SBA Temporarily Grants Delegated Authority to Certain Lenders for Certain 504 Loans | Practical Law

SBA Temporarily Grants Delegated Authority to Certain Lenders for Certain 504 Loans | Practical Law

The US Small Business Administration (SBA) has delegated to certain certified development companies (CDCs) that make loans under Title V of the Small Business Investment Act (504 loans) certain authority for certain 504 loans. This delegation implements authority provided by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of the Consolidated Appropriations Act, 2021).

SBA Temporarily Grants Delegated Authority to Certain Lenders for Certain 504 Loans

Practical Law Legal Update w-036-0579 (Approx. 4 pages)

SBA Temporarily Grants Delegated Authority to Certain Lenders for Certain 504 Loans

by Practical Law Finance
Published on 29 Jun 2022USA (National/Federal)
The US Small Business Administration (SBA) has delegated to certain certified development companies (CDCs) that make loans under Title V of the Small Business Investment Act (504 loans) certain authority for certain 504 loans. This delegation implements authority provided by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of the Consolidated Appropriations Act, 2021).
On June 24, 2022, the US Small Business Administration (SBA) issued an interim final rule (June 2022 504 loan IFR) that delegates to 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) the authority (ALP delegated authority) to:
  • Make the final decision about the creditworthiness of an applicant for a loan authorized by Title V of the SBIA (15 U.S.C. §§ 695 to 697g) (504 loan) if:
    • the amount of the 504 loan (ALP Express Loan) does not exceed $500,000; and
    • the borrower is not in an industry with a high rate of default as defined by the SBA. The SBA annually publishes a list of these industries in the Federal Register.
    The SBA will not review an ALP CDC's creditworthiness determination on an ALP Express Loan, although the SBA will continue to review the ALP Express Loan for compliance with eligibility requirements.
    After an ALP CDC approves an applicant's creditworthiness, the ALP CDC must provide the SBA with all required documentation, including documentation to allow the SBA to make the final eligibility determination.
  • Establish the terms and conditions of an ALP Express Loan.
  • Approve certain servicing actions after closing an ALP Express Loan. The ALP CDC must:
    • service the ALP Express Loan in accordance with 13 C.F.R. § 120.970; and
    • notify the SBA of its approval of any such servicing action within five business days.
An ALP CDC is responsible for taking 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.
  • Approved to participate in an expedited closing process for 504 loans and the related debentures.
However:
  • ALP delegated authority only applies to loan applications submitted to an ALP CDC on or after June 27, 2022 and approved by the ALP CDC and the SBA through September 30, 2023.
  • An ALP CDC may elect to not exercise ALP delegated authority for any ALP Express Loan and may submit the ALP Express Loan to the SBA for approval, although 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.
  • An ALP CDC cannot process a 504 loan as an ALP Express Loan if the 504 loan was:
    • previously submitted to the SBA; and
    • withdrawn by the ALP CDC or declined or not approved by the SBA.
The SBA issued the June 2022 504 loan IFR to:
  • Implement Section 328(b) of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of the Consolidated Appropriations Act, 2021).
  • Assist in meeting the financing needs of small businesses impacted by COVID-19.
The June 2022 504 loan IFR is effective June 27, 2022.
The SBA requests comments on the June 2022 504 loan IFR by August 26, 2022.
For more information on 504 loans, see Practice Note, Small Business Administration (SBA) 504 Loans.