SBA Procedural Notice 5000-858322: 7(a) and 504 loans to Cooperatives and valuation requirements for 7(a) loans to ESOPs for changes of ownership

Summary

SBA Procedural Notice, Control No. 5000-858322, effective June 24, 2024, to SBA employees, 7(a) lenders and certified development companies, on 7(a) and 504 loans to cooperatives and valuation requirements for 7(a) loans to ESOPs for changes of ownership. It revises SBA procedures to allow SBA lenders to process loans to a cooperative, or to an eligible small business owned or controlled by a cooperative, under delegated authority. It also sets valuation requirements for 7(a) loans to ESOPs.

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                       SBA Procedural Notice

TO: All SBA Employees, 7(a) Lenders, and                                            CONTROL NO.: 5000-858322
Certified Development Companies
                                                                                    EFFECTIVE: June 24, 2024
SUBJECT: 7(a) and 504 loans to Cooperatives and
valuation requirements for 7(a) loans to ESOPs for
changes of ownership




The purpose of this notice is to revise SBA procedures to:

   •   Allow SBA Lenders to process loans to a cooperative or an eligible small business owned
       or controlled by a cooperative under delegated authority. Upon the effective date of this
       notice, SBA Lenders may use their delegated authority to make loans to Cooperatives and
       eligible small businesses owned or controlled by a cooperative.
   •   (7(a) Loans only) Remove the requirement for an independent business valuation for
       7(a) loans involving ESOPs for the types of loans discussed in SOP 50 10 7.1, Section A,
       Chapter 2, Paragraph B.2.

Cooperatives
SOP 50 10 7.1 is revised as follows.

Section A, Chapter 2, Paragraph B.3.b. (page 30), which applies to both the 7(a) and 504 Loan
Programs, is revised as follows:

“b. SBA Lenders may process loans to a cooperative or to an eligible small business owned or
controlled by a cooperative under delegated authority.”

Section B, Chapter 1, Paragraph A.2.f.vi (page 98), which applies to the 7(a) Loan Program
Standard 7(a) Loans delivery method, is revised as follows:

“vi. 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 be processed under PLP authority.”


PAGE 1 of 2                                                                                     EXPIRES: 6/1/25
SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58

                                    Federal Recycling Program   Printed on Recycled Paper
Section B, Chapter 1, Paragraph A.3.b. (page 99), which applies to the 7(a) Loan Program
Standard 7(a) Loans delivery method, is deleted, and the subsequent subparagraphs are
renumbered.

Section B, Chapter 2, Paragraph A.2.f.vi (page 128), which applies to the 7(a) Loan Program
7(a) Small and SBA Express delivery methods, is revised as follows:

“vi. 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 be processed under PLP or SBA Express authority.”

Section B, Chapter 2, Paragraph A.3.b. (page 130), which applies to the 7(a) Loan Program 7(a)
Small and SBA Express delivery methods, is deleted, and the subsequent subparagraphs are
renumbered.

Section B, Chapter 3, Paragraph A.5.a. (page 156), which applies to the 7(a) Loan Program
CAPLines delivery method, is deleted, and the subsequent subparagraphs are renumbered.

Section B, Chapter 4, Paragraph A.2.b.i. (page 194), which applies to the 7(a) Loan Program
Export Express delivery method, is deleted, and the subsequent subparagraphs are renumbered.

Section B, Chapter 4, Paragraph B.4.a. (page 216), which applies to the 7(a) Loan Program
Export Working Capital Program, is deleted, and the subsequent subparagraphs are renumbered.

Section B, Chapter 4, Paragraph C.2.b.i. (page 244), which applies to the 7(a) Loan Program
International Trade delivery method, is deleted, and the subsequent subparagraphs are
renumbered.

ESOP Business Valuation Requirements
The following language is added to SOP 50 10 7.1 in Section A, Chapter 2, Paragraph B.2 (page
29) as the new subparagraph j.

“j. Regardless of the requirements stated throughout this SOP for business valuations, an
independent business valuation is not required when the Lender is making a loan involving
ESOPs for the types of loans discussed in SOP 50 10 7.1, Section A, Chapter 2, Paragraph B.2.
In lieu of an independent business valuation, the Lender may use the valuation obtained by the
ESOP that was made in accordance with ERISA specifications.”
Questions
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.


Kathryn Frost
Associate Administrator
Office of Capital Access

PAGE 2 of 2                                                                                 EXPIRES: 6/1/25
SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58

                                    Federal Recycling Program   Printed on Recycled Paper


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