Exhibit J (SBA SOP 50 10 5(K)) — DV Diamond Club (E.D. Mich.)

Summary

Exhibit J in DV Diamond Club of Flint, LLC v. U.S. Small Business Administration (E.D. Mich.), Case No. 4:20-cv-10899, filed April 17, 2020 as ECF No. 12-11. The 4-page exhibit reproduces pages of SBA SOP 50 10 5(K), Lender and Development Company Loan Programs, authorized by Associate Administrator William M. Manger. It includes the introduction page and parts of Subpart B on ineligible types of businesses under 13 CFR § 120.110. The section on businesses providing prurient sexual material, 13 CFR § 120.110 (p), makes ineligible a business that presents live or recorded performances of a prurient sexual nature or derives more than 5% of its gross revenue from such depictions. It requires lenders to submit such applications to SBA for a final agency decision on eligibility.

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“Exhibit J (SBA SOP 50 10 5(K)) — DV Diamond Club (E.D. Mich.).” Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/exhibit-j-dv-diamond-club-of-flint-llc-v-u-s-small-business-administra-5ed3356e5f/, SHA-256 7f59b62f1bee41b6865241ce9a130719dc5e0d00de79c750d1796bc69e0075db.

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Case 4:20-cv-10899-MFL-DRG ECF No. 12-11 filed 04/17/20 PageID.568 Page 1 of 4

SBA SOP 50 10 5(K)

Lender and Development
Company Loan Programs

Office of Financial Assistance

U.S. Small Business Administration

EXHIBIT J
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Case 4:20-cv-10899-MFL-DRG ECF No. 12-11 filed 04/17/20 PageID.569 Page 2 of 4

SMALL BUSINESS ADMINISTRATION
STANDARD OPERATING PROCEDURE

SUBJECT: S.O.P. REV

SECTION NO.
Lender and Development Company Loan Programs 50 10 5(K)

INTRODUCTION
1. Purpose: Update SOP 50 10 5(K) Lender and Development Company Loan Programs.
2. Personnel Concerned: All SBA Employees
3. SOP Canceled: None. Previous edition of SOP 50 10 will continue to have applicability to loans that
were approved during their effective time periods.
4. Updated Information: This full update of SOP 50 10 5 is necessary for the SOP to conform to recently
revised regulations in 13 CFR Part 120, and to provide guidance that clarifies and streamlines policy
and procedures affecting the 7(a) and 504 programs. This version, which will be SOP 50 10 5(K),
includes revised guidance in the following general areas:

a) Incorporates regulatory changes published in the May 7, 2018, Final Rule on Debt Refinancing in
504 Loan Program (83 FR 19915), effective June 6, 2018;

b) Incorporates the availability of 504 Debentures with a maturity of25 years, in accordance with the
Federal Register Notice published April4, 2018, available for 504 Projects approved on or after
April 2, 20 18;

c) Incorporates policy changes published in SBA Policy Notice 5000-17057, effective April3, 2018,
including:
1. Revised guidance on credit elsewhere for 7(a) and 504 loans;
ii. Clarified the minimum equity requirements for 7(a) loans involving change of ownership
transactions between existing owners;
111. Provided additional guidance regarding the eligibility of marijuana-related businesses and
hemp-related businesses; and
iv. Reduced the minimum monitoring requirements for Working Capital CAPLines; and

d) Clarifies guidance for SBA Lenders (7(a) lenders and CDCs) on the delivery of7(a) loans
(including SBA Express, Export Express, Export Working Capital Program and International
Trade) and 504 program loans.

5. Originator: Office of Capital Access

AUTHORIZED BY: EFFECTIVE DATE

William M. Manger April1, 2019
Associate Administrator
Capital Access
Page 1
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Case 4:20-cv-10899-MFL-DRG ECF No. 12-11 filed 04/17/20 PageID.570 Page 3 of 4

SOP 50 10 5(K) Subpart B

Applicant does not have credit available elsewhere:
a. The maintenance or improvement of the Lender's rating or performance evaluation
under the Community Reinvestment Act (CRA) or its implementing regulations; or
b. The improvement of the Lender's collateral lien position.
III. INELIGIBLE TYPES OF BUSINESSES
A. The Lender must determine whether the Applicant is one of the types of businesses listed as
ineligible in SBA regulations ( 13 CFR § 120.11 0). Certain business types appearing on this list
may be eligible under limited circumstances, as discussed below.
1. Businesses organized as a non-profit are ineligible (for-profit subsidiaries may be eligible).
(1 3 CFR § 120.110 (a))
2. Businesses Engaged in Lending (13 CFR § 120.11 0 (b)).
a. SBA cannot guarantee a loan that provides funds to businesses primarily engaged in
lending, investments, or to an otherwise eligible business engaged in financing or
factoring. This prohibits SBA loans to:
i. Banks;
11. 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.
b. The limited circumstances under which certain businesses engaged in lending may
be eligible are as follows:
1. 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.
11. 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.
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

Effective April1, 2019 Page 104
EXHIBIT J
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Case 4:20-cv-10899-MFL-DRG ECF No. 12-11 filed 04/17/20 PageID.571 Page 4 of 4

SOP 50 10 5(K) Subpart B

Small Business Administration, Office of Capital Access, Attn: 912
Processing, 409 3rd Street SW, 8th Floor, Washington, DC 20416.
iii. The Lender's submission to SBA must include a coversheet with the Lender's
contact information (Lender name, point of contact, title, phone number, email,
and mailing address).
14. Equity Interest by Lender or Associates in Applicant Concern ( 13 CFR § 120.11 0(o))
a. A Lender or any of its Associates, may not obtain an equity interest, either directly
or indirectly, in the Applicant.
b. 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 13 CFR § 120.140 for a list of ethical requirements that apply to
Lenders.
15. Businesses Providing Prurient Sexual Material (13 CFR § 120.110 (p))
a. A business is not eligible for SBA assistance if:
1. 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.
b. SBA has determined that financing lawful activities of a prurient sexual nature is not
in the public interest. The Lender must consider whether the nature and extent of the
sexual component causes the business activity to be prurient.
c. If a Lender finds that the Applicant may have a business aspect of a prurient sexual
nature, prior to submitting an application to the LGPC (non-delegated) or requesting
a loan number (delegated), the Lender must document and submit the analysis and
supporting documentation to the Associate General Counsel for Litigation at
PSMReview c. ,sba.gov for a final Agency decision on eligibility. Upon approval by
SBA, the Lender may submit the application to the LGPC or may proceed to process
the loan under its delegated authority. A non-delegated Lender must submit a copy
of SBA' s approval with the application to the LGPC. A delegated Lender must retain
its analysis, supporting documentation, and evidence of SBA's approval in its loan
file and must submit the analysis and supporting documentation to SBA with any
request for guaranty purchase. SBA also may review such documentation when
conducting Lender oversight activities.
16. Prior Loss to the Government (1 3 CFR § 120.110 (g )) and Delinquent Federal Debt Ul
CFR § 285.13)
a. Unless waived by SBA for good cause, SBA cannot provide assistance to an
Applicant if there has been a Prior Loss to the Government. "Prior Loss" means the
dollar amount of any deficiency on a Federal loan or federally assisted financing
which 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 including the

Effective April1, 2019 Page 114
EXHIBIT J
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