Full text
SBA Procedural Notice
TO: All SBA Employees and 7(a) Lenders CONTROL NO.: 5000-20011
SUBJECT: Guidance Regarding No Adverse EFFECTIVE: 3/26/2020
Change Certifications on 7(a) Loans during the
COVID-19 Emergency
On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (COVID-
19) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all
states, territories, and the District of Columbia. The purpose of this Notice is to provide guidance
to 7(a) Lenders during the COVID-19 emergency with respect to the certifications of “no adverse
change” required by Loan Program Requirements (as defined in 13 CFR 120.10) in connection
with 7(a) loans.
Loan Program Requirements:
As set forth in SOP 50 10 5(K), Subpart B, Chapter 7, Paragraph IV.G, as part of the terms and
conditions of the Authorization, the Lender must obtain certain certifications and agreements
from the Borrower(s) (Operating Company (OC) and Eligible Passive Company (EPC), if
applicable) prior to disbursement of loan proceeds. One of the required certifications is that there
has been no adverse change in the Borrower’s (and OC’s) financial condition, organization,
operations or fixed assets since the date the Loan Application was signed.
In addition, SBA Form 1050, Settlement Sheet, includes a certification by the Lender and the
Borrower that there has been no unremedied adverse change in the Borrower’s or OC’s financial
condition, organization, management, operations or assets since the date of application that
would warrant withholding or not making a disbursement on the loan. Further, at the time of
each subsequent disbursement on the loan, the Lender, by disbursing the loan proceeds, and the
Borrower by receiving them, are deemed to certify that the prior certifications are true with
respect to each and every disbursement made.
Adverse Change Considerations:
With the COVID-19 emergency, the Borrower’s (or Operating Company’s) financial condition or
its ability to repay the 7(a) loan may be experiencing a substantial adverse change as a direct
result of the Federal, State and local public health measures that are being taken to minimize the
public’s exposure to the virus. These measures, some of which are government-mandated, are
PAGE 1 of 3 EXPIRES: 3/1/21
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
being implemented nationwide and include the closures of restaurants, bars, and gyms. In
addition, based on the advice of public health officials, other measures, such as keeping a safe
distance from others or even sheltering-in-place, are being implemented, resulting in a dramatic
decrease in economic activity as the public avoids malls, retail stores and other businesses. This
unexpected and sudden change in national economic conditions, which is beyond the Borrower’s
control, presents a unique circumstance and one which SBA hopes will be only a temporary
challenge for all SBA Borrowers, including approved 7(a) applicants who have not yet closed on
their 7(a) loan.
As a result of the COVID-19 emergency, borrowers with 7(a) loans that have been approved but
not yet closed or loans that have not been fully disbursed, may have experienced an adverse
change in financial condition. Lenders may consider disbursing or continuing to disburse such
loans if the Lender has determined that the small business concern has the ability to remedy the
adverse change under the following conditions:
• If the borrower is fully operational, the Lender must work with the small business concern
to verify that the impacted small business concern has a plan to remedy the adverse
change, as demonstrated by, among other things, cash flow projections and proforma
financial statements, and which may include the effect of any future deferment. The
Lender must document in the loan file the Lender’s rationale for disbursing or continuing
to disburse the loan.
• If the borrower is partially operational, the Lender must determine if the adverse change
since the date of application or of the last disbursement cannot be remedied and is
significant enough to warrant withholding or not making additional disbursements as set
forth in SOP 50 10 5(K), Subpart B, Ch. 7, Para. IV. If not, the Lender must follow the
steps for a fully operational business above.
• If the borrower is not operational, no disbursement should be made until the borrower
begins operating again.
• In all cases, Lenders are encouraged to assist the borrower with locating and applying for
other forms of financial assistance, including, but not limited to, SBA Economic Injury
Disaster Loans (EIDL) and other loans or grants available from Federal, State or local
government agencies and entities. For more information on SBA’s EIDL loans, visit the
SBA Disaster website at https://disasterloan.sba.gov/ela.
Lenders must analyze each 7(a) loan in a commercially reasonable manner, consistent with
prudent lending standards. Unless otherwise stated in this Notice all requirements for continued
borrower creditworthiness remain in effect.
Lender Reporting Requirement
In accordance with the Debt Collection Improvement Act of 1996, Lenders are required to report
information to the appropriate credit reporting agencies whenever they extend credit via an SBA
loan. Thereafter, the Lender should continue to routinely report information concerning
servicing, liquidation, and charge off activities throughout the life cycle of the loan, as specified
in the current version of SOP 50 57, 7(a) Loan Servicing and Liquidation.
Questions
PAGE 2 of 3 EXPIRES: 3/1/21
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
Questions related to this Notice should be directed to the Lender Relations Specialist in the local
SBA Field Office. The local SBA Field Office may be found at https://www.sba.gov/tools/local-
assistance/districtoffices.
William M. Manger
Associate Administrator
Office of Capital Access
PAGE 3 of 3 EXPIRES: 3/1/21
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