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SBA Information Notice: Community Advantage Small Business Lending Company Conversion

Summary

This SBA Information Notice, Control No. 5000-846918, effective May 1, 2023, tells SBA employees and Community Advantage Pilot Program lenders that from May 12, 2023 SBA's Office of Credit Risk Management will let pilot lenders become Community Advantage Small Business Lending Companies (CA SBLCs). It follows an April 12, 2023 final rule (88 FR 21890) that lifted the moratorium on licensing new SBLCs. A converted lender makes regular 7(a) loans under an SBLC license instead of loans in a temporary pilot. SBA will hold CA SBLCs to the pilot's requirements, including that at least 60% of loans closed meet the underserved market test, and sets a loan loss reserve of 5 percent of the unguaranteed portion for those with 5 or fewer years in the program.

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Full text

                        SBA Information Notice

TO: All SBA Employees and Community                                                  CONTROL NO.: 5000-846918
Advantage Pilot Program Lenders
                                                                                     EFFECTIVE: May 1, 2023
SUBJECT: Community Advantage Small Business
Lending Company Conversion




The purpose of this Notice is to announce that effective May 12, 2023, SBA’s Office of Credit Risk
Management (OCRM) is initiating a program to enable current Community Advantage Pilot Program
Lenders (CA Pilot Lenders) to become Community Advantage Small Business Lending Companies (CA
SBLCs).

On April 12, 2023, SBA published a final rule at 88 FR 21890 on Small Business Lending Company
(SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization. Through
that rule, SBA lifted is moratorium on licensing new SBLCs and created a new type of SBLC called a
CA SBLC. The final rule also provided for a grandfathering of current CA Pilot Lenders that are
participating in the CA Pilot Program (in accordance with 13 C.F.R. § 120.420(e)) to be licensed as CA
SBLCs. When SBA authorizes a CA SBLC license for a CA Pilot Lender, the CA Pilot Lender will no
longer be making 7(a) Community Advantage loans in a temporary pilot program, but will instead be
making regular 7(a) loans under a CA SBLC license in the 7(a) program.

CA SBLC Requirements
SBA will hold all CA SBLCs to the same requirements that have existed for the CA Pilot Program, as
outlined in the Community Advantage Participant Guide, including that a minimum of 60% of the
number of CA loans closed meet the underserved market requirements currently in place for the CA
Pilot Program, with the following updates:
     •   Loan loss requirements:
             o CA SBLCs with 5 or fewer years of participation in the program (including the CA Pilot
                 Program) shall maintain a loan loss reserve of 5 percent of the outstanding amount of
                 the unguaranteed portion of the loan portfolio of the CA SBLC under the program; and
             o CA SBLCs with more than 5 years of participation in the program (including the CA
                 Pilot Program) shall maintain a loan loss reserve equal to the average repurchase rate
                 of the CA SBLC over the preceding 36-month period.
     •   SBA's Administrator, in consultation with SBA's Associate Administrator for the Office of
         Capital Access (AA/OCA) or their designee(s), at their discretion, will determine the
         appropriate fidelity insurance coverage levels for CA SBLCs. At this time, SBA is not setting

PAGE 1 of 2                                                                                  EXPIRES: 5/1/24.
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
          fidelity insurance requirements for CA SBLCs.
     •    Certified Development Companies that are also CA Pilot Lenders as of May 12, 2023 may be
          licensed as CA SBLCs without having to form a separate entity.

Process
To become a CA SBLC, current CA Pilot Lenders must execute a Form 750, Loan Guaranty Agreement
(Deferred Participation). Current CA Pilot Lenders will receive an email from CAloans@sba.gov
with an unexecuted 750 form to be reviewed, completed and signed. The completed and signed
form should be submitted to SBA via email at CAloans@sba.gov. If the form is fully executed, SBA will
sign it and finalize the CA Pilot Lender’s transition to a CA SBLC. If the form requires any corrections,
SBA will contact the CA Pilot Lender to address any discrepancies. CA Pilot Lenders are advised to
review applicable SBA Loan Program Requirements, including but not limited to the final rule referenced
above, prior to executing and submitting the Form 750.

SBA will provide further guidance on SBA Loan Program Requirements for CA SBLCs through
additional SBA policy notices and/or SOPs.

SBA intends to sunset the CA Pilot Program on September 30, 2023. All current CA Pilot lenders must
execute an SBA Form 750, in order to extend authority to make 7(a) loans (as CA SBLCs) after the CA
Pilot Program sunsets, otherwise the CA Pilot Lender’s authority to make 7(a) loans will terminate.

Questions
Questions may be directed to Betty Hill, Senior Financial Analyst, Office of Credit Risk Management at
CAloans@sba.gov.




Susan E. Streich
Director
Office of Credit Risk Management




PAGE 2 of 2                                                                                   EXPIRES: 5/1/24.
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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