Chapter 2. DE Lender Application and Approval/Lender Insurance
Key Features of the Small Rural Lender Advantage Program
Transcript of Key Features of the Small Rural Lender Advantage Program
![Page 1: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/1.jpg)
Small/Rural Lender Advantage (S/RLA)
7(a) Loan Guaranty Processing Center
SMALL/RURAL LENDER ADVANTAGE
![Page 2: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/2.jpg)
S/RLA Key Features
• Designed for small SBA loan volume lenders.
• Support and assistance for S/RLA provided by SBA field offices.
• Streamlined loan application and process for SBA loans of $150,000 or less; with limited additional information and analysis required for loans above $150,000
![Page 3: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/3.jpg)
S/RLA Key Features
• Maximum loan amount of $350,000
• SBA’s normal 75/85 percent guaranty applies*
• Centralized and expedited SBA processing with routine loans processed within 3-5 days
• Lenders may transmit applications via fax or as attachments to e-mails**
* 90% if applicable under ARRA
** As long as attachments are under 5 megs
![Page 4: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/4.jpg)
S/RLA Key Features
• Simplified SBA loan eligibility questionnaire
• Eligibility assistance through the Customer Service Desk at the 7(a) Loan Guaranty Processing Center
![Page 5: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/5.jpg)
Borrower’s Application
Documentation to be submitted by Applicant to the Lender:
1. Complete, signed and dated SBA Form 2301, Part A, Small Business Application for Guaranty
2. Separate, completed forms identified in SBA Form 2301, Part A
![Page 6: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/6.jpg)
Borrower’s Application
3. Business Financial Statements:
a) Existing business or for a change of ownership, three years financial statements (Three years of financial statements for any affiliates also required)
If the most recent statement is over 3 months old, an interim statement is required with date not more than 90 days from application
![Page 7: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/7.jpg)
Borrower’s Application
3. Business Financial Statements cont.
b) Projection of earnings for at least one year including assumptions.
![Page 8: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/8.jpg)
Borrower’s Application
4. An itemized list of collateral including the serial/ID numbers for any valued >$5,000. Real estate requires legal description
5. Other information lender may require to make an informed credit and eligibility determination
![Page 9: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/9.jpg)
SBA Form 2301, Part A – Page 1
Borrower’s Application• Section A: general information
• Section B: the loan request from the Applicant, including Form 159 (7a) if Applicant hired an agent to assist in completing the application
• Section C: listing of any existing business indebtedness
![Page 10: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/10.jpg)
SBA Form 2301, Part A – Page 1
• Section D: listing of those that have completed individual Section Ds (page 2 of the form)
• Section E: signature block
Borrower’s Application
![Page 11: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/11.jpg)
SBA Form 2301, Part A – Page 2, Section D
• Page 2 of SBA Form 2301, Part A is the individual Section D
• This must be completed by EACH principal and guarantor. For example, if there are 3 principals and 2 additional guarantors, then each must complete and sign a Section D
Borrower’s Application
![Page 12: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/12.jpg)
• D1: General information including citizenship. If the individual is not a US citizen, then individual must complete USCIS G-845 which lender must submit to the USCIS to verify.
• D2: Voluntary information - Not required
SBA Form 2301, Part A – Page 2 Section D
Borrower’s Application
![Page 13: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/13.jpg)
SBA Form 2301, Part A – Page 2 Section D
• D3: A summary of personal financial information
• D4: Identification of any current or previous government financing that may have resulted in a loss to the federal government
Borrower’s Application
![Page 14: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/14.jpg)
SBA Form 2301, Part A – Page 2 Section D
• D5: Disclosures including:– Lawsuits
– Affiliates
– Arrest information
– Acknowledgement that applicant has received/read “statements required by law and executive orders”
– Acknowledgement of liability for providing false information
Borrower’s Application
![Page 15: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/15.jpg)
SBA Form 2301, Part A – Page 2 Section D
• Statements Required by Law and Executive Orders. SBA is required to provide this information to all applicants.
• Signature and date
Borrower’s Application
![Page 16: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/16.jpg)
SBA Form 2301, Part B
Lender’s Application• Section A: Lender information as well as
Applicant’s name and NAICS code
• Section B: Loan Terms. Any required life insurance, standby agreement, or equity injection
• Section C: Use of Proceeds and breakdown of collateral
![Page 17: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/17.jpg)
SBA Form 2301, Part B
• Section D: Attach the Eligibility Questionnaire (SBA Form 2301, Part C)
• Section E: If Applicant submits historical business financial statements to demonstrate business’s ability to repay in a timely manner, then IRS Form 4506-T must be completed and submitted by lender to the IRS to verify accuracy
Lender’s Application
![Page 18: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/18.jpg)
SBA Form 2301, Part B
• Section F: Attach copy of Lender’s Credit Memorandum. The requirements for what the Credit Memorandum must contain are described in the instructions that follow
• Section G: The Lender’s certification to certain statements. (For example, lender has an executed SBA Form 750, Loan Guaranty Agreement)
Lender’s Application
![Page 19: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/19.jpg)
SBA Form 2301, Part C
Eligibility Questionnaire• Questionnaire (Part C of Form 2301)
designed to simplify and expedite eligibility determinations by distinguishing between:
– Applicants that are clearly eligible without any additional documentation;
– Applicants that are not eligible; and
– Applicants where additional information/documentation must be obtained to determine eligibility.
![Page 20: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/20.jpg)
SBA Form 2301, Part C
• Responses are “true” or “false” - Only “true” is available in some cases, which means applicant must meet requirement or is not eligible.
• Where “false” is a choice, this means that additional documentation will be required for SBA to determine eligibility.
Eligibility Questionnaire
![Page 21: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/21.jpg)
SBA Form 2301, Part C
Example
Under the section entitled “The Small Business Applicant,” there is the following statement:
Applicant is not a franchisee or, if the Applicant is a franchisee,the franchise is on SBA’s franchise registry. The franchiseregistry is available at www.franchiseregistry.com
If the answer is “false,” then the Lender needs to obtain a copy of the franchise agreement for SBA’s determination if franchise is eligible.
![Page 22: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/22.jpg)
SBA Form 2301, Part C
• A Lender may get help to eligibility questions from:
– SBA’s SOPs, regulations, and notices, which are available at www.sba.gov/banking
– Local SBA District Office
– Standard 7(a) Loan Guaranty Processing Center at 916.735.1986 or [email protected]
Eligibility Questionnaire
![Page 23: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/23.jpg)
Lender’s Credit Memorandum
• SBA will accept lender’s credit memorandum in lieu of traditional SBA documentation assuming the following:
• Credit Memorandum must meet reasonable and prudent standards for the commercial lending industry
• To simplify loan documentation and analysis, SBA defines the following two loan tiers, which depend on size, complexity, and/or risk of loan:
![Page 24: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/24.jpg)
Lender’s Credit Memorandum
• Tier 1 – defined as loans up to $150,000 EXCEPT for loans to the following:
1. New businesses (in business for two years or less – includes change of ownership)
2. Businesses that have had judgments or bankruptcy filings.
3. Businesses with a debt service coverage ratio of less than 1.2:1
![Page 25: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/25.jpg)
Lender’s Credit Memorandum
• For Tier 1 loans, the Credit Memorandum must include, at a minimum:
– Description of history and nature of the business
– Description of and comments on the business plan, including: 1) management experience of principal(s), particularly in the industry; 2) financial condition of the business; and, 3) nature of any competition
![Page 26: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/26.jpg)
Lender’s Credit Memorandum
– Spread of Business Balance Sheet to include requested loan funds and any required equity injection (as of date of loan disbursement)
– Current Ratio
– Debt/Tangible Net Worth
– Debt Service Coverage
– Any other ratios the lender considers significant for the business/industry
![Page 27: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/27.jpg)
Lender’s Credit Memorandum
– Analysis/calculation relative to debt service: Show how historical cash flow would cover total debt service after the SBA loan.
– Collateral Adequacy Assessment (using liquidation values) to offset risk of default
![Page 28: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/28.jpg)
Lender’s Credit Memorandum
– Explanation/justification for refinancing of any debt as part of the loan request, particularly Same Institution Debt
– Discussion of credit analysis and recommendation by lender of credit decision
– Any additional information the lender considers relevant to the credit decision
![Page 29: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/29.jpg)
Lender’s Credit Memorandum
• Tier 2 – defined as loans between $150,001 and $350,000 PLUS loans to the following:
1. New businesses (in business for two years or less – includes change of ownership) or
2. Businesses that have had judgments or bankruptcy filings.
3. Businesses with a debt service coverage ratio of less than 1.2:1
![Page 30: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/30.jpg)
Lender’s Credit Memorandum
• For Tier 2 loans, Credit Memorandum must include items described for Tier 1 PLUS:
– Analysis/calculation of cash flow relative to debt service:
• Show how historical cash flow covers new debt service
• Show how projected cash flow covers debt service
• If historical cash flow does not cover all existing and new debt service at least 1:1, provide analysis of reasonableness of assumptions supporting the projected cash flow
– Discussion of any: 1) seller financing; 2) stand-by agreements; 3) 90+ day delinquencies; and 4) trade disputes
![Page 31: Key Features of the Small Rural Lender Advantage Program](https://reader035.fdocuments.net/reader035/viewer/2022062703/554d7b95b4c90567188b49e5/html5/thumbnails/31.jpg)
Lender’s Credit Memorandum
• Tier 2 loans, continued:
– Analysis of working capital adequacy to support projected sales growth in next 12 months
– For change of ownership, discussion/analysis of business valuation (based on generally accepted valuation methods used for the pertinent industry) used to support the purchase price.
– Discussion of any bankruptcy filings or judgments