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SBA Procedural Notice 5000-835230: Guidance on 504 Appraisal Review to Update SOP 50 10 6 and Authorizing CDC Closing Counsel to Confirm Franchise Closing Documents Conform with SBA Franchise Procedures and the SBA Franchise Directory

Summary

SBA Procedural Notice, Control No. 5000-835230, effective July 29, 2022, to SBA employees and certified development companies. It revises the procedures in SOP 50 10 6 on commercial real estate appraisals that CDCs must submit to the Sacramento Loan Processing Center (SLPC) for approval. It also authorizes CDC Closing Counsel to review and confirm that franchise closing documents are executed properly and conform with SBA franchise procedures and the SBA Franchise Directory. Under current procedures, if the appraisal is less than 95% of the estimated value of the real estate, the debenture must be reduced.

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Full text

                       SBA Procedural Notice
TO: All SBA Employees and Certified                                                 CONTROL NO.: 5000-835230
Development Companies

SUBJECT: Guidance on 504 Appraisal Review to                                        EFFECTIVE: July 29, 2022
Update SOP 50 10 6 and Authorizing CDC Closing
Counsel to Confirm Franchise Closing Documents
Conform with SBA Franchise Procedures and the
SBA Franchise Directory




The purpose of this Notice is to revise the procedures set forth in SOP 50 10 6 relating to
commercial real estate appraisals that CDCs must submit to the Sacramento Loan Processing
Center (SLPC) for approval and to authorize CDC Closing Counsel to review and confirm
franchise closing documents are executed properly and conform with SBA franchise
procedures and the SBA Franchise Directory. These revisions and guidance are effective as of
the Effective Date of this Notice.

I.   Changes to 504 Loan Program Commercial Real Estate Pre-Closing Appraisal Procedures

Under current SBA procedures, if the appraisal that CDCs must submit for approval to the
SLPC is less than 95% of the estimated value of the commercial real estate, the debenture must
be reduced or the CDC must secure additional collateral or additional investment from the
Borrower and/or guarantors. SBA is revising SOP 50 10 6, Part 2, Section C, Chapter 1,
Paragraph E.2.b.i.b)i) (page 488) to change the requirement from 95% to 90% of the estimated
value of the commercial real estate:

i)   An appraisal must be submitted and approved by the SLPC (except on Delegated loans)
     prior to closing. If the appraisal comes in at less than 90% of the estimated value, the
     debenture must be reduced or, if available, the CDC must secure additional collateral or
     additional investment from the Borrower and/or guarantors that will be added to the
     required Borrower’s Contribution and will be sufficient to address the gap in value. If
     additional collateral or additional investment is not available, but the applicant
     demonstrates strong, consistent cash flow sufficient to support the debt, then the SLPC
     can approve the appraisal and the CDC may close the loan.


PAGE 1 of 3                                                                                  EXPIRES: 7/1/23
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
II. Authorizing CDC Closing Counsel to Confirm Franchise Closing Documents Conform with
    SBA Franchise Procedures and the SBA Franchise Directory

Under current SBA franchise procedures, CDCs must either submit 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 (collectively, “Franchise
Closing Documents”) to and receive approval from the SLPC prior to submitting the closing
package for debenture funding (non-delegated loans) or submit the Franchise Closing
Documents to and receive approval from SBA District Counsel prior to submitting the closing
package for debenture funding (delegated loans). SBA is revising these procedures to authorize
CDC Closing Counsel to review and certify Franchise Closing Documents are executed
properly and conform with SBA franchise procedures set forth in SOP 50 10 6, Part 2, Section
A, Chapter 1, Paragraph D and the SBA Franchise Directory. CDC Closing Counsel will
certify to the legal sufficiency of this Franchise Closing Documents review using the revised
Opinion of CDC Counsel and SBA Form 2286 (504 Debenture Closing Checklist) when
submitting the closing package to local District Counsel.

Accordingly, the procedural guidance at SOP 50 10 6 Part 2, Section A, Chapter 1, Paragraph
D.6.g.ii.b) ii) is revised as follows:

“ii. For 504 loans, CDC Closing Counsel must confirm the Applicant’s brand is on the
Directory and include documentation supporting this confirmation with the closing package for
debenture funding.”

Also, the procedural guidance at SOP 50 10 6 Part 2, Section A, Chapter 1, Paragraph D.6.g.iii.
b) is revised as follows:

“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 must submit this supporting documentation to
CDC Closing Counsel for approval and include documentation supporting this confirmation
with the closing package for debenture funding.

Finally, the procedural guidance at SOP 50 10 6 Part 2, Section A, Chapter 1, Paragraph
D.6.g.vi.b) is revised as follows:

“b. For all 504 loans, CDC Closing Counsel must review the franchise closing documents and
confirm they are properly executed and conform with SBA Loan Program requirements and the
SBA Franchise Directory prior to submitting the closing package for debenture funding.”



PAGE 2 of 3                                                                                 EXPIRES: 7/1/23
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
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.




Dianna L. Seaborn
Director
Office of Financial Assistance




PAGE 3 of 3                                                                                 EXPIRES: 7/1/23
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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