriate term based on the use 
of proceeds and the Borrower’s ability to repay. 
 Working Capital, Contract, and Seasonal CAPLines 
The maximum maturity on a Working Capital, Contract, or Seasonal CAPLine is 
10 years. Any CAPLine with a maturity of less than 10 years can be renewed as 
long as the total revolving repayment period does not exceed 120 months. The 
renewal is an extension of maturity (not a new loan). Thus, the loan number 
remains the same. If the original maturity was for 12 months or less, and the new 
maturity exceeds 12 months, an additional guaranty fee will be due. See 
Section A, Ch. 5, Para. C.1.a.v., Additional Guaranty Fee for Extensions of Short-
Term Loans, of this Part. 
 Builders CAPLines 
13 CFR § 120.396 The loan must not exceed 60 months plus the estimated time to 
complete construction or rehabilitation. 
 All CAPLines must have an exit strategy. Final disbursement should occur far 
enough in advance of maturity so that a sufficient amount of time is available for 
the assets acquired with proceeds to be converted back to cash and final payment. 
 Contract, Seasonal, and Builders CAPLines that finance a single transaction 
should have a maturity tied to the seasonal cycle, contract completion date, or 
project completion date. 
 Loan maturity must not exceed the period of the guaranty.  
4. Interest Rates 
SBA QUICK REFERENCE CHART: Maximum Interest Rates Allowed (See additional 
information below) 
Product 
7(a) CAPLines 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
Loans $25,000 or less 
(Maturity less than 7 years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 4.25% 
Loans $25,000 or less 
(Maturity 7 years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 4.75% 
Loans more than $25,000 up to $50,000 
(Maturity less than 7 Years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 3.25% 
Loans more than $25,000 up to $50,000 
(Maturity 7 Years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 3.75% 
JX019.306
a. 
b. 
C. 
d. 
e. 
App.3563
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Product 
7(a) CAPLines 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
Loans greater than $50,000 
(Maturity less than 7 years) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 2.25% 
Loans greater than $50,000 
(Maturity 7 years or more) 
Cannot exceed Prime, LIBOR Base Rate, or SBA 
Optional Peg Rate + 2.75% 
 General Policy on Interest Rates (13 CFR §§ 120.213; 120.214; 120.215): 
i. A loan may have a fixed or variable interest rate. The maximum interest rate 
that may be established for any 7(a) loan is governed by SBA’s regulations 
on interest rates, which preempts any provisions of a state’s constitution or 
law. The Lender negotiates the interest rate with the Applicant, subject to 
SBA’s maximum allowable rates. 
ii. SBA will periodically publish the maximum allowable fixed interest rate in 
the Federal Register. The maximum allowable fixed interest rate will be the 
Prime rate in effect on the first business day of the month, plus an allowable 
spread over Prime, as set forth in the most recent Federal Register Notice. 
For a listing of the current maximum allowable fixed interest rates, go to 
SBA’s Capital Access Financial System homepage. The maximum allowable 
fixed rate may only be used by a Lender if such rate will be in effect for the 
entire term of the loan, without adjustment or reset. Otherwise, the maximum 
rates for variable rate loans will apply.  
iii. For variable interest rate loans, the basis for the SBA maximum interest rate 
is an acceptable base rate plus allowable spread. The base rate in effect on the 
first business day of the month will determine the basis for the initial interest 
rate for any complete loan application received by SBA during that month. 
The initial note rate must not exceed SBA’s maximum interest rate. The 
spread above the base rate as identified in the Note may not be changed 
during the life of the loan without the written agreement of the Borrower. For 
further discussion of variable interest rates, see “Policy on Variable Interest 
Rates” below. 
iv. Default interest rates are not permitted. 
v. For loans with a variable interest rate, the following terms must be defined: 
a) 
Base Rate: 
i) There are three acceptable base rates: 
(a) 
The Prime Rate; 
(b) 
One Month London Interbank Offered Rate (LIBOR) plus 3 
percentage points (LIBOR Base Rate); or 
(c) 
The SBA Optional Peg Rate. 
JX019.307
a. 
App.3564
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ii) The Prime or LIBOR Base Rate will be that rate which is in effect on 
the first business day of the month, as identified in a national financial 
newspaper or website. This rate may be found in the newspaper on the 
second business day of the month. If a website is used, please ensure 
whether it is publishing the current day’s rate or the previous day’s 
rate as some newspaper websites publish the previous day’s rate. The 
Optional Peg Rate is a weighted average of rates the Federal 
government pays for loans with maturities similar to the average 7(a) 
loan. SBA calculates and publishes the Optional Peg Rate quarterly in 
the Federal Register. Base Rates will be rounded to two decimal places 
with .004 being rounded down to .00 and .005 being rounded up to .01. 
NOTE: This SOP continues to include the LIBOR Base Rate as an 
option for the calculation of the maximum allowable variable interest 
rate for 7(a) loans in accordance with 13 CFR § 120.214(c). The U.K. 
Financial Conduct Authority announced that it would phase-out 
LIBOR by the end of 2021. SBA encourages Lenders to consider 
LIBOR’s imminent phase-out when selecting a base rate. For existing 
7(a) loans with LIBOR as the base rate, SBA encourages Lenders to 
examine their loan documents to determine whether LIBOR may be 
replaced with a fallback rate. If no such provision exists in individual 
loan documents, Lenders should consider amending the appropriate 
document(s) in anticipation of LIBOR’s phase-out. It is important to 
note that any changes to the interest rate must be made in accordance 
with paragraph b.ii.b) below. The Federal Reserve Alternative 
Reference Rates Committee has drafted recommended fallback 
language for contracts tied to LIBOR: 
https://www.newyorkfed.org/arrc/fallbacks-contract-language. 
b) 
Frequency of change; 
c) 
Range of fluctuation; and 
d) 
Ceiling and floor (if any). 
vi. After approval and prior to final disbursement, Lender must either notify the 
LGPC of any changes to the Note terms related to the interest rate or make 
the change through E-Tran Servicing. After final disbursement, Lender must 
either notify the appropriate Commercial Loan Servicing Center of any 
changes to the Note terms related to the interest rate or make the change 
through E-Tran Servicing. 
 Policy on Variable Interest Rates 
i. Standard Policy: 
SBA’s maximum allowable interest rate applies only to the initial Note rate 
on a variable rate loan. Subsequent changes in the base rate are not subject to 
the maximum rate at the time of loan application; however, the maximum 
spread over the base cannot exceed SBA’s stated maximum. 
JX019.308
b. 
App.3565
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ii. Post-Approval Changes to the Interest Rate: 
a) 
Pre-Disbursement Changes: After loan approval and prior to first 
disbursement, the Lender may change the initial Note rate, including 
changing the base rate, the spread over the base rate, or changed from a 
fixed rate to a variable rate, or from a variable rate to a fixed rate, 
provided the new interest rate does not exceed the maximum allowable 
interest rate at the time of the loan application. The Lender must obtain 
the Borrower’s written consent to the change in the interest rate 
(separate and apart from executing the loan documents) and must notify 
the LGPC of the change or make the change through E-Tran servicing. 
For example, an SBA-guaranteed loan was approved with a variable 
rate. Since the loan was approved, the prime rate changed. The 
Borrower has asked the Lender if the loan can be switched to a fixed 
rate. If the loan has not been disbursed and the fixed rate selected does 
not exceed the maximum allowable fixed rate at the time of loan 
application, the Lender may make this change per the Borrower’s 
request. 
b) 
Post-Disbursement Changes: After the loan is disbursed, on a variable 
rate loan, the Lender may change the base rate or the spread over the 
base rate as long as the new base rate or spread is based on a method 
permitted when the loan was approved and is consistent with the interest 
rate regulations at the time the loan was approved. The Lender must 
obtain the Borrower’s written agreement and must notify the appropriate 
SBA CLSC of the change or make the change through E-Tran servicing. 
For further guidance see SOP 50 57.  
iii. Frequency of Interest Rate Adjustment: 
a) 
The first adjustment may occur on the first calendar day of the month 
following initial disbursement, using the base rate in effect on the first 
business day of the month. Lenders may delay the initial adjustment 
period. For example, Lenders have used periods as long as 5 years in 
order to provide the Borrower with an interest rate that is set for the first 
5 years of the loan. After that time, the interest rate will begin to 
fluctuate as stated in the Authorization.  
b) 
The Lender must specify in the Note the frequency at which the interest 
rate adjustment will occur.  
i) This adjustment period as identified in the Note may not be changed 
without the written consent of the Borrower.  
ii) Subsequent adjustments may occur no more frequently than monthly. 
All subsequent adjustments will set the interest rate on the first 
calendar day of the adjustment period using the base rate in effect on 
the first business day of the adjustment period.  
JX019.309
App.3566
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iii) The rate of interest will change on the first calendar day of the 
adjustment period even though the rate may not be known until the 
second business day of that period.  
For example, if the first of the month is a Sunday, the base rate is the 
prime rate in effect on Monday. This rate will be reported in the Wall 
Street Journal on Tuesday, the third calendar day and second business 
day of the month. Many lenders use the calendar quarter as the 
adjustment period, especially those that sell the guaranteed portion in 
the Secondary Market.  
c) 
After the interest rate begins fluctuating, the loan can be re-amortized. 
Typically, loans are re-amortized every time the interest rate is adjusted 
to ensure full amortization by the maturity date.  
iv. Interest Rate Requirements for an SBA Note: 
a) 
For fixed rate loans, the Lender must state the specific interest rate in 
the Note. 
b) 
For variable rate loans, the Lender must include the following 
information in the Note:  
i) Identification of the rate being used as the base rate;  
ii) The publication in which the designated base rate appears regularly 
(e.g. Wall Street Journal or the Federal Register if using the SBA 
Optional Peg Rate);  
iii) The permanent percentage spread to be added to the base rate;  
iv) The initial interest rate of the loan (from disbursement to first 
adjustment); 
v) The date or timing of the first rate adjustment; and  
vi) The frequency of rate adjustment. 
v. Interest Rate Ceilings and Floors: 
SBA will permit a Lender to limit the upward and downward adjustments by 
establishing a floor and ceiling provided that:  
a) 
Both the floor and ceiling are stated in the Note; and  
b) 
The difference between the stated rate in the Note and the floor is equal 
to or greater than the difference between the stated rate in the Note and 
the ceiling.  
c) 
For example, if the Note rate is 10% and the ceiling is 12%, the floor 
must be 8% or lower. 
vi. Accrual Method: 
SBA does not require a specific accrual method, unless the loan is sold in the 
Secondary Market. Loans sold on the Secondary Market must either use 
30/360 or Actual/365 as the interest accrual methods. While the interest 
JX019.310
App.3567
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accrual method 365/360 is permitted on loans not sold on the Secondary 
Market, Lenders are cautioned that they cannot use this accrual method and 
charge the maximum allowable rate of interest because this will result in an 
Annual Percentage Rate that exceeds SBA’s regulatory maximum. 
vii. Amortization: (13 CFR § 120.214(f)):  
Lender should use an amortization schedule that is appropriate for the type of 
loan. SBA does not allow balloon payments. A fixed interest rate loan must 
use a payment that will fully amortize the loan by the maturity date. 
Typically, variable rate loans are re-amortized every time the interest rate is 
adjusted to ensure full amortization by the maturity date. The amortization 
schedule may also be adjusted to meet the cash flow needs of the business.  
 Fixed and Variable Rate Combinations:  
The Lender may use a fixed rate on either the guaranteed or unguaranteed portion 
and a variable rate on the other portion of the loan. SBA allows such 
combinations as long as neither rate exceeds the SBA maximum interest rate. A 
Lender may use this structure to make a loan that permits it to retain a variable 
interest rate on the unguaranteed portion and sell a fixed rate guaranteed portion 
on the Secondary Market. If the Lender uses a combination, the entire loan is 
considered to be a variable interest rate loan. The interest rate on both the 
guaranteed and unguaranteed portions must be based on the variable rate.  
 Interest Rate Swap Contracts: 
i. An interest rate swap is a contract between two parties where one party pays 
a fee in exchange for an agreement by the other party to pay any interest in 
excess of an established amount. The contract may last for all or part of the 
term of the loan. The swap contract only relates to the payment of interest.  
Example: A Borrower has a prime plus 2% interest rate on a 7(a) variable 
rate guaranteed loan. The Borrower could purchase an interest rate swap 
contract that would set the interest rate at 8%. When the Note rate is lower 
than the rate paid by the Borrower on the swap contract (8%), the swap seller 
keeps the extra amount as compensation for the risk that rates will at some 
point exceed 8%. When the Note rate is higher than the rate paid by the 
Borrower on the swap contract, the Borrower would continue to pay the fixed 
rate of 8% and the swap seller would pay the difference above 8% to the 
Lender. The ability to stabilize the amount of the loan payment each month is 
the benefit to the Borrower of an interest rate swap contract. 
ii. In order to use an interest rate swap in the 7(a) program, the interest rate 
swap contract must meet the following conditions: 
a) 
The interest rate swap contract is an agreement between the small 
business Borrower and the Lender or, if the swap seller is not the lender, 
a third party. SBA is not a party to the interest rate swap contract. 
b) 
The interest rate swap contract does not affect the amount of money 
owed by the Borrower to SBA in the event SBA purchases the guaranty. 
JX019.311
C. 
d. 
App.3568
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In the event of a Borrower default, interest will be calculated using the 
base rate and spread in the variable interest rate Note, not the swap 
contract. 
c) 
SBA will not be responsible if the swap seller defaults during the life of 
the contract. The Borrower will be liable for the interest as required in 
the Note.  
d) 
Loans with accompanying interest rate swap contracts may be sold on 
the secondary market. The Lender is still required under the secondary 
market contract (SBA Form 1086) to forward interest and principal 
pursuant to the original terms of the loan. It is the Lender’s 
responsibility to work with the swap seller to make sure funds are 
available for submission to the fiscal and transfer agent according to the 
time schedule in the Form 1086. 
e) 
The full amount of the principal and interest required under the Note 
must be reported by the lender on the SBA Form 1502. 
f) 
SBA will not review swap contracts for Borrowers or provide guidance 
on their use. While swap contracts should not have a significant impact 
on the cost of the loan, SBA will not publish any guidelines on the cost 
of these contracts. 
g) 
The Borrower must sign a statement acknowledging that interest will be 
calculated at the Note rate if the swap contract is terminated.  
h) 
The following statement must be included in the swap contract that is 
executed by the Borrower and the swap seller: “The Small Business 
Administration is not a party to this contract and does not guarantee it. 
In the event SBA is called upon to honor its guaranty to the Lender, the 
Borrower’s debt will be determined by the terms of the Note, including 
the variable interest rate provision.” 
i) 
Swap contracts may be used on new or existing loans. 
j) 
The swap contract does not have to last for the entire length of the loan 
agreement. 
k) 
SBA does not have a standard form for an interest rate swap contract. 
l) 
Any fees owed the swap counterparty as a result of the default by the 
Borrower will be subordinated to the SBA 7(a) loan. 
C. CREDIT STANDARDS FOR ALL CAPLINES 
The policies that make up SBA’s credit standards begin with the requirements outlined in 13 
CFR §§ 120.101 and 120.150. This section provides procedural guidance as to what the Lender 
should or must consider when analyzing any request for financial assistance that will be 
guaranteed by SBA. 
A Lender must analyze each application in a commercially reasonable manner, consistent with 
prudent lending standards. The cash flow of the Applicant is the primary source of repayment, 
JX019.312
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not any expected recovery from the liquidation of collateral. Thus, if the Lender’s financial 
analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely 
manner from the cash flow of the business, the loan request must be declined, regardless of the 
collateral available or outside sources of repayment. 
1. Processing Methods 
Once submitted to the LGPC, an application withdrawn by a Lender, screened-out, or 
declined by the LGPC may not be approved by any Lender under its PLP Authority. 
E-Tran will not permit the submission of such an application under any Lender’s PLP 
authority for a period of 12 months from the date of the withdrawal, screen-out, or 
decline of the application. 
 Non-delegated – When a Lender submits a CAPLine loan guaranty request under 
the non-delegated processing method, the Lender submits the application and 
supporting documents to SBA. SBA will make the final determination as to the 
eligibility and creditworthiness of the Applicant, including approving the uses of 
proceeds, the adequacy of the collateral being pledged, the structure of the loan 
and any equity contribution to be required from the Applicant. 
 Delegated – When a Lender submits a CAPLine loan guaranty request under the 
Lender’s PLP authority, the Agency does not review the Lender’s determination 
of eligibility, analysis of the credit, or structure of the loan or line of credit prior 
to issuing a loan number. The Lender must analyze eligibility and credit 
worthiness in accordance with SBA Loan Program Requirements and properly 
document its file. The PLP Lender’s analysis is subject to SBA’s review and 
determination of adequacy, when the Lender requests SBA to purchase its 
guaranty or when SBA is conducting lender oversight activities. 
2. Underwriting 
 Lender’s Credit Analysis: 
The Lender’s credit memorandum and analysis must address the Applicant’s 
ability and likelihood to repay the loan from the cash flow of the business and 
past performance by documenting the following: 
i. A description and history of the business, including: 
a) 
Nature of the business; 
b) 
Length of time in business under current management; 
c) 
Depth of management experience in the industry or a related industry;  
d) 
Brief description of the business’s management team including 
principal’s involvement in the daily onsite management of the business 
or how the daily operations will be managed if the principals are not 
there on a daily basis; and  
e) 
If the daily operations will be handled under a management agreement,  
i) PLP Lenders processing an application under their delegated authority 
must obtain a copy of the management agreement, review it to 
JX019.313
a. 
b. 
a. 
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determine if it creates affiliation between the Applicant and the 
management company or results in a passive business, and retain in 
their loan file. SBA will review this determination at time of guaranty 
purchase or when conducting lender oversight activities. The PLP 
Lender bears the risk of an incorrect determination. 
ii) Lenders processing an application on a non-delegated basis must 
submit a copy of the management agreement to the LGPC with their 
application. 
iii) See Section A, Ch 1, Para. D.5, Affiliation based on Management for 
further guidance on management agreements. (13 CFR § 
121.301(f)(3)) 
ii. Financial analysis of repayment ability:  
a) 
For existing businesses based on the three most recent years of historical 
financial information (tax returns or balance sheet with debt schedule 
and income statement) plus an interim financial statement. (13 CFR § 
120.191) 
b) 
For new businesses, based on detailed projections, including the 
supporting assumptions which reflect positive cash flow within 2 years. 
c) 
The financial analysis for all Applicants must address the following as 
applicable: 
i) Historical cash flow for existing businesses, that demonstrates total 
debt service coverage after the SBA loan; if the historical cash flow 
does not show sufficient debt service coverage, Lender must obtain 
from the Applicant and analyze 2 years of detailed projections 
including the supporting assumptions justifying relying on projections 
instead of historical performance; 
ii) Calculation of operating cash flow (OCF) defined as earnings before 
interest, taxes, depreciation, and amortization (EBITDA); 
iii) Justification for additions and subtractions to cash flow such as the 
following: 
(a) Unfunded capital expenditures; 
(b) Non-recurring income; 
(c) Expenses and distributions; 
(d) Distributions for S-Corp taxes; 
(e) Rent payments; 
(f) Owner’s Draw; and/or 
(g) Global cash flow analysis that includes assessment of impact on 
cash flow to/from any affiliate business. 
JX019.314
App.3571
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iv) The effect any affiliates may have on the ultimate repayment ability of 
the Applicant. 
iii. Debt Service (DS) is defined as the future required principal and interest 
payments on all business debt inclusive of new SBA loan proceeds. The 
Applicant’s debt service coverage ratio (OCF/DS) must be equal to or greater 
than 1.15 on a historical and/or projected cash flow basis and 1:1 on a global 
basis. To perform a complete analysis of debt service, it is important for a 
Lender to obtain a current debt schedule prepared by the Applicant, including 
any shareholder debt.  
iv. For cash flow projections, the Lender must calculate the debt service 
coverage and provide the assumptions supporting the projected cash flow 
coverage, including as applicable: 
a) 
Justification for revenue growth, i.e. new product lines, sales channels, 
and new production facilities; 
b) 
Justification for any reduction in expenses; and 
c) 
A comparison to current industry trends. 
v. Spread of pro-forma Business Balance Sheet (current business balance sheet 
adjusted for all changes in assets and liabilities as a result of the SBA loan, 
other debt, any required equity injection and use of loan proceeds); 
vi. Ratio calculations (based on the pro-forma Balance Sheet and historical and 
projected Income Statements) for the following financial ratio benchmarks:  
Current Ratio, Debt/Tangible Net Worth, Debt Service Coverage, and any 
other ratios the Lender considers significant for the business/ industry (e.g., 
inventory turnover, receivables turnover, and payables turnover, etc.) 
including discussion of Lender’s comparison to industry trends; 
vii. Analysis of working capital adequacy, at a minimum over the next 12 
months; 
viii. Insurance Requirements, including: 
a) 
Life Insurance – on whom and how much. If Life Insurance will not be 
required, provide justification. 
b) 
Business hazard & liability insurances. 
c) 
Other Insurances, such as specialty insurance appropriate for the type of 
business, e.g. malpractice insurance or product liability insurance. 
(See Section A, Ch 6, Para. C, Insurance Requirements for further 
guidance.) 
ix. Explanation of and justification for the refinancing of any debts as part of the 
loan request, along with supporting documentation, in accordance with the 
debt refinancing requirements in paragraph A, above in this chapter. In 
addition, Lender must include a written explanation for any late payments. 
JX019.315
App.3572
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x. Lender’s rationale for recommending approval, including a discussion and 
analysis of the following: 
a) 
The factors demonstrating the Applicant does not have credit available 
elsewhere on reasonable commercial terms from non-Federal, non-State, 
non-local government sources, in accordance with Section A, Ch. 1, 
Para. E, Demonstrate the Need for Desired Credit, in this Part; 
b) 
Competition; 
c) 
Seller financing; 
d) 
Stand-by agreements; 
e) 
90+ day delinquencies; 
f) 
Trade disputes and/or; 
g) 
Federal, State, or local citations which would preclude the Applicant 
from normal business operations; 
h) 
Discussion of any liens, judgments, bankruptcy filings or pending 
litigation including divorce proceedings; and 
i) 
Discussion of other relevant information (for example, if the application 
involves a franchise, Lender must review any credit information 
provided such as the number of failed franchisees and cash flow 
projections provided by the franchisor). 
 Equity requirements (13 CFR § 120.150(f)): 
i. Depending on whether the loan is processed on a non-delegated or PLP basis, 
the Lender or SBA must determine that there is sufficient invested equity. To 
do this, the Lender (for PLP loans) or SBA (for non-delegated loans) must 
determine if the equity position, any required equity contribution, and the pro 
forma debt-to-worth are acceptable based on the factors related to the type of 
business, experience of management and the level of competition in the 
market area. The Lender must include in its credit memorandum a detailed 
discussion of the equity position (net worth) and any required equity 
injection. (See Ch. 5, Para. D., Loan Closing and Disbursement, of this 
Section for requirements concerning documenting and verifying equity 
injection.) 
ii. Minimum equity injection requirements for certain Applicants or loans: 
Start-Up Businesses – At a minimum, SBA considers an equity injection 
(Applicant contribution) of at least 10 percent of the total project costs (all 
costs required to become operational, regardless of the source of funds) to be 
necessary for a Start-Up Business to operate on a sound financial basis. SBA 
considers a business to be a “start-up” for the purpose of determining equity 
injection requirements if it has been in operation (i.e., generating revenue 
from intended operations) for 1 year or less;  
JX019.316
b. 
App.3573
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iii. Source of Equity Injection: 
a) 
The following may be considered as equity injection: 
i) Cash that is not borrowed. 
ii) Cash that is borrowed through a personal loan to the business owner 
with repayment demonstrated to come from a source other than the 
cash flow of the business (the salary paid to the owner by the business 
does not qualify). If the personal loan is made by the participating 
Lender, the Lender must submit the application through non-delegated 
7(a) processing.  
iii) Assets other than Cash – Lenders must carefully evaluate the value of 
assets other than cash that are injected by owners. An appraisal or 
other valuation by an independent third party is required if the 
valuation of the fixed assets is greater than the Net Book Value. A 
valuation of the fixed assets provided as part of a business valuation 
will not meet these requirements. 
iv) Standby debt – Only debt that is on full standby (no payments of 
principal or interest for the term of the SBA-guaranteed loan) may be 
considered as equity for SBA’s purposes. A copy of the note must be 
attached to the standby agreement. 
b) 
The following may not be considered as Equity Injection: 
i) Value or cost of education; and 
ii) Funds that are borrowed and do not meet the exception noted in 
paragraph b.iii.a)ii) above. 
c) 
Standby Agreements: 
i) Lender may use SBA Form 155 or its own Standby Agreement form. 
A copy of the note must be attached to the standby agreement. 
ii) Standby Creditor must subordinate any lien rights in collateral 
securing the loan to Lender’s rights in the collateral and take no action 
against Borrower or any collateral securing the Standby Debt without 
Lender’s consent. 
3. Collateral 
See Section A, Chapter 5, Paragraph A of this Part for guaranty requirements. 
 General Collateral Requirements 
i. With respect to collateral, Lenders must use commercially reasonable and 
prudent practices to identify collateral, which conforms to procedures at least 
as thorough as those used for their similarly-sized, non-SBA guaranteed 
commercial loans. Decisions regarding what collateral must be taken to 
secure a loan are based on the circumstances of the individual loan, including 
size, and must meet the minimum requirements set forth in this section. 
JX019.317
a. 
App.3574
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ii. When loan proceeds from a Working Capital CAPLine loan will be used to 
refinance existing debt, the loan must be secured with at least the same 
collateral and lien priority as the debt that is being refinanced. When the debt 
being refinanced is considered as being over collateralized based upon SBA 
collateral requirements and the SBA loan will remain fully secured, the 
Lender is not required to take excess collateral. Substitute collateral may be 
offered providing it is of comparable value and useful life and is determined 
to be acceptable by SBA or the Lender when processing the line under its 
PLP authority. 
iii. Adequacy of Collateral: 
a) 
A loan request is not to be declined solely on the basis of inadequate 
collateral. In fact, one of the primary reasons Lenders use the SBA-
guaranteed program is for those Applicants that demonstrate repayment 
ability but lack adequate collateral to repay the loan in full in the event 
of default. However, SBA does not permit its guaranty to be a substitute 
for available collateral. 
b) 
When assessing the adequacy of collateral, the Lender must consider the 
impact that covenants and other restrictions recorded against the 
collateral may have on its value and marketability. The Lender must 
document this analysis in the file. Examples of items to review include: 
i) Deed restrictions, covenants, easement provisions, reversionary 
interests, subordinations, leases and options, and other provisions that 
restrict the use of the property for the benefit of a third party (note: 
certain deed restrictions pertaining to the use of the property, which 
are intended to protect the health and safety of occupants, may be 
acceptable, e.g., deed restrictions based upon environmental concerns 
including restrictions on residential use, use as a day care center for 
children or seniors, use as a school, or use as a hospital); and 
ii) Engineering Controls that require the Applicant or subsequent owners 
to install costly devices or structures such as extraction wells or 
subsurface barrier walls prior to constructing a building, remodeling, 
or otherwise improving the property. 
 Working Capital CAPLines 
i. If the Lender will disburse the line based on a BBC, the Lender must obtain a 
first lien on the Applicant’s working/trading assets (i.e., accounts receivable, 
inventory). 
ii. If the Lender will not use a BBC to disburse the line, the Lender must assume 
full utilization of the revolving line of credit and secure the line with 
sufficient collateral to ensure there is a 1:1 collateral ratio. Lender must 
obtain a first lien position on the working/trading assets (accounts receivable 
and inventory) financed with the line. If the working/trading assets are 
insufficient to provide a 1:1 collateral ratio, the Lender also must take 
additional collateral to ensure there is a 1:1 collateral ratio. If business assets 
JX019.318
b. 
App.3575
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do not fully secure the loan, the Lender must take available equity in personal 
real estate owned by any owners of 20% or more of the Applicant and 
guarantors to ensure there is a 1:1 collateral ratio. See Paragraph D.3.d., 
Working Capital CAPLines, below for further guidance. 
 Contract CAPLines 
i. Applicants must be able to provide the Lender with a first lien position on the 
contract(s) and the proceeds of the contract(s) financed with the line, by 
assignment to the participating Lender and proper UCC filing. See Paragraph 
D.3.b.i.b), Exception to the Assignment of Contract Proceeds, in this Chapter 
below for guidance on exceptions to when an assignment is required. 
ii. The Lender may take additional collateral in accordance with its policies and 
procedures governing its similarly-sized, non-SBA guaranteed commercial 
lines of credit. 
iii. All liens must be perfected and the lien position verified prior to the initial 
disbursement of the line. For seasonal, contract or builder lines that revolve 
for more than one season, contract or construction/renovation project, liens 
must be perfected prior to the initial disbursement for each season, contract, 
or project. 
 Builders CAPLines 
i. SBA will accept no less than a second lien position on the property being 
constructed or renovated if the purpose of the first lien was to acquire the 
property. 
ii. If the property is part of a subdivision where the Lender for the subdivision 
holds a first lien OR serves as partial collateral for a loan secured by more 
than one parcel of real estate, the first lienholder must provide a “release 
clause” for transfer of clear title to any eventual buyer of individual parcels 
upon receipt of a pre-established payment. 
iii. Lenders must not take a second lien position if the first lienholder requires 
that the entire loan be paid in full before any property is released. Where 
Lender/SBA is in a second position, the total amount necessary to release the 
first and second liens may not exceed 80% of the fair market value (selling 
price) of the completed project. 
 Real Estate Appraisal Requirements 
The regulation governing real estate appraisal is set forth at 13 CFR § 120.160(b). 
i. Commercial Real Estate: 
a) 
For all loans greater than $500,000 secured by commercial real 
property, all Lenders must obtain an appraisal by a State licensed or 
certified appraiser. Appraisals must be in compliance with the Uniform 
Standards of Professional Appraisal Practice (USPAP). Additionally, 
SBA requires that completed appraisals be dated within 12 months of 
the application for guaranty. For federally-regulated Lenders, no 
JX019.319
C. 
d. 
e. 
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exemption is granted under the Interagency Appraisal and Evaluation 
Guidelines dated December 2, 2010 for Transactions Insured or 
Guaranteed by a U.S. Government Agency.  
b) 
For all loans $500,000 or less secured by commercial real property: 
i) If the loan finances a transaction involving parties with a close 
relationship (for example, transactions between existing owners or 
family members), or if SBA or the Lender otherwise concludes that an 
appraisal is necessary to appropriately evaluate creditworthiness, the 
Lender must obtain an appraisal as described in paragraph i.a) above. 
ii) If an appraisal is not required under the preceding paragraph, all 
Lenders must obtain an appropriate evaluation of the commercial real 
estate securing the loan that is consistent with safe and sound banking 
practices. Evaluations are not required to be performed in accordance 
with USPAP or by State licensed or certified appraisers but should be 
consistent with the Interagency Appraisal and Evaluation Guidelines 
and the Interagency Advisory on the Use of Evaluations in Real 
Estate-Related Financial Transactions, issued by the Federal Banking 
Regulators. 
c) 
The appraiser must be: 
i) Independent and have no appearance of a conflict of interest (such as a 
direct or indirect financial or other interest in the property or 
transaction); and 
ii) Either State-licensed or State-certified, with the following exception: 
when the commercial property’s estimated value is over $1,000,000, 
the appraiser must be State-certified. 
d) 
In order for the appraiser to identify the scope of work appropriately, the 
appraisal must identify the Lender as the client and/or an intended user 
of the appraisal, as those terms are defined in USPAP, except that 
federally-regulated Lenders may follow their primary regulator’s 
FIRREA requirements to the extent they permit otherwise. The Lender 
may not use an appraisal prepared for the seller or the Applicant. The 
cost may be passed on to the Applicant. 
e) 
The appraisal must be an “Appraisal Report” prepared in compliance 
with USPAP. 
f) 
If the loan will be used to finance new construction or the substantial 
renovation of an existing building, the appraisal must estimate what the 
market value will be at completion of construction. (“Substantial” 
means rehabilitation expenses of more than one-third of the purchase 
price or fair market value at the time of the application.) After 
construction is completed, Lender 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 
JX019.320
App.3577
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estimate of value was based. If the Lender cannot obtain such a 
statement, then the Lender may not close the loan without SBA’s prior 
written permission. 
g) 
If the SBA-guaranteed loan was used to cover the construction period, 
the Lender must notify the appropriate SBA CLSC of any deviation(s) 
and work with the SBA CLSC to determine an appropriate course of 
action, including the securing of additional collateral. The Lender’s 
notification to SBA must provide a sufficient understanding of the 
reasons for the differences in values between the estimated and actual 
values as well as a recommendation as to a remedy to offset the 
difference in values such as additional equity or additional collateral. If 
additional collateral is being required, the Lender must identify both the 
fair market and liquidation values of the additional collateral. If the 
Lender is unable to obtain a statement 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, but is able to obtain a 
new appraisal demonstrating that the market value meets or exceeds the 
original estimate of value, then no additional action on the part of the 
Lender is necessary. 
h) 
If the loan will be used to acquire an existing building that does not 
require construction, the appraiser should estimate market value on an 
as-is basis. If the appraiser estimates the value other than on an as-is 
basis, the narrative must include an explanation of why the as-is basis 
was not used. 
i) 
When valuing the collateral, the Lender must not include the 
contributory value of any rental income or the value of any intangible 
assets contained in the appraisal. 
j) 
An appraisal may be submitted as part of the loan application to assist 
with the underwriting or as part of the loan closing. In no case may the 
Lender rely on an appraisal that was prepared more than 12 months 
prior to the date of the application. 
k) 
If the Lender is going to require the appraisal at closing, the loan 
application must include an estimate of the value of the real estate and 
the estimate must be identified in the loan authorization with the 
requirement for an appraisal that supports the estimated value at time of 
closing. 
l) 
If at time of closing the appraised value: 
i) Is 90% or more of the estimated value, the Lender may close the loan 
but must include a written explanation as to why the appraisal is less 
than the estimated value in the loan file; or 
ii) Is less than 90% of estimated value, the Lender may not close the loan 
without SBA’s prior written permission (see exception below for PLP 
Lenders). The Lender’s justification to SBA must provide a sufficient 
JX019.321
App.3578
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understanding of the reasons for the differences in values between the 
estimated and actual values as well as a recommendation as to a 
remedy to offset the difference in values such as additional equity or 
additional collateral. If additional collateral is being required, the 
Lender must identify both the fair market and liquidation values of the 
additional collateral. 
iii) Exception for PLP Lenders: PLP Lenders are permitted to close a loan 
when the appraisal is less than 90% of the estimated value but the 
Lender must include a written justification as part of its file that may 
be reviewed by SBA at time of guaranty purchase or when SBA is 
reviewing the Lender. The justification must include a thorough 
analysis by the Lender of the reasons for the appraisal being low and 
an explanation as to what steps the Lender took to offset the risk to 
SBA from the low appraisal such as additional equity or additional 
collateral. 
ii. Non-commercial real estate or real estate securing a personal guaranty: 
SBA has no specific appraisal requirements for non-commercial real estate 
(such as a residence) or real estate (commercial or non-commercial) taken as 
collateral to secure a personal guaranty. 
D. SUBMISSION OF APPLICATION FOR GUARANTY FOR ALL CAPLINES 
1. Contents of Lender’s Application for Guaranty 
The contents of the Lender’s application for guaranty vary depending on the size of the 
loan and the method of processing chosen by the Lender. Based on the method of 
processing, the Lender may or may not be required to submit the documentation and 
exhibits to SBA, but in all cases must maintain those documents and any that support the 
guaranty request in their loan files.  
Lender must disclose 100% of the Applicant’s ownership on SBA Form 1919 and in E-
Tran in order to submit a loan application. Each owner must be identified in E-Tran.  
SBA Form 1919 includes information on the number of employees at the time of 
application and the number of jobs to be created and/or retained as a result of the loan. 
Jobs “created” means the number of full-time (or equivalent) employees that the small 
business expects to hire as a result of the loan. Jobs “retained” means the number of full-
time (or equivalent) employees on the payroll of the business at the time of application 
that will be lost if the loan is not approved. 
 CAPLine Non-Delegated and PLP Processing: 
Program forms can be found at www.sba.gov/document. 
i. Centralized 7(a) Loan Submission Instructions can be found at the 7(a) Loan 
Guaranty Processing Center (“LGPC”) website along with other forms, 
telephone numbers and fax numbers: www.sba.gov/CitrusHeightsLGPC. 
ii. All CAPLine loan files must include the forms and information the Lender 
requires in order to make an informed eligibility and credit decision. Any 
JX019.322
a. 
App.3579
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application form obtained by the Lender from the applicant must be certified 
by the Applicant as true and complete.  
 PLP Lenders processing loans under their PLP authority must obtain and retain 
the documentation listed below in their file.  
 For all loans submitted using the non-delegated process through the LGPC 
(including loans from PLP Lenders using this processing method), Lender must 
obtain and retain in its file all documentation listed below. In addition, Lender 
must submit as part of the Application for guaranty those items below emphasized 
in bold.  
i. Lender must complete and sign SBA Form 1920. 
ii. Applicants and Associates must complete and sign SBA Form 1919, 
“Borrower Information Form.” SBA Form 1919 must be signed by the 
following: 
a) 
For a sole proprietorship, the sole proprietor; 
b) 
For a partnership, all general partners, and all limited partners owning 
20% or more of the equity of the firm, or any partner that is involved in 
management of the Applicant; 
c) 
For a corporation, all owners of 20% or more of the corporation and 
each officer and director; 
d) 
For limited liability companies (LLCs), all members owning 20% or 
more of the company and each officer, director, and managing member; 
e) 
Any Key Employee; and 
f) 
Any Trustor (if the Small Business Applicant is owned by a trust). 
g) 
When the combined ownership interest between spouses and minor 
children is 20% or more, both spouses must complete SBA Form 1919. 
When 20% or more ownership interest is held by a corporation, partnership, 
or other form of legal entity in the Applicant or OC, the ownership interests 
of all individuals must be disclosed.  
A separate Section I of SBA Form 1919 is required to be completed and 
signed for each co-applicant (e.g. Eligible Passive Company (EPC) and 
Operating Company (OC)). 
All parties listed in subparagraph c.ii. above are considered “Associates” of 
the Small Business Applicant as defined in 13 CFR § 120.10. A separate 
Section II is required to be completed and signed by each principal of the 
Small Business Applicant. 
iii. Lender’s Credit Memo must address all requirements detailed in 
paragraph C, Credit Standards in this chapter. 
JX019.323
b. 
C. 
App.3580
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iv. Character Determination: 
a) 
If questions 17, 18, and 19 of SBA Form 1919 are all answered “no,” a 
Character Determination is not required. 
b) 
If question 17 is answered “yes,” the loan is not eligible.  
c) 
If question 18 or 19 is answered “yes,” the Subject Individual and 
Lender must follow the steps as outlined in Section A, Ch. 3, Para. B, 
Character Determinations, of this Part prior to submission of the 
application to the LGPC for a non-delegated loan and prior to 
submitting the request for a loan number for a PLP loan. 
v. Personal Financial Statement dated within 90 days of submission to SBA, 
for all owners of 20% or more (including the assets of the owner’s spouse 
and minor children), and proposed guarantors. Lenders may use SBA Form 
413 or their own equivalent form. 
vi. Business financial statements and/or tax returns dated within 120 days prior 
to submission to SBA, consisting of: 
a) 
Year End Balance Sheet for the last 3 years, including detailed debt 
schedule; 
b) 
Year End Profit & Loss Statements for the last 3 years; 
c) 
Reconciliation of Net Worth; 
d) 
Interim Balance Sheet; and  
e) 
Interim Profit & Loss Statements; 
vii. Affiliate/Subsidiary financial statement requirements same as above; 
viii. Copy of Lease, if applicable; 
ix. Detailed listing of machinery and equipment to be purchased with loan 
proceeds and cost quotes, if applicable; 
x. Detailed listing of collateral (may be included in the Lender’s credit memo); 
xi. Provide the following if real estate is to be purchased with loan proceeds: 
a) 
Appraisal (see appraisal requirements in paragraph C.3.e, Real Estate 
Appraisal Requirements in this Chapter); 
b) 
Copy of signed purchase agreement; 
c) 
Lender’s environmental questionnaire (if applicable – see Section A, 
Ch. 6, Para. E, Environmental Policies and Procedures, of this Part); and  
d) 
Cost breakdown where improvements to the real estate are included; 
xii. Franchise: 
a) 
For non-delegated loans:  
i) If the Applicant’s brand meets the FTC definition of a franchise, 
Lender must identify the name of the franchise and the SBA Franchise 
JX019.324
App.3581
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Identifier Code when entering the application into E-Tran. Lender 
must ensure that the brand name (and, where applicable, the type of 
agreement) the Applicant will be operating under matches the brand 
name (and, where applicable, the type of agreement) listed on the 
Directory. The LGPC will confirm that the brand is listed on the SBA 
Franchise Directory; 
ii) If the Lender determines that the Applicant’s brand does not meet the 
FTC definition of a franchise, and it is not on the Directory, Lender 
must explain its determination in its credit memorandum when 
submitting the application to the LGPC and provide the agreement and 
any additional documentation required by the brand. Lender also must 
provide contact information for the franchisor/licensor (name and 
email address only). The LGPC will forward the documentation and 
contact information to the SBA Franchise Team for review and final 
determination;  
iii) If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code for the brand that 
generates the largest amount of the Applicant’s revenue when entering 
the application into E-Tran. The Lender must identify all other brands 
and SBA Franchise Identifier Codes (if applicable) in the Lender’s 
credit memorandum, and must identify which of the Applicant’s 
brands are critical to the Applicant’s business operation, including an 
explanation of the basis for that determination (e.g., a breakdown of 
revenue by brand). The LGPC will confirm that all of the Applicant’s 
brands are eligible for SBA financial assistance and those that meet the 
FTC definition of a franchise that are critical to the Applicant’s 
business operation are on the Directory. (See Section A, Ch 1, Para. 
D.6, Franchise, License, Dealer, Jobber, and Similar Agreements, of 
this Part for guidance.) 
b) 
For PLP loans:  
i) If the Applicant’s brand meets the FTC definition of a franchise, 
Lender must document in its file that the Applicant’s brand is on the 
Directory and identify the name of the franchise and SBA Franchise 
Identifier Code when entering the request for loan number into E-Tran. 
Lender must ensure that the brand name (and, where applicable, the 
type of agreement) the Applicant will be operating under matches the 
brand name (and, where applicable, the type of agreement) listed on 
the Directory. (Lender will need to submit the documentation showing 
that the Applicant’s brand is on the Directory with any guaranty 
purchase request.) 
ii) If the Applicant’s brand is not on the Directory and the PLP Lender 
determines the brand does not meet the FTC definition and proceeds 
with approving the loan under its PLP authority, the Lender must 
document its file and will be required to submit that documentation 
JX019.325
App.3582
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with any guaranty purchase request and the PLP Lender bears the risk 
of an incorrect determination; 
iii) If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code (if applicable) for 
the brand that generates the largest amount of the Applicant’s revenue 
when entering the application into E-Tran. The Lender must document 
in its file that all of the Applicant’s brands are eligible for SBA 
financial assistance and those that meet the FTC definition of a 
franchise that are critical to the Applicant’s business operation are on 
the Directory, and must document their file with the basis for their 
determination of which brands are critical to the Applicant’s business 
operation (e.g., a breakdown of revenue by brand). PLP Lenders will 
be required to submit all of this supporting documentation to SBA 
with any guaranty purchase request. (See Section A, Ch. 1, Para. D.6, 
Affiliation Based on Franchise, License, Dealer, Jobber, and Similar 
Agreements, of this Part for further guidance.) 
xiii. IRS Form 4506-T, Request for Transcript of Tax Return. 
xiv. IRS Transcripts and complete verification. 
xv. Debt Refinancing. Lenders must maintain copies of all notes, security 
agreements, leases, or other documentation evidencing the debt to be 
refinanced in the loan file. For non-delegated loans, Lender must submit 
copies of all supporting documentation for the debt to be refinanced to the 
LGPC with the application. 
xvi. Documentation of USCIS status verification - Lenders must receive 
verification of the status of each alien required to submit USCIS documents 
prior to submission of the application or request for loan number to SBA. 
Lender may submit a copy of the verification received from USCIS or SBA-
SLPC or confirm in its credit memorandum that verification has been 
obtained. 
 CAPLine-Specific Application Requirements 
For all CAPLines, Lender must obtain the information outlined in paragraph c. 
above. In addition, the Lender must obtain and provide the following as 
applicable for each type of CAPLine: 
i. Working Capital CAPLine: 
If the Working Capital CAPLine will be disbursed using a BBC, a sample 
Borrowing Base Calculation. If the Lender will not be using a BBC, Lender 
must provide a collateral basis calculation. 
ii. Seasonal CAPLine: 
a) 
Documentation of the seasonal nature of the business (i.e. month-by-
month historical documentation of the needs); and 
JX019.326
d. 
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b) 
Applicant prepared month-to-month cash flow projection for the 
upcoming 12 months. 
iii. Contract CAPLine: 
a) 
A project cost schedule depicting all direct material, labor, and overhead 
attributable to the contract to be financed. (Profit may not be included.) 
The schedule must illustrate each cost by line item; 
b) 
A current annual income statement depicting the changes 
(increases/decreases) in operating, investing, and financing cash flows 
to establish affordability and to confirm adequate cash flow for 
repayment; and 
c) 
A copy of the contract(s) being financed by the Contract CAPLine. 
iv. Builders CAPLine: 
a) 
Month-to-month cash flow for all work to be performed by Applicant; 
b) 
A letter from: 
i) A mortgage lender indicating that permanent mortgage money is 
available to qualified purchasers to buy such properties; 
ii) A real estate broker indicating that a market exists for the proposed 
building and that it will be compatible with its neighborhood; and 
iii) An architect, appraiser or engineer agreeing to make inspections and 
certifications to support interim disbursements. 
c) 
A letter from a Lender who has its own real estate lending department, 
staffed by personnel with appraisal and engineering experience may be 
substituted for one or more of the letters required in d)ii) above. 
b. Draft Loan Authorization - CAPLines (only required for PLP Lenders using the 
non-delegated processing method).  
i. Zero Balance Period Requirements: With the exception of Seasonal 
CAPLines, there is no requirement that a zero balance be maintained for any 
specific time period on any CAPLines. A “clean up” period may be included 
in the Authorization at the Lender’s option. 
ii. The latest version of the Authorization Boilerplate and Wizard is available at 
www.sba.gov/document/support-object-object-standard-7a-authorization-
file-library. Note: The hyperlink directs the user to a page titled “Standard 
7(a) Authorization File Library;” however, the 7(a) Wizard zip file will 
download the Authorization Wizard and the CAPLine Wizard. 
iii. See Chapter 5, Authorization through Disbursement, in this Section below, 
for additional SBA requirements for the loan Authorization. 
JX019.327
App.3584
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 328 
2. Where to Submit Applications for Guaranty 
All 7(a) Lenders are permitted to submit applications for guaranty under non-delegated 
processing procedures. All CAPLines applications must be submitted through E-Tran. 
SBA One is not available for submission of CAPLines lines. 
 Non-delegated applications - Lenders submitting applications using non-delegated 
procedures (including loans from PLP Lenders) must submit applications for 
guaranty and all attachments via E-Tran to the LGPC. Documents greater than 
250MB must be separated into multiple documents. The system does not support 
uploads greater than 250MB.  
 PLP applications – Lenders submitting applications using their PLP authority 
must submit guaranty applications via E-Tran, retaining all required 
documentation in the Lender’s loan file.  
 Reconsideration of Declined CAPLine (non-delegated) Applications (13 CFR § 
120.193): 
i. If the Lender believes the reason(s) for decline have been overcome, a 
request for reconsideration may be submitted along with a detailed written 
explanation of how the Applicant has overcome the reason(s) for decline. 
Lender must submit a request for reconsideration to the LGPC within 
6 months of the date of decline. Any request submitted more than 120 days 
after the date of decline must include current financial statements. 
ii. If a request for reconsideration is declined by the LGPC, a second appeal 
may be requested from the D/FA, whose decision is final. The appeal to the 
D/FA must be submitted to the LGPC and must include a copy of the 
Center’s decline letter and include additional information that specifically 
addresses the reason(s) identified for decline and how the Applicant has 
overcome those reason(s). The LGPC will forward the request to the D/FA 
for a final decision. 
 See Chapter 5, Authorization through Disbursement, in this Section below, for 
additional SBA requirements for the loan Authorization, post-approval and pre-
disbursement requests for changes, transfer of guaranty between participating 
Lenders, and loan closing and disbursement. 
3. CAPLines-Specific Loan Closing and Disbursement Requirements 
See Chapter 5, Para. D of this Section below for additional requirements for loan closing 
and disbursement. 
 Seasonal CAPLines: 
i. Disbursement and Repayment: 
a) 
Disbursements from the loan are made continually during the seasonal 
build-up period when the cash requirement for labor, materials, and 
support of accounts receivables exceeds actual cash receipts. The final 
disbursement of any Seasonal loan should be made in time for the funds 
to be utilized in the business and converted to cash which can be used to 
JX019.328
a. 
b. 
C. 
d. 
a. 
App.3585
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 329 
pay off the loan balance at the commencement of a 30 day clean up 
period or maturity. 
b) 
Principal repayments on the loan must occur as soon as the cash from 
the seasonal sales has been received by the Borrower. Interest should be 
paid monthly.  
ii. Borrowing Base Certificate (BBC): 
Lender may use BBCs to monitor the Borrower’s seasonal activity. If the 
Lender does so, the BBC must be submitted by the Borrower to the Lender 
no less frequently than monthly.  
 Contract CAPLines: 
i. Assignment of Contract Proceeds: 
a) 
Subject to the exception noted in b) below, prior to initial disbursement 
on any Contract CAPLine, the entity the Borrower has entered into the 
contract with must be advised in writing by both the Lender and 
Borrower that an assignment of the contract proceeds is required. Such 
assignment must be in place before any disbursement for a particular 
contract is made and include a provision for the Lender’s right to 
receive all payments from the third party. The Lender must receive 
written acknowledgement from the third party. 
b) 
Exception to the Assignment of Contract Proceeds: An assignment of 
the contract proceeds may be foregone, if at least two of the following 
conditions are met: 
i) The term of the contract being financed is 12 months or less; 
ii) A successful track record between the Borrower and the contracting 
authority exists relative to the same or reasonably similar contracts. 
(The definition of a “successful track record” includes but is not 
limited to, any prior contractual arrangement between the subject 
parties, where the responsibilities of each party under the contract 
were met to the satisfaction of all parties to the contract.); 
iii) Financial analysis of historical income statements and/or tax returns 
and pro-forma financial statements show that the applicant has a Debt 
Service Coverage ratio that exceeds 1:1; 
iv) All contract proceeds are paid directly to the lender by the contracting 
authority or, in the instance where a performance bond is in place, a 
Funds Control (or escrow or third party servicer) procedure is 
implemented; or  
v) There is other available and worthwhile collateral pledged to secure 
the line by either the Borrower or any owner/guarantor. 
JX019.329
b. 
App.3586
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 330 
ii. Prime and Subcontractor Contracts: 
Subject to subparagraph 3.b.i., Assignment of Contract Proceeds, above, a 
contract between a Prime and Subcontractor is eligible to be financed with a 
Contract CAPLine, if at least two of the following conditions are met: 
a) 
Both the Prime and the Subcontractor have favorable credit ratings 
based on an acceptable rating agency (e.g., Builders Industry Credit 
Association “BICA”); 
b) 
There is a successful track record between the Prime contractor and the 
Subcontractor (Borrower); 
c) 
There is a successful track record between the Prime contractor and the 
contracting authority; 
d) 
The Contract CAPLine amount is less than $300,000; 
e) 
The term of the contract is 12 months or less; 
f) 
The financial analysis of historical income statements and/or tax returns 
and pro-forma financial statements show that the applicant has a Debt 
Service Coverage ratio that exceeds 1:1; or 
g) 
There is other available and worthwhile collateral pledged by either the 
Borrower or any owner/guarantor. 
iii. Contracts with Performance Bonds: 
Subject to subparagraph 3.b.i, Assignment of Contract Proceeds, above, a 
contract requiring a Surety’s performance bond may be eligible for a 
Contract CAPLine provided the Lender perfects a UCC security interest in 
the contract proceeds.  
SBA recognizes the following conditions may be necessary to effectuate the 
transaction where a contract requires a Surety’s performance bond: 
a) 
The Lender’s perfected UCC security interest in the contract proceeds 
will be subordinate to the cost reimbursement claim of the Surety; and 
b) 
The Surety may require that a funds control facility be executed. The 
funds control facility would disburse directly to suppliers and laborers. 
The contracting authority will remit contract proceeds directly to the 
funds control facility, which will remit payment to the lender.  
iv. Purchase Orders under a Master Agreement: 
Purchase Orders (PO) may be substituted for a formal contract, provided the 
following conditions exist: 
a) 
The PO is issued to the Borrower under a Master Agreement; and 
b) 
The combination of the PO and the Master Agreement constitute a 
binding agreement. 
v. Disbursements are made, when needed, to pay for the costs on a specific 
contract. Disbursements will generally be made as the contract progresses, not 
JX019.330
App.3587
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 331 
with one lump sum disbursement to cover all costs. Only if the contract 
performance period was 30 days or less should only one disbursement for 
payroll be allowed. However, if a borrowing contractor wanted to acquire all 
of their materials up front to take advantage of volume discounts, and/or pay 
for all acquired materials within 10 days to take advantage of prompt pay 
discounts, the Contract CAPLine Program will accommodate such a 
disbursement plan.  
vi. With the assignment of contract proceeds and direct payment in place, the 
Lender receives all the payments the Borrower would normally receive if it 
was internally financing the contract as performance progresses. Because all 
performance costs (including direct overhead and allocated 
general/administrative expenses) were funded under the CAPLine, all such 
payments received by the Lender must be applied first to interest due on the 
CAPLine, with the remainder applied to the CAPLine balance until the 
balance is paid in full.  
vii. If deemed necessary from a credit standpoint by the Lender, the Lender may 
invoke additional controls over the payments, provided the Lender obtains the 
Borrower’s prior written consent. If such additional controls include the 
funding of direct material and labor only, as opposed to all contract costs, then 
the Lender must inform the Borrower in writing of the percentage split 
arrangement regarding the allocation of progress payments received from the 
contracting authority. 
 Builders CAPLines: 
i. Prior to disbursement for each individual project, the lien must be recorded 
and position verified. Interim disbursements shall be made as construction 
progresses at stages approved by Lender, but shall be advanced only on 
qualified architect, appraiser or engineer’s certification and personal 
inspection by proper Lender officer(s). Amount of disbursement shall not 
exceed 100% of labor, material, and other eligible costs of construction 
certified to be complete and shall be supported by contractor’s statements and 
lien waivers to date. 
ii. Prior to final disbursement of construction funds, final lien waivers must be 
obtained from Borrower/contractor and all subcontractors, material men, and 
any independent workers involved in the construction. No disbursement can 
be made after maturity of the master note. 
iii. The repayment of all funds disbursed for any individual project shall occur 
within 36 months after completion of each individual project or at the time of 
sale, whichever is less. A single principal payment is acceptable. Interest 
payments must be made at least semi-annually and from the applicant’s own 
resources, not from loan proceeds. 
 Working Capital CAPLines:  
i. For Working Capital CAPLines, Lenders have the option of disbursing the 
line proceeds based on a BBC, or 1:1 collateral ratio.  
JX019.331
C. 
d. 
App.3588
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 332 
a) 
If a Lender will not use a BBC to determine the availability of funds for 
disbursement, the Lender must: 
i) Use a combination of factors for the underwriting and credit decision 
consistent with its similarly-sized, non-SBA guaranteed commercial 
lines of credit, including at a minimum; 
(a) Cash flow analysis to determine the adequacy, duration, and 
dependability of cash flow; 
(b) Collateral analysis to establish an estimated value of collateral; and 
(c) Owner/Guarantor analysis; 
ii) Assume full utilization of the revolving line of credit and secure the 
line with sufficient collateral to ensure there is a 1:1 collateral ratio. 
Lender must obtain a first lien position on the working/trading assets 
(accounts receivable and inventory) financed with the line. If the 
working/trading assets are insufficient to provide a 1:1 collateral ratio, 
the Lender also must take additional collateral to ensure there is a 1:1 
collateral ratio. If business assets do not fully secure the line, the 
Lender must take available personal equity in personal real estate of 
the principals as collateral to ensure there is a 1:1 collateral ratio; 
(a) To determine if there is a 1:1 collateral ratio, discount the available 
collateral based upon the Net Book Value presented on the 
Borrower’s financial statements. The total line amount should be 
supported with accounts receivable at a maximum of 80% (after 
discounting a percentage for any ineligible receivables identified 
by reviewing the accounts receivable aging) and inventory no 
greater than 50%. Machinery and equipment may be valued at 50% 
of Net Book Value or 80% with an Orderly Liquidation Value 
minus any prior liens. Real estate can be supported at 85% of the 
value; 
(b) If the line will be secured by fixed assets and the valuation of fixed 
assets is greater than their Net Book Value, an independent 
appraisal by a qualified individual must be obtained by the lender 
to support the higher valuation; 
iii) Obtain Borrower prepared financial statements and tax returns if the 
CAPLine amount is $1,000,000 or less and compiled, reviewed, or 
audited financial statements and tax returns if the CAPLine amount is 
over $1,000,000, consistent with lender’s policies governing its 
similarly-sized, non-SBA guaranteed commercial lines of credit; 
iv) Use financial covenants consistent with those used on Lender’s 
similarly-sized, non-SBA guaranteed commercial lines of credit. These 
balance sheet covenants such as a Current Ratio or Debt to Tangible 
Net Worth ratio should be tested quarterly, semi-annually, or annually, 
consistent with Lender’s policies governing its similarly-sized, non-
SBA guaranteed commercial lines of credit; and 
JX019.332
App.3589
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 333 
v) Monitor the lines consistent with the Lender’s policies and procedures 
for its similarly-sized, non-SBA guaranteed commercial lines of credit 
and, at a minimum, conduct a credit review including cash flow 
analysis, collateral analysis to ensure there is a 1:1 collateral ratio, 
owner/guarantor credit review and site visit on an annual basis. 
vi) Proceeds from cash sales and receivable collections must pay down the 
line as collected consistent with Borrowers operating cash cycle.  
vii) Lenders must report the initial disbursement on SBA Form 1050 in 
accordance with Ch. 5, Para. D.4.d., Authorization Section D Required 
Documents, in this Section.  
b) 
If the Lender will use a BBC to determine the availability of funds for 
disbursement the lender must adhere to the following: 
i) Loan proceeds may be disbursed to the Borrower’s operating account. 
To calculate the maximum amount available for disbursement, use the 
following formula: 
Eligible A/R 
 $ 
Multiplied by advance rate 
(multiplied by) % 
Equals A/R Borrowing Base (BB) 
= $ 
Eligible inventory 
 $ 
Multiplied by advance rate 
(multiplied by) % 
Equals Inventory BB 
=  $ 
Total A/R & Inventory BB: (A/R BB + Inventory BB) 
$ 
Face amount of Note 
 $ 
Borrowing base (Lesser of Total A/R & Inv BB or Note) $ 
Subtract loan balance on books 
minus $ 
Equals Amount available for disbursement 
$ 
ii) On a monthly basis, Lender should determine the amount of eligible 
assets for the borrowing base.  
(a) When advancing against receivables, Lender should: 
 Obtain an aging of accounts receivable and accounts payable; 
 Eliminate all ineligible receivables. The following types of 
accounts are not eligible to be included in the borrowing base: 
(a) Any invoice more than 90 days past due. Exceptions are 
permitted over the 90 day with SBA’s prior written 
concurrence.  
JX019.333
(i) 
(ii) 
App.3590
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 334 
(b) If a customer is delinquent on more than 50% of its total 
outstanding invoices, ALL of the accounts due from that 
customer are ineligible. To re-establish the customer’s 
accounts as eligible, all delinquent accounts must be paid 
in full. Exceptions are permitted if the Lender obtains 
SBA’s prior written concurrence. 
(c) All re-billed accounts. (Re-billing is the practice of issuing 
a credit to a customer and re-invoicing the obligation in 
the current billing cycle. If the re-billing occurs on the 
same day in order to correct a clerical error, the accounts 
do not have to be excluded.) 
(d) Foreign receivables not backed by documentary or 
standby letters of credit, factor’s guarantee (of purchase), 
credit insurance (either commercial risk or commercial 
and political risk combinations), or Government 
enhancements such as those provided by the Export 
Import Bank or the World Bank.  
(e) Offsetting receivables and payables between the Borrower 
and one of its creditors (contra accounts).  
(f) Accounts due from affiliate companies.  
(g) Accounts that require subordination to other parties, such 
as Governmental contracts where the bonding company 
requires assignment of the project’s receivables. 
(h) Accounts from any one customer that constitute more than 
20% of the total outstanding receivables. Accounts above 
20% are ineligible, unless the lender obtains SBA’s prior 
written concurrence.  
(b) 
When advancing against inventory, a Lender should: 
 Obtain a description of inventory and its value; and 
 Limit advances to the following types of inventory:  
(a) Finished Goods: Eligible if readily saleable and not 
obsolete. 
(b) Work in Progress: Eligible if Lender obtains SBA’s prior 
written concurrence. 
(c) Commodities or Raw Materials:  Eligible. 
(c) 
The dollar amount of ineligible receivables and inventory will 
remain unchanged for the entire month. The actual borrowing 
availability may increase or decrease as the balance on the line 
changes and the receivables and inventory are generated or 
converted back to cash. 
(d) 
A BBC is required at least monthly to determine the amount that 
can be disbursed. Lender may require a BBC more frequently 
consistent with its policy and procedures on similarly-sized non-
JX019.334
(i) 
(ii) 
App.3591
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
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Page 335 
SBA guaranteed commercial lines of credit. Lenders may use their 
own forms for the BBC. A sample BBC is provided in Appendix 9.  
iii) Repayments will come from cash sales and receivable collections. 
Proceeds must pay down the line as collected with availability to re-
advance as long as the Borrower is conforming to the maximum 
amount of the BBC.  
iv) If a cash collateral account is being used and a balance remains in the 
cash collateral account after the loan has been paid down to zero, those 
funds may be credited to Borrower’s operating account. There is no 
provision for interest only payments. Interest must be paid at least 
monthly either from Borrower’s own resources OR from loan proceeds 
at the time of an advance. Principal payments should be tied to the 
Borrower’s cash cycle. 
v) Lenders must report the initial disbursement on SBA Form 1050 in 
accordance with Ch. 5, Para. D.4.d., Authorization Section D Required 
Documents, in this Section.  
vi) Advance Rate for Accounts Receivable:  
(a) 
The maximum advance rate cannot exceed 80% of the eligible 
receivables. The maximum advance rate may go up to 90% of the 
eligible receivables if the receivable is a prime Federal contract 
and the Lender has obtained an assignment of the contract 
proceeds under the Assignment of Claims Act of 1940 (the Act), 
31 USC 3727, or the Borrower is a subcontractor and the prime 
contractor has obtained an assignment under the Act and the 
contract proceeds will be disbursed by a third party funds control 
facility or the foreign accounts receivable are insured by the 
Export-Import Bank or a major private insurer. Additional 
exceptions may be permitted if the lender obtains SBA’s prior 
written concurrence. The advance rate should not include any net 
profit. Factors that should be taken into consideration when 
determining the maximum advance rate are: 
 Control and accounting systems of the Borrower; 
 Enhancements such as credit insurance; 
 Age of receivables; 
 Credit quality & Borrower’s credit policy; 
 Turnover history; 
 Industry orientation and condition; and 
 Net profit margin. 
(b) 
After initial disbursement, Lenders have unilateral authority to 
increase or decrease the advance rate for receivables by as much as 
5% above or below the rate stated in the Authorization. Increases 
JX019.335
(i) 
(ii) 
(iii) 
(iv) 
(v) 
(vi) 
(vii) 
App.3592
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 336 
or decreases in the advance rate above 5% require SBA’s prior 
written concurrence. 
vii) Inventory Advance Rate:  
(a) 
The maximum advance rate cannot exceed 50% of eligible 
inventory. Exceptions are permitted if the lender obtains SBA’s 
prior written concurrence. Factors to consider when determining 
the maximum advance rate are: 
 Material and labor costs in manufacturing or invoice costs (less 
discounts) of resale goods in wholesale distribution; 
 Nature of the product; 
 Product liability; 
 Manufacturer’s buyback agreements; and 
 Physical location of inventory (single locations are generally 
easier to control than multiple locations). 
(b) 
After initial disbursement, Lenders have unilateral authority to 
increase or decrease the advance rate for inventory by as much as 
5% above or below the rate stated in the Authorization. Increases 
or decreases in the advance rate above 5% require SBA’s prior 
written concurrence. 
viii) Examinations:  
If the Working Capital CAPLine is over $1,000,000, Lender must 
conduct an annual field examination. The field examination may be 
conducted by the Lender’s staff or a third party. An examination is a 
physical verification of the assets which compose the borrowing base. 
Examinations must include a sampling of the assets (receivables and 
inventory) included in the borrowing base. The frequency of the 
examinations may be determined by the Lender based upon the quality 
of the records, risk profile of the Borrower and seasonality of the line. 
At a minimum, an examination must be conducted prior to the initial 
disbursement and annually thereafter. The Lender must describe the 
level and frequency of examinations in the credit memorandum for the 
line. 
ix) Monitoring:  
The minimum monitoring requirements for Working Capital 
CAPLines are as follows: 
(a) Monthly - BBC; Aging of accounts receivable/payable; and 
Inventory listing (if advanced against); 
(b) Quarterly – Borrower prepared financial statements; and 
(c) Annually – Borrowers management information system; legal 
elements; loan agreements; NAICS review; review of cash flow 
JX019.336
(i) 
(ii) 
(iii) 
(iv) 
(v) 
App.3593
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 337 
and related financials: and reassess exam, monitoring and control 
requirements.  
 If the Working Capital CAPLine is $1,000,000 or less, credit 
review including cash flow analysis, concentration analysis, 
collateral analysis, owner/guarantor credit review and annual 
site visit. Accounts from any one customer that constitute more 
than 20% of the total outstanding receivables should not be 
included in the eligible borrowing base unless the account is a 
public company with at least an A rating, a Federal government 
account, the customer has a long-standing positive credit 
history with the Borrower, the customer is a prime or sub-
contractor performing on a Federal government contract, or the 
accounts are insured through credit insurance (common for 
foreign accounts receivable). If the account meets one of those 
five conditions, the Lender does not need to obtain SBA’s prior 
written concurrence to include the account above the 20% in 
the eligible borrowing base but must include a written 
justification in the loan file. If, however, the account does not 
meet one of the five conditions, then the Lender must obtain 
SBA’s prior written consent in order to include the account in 
the eligible borrowing base. Such requests must be sent to the 
LGPC.  
 If the Working Capital CAPLine is over $1,000,000, credit 
review including cash flow analysis, concentration analysis, 
collateral analysis, owner/guarantor credit review and annual 
field examination. Accounts from any one customer that 
constitute more than 20% of the total outstanding receivables 
should not be included in the eligible borrowing base unless the 
account is a public company with at least an A rating, a Federal 
government account, the customer has a long-standing positive 
credit history with the Borrower, the customer is a prime or 
sub-contractor performing on a Federal government contract, 
or the accounts are insured through credit insurance (common 
for foreign accounts receivable). If the account meets one of 
those five conditions, the Lender does not need to obtain 
SBA’s prior written concurrence to include the account above 
the 20% in the eligible borrowing base but must include a 
written justification in the loan file. If, however, the account 
does not meet one of the five conditions, then the Lender must 
obtain SBA’s prior written consent in order to include the 
account in the eligible borrowing base. Such requests must be 
sent to the LGPC.  
JX019.337
(i) 
(ii) 
App.3594
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SOP 50 10 6 
 
Part 2, Section B, Ch 3: 7(a) CAPLines 
Effective October 1, 2020 
Page 338 
ii. Level of Funds Control: 
The level of funds control for a Working Capital CAPLine, whether a BBC is 
used or not, is determined by the banking relationship the lender has with the 
Borrower. 
a) 
If the Lender has the Borrower’s deposit accounts, the Lender is not 
required to utilize cash collateral accounts or other types of controlled 
accounts but must follow its established procedures for its similarly-
sized, non-SBA guaranteed commercial lines of credit to monitor 
payments received. 
b) 
If the Lender does not have the Borrower’s deposit accounts, then the 
Lender must utilize some form of controlled account as follows: 
i) The customers of the Borrower can be instructed to send their 
remittances via joint payee checks payable to lender and Borrower to 
the Lender; or  
ii) Lock box (bank account under Lender control where Borrower’s 
customers remit payments for accounts receivable).  
iii. For Working Capital CAPLines, final disbursement must occur far enough in 
advance of maturity so that a sufficient amount of time is available for the 
assets financed with the proceeds to be converted back to cash and available 
to make final payment at maturity. The date of final disbursement must be 
established in the Authorization and should be reflective of the time required 
to permit orderly repayment by the maturity date. Disbursements after the last 
cash cycle has begun, but before maturity, require SBA’s prior written 
approval. However, if maturity coincides with the scheduled annual review of 
the line, including an annual review conducted by Lender coincidental with 
the maturity of the line, Lender may advance on the line up to maturity in 
conjunction with the lender's annual review in accordance with Lender's 
policies and procedures on its similarly-sized non-SBA guaranteed 
commercial lines of credit. No advances can be made after maturity. When a 
balance exists on a CAPLine at maturity, the lender should consider the 
following: 
a) 
Enforce final collection; 
b) 
Renew the line without SBA’s guaranty; 
c) 
Renew the line, requesting SBA’s guaranty (new application required if 
maturity has reached 10 years); 
d) 
Term out any outstanding balance, with SBA’s concurrence. SBA’s 
guaranty would remain in place but there could be no new advances; 
and/or  
e) 
Commence liquidation of supporting collateral. 
JX019.338
App.3595
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance 
Effective October 1, 2020 
Page 339 
CHAPTER 4: 7(A) EXPORT TRADE FINANCE 
 
SBA has three core 7(a) international trade finance programs that support small business 
exporters and export transactions. 
 
Export Express Loan Program: The Export Express Loan Program guarantees smaller dollar 
revolving lines of credit or term loans to support small business concerns wanting to develop the 
export side of their business. It offers many of the streamlined features of SBA Express while 
providing a higher guarantee to mitigate international credit risk.  
 
Export Working Capital Program: (EWCP): Under the EWCP, SBA guarantees short-term 
working capital loans made by participating lenders to small business exporters.  
 
International Trade Loan Program: Under the International Trade Loan Program, SBA 
guarantees term loans to improve the competitive position of small business concerns that are 
existing exporters or are developing new export markets. SBA also guarantees term loans to 
improve the competitive position of any small business concerns adversely affected by import 
competition. 
 
An export transaction is the production and payment associated with a sale of goods or services 
to a foreign buyer. 
 
JX019.339
App.3596
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JX019.340
App.3597
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 341 
A. EXPORT EXPRESS 
The Export Express Program was designed to help SBA meet the export financing needs of small 
businesses too small to be effectively met by then existing SBA export loan guaranty programs.  
Lenders must always start by reviewing the contents of Section A, Core 
Requirements for all 7(a) and 504 Loans, in this Part. 
1. Eligibility and Eligible Uses of Proceeds for Export Express 
In addition to the core requirements identified in Section A of this Part, eligibility for 
Export Express is limited to businesses that have been in operation, although not 
necessarily in exporting, for at least 12 full months. However, Applicants that have been 
in operation for less than 12 months are eligible if both of the following conditions are 
met: 
i. The Applicant’s key personnel have clearly demonstrated export expertise 
and substantial previous successful business experience; and 
ii. The Lender processes the Export Express loan using conventional 
commercial loan underwriting procedures and does not rely solely on credit 
scoring or credit matrices to approve the loan. Non-bank Lenders that do not 
have a conventional loan portfolio must submit their underwriting procedures 
to the Office of Credit Risk Management for written approval prior to 
making an Export Express loan. 
Evidence of compliance with both of these requirements must be retained by the 
Lender in its file.  
 Export Express loans must be used for an export development activity, which 
includes the following: 
i. Obtaining a Standby Letter of Credit when required as a bid bond, 
performance bond, or advance payment guarantee;  
ii. Participation in a trade show that takes place outside the United States; 
iii. Translation of product brochures or catalogues for use in markets outside the 
United States; 
iv. Obtaining a general line of credit for export purposes (as a normal course of 
business, the Borrower may use portions of the line of credit for domestic 
purposes, as long as no less than 70% of the line of credit will be used for 
export purposes); 
v. Performing a service contract from buyers located outside the United States; 
vi. Obtaining transaction-specific financing associated with completing export 
orders;  
vii. Purchasing real estate or equipment to be used in the production of goods or 
services for export;  
JX019.341
a. 
App.3598
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 342 
viii. Acquiring, constructing, renovating, modernizing, improving, or expanding a 
production facility or equipment to be used in the United States in the 
production of goods or services for export;  
ix. Providing term loans and other financing to enable a small business concern, 
including an export trading company and an export management company, to 
develop a market outside the United States;  
x. Refinancing debt as outlined in paragraph 1.c. immediately below; and 
xi. Financing indirect exports. The term “indirect export” applies to situations 
where, although the Borrower’s direct customer is located in the United 
States, that customer will be exporting the items/services it purchased from 
the Borrower to a foreign Buyer. In such cases, the Borrower must provide 
documentation to the Lender from the Borrower’s domestic customer 
(typically in the form of a letter, invoice, order, or contract) that the goods or 
services are in fact being exported. 
xii. Change of ownership only under conditions outlined in paragraph 1.c. below. 
 Debt Refinancing: 
Loan proceeds may not be used to pay a creditor in a position to sustain a loss 
(including the same institution’s debt). This includes refinancing debt that will 
shift all or part of a potential loss from the original Lender to the SBA. 13 CFR §§ 
120.140(j)(1) and 120.201 
i. A Lender may refinance debt under Export Express as follows:  
a) 
A Lender may refinance an existing non-SBA guaranteed loan or 
Borrower debt from another lender if:  
i) The Lender determines the existing debt no longer meets the needs of 
the Applicant (for example, if the current loan is a term loan and a 
revolver is needed); 
ii) The new loan meets the SBA 10 percent improvement to debt service 
coverage requirement in paragraph c.i.g) below; however, a new 
Export Express loan is not subject to SBA’s 10 percent improvement 
to debt service coverage requirement if the debt to be refinanced is a 
revolving line of credit; and 
iii) The Lender obtains documentation to verify that the new loan or line 
of credit will be used for export development activities. 
b) 
A Lender may refinance an existing Export Express loan from another 
lender only if:  
i) The original Export Express Lender is unable or unwilling to increase 
or make a second Export Express loan;  
ii) The Lender maintains evidence in its file that the original lender is 
unable or unwilling to increase the original Export Express loan or 
make a second loan; and 
JX019.342
b. 
App.3599
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 343 
iii) The Lender obtains documentation to verify that the new loan or line 
of credit will be used for export development activities. 
c) 
A Lender may refinance its own non-SBA guaranteed debt to the 
Applicant if: 
i) The Lender determines that the existing loan no longer meets the 
needs of the Applicant (for example, if the current loan is a term loan 
and a revolver is needed);  
ii) The new loan meets the SBA’s 10 percent improvement to debt 
service coverage requirement in paragraph c.i.g) below; however, a 
new Export Express loan is not subject to SBA’s 10 percent 
improvement to debt service coverage requirement if the debt to be 
refinanced is a revolving line of credit;  
iii) The debt to be refinanced is, and has been, current for at least the last 
36 months or the life of the loan, whichever is less. (SBA Form 1920 
includes the relevant Lender certification.) “Current” means that a 
required payment has not remained unpaid for more than 29 days. A 
loan that has matured and not been paid within 29 days of the maturity 
date is not current and is not eligible for refinancing; 
iv) The Lender’s exposure to the Applicant will not be reduced; and  
v) The Lender obtains documentation to verify that the new loan or line 
of credit will be used for export development activities.  
d) 
A Lender may not refinance one of its own Export Express loans or one 
of its own SBA-guaranteed loans with a new Export Express loan. 
e) 
Except for an existing Export Express loan that meets the requirements 
of paragraph c.i.b) above, a Lender may not refinance an existing SBA-
guaranteed loan of another lender. 
f) 
Lenders must avoid any circumstances that could create a possible 
conflict of interest. Also, in refinancing debt, particularly credit card 
debt, Lenders must take reasonable steps to ensure Applicants are aware 
and certify that refinancing comprises only business-related debt. (SBA 
Form 1919, Borrower’s Information Form, includes such a 
certification.) 
g) 
SBA’s 10 Percent Improvement to Debt Service Coverage Requirement. 
With the exception of debt (short-term or long-term) structured with a 
demand note or balloon payment, credit card obligations used for 
business-related purposes, and revolving lines of credit (short-term or 
long-term) where the original lender is unable or unwilling to renew the 
line or the Applicant is restructuring its financing in order to obtain a 
lower interest rate or longer term, when refinancing debt, the new 
installment amount must be at least 10 percent less than the existing 
installment amount(s). If other debt is being refinanced at the same time, 
such debt may be included in the cash flow improvement calculation. 
JX019.343
App.3600
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 344 
However, no debt(s) on reasonable terms may be refinanced. If the note 
terms include an escalating payment structure, the new installment 
amount must be at least 10 percent less than the expected installment 
amount within the next 12 months. 
ii. The Export Express Authorization must include: 
a) 
In the Use of Proceeds section, the refinancing must be specifically 
identified; 
b) 
An itemization of all debts being repaid by loan proceeds when the 
individual creditor is to be paid $10,000 or more; and/or 
c) 
The loan number and dollar amount of any existing SBA debt being 
refinanced. 
iii. Other conditions that apply to debt refinancing: 
a) 
An Export Express loan may not be used to refinance a debt owed to an 
SBIC. 
b) 
The payment of trade payables is not considered to be debt refinancing. 
 Change of Ownership (13 CFR § 120.202). 
i. An Applicant may use Export Express loan proceeds for a change of 
ownership, whether the change of ownership is accomplished through a stock 
purchase or an asset purchase, only under the circumstances described in this 
paragraph. An asset purchase will be deemed a change of ownership and 
must comply with all of the requirements of this paragraph if the Applicant is 
purchasing all or substantially all of the assets of the seller’s business. The 
following requirements apply:  
a) 
The Applicant must purchase 100% of the ownership interest in another 
small business or acquire all or substantially all of the assets of another 
small business through an asset purchase. 
b) 
Regardless of whether the change of ownership is a stock purchase or an 
asset purchase, the Applicant must acquire from the seller real estate, a 
production facility or equipment to be used in the United States in the 
production of goods or services for export. 
i) The Applicant must be eligible under Para. A.1.a. of this Chapter. 
ii) Either the Applicant or the business being acquired (i.e., the seller) 
must be currently engaged in exporting. 
iii) The acquisition must enhance the export operations of the Applicant or 
the ability of the Applicant to export. 
ii. The following changes of ownership are not eligible for financing as an 
Export Express loan:  
a) 
A change of ownership between existing owners of the Applicant. 
JX019.344
C. 
App.3601
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
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b) 
A change of ownership where the Applicant is purchasing less than 
100% of the ownership of a business. 
iii. The seller may not remain as an officer, director, stockholder, or Key 
Employee of the Applicant. (13 CFR § 120.130) If a short transitional period 
is needed, the small business may contract with the seller as a consultant for 
a period not to exceed 12 months including any extensions. 
iv. The Applicant may be the Borrower, or the Applicant and the small business 
being acquired may be Co-Borrowers. 
v. The Lender must comply with the requirements for IRS verification 
identified in Section A, Ch. 6, Para. B, IRS Tax Transcript/Verification of 
Financial Information, of this Part. 
vi. The Lender’s loan documentation must include: 
a) 
A current business valuation (not to include any real estate) that meets 
SBA requirements in paragraph 4.d., Real Estate Appraisal and 
Business Valuation Requirements, of this Chapter. 
b) 
A site visit of the business being acquired. The Lender must document 
in its loan file the date of the site visit as well as comments.  
c) 
An analysis of the following:  
i) The Applicant’s eligibility under Para. A.1.of this Chapter;  
ii) Whether the Applicant or business being acquired (i.e., the seller) is 
currently engaged in exporting; 
iii) How the change of ownership will result in the acquisition of facilities 
or equipment to be used in the United States in the production of 
goods or services for export; and 
iv) How the acquisition will enhance the export operations of the 
Applicant or the ability of the Applicant to export. 
(a) 
Business, stock, and asset purchase agreements, as applicable. 
(b) 
Evidence that all assets conveyed as a result of the purchase are 
properly secured as collateral by Lender.  
vii. The “purchase price of the business” includes all assets being acquired, such 
as real estate, machinery and equipment, and intangible assets.  
viii. Intangible Assets: An Export Express loan may be used to finance a change 
of ownership that includes intangible assets (including, but not limited to, 
goodwill, client/customer lists, patents, copyrights, trademarks, intellectual 
property, and agreements not to compete) as long as it is supported by an 
independent business valuation that complies with paragraph 4.d., Real 
Estate Appraisal and Business Valuation Requirements, of this Chapter. 
a) 
If any of the loan proceeds will be used to finance intangible assets, the 
amount must be specifically identified in the Use of Proceeds section of 
the application and the Authorization. 
JX019.345
App.3602
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b) 
The value of the intangible assets is determined by either the book value 
as reflected on the business’s balance sheet, a separate appraisal for the 
particular asset, or the value of the business as identified in the business 
valuation minus the sum of the working capital assets and fixed assets 
being purchased. 
c) 
While a change of ownership financed by an Export Express loan may 
include the acquisition of intangible assets, the change of ownership 
must also include the acquisition of real estate, a production facility or 
equipment to be used in the United States in the production of goods or 
services for export. 
 Loan proceeds may not be used to: 
i. Finance operations outside of the United States, except for the marketing 
and/or distribution of products/services exported from the United States; or 
ii. Refinance existing SBA-guaranteed loans except as permitted under 
Paragraph c.i.b) above. 
 When an Export Express loan finances specific export transactions (including 
indirect exports) under paragraph 1.b.i, v, vi, or xi above, the Lender must 
determine if U.S. companies are authorized to conduct business with the Parties 
and the country(ies) to which the goods or services will be shipped. Lenders must 
check Ex-Im Bank’s Country Limitation Schedule, which can be found on Ex-Im 
Bank’s website at www.exim.gov/tools-for-exporters/country-limitation-schedule 
or is available from SBA’s Office of International Trade. The Lender also must 
check the Department of Treasury Office of Foreign Assets Control (OFAC) 
sanctions lists, which can be found at sanctionssearch.ofac.treas.gov/. 
i. For federally-regulated Lenders, compliance with the procedures required by 
the Lender’s Federal Financial Institution Regulator will constitute 
compliance with the above referenced OFAC requirement. 
ii. For SBA Supervised Lenders, Lender must check the OFAC sanctions lists 
prior to first disbursement of funds on each specific export transaction. A 
loan may not be made to a business that directly or indirectly exports to a 
foreign country which is listed as a prohibited country (Note # 7 on the 
Country Limitation Schedule), or if the transaction would be prohibited 
under any of the sanctions programs administered by OFAC. 
 Documentation required: SBA requires the Lender to obtain information from the 
Borrower pertaining to the use of proceeds and its projected impact on the 
Borrower’s export sales and retain that documentation in its loan file. The specific 
documentation includes the following: 
i. The Applicant must answer affirmatively on question 9 of SBA Form 1919 
and provide an estimate of annual export sales; and 
ii. The Applicant must provide documentation regarding the following items 
(this may be in the form of a general business plan, an attachment to the loan 
application or on a Lender-developed questionnaire): 
JX019.346
d. 
e. 
f. 
App.3603
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 347 
a) 
A brief description of the business’ product or service which will be 
exported; 
b) 
An explanation of how the loan proceeds will enable the business to 
enter a new export market or expand in an existing export market; 
c) 
The countries to which the business will export; and 
d) 
An estimate of the Borrower’s export sales for the 12 month period 
following the date of the loan application. 
2. Other Restrictions that apply to Export Express Loans 
 For purposes of clarification, small businesses in the following NAICS Industry 
Subsector Codes cannot be financed using an Export Express Loan, but may be 
financed using other SBA 7(a) financial assistance: 
i. NAICS Industry Subsector Code 721 (Accommodation) 
ii. NAICS Industry Subsector Code 447 (Gasoline Stations). 
 The following types of loans are not eligible under Export Express processing: 
i. Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to an 
eligible small business owned or controlled by an ESOP (see Section A, Ch. 
2, Para. B., Employee Stock Ownership Plans, of this Part for more 
information); 
ii. Loans to a cooperative or to an eligible small business owned or controlled 
by a cooperative (see Section A, Ch. 2, Para. C, Cooperatives, of this Part for 
more information); 
iii. Loans involving a Single Employer 401(k) plan, including a ROBS plan, 
unless the only investment held by the 401(k) plan is the equity in the 
Applicant business; and 
iv. Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that holds in 
trust the assets of other businesses), including a ROBS plan (see Section A, 
Ch. 2, Para. D, 401(k) Plans Including Rollovers as Business Start-Ups 
(ROBS) Plans, of this Part for more information). 
3. Loan Terms and Conditions for Export Express 
a. Maximum Loan Amount 
i. The maximum loan amount is $500,000 (gross). 
ii. Maximum Loans to Businesses with Affiliates 
Lenders must determine whether the Applicant has any affiliates and 
document the results in their credit analysis. If affiliation exists, SBA’s loan 
maximums apply to the Applicant, including all affiliates, as if all were a 
single business. 
JX019.347
a. 
b. 
App.3604
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Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
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iii. Maximum Loan Amount for multiple loans approved within 90 days of each 
other – “90 Day Rule.” 
a) 
If two SBA-guaranteed loans to any one business (including affiliates) 
are approved within 90 days of each other, the maximum gross amount 
of all such loans in that time frame cannot exceed $5,000,000. 
b) 
Two SBA-guaranteed loans approved within 90 days of each other may 
impact the maximum guaranty percentage available to the Borrower and 
its affiliates as well as the guaranty fee. 
b. Maximum Guaranty Amounts and Percentages 
The maximum dollar amount outstanding of SBA’s guaranty to any one business 
(including affiliates) must not exceed $3,750,000. When calculating the maximum 
guaranty percentage available to a Borrower and its affiliates, the Lender must 
include the approved loan amount for a revolving line of credit. The SBA’s 
guaranty is also known as the “SBA share” or “guaranteed portion.” 
i. Multiple loans are allowed up to the program maximum loan amount 
($500,000 gross for Export Express). The guaranteed amount of all Export 
Express loans counts toward the $3,750,000 maximum SBA exposure that 
may be outstanding for all SBA loans to a Borrower and its affiliates at any 
one time. 
ii. If multiple Export Express loans are approved within 90 days of each other, 
and the combined gross loan amount of all the Export Express loans 
approved in that time frame to any one Borrower (including affiliates) 
exceeds $350,000, then the maximum guaranty percentage on the second 
loan must be reduced accordingly so the combined guaranty is no more than 
75% (subject to the $3,750,000 guaranty amount limit). 
iii. The maximum guaranty percentage is: 
a) 
90% for loans of $350,000 or less; and 
b) 
75% for loans over $350,000 up to $500,000. 
iv. Combination of 7(a) and 504 loans 
a) 
When an Applicant applies for any combination of 7(a) and 504 loans, 
the order in which the loans are approved determines the maximum loan 
and guaranty amount available. Because the 7(a) loan has a lower 
maximum guaranteed amount, the 7(a) loan should be processed and 
approved first. 
b) 
Lenders must advise the SBA processing centers that there is a 
companion 504 application to ensure the 7(a) loan is processed and 
approved prior to the 504 loan application being processed and 
approved. 
c) 
The 90-day rule is only for those situations where a Borrower is 
approved for multiple 7(a) loans within a 90-day period. It does NOT 
apply if the Borrower is receiving a 7(a) loan and a 504 loan. 
JX019.348
App.3605
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v. Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: 
A 7(a) loan cannot include proceeds for an ineligible purpose or have any 
portion of the loan made to an ineligible business and no part of an SBA 7(a) 
loan may be guaranteed at zero percent. 
c. Loan Maturities 
i. Export Express loans must have a stated maturity. The loan term must be the 
shortest appropriate term based on the use of proceeds and the Borrower's 
ability to repay.  
a) 
Lines of credit must not exceed 7 years. 
i) Transactional lines of credit: No disbursement can be made for an 
export transaction where payment by the foreign buyer will occur after 
the maturity date of the loan. 
ii) Revolving loans:  
(a) 
Maximum maturity includes any “term-out” period; 
(b) 
May be established as renewable each year provided they do not 
exceed the maximum maturity.  
(c) 
Lender may not charge a renewal fee. If the original maturity was 
for 12 months or less, and the new maturity exceeds 12 months, an 
additional guaranty fee will be due. 
b) 
Working capital or inventory loans and the financing of intangible 
assets (including goodwill) must not exceed 10 years.  
c) 
Generally, equipment, fixtures, or furniture loans should not exceed 10 
years. However, the term may be up to 15 years if the IRS asset class 
useful life supports the term. The Lender must document in their credit 
memorandum justification of any term that exceeds 10 years. 
d) 
Real estate loans (including acquisition, rehabilitation, renovation, or 
construction) must not exceed 25 years unless a portion of the loan is 
used for construction or renovation of the real estate. If the use of 
proceeds on a real estate loan includes construction or renovation, the 
construction or renovation period may be added to the 25 year 
maximum maturity. 
e) 
Loans for leasehold improvements may not exceed 10 years, plus an 
additional period reasonably necessary to complete the leasehold 
improvements, as determined based on the specific nature of the 
leasehold improvements, but in no case more than 12 months. 
f) 
Mixed purpose loans (including change of ownership): When loan 
proceeds are used for multiple purposes (land and building, working 
capital, machinery & equipment, or the refinancing of any of these 
purposes), the maturity may be a blended maturity; or, if 51% or more 
JX019.349
App.3606
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of the use of proceeds are for real estate, the maximum maturity may be 
up to 25 years. 
g) 
The term of a loan may not exceed the period of the SBA guaranty 
commitment. 
ii. Establishing the Repayment Period (13 CFR § 120.212): 
When Lenders establish a repayment schedule and loan maturity, they must 
consider the following:  
a) 
The Borrower’s ability to repay,  
b) 
Use of loan proceeds,  
c) 
Useful life of the assets being financed, and  
d) 
The appropriate maturity for mixed purpose loans (including change of 
ownership). The Lender may use a blended maturity or the maturity up 
to the maximum for the asset class comprising 51% or more of the use 
of proceeds. Lenders must include the calculation used to determine the 
maturity in the credit memorandum. 
e) 
For loans to farm enterprises:  
i) Where land and structures (including poultry houses) comprise 51% or 
more of the use of proceeds, the maximum maturity is 20 years.  
ii) Where machinery and equipment comprise 51% or more of the use of 
proceeds, the maximum maturity is the useful life of the machinery 
and equipment, not to exceed 15 years, plus an additional period 
reasonably necessary for installation, which may not exceed 12 
months. 
f) 
SBA has instructed the fiscal and transfer agent to stop the sale into the 
secondary market of a loan when the maturity exceeds these 
requirements.  
iii. Establishing the Maturity Date: 
a) 
Loan maturity must not exceed the period of the guaranty. This 
prohibits structures such as a working capital loan with a 15-year 
maturity and an SBA guaranty limited to 10 years. 
b) 
The maturity date for a 7(a) loan is set in terms of the number of months 
from either the date of Note or the date of initial disbursement to the 
date when final payment is due. 
iv. Maturity When Refinancing Existing Assets or a Business Acquisition: 
a) 
The maximum maturity for a loan used to refinance a real estate or fixed 
asset loan must be the remaining useful life of the asset(s). The lender’s 
loan analysis must document and justify that the asset(s) being 
refinanced has a useful life at least as long as the maturity provided. 
JX019.350
App.3607
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b) 
The maximum maturity for a loan used to refinance a business 
acquisition shall be 10 years, unless 51% or more of the use of proceeds 
consist of real estate which would permit a maturity up to 25 years. 
v. Export Express Non-Financial Default Provisions: 
Non-financial default provisions are allowed under Export Express under the 
following conditions: 
i) Non-financial default provisions are loan conditions that, if violated, 
would cause the loan to be in default even though the Borrower has 
made all payments as agreed.  
ii) Non-financial default provisions must be substantive and must be 
agreed to by the Borrower in writing at loan closing; 
iii) The provisions must be consistent with those used by the Lender on its 
similarly-sized non-SBA guaranteed commercial loans;  
iv) A lender may not request purchase of the guaranty solely based on a 
violation of a non-financial default provision (see 13 CFR § 120.520); 
and  
v) A maturity date must be established in the note. For example, a line of 
credit could state that it is payable upon demand under certain 
conditions, but in no case later than a certain date. 
d. Interest Rates 
SBA QUICK REFERENCE CHART: Maximum Interest Rates Allowed (See 
additional information below) 
Product 
Export Express Loans 
Interest Rate 
The published maximum allowable fixed rate or if variable: 
$50,000 or less (All maturities) 
Cannot exceed Prime + 6.5% 
More than $50,000 (All maturities) 
Cannot exceed Prime + 4.5% 
i. General Policy on Interest Rates (13 CFR §§ 120.213; 120.214; 120.215): 
a) 
A loan may have a fixed or variable interest rate. The maximum interest 
rate that may be established for any 7(a) loan is governed by SBA’s 
regulations on interest rates, which preempts any provisions of a state’s 
constitution or law. The Lender negotiates the interest rate with the 
Applicant, subject to SBA’s maximum allowable rates. 
b) 
SBA will periodically publish the maximum allowable fixed interest 
rate in the Federal Register. The maximum allowable fixed interest rate 
will be the Prime rate in effect on the first business day of the month, 
plus an allowable spread over Prime, as set forth in the most recent 
Federal Register Notice. For a listing of the current maximum allowable 
fixed interest rates, go to SBA’s Capital Access Financial System 
homepage. The maximum allowable fixed rate may only be used by a 
Lender if such rate will be in effect for the entire term of the loan, 
JX019.351
App.3608
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without adjustment or reset. Otherwise, the maximum rates for variable 
rate loans will apply.  
c) 
For variable interest rate loans, the basis for the SBA maximum 
allowable interest rate is an acceptable base rate plus allowable spread. 
The base rate in effect on the first business day of the month will 
determine the basis for the initial interest rate for any complete loan 
application received by SBA during that month. The initial note rate 
must not exceed SBA’s maximum interest rate. The spread above the 
base rate as identified in the Note may not be changed during the life of 
the loan without the written agreement of the Borrower. 
d) 
For loans with a variable interest rate, the following terms must be 
defined: 
i) Base Rate: 
(a) 
There are three acceptable base rates: 
 The Prime Rate; 
 One Month London Interbank Offered Rate (LIBOR) plus 3 
percentage points (LIBOR Base Rate); or 
The SBA Optional Peg Rate. 
(b) 
The Prime or LIBOR Base Rate will be that rate which is in effect 
on the first business day of the month, as identified in a national 
financial newspaper or website. This rate may be found in the 
newspaper on the second business day of the month. If a website is 
used, please ensure whether it is publishing the current day’s rate 
or the previous day’s rate as some newspaper websites publish the 
previous day’s rate. The Optional Peg Rate is a weighted average 
of rates the Federal government pays for loans with maturities 
similar to the average 7(a) loan. SBA calculates and publishes the 
Optional Peg Rate quarterly in the Federal Register. Base Rates 
will be rounded to two decimal places with .004 being rounded 
down to .00 and .005 being rounded up to .01. 
NOTE: This SOP continues to include the LIBOR Base Rate as an 
option for the calculation of the maximum allowable variable 
interest rate for 7(a) loans in accordance with 13 CFR § 
120.214(c). The U.K. Financial Conduct Authority announced that 
it would phase-out LIBOR by the end of 2021. SBA encourages 
Lenders to consider LIBOR’s imminent phase-out when selecting a 
base rate. For existing 7(a) loans with LIBOR as the base rate, 
SBA encourages Lenders to examine their loan documents to 
determine whether LIBOR may be replaced with a fallback rate. If 
no such provision exists in individual loan documents, Lenders 
should consider amending the appropriate document(s) in 
anticipation of LIBOR’s phase-out. It is important to note that any 
changes to the interest rate must be made in accordance with 
JX019.352
(i) 
(ii) 
(iii) 
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paragraph ii.b) below. The Federal Reserve Alternative Reference 
Rates Committee has drafted recommended fallback language for 
contracts tied to LIBOR: 
https://www.newyorkfed.org/arrc/fallbacks-contract-language. 
(c) 
For variable rate Export Express loans, the Lender is not required 
to use the base rate identified above in this paragraph and in 13 
CFR § 120.214(c). The Lender may use the same base rate of 
interest it uses on its similarly-sized, non-SBA guaranteed 
commercial loans, as well as its established change intervals, 
payment accruals, etc. A Lender may charge up to 4.5% over the 
Prime rate on loans over $50,000 and up to $500,000 and up to 
6.5% over the Prime rate for loans of $50,000 or less, regardless of 
the maturity of the loan. However, the interest rate throughout the 
term of the loan may not exceed the maximum allowable Export 
Express interest rate and the loan may be sold on the Secondary 
Market only if the base rate is one of the base rates allowed in 13 
CFR § 120.214(c). 
ii) Frequency of change; 
iii) Range of fluctuation; and 
iv) Ceiling and floor (if any). 
e) 
Default Interest Rates: 
The default interest rate is a change (increase) in the interest rate 
charged to the Borrower as a result of a failure to meet certain 
conditions specified in the loan agreement. 
i) A Lender may charge a default interest rate if it does so for its 
similarly-sized, non-SBA guaranteed commercial loans, as long as the 
interest rate does not exceed the maximum interest rate permitted for 
Export Express loans.  
ii) The amount of interest SBA will pay to a Lender following default of 
an Export Express loan is capped at the maximum interest rates for the 
Standard 7(a) loan program. 
ii. Policy on Variable Interest Rates 
a) 
Standard Policy: 
SBA’s maximum allowable interest rate applies only to the initial Note 
rate on a variable rate loan. Subsequent changes in the base rate are not 
subject to the maximum rate at the time of loan application; however, 
the maximum spread over the base cannot exceed SBA’s stated 
maximum. 
b) 
Post-Approval Changes to the Interest Rate: 
After approval, the Lender may change the initial Note rate, including 
changing the base rate, the spread over the base rate, or change from a 
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fixed rate to a variable rate, or from a variable rate to a fixed rate, 
provided the new interest rate does not exceed the maximum allowable 
interest rate at the time of the loan application. The Lender must obtain 
the Borrower’s written consent to the change in the interest rate (if prior 
to disbursement, Borrower’s consent to the change in interest rate must 
be separate and apart from executing the loan documents) and must 
make the change through E-Tran servicing. 
For example, an SBA-guaranteed loan was approved with a variable 
rate. Since the loan was approved, the prime rate changed. The 
Borrower has asked the Lender if the loan can be switched to a fixed 
rate. If the loan has not been disbursed and the fixed rate selected does 
not exceed the maximum allowable fixed rate at the time of loan 
application, the Lender may make this change per the Borrower’s 
request. 
For further guidance see SOP 50 57.  
c) 
Frequency of Interest Rate Adjustment: 
i) Export Express Lenders are permitted to use the same change intervals 
used on their similarly-sized, non-SBA guaranteed commercial loans. 
Export Express Lenders may delay the initial adjustment period. For 
example, Lenders have used periods as long as 5 years in order to 
provide the Borrower with an interest rate that is set for the first 5 
years of the loan. After that time, the interest rate will begin to 
fluctuate as stated in the Authorization.  
ii) The Lender must specify in the Note the frequency at which the 
interest rate adjustment will occur.  
(a) 
This adjustment period as identified in the Note may not be 
changed without the written consent of the Borrower.  
(b) 
All subsequent adjustments will set the interest rate on the first 
calendar day of the adjustment period using the base rate in effect 
on the first business day of the adjustment period.  
(c) 
The rate of interest will change on the first calendar day of the 
adjustment period even though the rate may not be known until the 
second business day of that period.  
For example, if the first of the month is a Sunday, the base rate is the 
prime rate in effect on Monday. This rate will be reported in the Wall 
Street Journal on Tuesday, the third calendar day and second business 
day of the month. Many lenders use the calendar quarter as the 
adjustment period, especially those that sell the guaranteed portion in 
the Secondary Market.  
d) 
Interest Rate Requirements for an SBA Note: 
i) For fixed rate loans, the Lender must state the specific interest rate in 
the Note. 
JX019.354
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ii) For variable rate loans, the Lender must include the following 
information in the Note:  
(a) Identification of the rate being used as the base rate;  
(b) The publication in which the designated base rate appears regularly 
(e.g. Wall Street Journal or the Federal Register if using the SBA 
Optional Peg Rate);  
(c) The permanent percentage spread to be added to the base rate;  
(d) The initial interest rate of the loan (from disbursement to first 
adjustment); 
(e) The date or timing of the first rate adjustment; and  
(f) The frequency of rate adjustment. 
e) 
Interest Rate Ceilings and Floors: 
SBA will permit a Lender to limit the upward and downward 
adjustments by establishing a floor and ceiling provided that both the 
floor and ceiling are stated in the Note. 
f) 
Accrual Method: 
SBA does not require a specific accrual method, unless the loan is sold 
in the Secondary Market. Loans sold on the Secondary Market must 
either use 30/360 or Actual/365 as the interest accrual methods. 
iii. Amortization: (13 CFR § 120.214(f)):  
Lender should use an amortization schedule that is appropriate for the type of 
loan. SBA does not allow balloon payments. A fixed interest rate loan must 
use a payment that will fully amortize the loan by the maturity date. 
Typically, variable rate loans are re-amortized every time the interest rate is 
adjusted to ensure full amortization by the maturity date. The amortization 
schedule may also be adjusted to meet the cash flow needs of the business.  
iv. Fixed and Variable Rate Combinations:  
The Lender may use a fixed rate on either the guaranteed or unguaranteed 
portion and a variable rate on the other portion of the loan. SBA allows such 
combinations as long as neither rate exceeds the SBA maximum interest rate. 
A Lender may use this structure to make a loan that permits it to retain a 
variable interest rate on the unguaranteed portion and sell a fixed rate 
guaranteed portion on the Secondary Market. If the Lender uses a 
combination, the entire loan is considered to be a variable interest rate loan. 
The interest rate on both the guaranteed and unguaranteed portions must be 
based on the variable rate.  
v. Interest Rate Swap Contracts: 
a) 
An interest rate swap is a contract between two parties where one party 
pays a fee in exchange for an agreement by the other party to pay any 
interest in excess of an established amount. The contract may last for all 
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or part of the term of the loan. The swap contract only relates to the 
payment of interest.  
Example: A Borrower has a prime plus 2% interest rate on a 7(a) 
variable rate guaranteed loan. The Borrower could purchase an interest 
rate swap contract that would set the interest rate at 8%. When the Note 
rate is lower than the rate paid by the Borrower on the swap contract 
(8%), the swap seller keeps the extra amount as compensation for the 
risk that rates will at some point exceed 8%. When the Note rate is 
higher than the rate paid by the Borrower on the swap contract, the 
Borrower would continue to pay the fixed rate of 8% and the swap seller 
would pay the difference above 8% to the Lender. The ability to 
stabilize the amount of the loan payment each month is the benefit to the 
Borrower of an interest rate swap contract. 
b) 
In order to use an interest rate swap in the 7(a) program, the interest rate 
swap contract must meet the following conditions: 
i) The interest rate swap contract is an agreement between the small 
business Borrower and the Lender or, if the swap seller is not the 
lender, a third party. SBA is not a party to the interest rate swap 
contract. 
ii) The interest rate swap contract does not affect the amount of money 
owed by the Borrower to SBA in the event SBA purchases the 
guaranty. In the event of a Borrower default, interest will be calculated 
using the base rate and spread in the variable interest rate Note, not the 
swap contract. 
iii) SBA will not be responsible if the swap seller defaults during the life 
of the contract. The Borrower will be liable for the interest as required 
in the Note.  
iv) Loans with accompanying interest rate swap contracts may be sold on 
the secondary market. The Lender is still required under the secondary 
market contract (SBA Form 1086) to forward interest and principal 
pursuant to the original terms of the loan. It is the Lender’s 
responsibility to work with the swap seller to make sure funds are 
available for submission to the fiscal and transfer agent according to 
the time schedule in the Form 1086. 
v) The full amount of the principal and interest required under the Note 
must be reported by the lender on the SBA Form 1502. 
vi) SBA will not review swap contracts for Borrowers or provide 
guidance on their use. While swap contracts should not have a 
significant impact on the cost of the loan, SBA will not publish any 
guidelines on the cost of these contracts. 
vii) The Borrower must sign a statement acknowledging that interest will 
be calculated at the Note rate if the swap contract is terminated.  
JX019.356
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viii) The following statement must be included in the swap contract that is 
executed by the Borrower and the swap seller: “The Small Business 
Administration is not a party to this contract and does not guarantee it. 
In the event SBA is called upon to honor its guaranty to the Lender, 
the Borrower’s debt will be determined by the terms of the Note, 
including the variable interest rate provision.” 
ix) Swap contracts may be used on new or existing loans. 
x) The swap contract does not have to last for the entire length of the loan 
agreement. 
xi) SBA does not have a standard form for an interest rate swap contract. 
xii) Any fees owed the swap counterparty as a result of the default by the 
Borrower will be subordinated to the SBA 7(a) loan. 
4. Credit Standards for Export Express 
The policies that make up SBA’s credit standards begin with the requirements outlined in 
13 CFR §§ 120.101 and 120.150. This section provides procedural guidance as to what 
the Lender should or must consider when analyzing any request for financial assistance 
that will be guaranteed by SBA. 
A Lender must analyze each application in a commercially reasonable manner, consistent 
with prudent lending standards. The cash flow of the Applicant is the primary source of 
repayment, not any expected recovery from the liquidation of collateral. Thus, if the 
Lender’s financial analysis demonstrates that the Applicant lacks reasonable assurance of 
repayment in a timely manner from the cash flow of the business, the loan request must 
be declined, regardless of the collateral available or outside sources of repayment. 
To the maximum extent practicable, Export Express Lenders may use their own forms, 
internal credit memoranda, notes, collateral documents, and servicing and liquidation 
documentation. In using their documents and procedures, Lenders must follow their 
established and proven internal procedures used for their similarly-sized non-SBA 
guaranteed commercial loans.  
a. Processing Method 
Once submitted to the LGPC, an application withdrawn by a Lender, screened-
out, or declined by the LGPC may not be approved by any Lender under its 
Export Express Authority. E-Tran will not permit the submission of such an 
application under any Lender’s Export Express authority for a period of 
12 months from the date of the withdrawal, screen-out, or decline of the 
application. 
Export Express loans are only processed via an Export Express Lender’s 
delegated authority. When a Lender submits an SBA 7(a) loan guaranty request 
under the Lender’s Export Express authority, the Agency does not review the 
Lender’s determination of eligibility, analysis of the credit, or structure of the loan 
or line of credit prior to issuing a loan number. The Lender must analyze 
eligibility and credit worthiness in accordance with SBA Loan Program 
Requirements and properly document its file. The Export Express Lender’s 
JX019.357
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analysis is subject to SBA’s review and determination of adequacy, when the 
Lender requests SBA to purchase its guaranty or when SBA is conducting lender 
oversight activities. 
b. Underwriting 
i. SBA has authorized Export Express Lenders to make the credit decision 
without prior SBA review. Lenders must not make an Export Express loan 
that would be available on reasonable commercial terms from either the 
Lender itself or another source without an SBA guaranty. 
ii. The credit analysis must demonstrate there is a reasonable assurance of 
repayment. 
iii. The credit analysis must include the factors demonstrating the Applicant does 
not have credit available elsewhere on reasonable commercial terms from 
non-Federal, non-State, non-local government sources, in accordance with 
Section A, Ch. 1, Para. E, Demonstrate the Need for Desired Credit in this 
Part; 
iv. The Lender is required to use appropriate, prudent, and generally accepted 
industry credit analysis processes and procedures (which may include credit 
scoring) and these procedures must be consistent with those used for the 
Lender’s similarly-sized non-SBA guaranteed commercial loans.. 
v. In addition to using the Lender’s appropriate, prudent and generally accepted 
industry credit analysis and procedures, Export Express Lenders may use a 
business credit scoring model (such a model cannot rely solely on consumer 
credit scores) to assess character, reputation, and credit history of the 
applicant and/or repayment ability if they do so for their similarly-sized, non-
SBA guaranteed commercial loans. 
a) 
The business credit scoring model may only be used in addition to the 
Lender’s appropriate, prudent, and generally accepted industry credit 
analysis and procedures. 
b) 
If used, the business credit scoring results must be documented in each 
loan file and available for SBA review. 
c) 
Lenders must validate (and document) with appropriate and accepted 
statistical methodologies that their business credit scoring model is 
predictive of loan performance and they must provide that 
documentation to SBA upon request. 
d) 
Although SBLCs do not make non-SBA guaranteed loans, SBA has 
determined they may use credit scoring. SBLCs are required to provide 
credit scoring model validation to SBA on an annual basis.  
vi. The credit decision on Export Express loans, including how much to factor in 
a past bankruptcy or whether to require an equity injection, is left to the 
business judgment of the Lender. Also, if the Lender requires an equity 
injection and, as part of its standard processes for similarly-sized, non-SBA 
guaranteed loans verifies the equity injection, it must do so for Export 
JX019.358
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Express loans. While the credit decision is left to the business judgment of 
the Lender, early loan defaults will be reviewed by SBA pursuant to 
SOP 50 57. 
vii. Lender must also address other specifics, such as: 
a) 
Franchise, license, dealer, or similar agreements (see Section A, Ch. 1, 
Para. D.6, Affiliation Based on Franchise, License, Dealer, Jobber, and 
Similar Agreements, of this Part for further guidance.); and 
b) 
Management agreements (see Section A, Ch. 1, Para. D.5, Affiliation 
based on Management, of this Part for further guidance). 
c. Collateral 
See Section A, Ch. 6, Para. A of this Part for guaranty requirements. 
i. With respect to collateral, Lenders must use commercially reasonable and 
prudent practices to identify collateral, which conforms to procedures at least 
as thorough as those used for their similarly-sized non-SBA guaranteed 
commercial loans. Decisions regarding what collateral must be taken to 
secure a loan are based on the circumstances of the individual loan, including 
size, and must meet the minimum requirements set forth in this section. 
a) 
For loans of $25,000 or less, Lenders are not required to take collateral. 
b) 
For loans over $25,000, the Lender must, to the maximum extent 
practicable, follow the written collateral policies and procedures that it 
has established and implemented for its similarly-sized, non-SBA 
guaranteed commercial loans, except for Export Express lines of credit 
over $25,000 used to support the issuance of a standby letter of credit. 
The line of credit must have collateral (cash, cash equivalent or project) 
that will provide coverage for at least 25% of the issued standby letter of 
credit amount. 
ii. Adequacy of Collateral: 
A loan request is not to be declined solely on the basis of inadequate 
collateral. In fact, one of the primary reasons Lenders use the SBA-
guaranteed program is for those Applicants that demonstrate repayment 
ability but lack adequate collateral to repay the loan in full in the event of 
default. However, SBA does not permit its guaranty to be a substitute for 
available collateral. 
d. Real Estate Appraisal and Business Valuation Requirements 
The regulation governing real estate appraisals is set forth at 13 CFR § 
120.160(b). 
i. Commercial Real Estate: 
a) 
For all loans $500,000 or less secured by commercial real property: 
i) If the loan finances a transaction involving parties with a close 
relationship (for example, transactions between existing owners or 
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family members), or if the Lender otherwise concludes that an 
appraisal is necessary to appropriately evaluate creditworthiness, the 
Lender must obtain an appraisal. 
ii) Appraisals must be in compliance with the Uniform Standards of 
Professional Appraisal Practice (USPAP). Additionally, SBA requires 
that completed appraisals be dated within 12 months of the application 
for guaranty. 
iii) If an appraisal is not required under the preceding paragraph, all 
Lenders must obtain an appropriate evaluation of the commercial real 
estate securing the loan that is consistent with safe and sound banking 
practices. Evaluations are not required to be performed in accordance 
with USPAP or by State licensed or certified appraisers but should be 
consistent with the Interagency Appraisal and Evaluation Guidelines 
and the Interagency Advisory on the Use of Evaluations in Real 
Estate-Related Financial Transactions, issued by the Federal Banking 
Regulators. 
b) 
The appraiser must be: 
i) Independent and have no appearance of a conflict of interest (such as a 
direct or indirect financial or other interest in the property or 
transaction); and 
ii) Either State-licensed or State-certified, with the following exception: 
when the commercial property’s estimated value is over $1,000,000, 
the appraiser must be State-certified. 
c) 
In order for the appraiser to identify the scope of work appropriately, the 
appraisal must identify the Lender as the client and/or an intended user 
of the appraisal, as those terms are defined in USPAP, except that 
federally-regulated Lenders may follow their primary regulator’s 
FIRREA requirements to the extent they permit otherwise. The Lender 
may not use an appraisal prepared for the seller or the Applicant. The 
cost may be passed on to the Applicant. 
d) 
The appraisal must be an “Appraisal Report” prepared in compliance 
with USPAP. 
e) 
If the loan will be used to finance new construction or the substantial 
renovation of an existing building, the appraisal must estimate what the 
market value will be at completion of construction. (“Substantial” 
means rehabilitation expenses of more than one-third of the purchase 
price or fair market value at the time of the application.) After 
construction is completed, Lender 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. If the Lender cannot obtain such a 
JX019.360
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statement, then the Lender may not close the loan without SBA’s prior 
written permission. 
f) 
If the SBA-guaranteed loan was used to cover the construction period, 
the Lender must notify the appropriate SBA CLSC of any deviation(s) 
and work with the SBA CLSC to determine an appropriate course of 
action, including the securing of additional collateral. The Lender’s 
notification to SBA must provide a sufficient understanding of the 
reasons for the differences in values between the estimated and actual 
values as well as a recommendation as to a remedy to offset the 
difference in values such as additional equity or additional collateral. If 
additional collateral is being required, the Lender must identify both the 
fair market and liquidation values of the additional collateral. If the 
Lender is unable to obtain a statement 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, but is able to obtain a 
new appraisal demonstrating that the market value meets or exceeds the 
original estimate of value, then no additional action on the part of the 
Lender is necessary. 
g) 
If the loan will be used to acquire an existing building that does not 
require construction, the appraiser should estimate market value on an 
as-is basis. If the appraiser estimates the value other than on an as-is 
basis, the narrative must include an explanation of why the as-is basis 
was not used. 
h) 
When valuing the collateral, the Lender must not include the 
contributory value of any rental income or the value of any intangible 
assets contained in the appraisal. 
i) 
An appraisal may be obtained as part of the loan application to assist 
with the underwriting or as part of the loan closing. In no case may the 
Lender rely on an appraisal that was prepared more than 12 months 
prior to the date of the application. 
j) 
If the Lender is going to require the appraisal at closing, the loan 
application must include an estimate of the value of the real estate and 
the estimate must be identified in the loan authorization with the 
requirement for an appraisal that supports the estimated value at time of 
closing. 
k) 
If at time of closing the appraised value: 
i) Is 90% or more of the estimated value, the Lender may close the loan 
but must include a written explanation as to why the appraisal is less 
than the estimated value in the loan file. 
ii) Is less than 90% of the estimated value, Export Express Lenders are 
permitted to close the loan, but the Lender must include a written 
justification as part of its file that may be reviewed by SBA at time of 
guaranty purchase or when conducting lender oversight activities. The 
JX019.361
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justification must include a thorough analysis by the Lender of the 
reasons for the appraisal being low and an explanation as to what steps 
the Lender took to offset the risk to SBA from the low appraisal such 
as additional equity or additional collateral. 
ii. Non-commercial real estate or real estate securing a personal guaranty: 
SBA has no specific appraisal requirements for non-commercial real estate 
(such as a residence) or real estate (commercial or non-commercial) taken as 
collateral to secure a personal guaranty. 
iii. Other Fixed Assets: 
If the valuation of fixed assets is greater than their Net Book Value, an 
independent appraisal by a qualified individual must be obtained by the 
Lender to support the higher valuation. A valuation of the fixed assets 
provided as part of a business valuation will not meet these requirements, 
except as part of a going concern appraisal. 
iv. Business Valuation Requirements – Change of Ownership: 
a) 
Determining the value of a business (not including real estate which is 
separately valued through a real estate appraisal) is the key component 
to the analysis of any loan application for a change of ownership. An 
accurate business valuation is required because the change in ownership 
will result in new debt unrelated to business operations and potentially 
the creation of intangible assets. A business valuation assists the buyer 
in making a determination that the seller’s asking price is supported by 
an independent Qualified Source (See definition in Appendix 3). 
b) 
In order for the individual performing the business valuation to identify 
the scope of work appropriately, the business valuation must be 
requested by and prepared for the Lender. The scope of work should 
identify whether the transaction is an asset purchase or stock purchase 
and be specific enough for the individual performing the business 
valuation to know what is included in the sale (including any assumed 
debt). The business valuation must include the individual’s conclusion 
of value, the qualifications of the individual performing the business 
valuation and their signature certifying to the information contained in 
the business valuation. The Lender may not use a business valuation 
prepared for the Applicant or the seller. The cost of the business 
valuation may be passed on to the Applicant. 
i) Non-Special Purpose Properties: 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source.  
JX019.362
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(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment is greater than $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
transactions between existing owners or family members), the 
Lender must obtain an independent business valuation from a 
Qualified Source. 
ii) Special Purpose Properties: A “Special Purpose Property” is a limited-
market property with a unique physical design, special construction 
materials, or a layout that restricts its utility to the specific use for 
which it was built. 
(a) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is $250,000 or less, the Lender may 
perform its own valuation of the business being sold, unless the 
Lender’s internal policies and procedures require an independent 
business valuation from a Qualified Source. 
(b) 
If the amount being financed (including any 7(a), 504, seller, or 
other financing) minus the appraised value of real estate and/or 
equipment being financed is over $250,000 or if there is a close 
relationship between the buyer and seller (for example, 
transactions between existing owners or family members) and the 
business operates from a Special Purpose Property, the Lender 
must obtain an independent business valuation performed by a 
Certified General Real Property Appraiser. 
(c) 
The business valuation must allocate separate values to the 
individual components of the transaction including land, building, 
equipment, and intangible assets. 
(d) 
The Certified General Real Property Appraiser must have 
completed no less than four going concern appraisals of equivalent 
special use property as the property being appraised, within the last 
36 months, as identified in the qualifications portion of the 
Appraisal Report. 
(e) 
Each business valuation assignment under this section must be 
undertaken with a specific instruction for the Certified General 
Real Property Appraiser to conduct the appraisal in compliance 
with current USPAP guidelines. 
iii) The business valuation may be obtained and reviewed after the 
issuance of an SBA Loan Number and prior to closing. If the Lender 
requests the business valuation after issuance of an SBA Loan 
Number, the credit memorandum must include an estimate of the value 
of the business. The credit memorandum must be updated after receipt 
JX019.363
App.3620
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 364 
of the business valuation to include a comparison of the loan amount 
and the business valuation. 
iv) Any amount(s) of the loan proceeds that will be used to facilitate a 
change of ownership may not exceed the business valuation. 
v) Lender Verification of Business valuation Financial Data: 
Lender must obtain a copy of the financial information relied upon by 
the individual who performed the business valuation and verify that 
information against the seller’s IRS transcripts to ensure the accuracy 
of the information. 
5. Submission of Application for Guaranty for Export Express 
a. Contents of Lender’s Application for Guaranty 
Lenders must maintain in their loan files all application documents and any 
documentation and exhibits that support the guaranty request. 
Lender must disclose 100% of the Applicant’s ownership on SBA Form 1919 and 
in E-Tran in order to submit a loan application. Each owner must be identified in 
E-Tran.  
SBA Form 1919 includes information on the number of employees at the time of 
application and the number of jobs to be created and/or retained as a result of the 
loan. Jobs “created” means the number of full-time (or equivalent) employees that 
the small business expects to hire as a result of the loan. Jobs “retained” means 
the number of full-time (or equivalent) employees on the payroll of the business 
at the time of application that will be lost if the loan is not approved. 
i. Export Express Processing: 
a) 
Program forms can be found at www.sba.gov/document. 
b) 
All Export Express loan files must include the forms and information 
the Lender requires in order to make an informed eligibility and credit 
decision. Any application form obtained by the Lender from the 
applicant must be certified by the Applicant as true and complete.  
ii. Export Express Lenders must obtain and retain all documentation in their 
file.  
a) 
Lender must complete and sign SBA Form 1920. 
b) 
Applicants and Associates must complete and sign SBA Form 1919, 
“Borrower Information Form.” SBA Form 1919 must be signed by the 
following: 
i) For a sole proprietorship, the sole proprietor; 
ii) For a partnership, all general partners, and all limited partners owning 
20% or more of the equity of the firm, or any partner that is involved 
in management of the Applicant; 
JX019.364
App.3621
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 365 
iii) For a corporation, all owners of 20% or more of the corporation and 
each officer and director; 
iv) For limited liability companies (LLCs), all members owning 20% or 
more of the company and each officer, director, and managing 
member; 
v) Any Key Employee; and 
vi) Any Trustor (if the Small Business Applicant is owned by a trust). 
vii) When the combined ownership interest between spouses and minor 
children is 20% or more, both spouses must complete SBA Form 
1919. 
When 20% or more ownership interest is held by a corporation, 
partnership, or other form of legal entity in the Applicant or OC, the 
ownership interests of all individuals must be disclosed.  
A separate Section I of SBA Form 1919 is required to be completed and 
signed for each co-applicant (e.g. Eligible Passive Company (EPC) and 
Operating Company (OC)). 
All parties listed in subparagraph a.ii.b) above are considered 
“Associates” of the Small Business Applicant as defined in 13 CFR § 
120.10. A separate Section II is required to be completed and signed 
by each principal of the Small Business Applicant. 
c) 
Lender’s Credit Memo must address all requirements detailed in 
paragraph 4, Credit Standards, above. 
d) 
Character Determination: 
i) If questions 17, 18, and 19 of SBA Form 1919 are all answered “no,” a 
Character Determination is not required. 
ii) If question 17 is answered “yes,” the loan is not eligible.  
iii) If question 18 or 19 is answered “yes,” the Subject Individual and 
Lender must follow the steps as outlined in Section A, Ch. 3, Para. B, 
Character Determinations, of this Part prior to submitting the request 
for a loan number. 
iv) If the Lender uses business financial statements and/or tax returns for 
purposes of credit underwriting, all financial statements, tax returns 
and schedules reviewed and required by Lender’s policy for its 
similarly -sized, non-SBA guaranteed commercial loans must be 
maintained in the Lender’s Export Express loan file. All financial 
documents must comply with the Lender’s policies on collection and 
review of financial information. 
v) If Lender does not use business financial information to determine 
creditworthiness, such as with some credit scoring models, Lender 
must obtain IRS tax transcripts in order to verify that the returns were 
filed and for the purpose of determining the Applicant’s size (but 
JX019.365
App.3622
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 366 
reconciliation of the tax transcripts as set forth in Section A, Ch. 6, 
Para. B, IRS Tax Transcripts/Verification of Financial Information, of 
this Part is not required). 
e) 
Franchise: 
i) If the Applicant’s brand meets the FTC definition of a franchise, 
Lender must document in its file that the Applicant’s brand is on the 
Directory and identify the name of the franchise and SBA Franchise 
Identifier Code when entering the request for loan number into E-Tran. 
Lender must ensure that the brand name (and, where applicable, the 
type of agreement) the Applicant will be operating under matches the 
brand name (and, where applicable, the type of agreement) listed on 
the Directory. (Lender will need to submit the documentation showing 
that the Applicant’s brand is on the Directory with any guaranty 
purchase request.) 
ii) If the Applicant’s brand is not on the Directory and the delegated 
Lender determines the brand does not meet the FTC definition and 
proceeds with approving the loan under its delegated authority, the 
Lender must document its file and will be required to submit that 
documentation with any guaranty purchase request and the Export 
Express Lender bears responsibility for any erroneous determination; 
iii) If the Applicant operates under multiple brands, the Lender must enter 
the brand name and SBA Franchise Identifier Code (if applicable) for 
the brand that generates the largest amount of the Applicant’s revenue 
when entering the application into E-Tran. The Lender must document 
in its file that all of the Applicant’s brands are eligible for SBA 
financial assistance and those that meet the FTC definition of a 
franchise that are critical to the Applicant’s business operation are on 
the Directory, and must document their file with the basis for their 
determination of which brands are critical to the Applicant’s business 
operation (e.g., a breakdown of revenue by brand). Delegated Lenders 
will be required to submit all of this supporting documentation to SBA 
with any guaranty purchase request. (See Section A, Ch. 1, Para. D.6, 
Affiliation Based on Franchise, License, Dealer, Jobber, and Similar 
Agreements, of this Part for further guidance.) 
f) 
Debt Refinancing. Lenders must maintain copies of all notes, security 
agreements, leases, or other documentation evidencing the debt to be 
refinanced in the loan file. 
g) 
Documentation of USCIS status verification - Lenders must receive 
verification of the status of each alien required to submit USCIS 
documents prior to submission of the request for loan number to SBA. 
Lender must retain a copy of the verification received from USCIS or 
SBA-SLPC in its loan file. 
JX019.366
App.3623
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: Export Express 
Effective October 1, 2020 
Page 367 
b. Where to Submit Applications for Guaranty 
Export Express Lenders must submit guaranty applications via E-Tran, retaining 
all required documentation in the Lender’s loan file.  
 See Chapter 5, Authorization through Disbursement, in this Section, for SBA 
requirements for the loan Authorization, post-approval and pre-disbursement 
requests for changes, transfer of guaranty between participating Lenders, and loan 
closing and disbursement. 
JX019.367
C. 
App.3624
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JX019.368
App.3625
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 369 
B. EXPORT WORKING CAPITAL PROGRAM (EWCP) 
13 CFR 120.340 - 120.344 
Under the EWCP, SBA guarantees short-term working capital loans made by participating 
lenders to small business exporters.  
Lenders must always start by reviewing the contents of Section A, Core 
Requirements for all 7(a) and 504 Loans, of this Part. 
 
1. Eligibility for EWCP 
In addition to the Core Requirements identified in Section A of this Part, the following 
EWCP-specific eligibility requirements apply: 
 Eligibility for EWCP will be limited to businesses that have a history of at least 
12 full months of operations prior to filing an application.  
 The SBA Approving Official may waive the 12-month requirement, based upon 
demonstrated export expertise and previous business experience. 
 Export management companies (EMC) or export trading companies (ETC) may 
use this program only if the EMC or ETC takes title to the goods or services being 
exported. EMCs or ETCs which have any bank ownership are ineligible for the 
EWCP loan program. 
2. Eligible Uses of Proceeds for EWCP 
 Proceeds can be used only to finance export transactions. Loans can be for single 
or multiple export transactions. An export transaction is the production and 
payment associated with a sale of goods or services to a foreign buyer. 
i. Loan proceeds may be used for: 
a) 
Acquiring inventory for export or to be used to manufacture goods for 
export; 
b) 
Paying the manufacturing costs of goods for export; 
c) 
Purchasing goods or services for export; 
d) 
Supporting standby letters of credit related to export transactions 
e) 
For working capital directly related to export orders 
f) 
For foreign accounts receivable and inventory financing 
g) 
Support an indirect export: The term “indirect export” applies to 
situations where, although the Borrower’s direct customer is located in 
the United States, that customer will be exporting the items/services it 
purchased from the Borrower to a foreign Buyer. In such cases, the 
Borrower must provide documentation to the Lender from the 
Borrower’s domestic customer (typically in the form of a letter, invoice, 
order, or contract) that the goods or services are in fact being exported. 
JX019.369
a. 
b. 
C. 
a. 
App.3626
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
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Page 370 
h) 
Pre-shipment working capital; 
i) 
Post-shipment foreign accounts receivable financing; and 
j) 
Lender fees and charges and any packaging fees paid 
k) 
For refinancing existing short-term export lines of credit with the 
transfer of collateral in accordance with paragraph 2.b. below. 
ii. Loan proceeds may not be used to (13 CFR § 120.342): 
a) 
Support the Borrower’s domestic sales, except in the case of an indirect 
export; 
b) 
Acquire fixed assets or capital goods for use in the Borrower’s business;  
c) 
Acquire, equip, or rent commercial space overseas; or 
d) 
Finance professional export marketing advice or services, foreign 
business travel, participation in trade shows or support staff in overseas 
offices, except to the extent it relates directly to the transaction being 
financed. 
 Debt Refinancing with Export Working Capital Program (EWCP) Loans. 
EWCP loan proceeds may not be used to pay a creditor in a position to sustain a 
loss (including the same institution’s debt). This includes refinancing debt that 
will shift all or part of a potential loss from the original Lender to the SBA. 13 
CFR §§ 120.140(j)(1) and 120.201 
EWCP loan proceeds may be used to refinance an existing EWCP loan or export 
line of credit. All refinanced debts must be supported by active export sales or 
pending export orders, and the EWCP loan Authorization must specify additional 
eligible uses of loan proceeds for subsequent draws. 
The following conditions apply to debt refinancing under EWCP: 
i. The loan being refinanced must be paid off with the EWCP loan, and the 
refinanced loan must be terminated after the pay-off. 
ii. EWCP loan proceeds may not be used to refinance debt that is already on 
reasonable terms.  
iii. An existing EWCP loan or other short-term export line of credit reflected on 
the Applicant’s business balance sheet may be eligible for refinancing if it is 
reflected on the Applicant’s business tax returns (Schedule C for sole 
proprietorships) showing the interest expense associated with the debt. 
a) 
If the debt to be refinanced was the first extension of credit, the Lender 
must document and the Applicant must certify that the proceeds from 
the debt were used exclusively for the Applicant’s business, for an 
eligible purpose under 13 CFR § 120.342, and were not used for any 
ineligible purpose as set forth in 13 CFR § 120.130; and 
b) 
Except as stated in the next sentence, if the debt to be refinanced was 
used in whole or in part to refinance a prior debt, the loan being 
JX019.370
b. 
App.3627
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 371 
refinanced, including the associated interest, must be reflected on the 
Applicant’s balance sheet and business tax returns (Schedule C for sole 
proprietorships) for two full tax cycles prior to application. If the term 
of the debt to be refinanced is less than the period of two full tax cycles 
prior to application, the loan being refinanced, including the associated 
interest, must be reflected on the Applicant’s balance sheet and business 
tax returns for the full tax cycle(s) that occurred between the date of 
disbursement of the loan being refinanced and the date of application for 
the EWCP loan.  
iv. When refinancing debt, the loan application must include: 
a) 
A written analysis that addresses the following issues: 
i) The reason the debt was incurred; 
ii) The factor(s) that support that the proposed refinancing will not pay a 
creditor in a position to sustain a loss; 
iii) The reason for restructuring the debt (for example, over-obligated or 
imprudent borrowing); 
iv) The factor(s) that support that the debt being refinanced is not 
currently on reasonable terms; 
v) How the new loan will improve the financial condition of the 
Applicant; 
vi) The reason(s) the Lender believes the debt to be refinanced no longer 
meets the needs of the Applicant; and 
b) 
Supporting documentation for each debt to be refinanced: Lenders are 
required to: 
i) Retain copies of notes, security agreements, leases, and other 
documentation evidencing the debt to be refinanced; and 
ii) Submit with the application to LGPC for non-delegated loans, copies 
of all supporting documentation for the debt to be refinanced. 
v. The Authorization must include: 
a) 
In the Use of Proceeds section, the refinancing must be specifically 
identified; 
b) 
An itemization of all debts being repaid by loan proceeds; and/or 
c) 
The loan number and dollar amount of any existing SBA debt being 
refinanced. 
vi. 
Other conditions that apply to debt refinancing: 
a) 
An EWCP loan may not be used to refinance a debt owed to an SBIC. 
b) 
The payment of trade payables is not considered to be debt refinancing. 
JX019.371
App.3628
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Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
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c) 
Initial disbursement must be made in accordance with the 
Authorization; 
d) 
Prior to first disbursement, the Lender must ensure: 
i) Collateral for the loan being refinanced is transferred to secure the 
EWCP loan. 
ii) Any outstanding receivable that would have been applied to pay down 
the refinanced loan will be applied to pay down the EWCP loan in the 
same percentage. 
 Change of Ownership (13 CFR § 120.202). 
EWCP loan proceeds may not be used for a change of ownership. 
3. Ineligible NAICS Codes 
For purposes of clarification, small businesses in the following NAICS Industry 
Subsector Codes cannot be financed using an EWCP loan, but may be financed using 
other SBA 7(a) financial assistance: 
 NAICS Industry Subsector Code 721 (Accommodation) 
 NAICS Industry Subsector Code 447 (Gasoline Stations). 
4. Other Restrictions that Apply to PLP-EWCP Loans 
The following types of loans are not eligible for PLP-EWCP processing: 
 Loans to an ESOP (under 13 CFR §§ 120.350 through 120.354) or to an eligible 
small business owned or controlled by an ESOP (see Section A, Ch. 2, Para. B., 
Employee Stock Ownership Plans, of this Part for more information); 
 Loans to a cooperative or to an eligible small business owned or controlled by a 
cooperative (see Section A, Ch. 2, Para. C, Cooperatives, of this Part for more 
information); 
 Loans involving a Single Employer 401(k) plan, including a ROBS plan, unless 
the only investment held by the 401(k) plan is the equity in the Applicant 
business; and 
 Loans involving a Multiple-Employer 401(k) plan (i.e., a plan that holds in trust 
the assets of other businesses), including a ROBS plan (see Section A, Ch. 2, 
Para. D, 401(k) Plans Including Rollovers as Business Start-Ups (ROBS) Plans, 
of this Part for more information). 
5. Loan Terms and Conditions for EWCP 
a. Maximum Loan Amount 
i. The maximum loan amount is $5,000,000. 
ii. Maximum Loans to Businesses with Affiliates 
Lenders must determine whether the Applicant has any affiliates and 
document the results in their credit analysis. If affiliation exists, SBA’s loan 
JX019.372
C. 
a. 
b. 
a. 
b. 
C. 
d. 
App.3629
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Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 373 
maximums apply to the Applicant, including all affiliates, as if all were a 
single business. 
iii. Maximum Loan Amount for multiple loans approved within 90 days of each 
other – “90 Day Rule.” 
a) 
If two SBA-guaranteed loans to any one business (including affiliates) 
are approved within 90 days of each other, the maximum gross amount 
of all such loans in that time frame cannot exceed $5,000,000.  
b) 
Two SBA-guaranteed loans approved within 90 days of each other may 
impact the maximum guaranty percentage available to the Borrower and 
its affiliates as well as the guaranty fee. 
b. Maximum Guaranty Amounts and Percentages 
Except for EWCP and International Trade loans, the maximum dollar amount 
outstanding of SBA’s guaranty to any one business (including affiliates) must not 
exceed $3,750,000. However, both EWCP and International Trade loans permit a 
maximum dollar amount outstanding of SBA’s guaranty of $4,500,000. When 
calculating the maximum guaranty percentage available to a Borrower and its 
affiliates, the Lender must include the approved loan amount for a revolving line 
of credit. The SBA’s guaranty is also known as the “SBA share” or “guaranteed 
portion.”  
i. The maximum guaranty amount is $4,500,000.  
ii. For EWCP, the guaranty percentage is 90 percent. 
iii. Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: 
A 7(a) loan cannot include proceeds for an ineligible purpose or have any 
portion of the loan made to an ineligible business and no part of an SBA 7(a) 
loan may be guaranteed at zero percent. 
iv. Combination of 7(a) and 504 loans. 
a) 
When an Applicant applies for any combination of 7(a) and 504 loans, 
the order in which the loans are approved determines the maximum loan 
and guaranty amount available. Because the 7(a) loan has a lower 
maximum guaranteed amount, the 7(a) loan should be processed and 
approved first. 
b) 
Lenders must advise the SBA processing centers that there is a 
companion 504 application to ensure the 7(a) loan is processed and 
approved prior to the 504 loan application being processed and 
approved. 
c) 
The 90-day rule is only for those situations where a Borrower is 
approved for multiple 7(a) loans within a 90-day period. It does NOT 
apply if the Borrower is receiving a 7(a) loan and a 504 loan. 
JX019.373
App.3630
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Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
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c. Loan Maturities 
i. The loan term must be the shortest appropriate term based on the use of 
proceeds and the Borrower’s ability to repay. 
ii. General: The maximum maturity of an EWCP loan is 36 months. The 
maturity date is set in terms of the number of months from either the date of 
Note or the date of initial disbursement to the date when final payment is 
due. SBA’s guaranty remains in effect for disbursements made through the 
maturity date, subject to the terms and conditions of the loan Authorization 
and loan documents. With the exception of a disbursement made to fund a 
draw against a Standby Letter(s) of Credit that was issued under the EWCP 
before the maturity date, disbursements made after the maturity date are not 
covered under the guaranty. The maturity of the loan is: 
a) 
The date specified in the loan Authorization. Such date will not be 
longer than 36 months from the Note date. If the loan is not reissued, or 
extended, all outstanding amounts are due and payable on that day.  
b) 
Standby Letters of Credit. Unless SBA provides prior written consent, 
Standby Letters of Credit supported by an EWCP loan must expire 
before the loan maturity date. If the Lender receives SBA’s prior written 
consent and makes a disbursement after the maturity date because there 
has been a draw on a standby letter of credit which was issued under the 
EWCP prior to the maturity date, such disbursement will be covered by 
the guaranty. 
c) 
Loan maturity must not exceed the period of the guaranty. 
iii. Specific Types of EWCP loans: 
a) 
Single Transaction-Specific Loan: A non-revolving loan or revolving 
line of credit that supports a specifically identified, single export 
transaction. The LGPC (if processed non-delegated) or PLP-EWCP 
Lender (if processed via PLP-EWCP authority) may approve a term up 
to 36 months to correspond with the length of the transaction cycle. 
When the term exceeds 12 months, justification and recommendation 
for a longer maturity must be included in the Lender’s credit 
memorandum (if processed via PLP-EWCP) or in the SBA Export 
Finance Manager’s credit memorandum (if processed non-delegated). 
(Export Finance Managers are assigned to United States Export 
Assistance Centers (USEACs).) 
b) 
Transaction Based-Revolving Line of Credit: A revolving line of credit 
can support either multiple export transactions or a single, specifically 
identified export transaction on a continuous basis during the term of the 
loan. While the term of a revolving line of credit typically does not 
exceed 12 months, LGPC or PLP-EWCP Lender may allow an initial 
commitment up to 36 months with annual renewals. 
c) 
Asset Based Loans (ABLs): ABLs are revolving lines of credit 
supported by a monthly BBC which reports levels of assets, normally 
JX019.374
App.3631
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Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 375 
accounts receivable and inventory, supporting the loan amount. ABLs 
are typically committed for 12 months and re-issued annually. Because 
a re-issuance of a loan is a new loan, another guaranty fee is due each 
time the loan is re-issued. ABLs, however, can have up to a 36-month 
maturity with annual renewals. The Lender must supply to SBA updated 
financial statements on the Borrower annually. 
d. Interest Rates 
i. SBA does not prescribe the interest rates for the EWCP but will monitor 
these rates for reasonableness. 13 CFR § 120.344(c) 
a) 
A loan may have a fixed or variable interest rate. The Lender negotiates 
the interest rate with the Applicant. 
b) 
The spread above the base rate as identified in the Note may not be 
changed during the life of the loan without the written agreement of the 
Borrower. For further discussion of variable interest rates, see paragraph 
d.ii, “Policy on Variable Interest Rates” below.  
c) 
Default interest rates are not permitted. 
d) 
For loans with a variable interest rate, the following terms must be 
defined:  
i) Base Rate and applicable spread: 
ii) Frequency of change; 
iii) Range of fluctuation; and 
iv) Ceiling and floor (if any). 
e) 
After approval and prior to final disbursement, Lender must either 
notify the LGPC of any changes to the Note terms related to the interest 
rate or make the change through E-Tran Servicing. After final 
disbursement, Lender must either notify the appropriate Commercial 
Loan Servicing Center of any changes to the Note terms related to the 
interest rate or make the change through E-Tran Servicing. 
ii. Policy on Variable Interest Rates 
a) 
Post-Approval Changes to the Interest Rate: 
i) Pre-Disbursement Changes: After loan approval and prior to first 
disbursement, the Lender may change the initial Note rate, including 
changing the base rate, the spread over the base rate, or changed from 
a fixed rate to a variable rate, or from a variable rate to a fixed rate, 
provided the new interest rate is reasonable. SBA will monitor these 
rates for reasonableness. 13 CFR § 120.344(c) The Lender must obtain 
the Borrower’s written consent to the change in the interest rate 
(separate and apart from executing the loan documents) and must 
notify the LGPC of the change or make the change through E-Tran 
servicing. 
JX019.375
App.3632
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For example, an SBA-guaranteed loan was approved with a variable 
rate. Since the loan was approved, the prime rate changed. The 
Borrower has asked the Lender if the loan can be switched to a fixed 
rate. If the loan has not been disbursed and the fixed rate selected is 
reasonable, the Lender may make this change per the Borrower’s 
request. 
ii) Post-Disbursement Changes: After the loan is disbursed, on a variable 
rate loan, the Lender may change the base rate or the spread over the 
base rate, provided the new base rate or spread is reasonable. SBA will 
monitor these rates for reasonableness. 13 CFR § 120.344(c) The 
Lender must obtain the Borrower’s written agreement and must notify 
the appropriate SBA CLSC of the change or make the change through 
E-Tran servicing. For further guidance see SOP 50 57.  
b) 
Interest Rate Requirements for an SBA Note: 
i) For fixed rate loans, the Lender must state the specific interest rate in 
the Note. 
ii) For variable rate loans, the Lender must include the following 
information in the Note:  
(a) 
Identification of the rate being used as the base rate;  
(b) 
The publication in which the designated base rate appears regularly 
(e.g. Wall Street Journal or the Federal Register if using the SBA 
Optional Peg Rate);  
(c) 
The permanent percentage spread to be added to the base rate;  
(d) 
The initial interest rate of the loan (from disbursement to first 
adjustment); 
(e) 
The date or timing of the first rate adjustment; and  
(f) 
The frequency of rate adjustment. 
c) 
Accrual Method: 
SBA does not require a specific accrual method for EWCP loans. 
iii. Fixed and Variable Rate Combinations:  
The Lender may use a fixed rate on either the guaranteed or unguaranteed 
portion and a variable rate on the other portion of the loan. SBA allows such 
combinations as long as neither rate exceeds the SBA maximum interest rate. 
A Lender may use this structure to make a loan that permits it to retain a 
variable interest rate on the unguaranteed portion and sell a fixed rate 
guaranteed portion on the Secondary Market. If the Lender uses a 
combination, the entire loan is considered to be a variable interest rate loan. 
The interest rate on both the guaranteed and unguaranteed portions must be 
based on the variable rate.  
JX019.376
App.3633
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 377 
iv. Interest Rate Swap Contracts: 
a) 
An interest rate swap is a contract between two parties where one party 
pays a fee in exchange for an agreement by the other party to pay any 
interest in excess of an established amount. The contract may last for all 
or part of the term of the loan. The swap contract only relates to the 
payment of interest.  
Example: A Borrower has a prime plus 2% interest rate on a 7(a) 
variable rate guaranteed loan. The Borrower could purchase an interest 
rate swap contract that would set the interest rate at 8%. When the Note 
rate is lower than the rate paid by the Borrower on the swap contract 
(8%), the swap seller keeps the extra amount as compensation for the 
risk that rates will at some point exceed 8%. When the Note rate is 
higher than the rate paid by the Borrower on the swap contract, the 
Borrower would continue to pay the fixed rate of 8% and the swap seller 
would pay the difference above 8% to the Lender. The ability to 
stabilize the amount of the loan payment each month is the benefit to the 
Borrower of an interest rate swap contract. 
b) 
In order to use an interest rate swap in the 7(a) program, the interest rate 
swap contract must meet the following conditions: 
i) The interest rate swap contract is an agreement between the small 
business Borrower and the Lender or, if the swap seller is not the 
lender, a third party. SBA is not a party to the interest rate swap 
contract. 
ii) The interest rate swap contract does not affect the amount of money 
owed by the Borrower to SBA in the event SBA purchases the 
guaranty. In the event of a Borrower default, interest will be calculated 
using the base rate and spread in the variable interest rate Note, not the 
swap contract. 
iii) SBA will not be responsible if the swap seller defaults during the life 
of the contract. The Borrower will be liable for the interest as required 
in the Note.  
iv) Loans with accompanying interest rate swap contracts may be sold on 
the secondary market. The Lender is still required under the secondary 
market contract (SBA Form 1086) to forward interest and principal 
pursuant to the original terms of the loan. It is the Lender’s 
responsibility to work with the swap seller to make sure funds are 
available for submission to the fiscal and transfer agent according to 
the time schedule in the Form 1086. 
v) The full amount of the principal and interest required under the Note 
must be reported by the lender on the SBA Form 1502. 
vi) SBA will not review swap contracts for Borrowers or provide 
guidance on their use. While swap contracts should not have a 
JX019.377
App.3634
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 378 
significant impact on the cost of the loan, SBA will not publish any 
guidelines on the cost of these contracts. 
vii) The Borrower must sign a statement acknowledging that interest will 
be calculated at the Note rate if the swap contract is terminated.  
viii) The following statement must be included in the swap contract that is 
executed by the Borrower and the swap seller: “The Small Business 
Administration is not a party to this contract and does not guarantee it. 
In the event SBA is called upon to honor its guaranty to the Lender, 
the Borrower’s debt will be determined by the terms of the Note, 
including the variable interest rate provision.” 
ix) Swap contracts may be used on new or existing loans. 
x) The swap contract does not have to last for the entire length of the loan 
agreement. 
xi) SBA does not have a standard form for an interest rate swap contract. 
xii) Any fees owed the swap counterparty as a result of the default by the 
Borrower will be subordinated to the SBA 7(a) loan. 
e. Payment Options for EWCP Ongoing Guaranty Fee 
i. For EWCP loans approved after September 27, 2010, the Lender may choose 
one of the following options for payment of the EWCP Ongoing Fee only. 
Either option (monthly or annually) will result in payment of the same total 
amount of EWCP Ongoing Fee on each EWCP loan. Regardless of which 
payment option is chosen, the Lender must continue to submit, on a monthly 
basis, the Lender’s SBA Form 1502 Report on all 7(a) loans in the Lender’s 
portfolio, including all EWCP loans. 
a) 
Option 1 – Monthly Payment of EWCP Ongoing Fee: 
Option 1 allows Lenders to pay the EWCP Ongoing Fee monthly along 
with other 7(a) loan ongoing servicing fees to the Fiscal Transfer Agent 
with the required SBA Form 1502 Report. Because EWCP loans may be 
a small percentage of the Lender’s 7(a) portfolio, Option 1 allows 
Lenders to voluntarily pay the EWCP Ongoing Fee on each EWCP loan 
on a monthly basis along with the rest of their 7(a) portfolio. 
b) 
Option 2 – Annual Payment of EWCP Ongoing Fee: 
Lenders may pay the EWCP Ongoing Fee on each EWCP loan annually 
by selecting Option 2. Lenders selecting Option 2 will receive an annual 
invoice on each EWCP loan from SBA’s DFC. The EWCP loan balance 
reported by the Lender on the monthly SBA Form 1502 Reports for the 
EWCP loan will allow Denver Finance Center (DFC) to compute the 
EWCP Ongoing Fee amount to be billed annually. 
The vast majority of EWCP loans have a maturity of 12 months or less; 
however, EWCP loans may have a maturity of up to 36 months. For 
EWCP loans with a maturity of 12 months or less, Lenders will receive 
one EWCP Ongoing Fee invoice after maturity. For EWCP loans with a 
JX019.378
App.3635
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 379 
maturity in excess of 12 months and not more than 24 months, Lenders 
will receive an EWCP Ongoing Fee invoice 12 months after closing and 
again after maturity. For EWCP loans with a maturity greater than 24 
months, Lenders will receive an EWCP Ongoing Fee invoice 12 months 
after closing, 24 months after closing and again after maturity. 
The DFC will mail the Lender an EWCP Ongoing Fee invoice on each 
EWCP loan within 60 days of each 12-month interval on the EWCP 
loan and payment will be due within 30 days of the date of the invoice. 
The invoice will be for the EWCP Ongoing Fee amount owing for the 
previous 12 months, or shorter period for loans maturing prior to the end 
of the 12-month period. Lenders will be given instructions on the 
invoice to make payment using the Pay.gov online payment process. 
Fiscal Transfer Agent will send monthly EWCP reports to DFC and 
SBA’s Office of International Trade (OIT). This report will track 
information on each EWCP loan by Lender, including but not limited to 
the following: 
i)  Whether the Lender is submitting SBA Form 1502 Reports on EWCP 
loans as required; 
ii)  When annual invoices are to be sent; and 
iii)  The accrued amount to be billed for the EWCP Ongoing Fee for each 
EWCP loan. 
ii. The DFC will send a monthly report to OIT and SBA’s Office of Credit Risk 
Management reporting any Lenders that are delinquent on payments of 
invoiced EWCP Ongoing Fees. OIT will be responsible (through delegation 
to the Export Finance Manager) for monitoring Lenders in regards to 
submitting the required SBA Form 1502 Reports and the payment of the 
required EWCP Ongoing Fees. A Lender’s failure to pay any of the fees (and 
any interest and penalties that are subsequently charged by SBA due to a 
lender’s delinquent payment) may result in SBA’s decision to suspend or 
revoke a lender’s eligibility to participate in SBA’s 7(a) program or to limit a 
lender’s delegated authority. 
6. Credit Standards for EWCP 
The policies that make up SBA’s credit standards begin with the requirements outlined in 
13 CFR §§ 120.101 and 120.150. This section provides procedural guidance as to what 
the Lender should or must consider when analyzing any request for financial assistance 
that will be guaranteed by SBA. 
A Lender must analyze each application in a commercially reasonable manner, consistent 
with prudent lending standards. EWCP loans are self-liquidating loans, and the 
conversion of the export-related trading assets to cash is the primary source of repayment. 
Thus, if the Lender’s financial analysis demonstrates that the Applicant lacks reasonable 
assurance of repayment in a timely manner from the conversion of foreign sales into 
cash, the loan request must be declined, regardless of the collateral available or outside 
sources of repayment. 
JX019.379
App.3636
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SOP 50 10 6 
 
Part 2, Section B, Ch 4: 7(a) Export Trade Finance: EWCP 
Effective October 1, 2020 
Page 380 
a. Processing Methods 
Once submitted to the LGPC, an application withdrawn by a Lender, screened-
out, or declined by the LGPC may not be approved by any Lender under its PLP-
EWCP Authority. E-Tran will not permit the submission of such an application 
under any Lender’s PLP-EWCP authority for a period of 12 months from the date 
of the withdrawal, screen-out, or decline of the application. 
i. Non-delegated – When a Lender submits an EWCP loan guaranty request 
under the non-delegated processing method, the Lender submits the 
application and supporting documents to SBA. SBA will make the final 
determination as to the eligibility and creditworthiness of the Applicant, 
including approving the uses of proceeds, the adequacy of the collateral 
being pledged, the structure of the loan and any equity injection to be 
required from the Applicant. 
ii. Delegated – When a Lender submits an EWCP loan guaranty request under 
the Lender’s PLP-EWCP Authority, the Agency does not review the 
Lender’s determination of eligibility, analysis of the credit, or structure of the 
loan or line of credit prior to issuing a loan number. The Lender must analyze 
eligibility and credit worthiness in accordance with SBA Loan Program 
Requirements and properly document its file. The PLP-EWCP Lender’s 
analysis is subject to SBA’s review and determination of adequacy, when the 
Lender requests SBA to purchase its guaranty or when SBA is conducting 
lender oversight activities. 
b. Underwriting 
Lender must submit a credit memorandum with the application and analyze each 
EWCP request in a commercially reasonable manner, consistent with prudent 
lending standards. EWCP loans are self-liquidating loans and the conversion of 
the export-related trading assets to cash is the primary source of repayment. The 
Lender’s financial analysis should pay particular attention to the Applicant’s 
foreign payment terms and the impact on the Applicant’s cash cycle. Lender must 
specify whether the request is for a single transaction-specific loan, a transaction-
based revolving line of credit (single or multiple transactions), or an asset-based 
loan.  
c. Credit Analysis 
Lender’s credit analysis must include the following: 
i. An explanation of the use of proceeds and benefits of the loan guaranty, 
including details of the underlying transaction(s) for which the loan is needed 
and the country(ies) where the buyer(s) is (are) located; 
ii. The factors demonstrating the Applicant does not have credit available 
elsewhere on reasonable commercial terms from non-Federal, non-State, 
non-local government sources, in accordance with Section A, Ch. 1, Para. E 
Demonstrate the Need for Desired Credit, in this Part; 
JX019.380
App.3637
Case 4:24-cv-03975-AMO     Document 52-14     Filed 09/06/24     Page 381 of 591

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