SBA Announces New Pilot Program for 504 Loans | Practical Law

SBA Announces New Pilot Program for 504 Loans | Practical Law

The US Small Business Administration (SBA) has announced a new pilot program to provide certain certified development companies (CDCs) that make loans under Title V of the Small Business Investment Act (504 loans) authority for creditworthiness determinations and certain other matters for certain 504 loans. This pilot program continues authority provided by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of the Consolidated Appropriations Act, 2021) and implemented by the SBA in June 2022, which authority expired September 30, 2023.

SBA Announces New Pilot Program for 504 Loans

Practical Law Legal Update w-040-9593��(Approx. 4 pages)

SBA Announces New Pilot Program for 504 Loans

by Practical Law Finance
Published on 06 Oct 2023USA (National/Federal)
The US Small Business Administration (SBA) has announced a new pilot program to provide certain certified development companies (CDCs) that make loans under Title V of the Small Business Investment Act (504 loans) authority for creditworthiness determinations and certain other matters for certain 504 loans. This pilot program continues authority provided by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of the Consolidated Appropriations Act, 2021) and implemented by the SBA in June 2022, which authority expired September 30, 2023.
On October 6, 2023, the US Small Business Administration (SBA) published in the Federal Register a notification (October 2023 504 loan pilot program notification) of its introduction of a new pilot program (ALP Express Pilot Program) that provides a certified development company (CDC) that is an accredited lender under Section 507(b) of the Small Business Investment Act (SBIA) (15 U.S.C. § 697d(b)) and 13 C.F.R. §§ 120.840 and 120.841 (ALP CDC) certain authority (ALP delegated authority) regarding certain loans authorized by Title V of the SBIA (15 U.S.C. §§ 695 to 697g) (504 loans).
The ALP Express Pilot Program:
ALP delegated authority permits an ALP CDC to:
  • Make the final decision about the creditworthiness of an applicant for a 504 loan in an amount not greater than $500,000 (ALP Express Loan). For the ALP Express Pilot Program, the SBA has declined to include the prohibition in the June 2022 504 loan IFR and Section 328(b) of the Economic Aid Act against an ALP CDC making such a 504 loan to a borrower in an industry with a high rate of default (defined by the SBA as an industry with 50 or more approvals and an annualized default rate of 5% or more over the previous five fiscal years).
    The SBA will not review an ALP CDC's creditworthiness determination on an ALP Express Loan, but the SBA will continue to review the ALP Express Loan for compliance with eligibility requirements.
  • Approve certain servicing actions after closing an ALP Express Loan. The ALP CDC must notify the SBA of its approval of any such servicing action within five business days.
  • Take all necessary actions to close an ALP Express Loan and the related debenture in accordance with 13 C.F.R. § 120.960 and the expedited loan closing procedures applicable to a CDC (Priority CDC) who the SBA has:
    • certified to participate on a permanent basis in its 504 loan program; and
    • approved to participate in an expedited closing process for 504 loans and the related debentures.
An ALP CDC may elect to not exercise ALP delegated authority for any ALP Express Loan and to submit the ALP Express Loan to the SBA for approval, but if it does so it cannot use ALP delegated authority to service a 504 loan that was approved other than with ALP delegated authority but could have been made as an ALP Express Loan.
A Priority CDC may process an ALP Express Loan as an ALP CDC rather than as a Priority CDC. If it does, the Priority CDC will not need to comply with any loan loss reserve fund requirements for the ALP Express Loan.
The SBA will limit ALP Express Loans to 15% of total 504 loans in any fiscal year.
The SBA requests comments on the October 2023 504 loan pilot program notification by December 5, 2023.
For more information on 504 loans, see Practice Note, Small Business Administration (SBA) 504 Loans.