SOW-Final-05082012-Addendum2.docx

PERFORMANCE-BASED STATEMENT OF WORK

CENTRAL SERVICING AGENT FOR THE 503/504 LOAN PROGRAMS

A – Introduction / Overview

B – Objective / Contractual Support of Mission / Definitions

C – Task Descriptions – Escrow Agency Duties of Contractor aka Awardee and Central Servicing Agency or Agent (CSA)

C-1 – Fund Accounts

C-2 – Loan and Debenture Processing

C-3 – Disbursements, Fees, Payments and Prepayments of 504 Debentures

C-3C – Disbursement of 504 Debenture Proceeds and Third Party Lender Fee

C-4 – System Requirements

C-5 – Customer Service Requirements

C-6 – Tax Reporting

C-7 - Progress Reporting, and Project Manager and Key Personnel

C-8 - Miscellaneous Financial Requirements

C-9 – Performance-Based Contract Administration

C-10 – Miscellaneous Contractual Requirements

C-11 - Attachments

A – Introduction / Overview

The U.S. Small Business Administration (SBA) is an independent agency of the United States, established on July 30, 1953, pursuant to the Small Business Act, as amended (the Small Business Act). SBA derives its authority principally from the Small Business Act and the Small Business Investment Act of 1958, as amended (the Small Business Investment Act).

Section 503 of the Small Business Investment Act authorizes SBA to guarantee the debentures of SBA-certified State or local development companies (Certified Development Companies or CDCs). The proceeds of debentures issued by CDCs are used to fund loans to small business concerns, as defined in the regulations of SBA (the Small Business Concerns or SBCs), for the various business purposes. This is known as the 504 program.

To be eligible, the business, with its affiliates, must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualified as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income in excess of $5 million after taxes for the preceding two years.

Under the SBA 503/504 Loan Program, a CDC may submit an economic development project meeting the objectives of job creation, community or area development, and other national objectives specified in the regulations of SBA for SBA approval. Typically, a 504 project has three components. The first is a third party loan secured with a senior lien on the financed asset from a private-sector lender covering 50 percent of the project cost. The second component is a 504 loan made by a CDC and secured with a junior lien (funded by a 100 percent SBA guaranteed debenture) covering 40 percent of the project cost. The final part is a contribution of at least 10 percent equity from the borrower.

In general, the maximum principal amount of any debenture used to fund a project is $5 million. This amount may increase to $5.5 million if the debenture is used to fund a project meeting certain public policy goals. Generally, a business must create or retain one job for every $65,000 provided by SBA, except for manufacturing loans, which require one job for every $100,000 provided by SBA.

The first CDC debenture was issued in March 1981. The CDCs sold debentures issued pursuant to Section 503 to the Federal Financing Bank (FFB), an instrumentality of the United States under the general supervision of the Secretary of the Treasury, through June 1989, after which date no debentures have been sold to the FFB. There are currently 24 Section 503 debentures that remain outstanding with a balance of about $360,000.

Section 504 of the Small Business Investment Act, enacted in 1986, required SBA to conduct a two-year pilot program involving the sale to investors of debentures guaranteed by SBA under Section 503. Section 505, also enacted in 1986, authorized the formation of pools of such guaranteed debentures, and the issuance, by SBA or its agent, of certificates representing ownership of all or a fractional part of such pools (Certificates), and the guaranty by SBA of the timely distribution of principal and interest to holders of such Certificates. In Public Law 100- 590, enacted November 3, 1988, the Section 504 pilot program was made permanent, and future sales of debentures to the FFB were prohibited. The terms of the 504 loan program are described in Attachment 1-1, Terms of the 504 Loan Program.

Section 503 of the American Recovery and Reinvestment Act of 2009 provides for SBA to put a federal guaranty on a pool of first mortgages (FMLP) associated with loans made under the Section 504 Certified Development Company Program. The purpose of this section of the Statement of Work is to identify those processes and procedures that the Central Servicing Agent (CSA) must follow to implement this program. The pool shall consist of portions of the first mortgages that may not exceed 80% of the balance of the original first mortgage loans. The Pool Originator must hold a portion of each pool it forms that equals 5% of the total principal balance of the underlying Section 504 first mortgages.

B - Objective / Contractual Support of Mission / Definitions

Pursuant to Section 505, SBA appoints a trustee to serve as an agent for CDCs for the purpose of issuing the Certificates. SBA currently anticipates that 20-year certificates will continue to be offered on a monthly basis and that 10-year certificates will continue to be offered every other month; however, these plans with respect to future offerings are subject to change due to such factors as the level of demand for funds by the CDCs and SBCs, and changes in the law, market conditions and SBA policy. Loan payments are due monthly and debenture payments are made on a semi-annual basis. Under this contract, the Central Servicing Agency (CSA) performs payment collection, escrow and paying agent functions for these loans, debentures, and pools. (See 13 CFR 120.954.)

Pursuant to this Performance-Based Statement of Work (SOW), Contractor will perform the functions of the CSA. CSA and Contractor are interchangeable and the same for purposes of this Performance-Based Statement of Work (SOW).

The following words, definitions, and acronyms are found within this Performance-Based Statement of Work (SOW). This following list is meant to be helpful, but should not be considered to be complete or all inclusive:

· ACH – Automated Clearing House

· COR – Contracting Officer Representative

· CSA – Central Servicing Agency or Agent - interchangeable with “contractor” or “awardee”

C – Task Descriptions – Escrow Agency Duties of Contractor aka Awardee and Central Servicing Agency or Agent (CSA)

C-1 - Fund Accounts

C-1A - Master Reserve Account (MRA)

C-1A-#1 - Master Reserve Account (MRA) On behalf of the SBA, the CSA will establish and maintain a trust account to be known as the SBA MRA. The purpose of the MRA is to provide an account for the flow of funds moving through the 503/504 Loan Program. Each account established or maintained pursuant to this contract shall be subject to all Federal and State banking regulations. As escrow agent, CSA shall have custody of all funds collected for both 503 and 504 loans until such funds are disbursed. These funds shall be deposited in one of several accounts described below. CSA shall invest the funds contained in these accounts in the manner set by SBA, which may be amended from time to time at SBA's sole discretion.

Investment earnings, net of any charges levied by the trustee and investment advisors, will be deposited to the MRA as received and shall be credited to the appropriate accounts. CSA is not entitled to receive any of these funds for its own use, unless specifically allowed elsewhere in this contract. CSA, or its designee, shall provide SBA with a monthly statement of the activity in the MRA, in such detail as SBA may reasonably require, and shall establish and maintain such control and audit procedures as SBA may reasonably require. This statement shall include the amount of float checks, as described in Section C-1Bb-#3, sent to each CDC. CSA shall provide any accounting reports required by SBA to adequately track the funds flowing in and out of this portfolio account.

C-1B - Master Reserve Subaccounts

C-1Bb - 504 MRA Escrow Subaccounts

C-1Bb-#1 – Establish and Maintain MRA Escrow Subaccount As agent for CDCs, the CSA shall establish and maintain the MRA Escrow Subaccount. The CSA shall record deposits to the 504 DDA (See Section C-1C-#1) into the MRA Escrow Subaccount the following:

· the principal and interest portion of each Note Payment in accordance with Section C-3C-#7, and

· the amount of any optional prepayment in accordance with Section C-3E-#4.

The CSA shall make disbursements of interest earned on sums recorded in the MRA Escrow Subaccount in accordance with C-1Bb-#2, and shall disburse other sums held therein in accordance with Section C-3. The CSA shall maintain on its records an individual subaccount for each 504 loan for accounting purposes. These individual subaccounts shall reflect the transactions in the MRA Escrow Account for each individual loan.

C-1Bb-#2 – Interest Distribution – MRA Escrow Subaccount The CSA shall distribute interest earned on the 504 MRA Escrow account semi-annually to each CDC on a proportional basis. The distribution will be based on the earnings of the account for the six month period prior to March 31 and September 30 of each year with the distribution to be made on or about May 1 and November 1 respectively.

C-1Bb-#3 – MRA Holding Subaccount As agent for the SBA, the CSA shall maintain on its records the MRA Holding Subaccount. The CSA shall record deposits from the 504 DDA (Section C-1C-#1) into the MRA Holding Subaccount such servicing fees otherwise payable to CDCs as the Contracting Officer's Technical Representative (COR) shall direct pursuant to Section C-3D, and the amount of any Late Fees received in accordance with Section C-3D#6. Amounts held in the MRA Holding Subaccount shall be disbursed at such time and in such amounts to such person(s) or entities as the COR shall direct in writing from time to time.

C-1Bb-#4 – Establishment of Trust Account - 504 MRA Fee Subaccount The CSA shall establish and maintain a trust account titled 504 MRA Fee Subaccount. CSA shall transfer the following deposits from the 504 DDA (Section C-1C-#1) into the MRA Fee Subaccount:

· the amount of any Guaranty Advance Payment received from SBA in accordance with Section C-3 and

· the fees received with respect to each Debenture pursuant to each individual Servicing Agent Agreement (SAA) (SBA Form 1506 - http://www.sba.gov/sbaforms/sbaf1506. pdf).

The CSA, pursuant to written instructions from the COR, shall make payments from the MRA Fee Subaccount to:

· the Fiscal and Selling Agent,

· the Trustee and investment advisors for their respective fees and expenses to SBA,

· or to any other person or entity as the COR may designate in writing from time to time.

Notwithstanding the foregoing, CSA shall disburse such funds from the MRA Fee Subaccount as provided in Section C-3 without further written direction from the SBA.

C-1C - Master Deposit Accounts

C-1C – #1 - Establishment of 503 Demand Deposit Accounts (DDA), 504 DDA and Interest Bearing Trust Deposit Account Two DDAs shall be established: one for 503 transactions and one for 504 transactions. Each shall be a non-interest bearing DDA, into which the CSA shall direct all payments received by it pursuant to this contract or as contemplated by this contract. Following the deposit of the payments into these two DDAs, available funds shall be transferred or disbursed to an Interest Bearing Trust Deposit Account (an account intended to hold payments until fully collected and swept into the MRA), with the latest transfer occurring no earlier than 4:30 PM Eastern Standard Time on the date funds become available (or at such other time as approved by the COR). This shall be known as the "cutoff time." Any payments received after the cutoff time will be transferred to an interest bearing trust deposit account on the following business day. In the case of a check deposit, funds will be transferred to an interest bearing trust deposit account no later than five (5) business days after deposit or such date as the applicable check actually is irrevocably credited to the account following such deposit. Funds received in the interest bearing trust deposit account will be transferred each business day, in accordance with the then applicable Trust Agreement, to the MRA.

C-1C -#2 - Amount Transfers All amounts that are held for the benefit of the 503 SBA Escrow/Reserve Account, the 503 Master Transfer Account, the 504 MRA Fee Sub-account and the 504 MRA Escrow Sub-account and which, pursuant to the terms hereof, are required to be transferred to the Trustee, SBA, or disbursed to third parties as herein provided, shall be transferred to the appropriate CSA Trust Account or Disbursement Account on the date such transfer or disbursement is required to be made, and such transfer or disbursement shall be effected there from.

C-1C-#3 - Interest earned All interest earned on the payments described in Sections C-1C- #1 and 2 shall remain in the MRA account, to be distributed as provided in this contract or upon written instruction by the COR.

C-1C-#4 - 503 Late Fee and Servicing Fee Holding Account All CDC servicing fees and late fees shall be deposited in the 503 DDA (See Sections C-1C- #1) and swept to the 503 interest bearing trust deposit account. CSA shall create and maintain in its records an accounting mechanism to track (1) such servicing fees otherwise payable to CDCs which the SBA Headquarters or Servicing Office has directed CSA to deposit in this account pursuant to Section C-3C-#7, and (2) the amount of any Late Fees received in accordance with Section C-3D#6. Amounts shall be disbursed monthly. Interest earned shall be sent to SBA in accordance with the Miscellaneous Receipts Act (reference Section C-3F).

C-1D - 503 Central Escrow Reserve Account (CE/RA)

C-1D-#1 - CE/RA and Individual Account Description The CSA shall establish and maintain an interest bearing trust account for the SBA CE/RA for the 503 portfolio. The principal and 503 note payments shall be deposited in the CE/RA except as provided in Section C-1D-#2 below. Such funds shall be invested for the benefit of the Borrowers in accordance with SBA guidelines. The CSA shall maintain on its records an individual escrow/reserve account for each 503 loan for accounting purposes. These individual accounts shall be a subsidiary record of the CE/RA. Such accounts will reflect the CE/RA deposits, withdrawals and accruals that apply to the individual 503 loans. Interest earned on funds deposited in the CE/RA will be allocated monthly to the individual escrow/reserve accounts based on the average daily balance of such accounts.

C-1D-#2 - Fund Availability Funds in the CE/RA are only available to the Borrower but will not be available to the Borrower (either for withdrawal or application to Note Payments) if the Borrower Note Payments are past due, except for an application for Optional Prepayment or the Automated Pay down Process.

C-1D-#3 – 503-Master Transfer Account (503-MTA) The CSA shall establish and maintain the 503-Master Transfer Account (503-MTA) in title of "SBA Master Transfer" which shall be an interest bearing account. Deposits to and withdrawals from the 503-MTA shall be made pursuant to instructions contained in Section C-1D-#1. Interest earned on this account shall be transferred to the SBA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F).

C-2 - Loan and Debenture Processing

C-2A - 503/504 Loans

C-2A-#1 – Interest Accrual Interest shall accrue monthly based on the outstanding loan balances. Interest shall be calculated on the basis of a 12-month year with 30 days in each month. All payments are due on the 1st of each month. As long as payments are made within the month in which they are due, the payment is treated as if it were made the first day of the month. Interest and principal reductions reflected on the loan amortization schedule for each monthly period will be the same as the amount recognized for that period so long as the payments are made within the month when due.

C-2A-#2 – Borrower Late Fee, Servicing Fee, and Guaranty Fee Borrower late fees (as defined in the Note, SBA Form 1505 http://www.sba.gov/sbaforms/sbaf1505 .pdf and http://www.sba.gov/sbaforms/sbax1505.pdf), the CSA and CDC servicing fee, and the SBA ongoing guaranty fee will be accounted for on an accrual basis. The CSA and CDC servicing fee and the SBA ongoing guaranty fee are described in the SAA.

C-2A-#3 – Order of Payment Application Loan payments are applied as of the date of receipt and in the following order:

· to offset previously paid CSA fees where the borrower loan payment containing that fee was subsequently rejected (e.g. ACH reject),

· to offset previously paid CDC fees where the borrower loan payment containing that fee was subsequently rejected,

· any and all outstanding SBA On-going Guaranty fees,

· the CSA fees,

· the CDC fees,

· interest,

· principal,

· Guaranty Advance Payment by SBA,

· Late fees, and

· unallocated funds.

Late fees are assessed separately and are applied as collected pursuant to Section C-3D#6.

C-2A-#4 – Servicing and Guarantee Fee Calculation The CSA and CDC servicing fees, and the SBA ongoing guaranty fee servicing fees are based on the outstanding principal balance at the 5 year intervals with one exception. For 503 loans funded using Fiscal Agent Agreement (SBA Form 1254) dated prior to 8/85, the servicing fees are based on the outstanding principal balance at the end of the previous month. If a 504 Loan is not current at the 5-year reset date, the fees continue to be reset, but the Borrower’s monthly payment amount remains the same. The additional monies generated by the difference between the Borrowers’ unadjusted monthly payment and what would have been a reduced payment amount can then be applied to pay past due amounts. Once the account is caught up the loan will be reset to what it should have been at the 5 year reset.

C-2A-#5 – Delinquent Loans Delinquent loans will not be considered current until all amounts due are paid including late fees and a principal reduction necessary to bring the outstanding loan balance in accordance with the amortization schedule or until the loan is re-amortized. Re-amortization is at the discretion of the SBA servicing office which shall provide written instruction to the CSA.

C-2A-#6 - Review of Sale Documents To ensure that the data is received and processed properly, CSA will check key information on the SAA, and note for accuracy using ETRAN or any successor SBA system. The CSA will be required to provide a terminal and all communications equipment (including dedicated secured transmission lines) necessary to hook up to the SBA computer system. (ETRAN is SBA electronic loan system). If there is a discrepancy with the interest rate, loan amount, the CDC name, subprogram code, borrower name, or other data item as identified by SBA, the CSA will notify the COR and work with the SBA to resolve any discrepancies.

C-2A-#7 - Processing of Sale Documents The CSA shall receive all SAA (SBA Form 1506) and copies of all Notes (SBA Form 1505) and the original Debenture (SBA Form 1504) forwarded to it by each District Council, CDC or such other office as the COR may determine, and shall review and verify the calculations in the SAA. The Original Debenture SBA Form1504 will be sent to the Trustee by the CSA. The SAA is an integral part of this contract and is incorporated herein by reference. The CSA is responsible for all tasks identified as tasks of the CSA in the SAA. The SBA may change the format of receiving these documents to electronic.

C-2A-#8 - Automated Pay down Process (APP) for 503 Loans In the 503 program all interest earned by funds in the Borrower's Escrow Reserve account belong to that borrower. Towards the end of the Debenture's maturity, sufficient funds may be available in the Borrower's Escrow Reserve account to make all remaining payments. APP provides for payment of a borrower's final 503 monthly loan payments by use of the funds from the Borrower's Escrow Reserve account. The procedure is as follows: On each six month anniversary date, the CSA will review loan records and determine which 503 borrowers are:

· current with respect to fees, interest and principal,

· current with respect to Late Fees, and

· have a balance in the Reserve/Escrow account that is equal to or greater than the sum of the outstanding monthly payments remaining on the note.

A report will be generated which is sorted by the CDC number and which includes a Statement Name. This report shall list all of the 503 loans that are eligible for APP. The report will be sent to each CDC. The information sent to the CDC shall contain the following data:

· the CDC name and number,

· loan number,

· statement name,

· total amount in the Borrowers Reserve/Escrow account, and

· the sum of the remaining monthly payments on the loan.

When the CSA receives written notification from a CDC that the borrower desires to have APP applied to his/her loan, CSA shall:

· change the Status Code of that loan to reflect APP status,

· remove the loan from the ACH system, and

· continue routine processing of the CDC servicing fees, tax reporting, generation of Borrower statements, and debenture payments.

When the 503 loan and underlying debenture are paid in full at maturity, the CSA shall refund to the Borrower any funds remaining in the account.

C-2A-#9 – Supplemental Payment Processing (SPP) The CSA shall implement a process call SPP. If a Borrower sells some of the Project collateral (i.e., outdated equipment), the funds are sent to the CSA and used to bring the loan current. Any excess funds are posted into “unallocated/reserve.” SPP shall be used to automatically apply some or all of the funds to keep the loan current. If the loan is current the remaining funds will remain in the “unallocated/reserve.” account until there are adequate funds to pay the loan off, C-2A-#10 - Delinquent and Deferred Loan Delinquent Loans are those loans where a monthly payment has not been received during the month in which it was due. Deferred Loans are those loans for which SBA or the CDC has agreed in writing with the Borrower that monthly loan payments may be temporarily deferred. Deferred Loans will be accounted for using the "catch up" that will be prepared by CSA and mutually approved by the CDC and the borrower using the methodology described in Attachment 1-2, entitled "CSA User Manual." SBA or the CDC shall advise the CSA of each Deferred Loan During the period of the deferment when the Borrower resumes making loan payments designed to catch up to the original loan amortization schedule, the loan is in a "catch-up" status. If a loan payment is missed while the loan is in "catch up" status, the loan status changes to Delinquent. If the Borrower is able to bring the loan back to the original amortization schedule, the loan is again current.

C-2B - 503/504 Debentures

C-2B-#1 – Debenture Payments One debenture is issued for every loan and in the same amount as the loan. Debenture payments are currently made on a semi-annual basis. Debenture amortization schedules will be provided by the Trustee. During the life of this contract, SBA may change the payment schedule for debentures to a monthly payment.

C-2B-#2 - 504 Debenture Pool At or before noon (Eastern Time) on the second Business Day preceding each Offering Date, the CSA shall provide the SBA Office with electronic notice of the following information with respect to each such Note and SAA received by it in respect of the next 504 Debenture Pool to be formed:

· the CDC,

· the SBA loan number,

· the principal amount of the Note and the form number of such Note,

· the pool series and funding date, and

· the term of the Note.

The SBA shall cause the Trustee on the second Business Day following each Pricing Date, to electronically notify the CSA and the Fiscal Selling Agent of the interest rate and semi-annual principal and interest amounts payable with respect to each Debenture to be included in the Debenture Pool next to be formed, and to upload all the documents (prepayment schedules and copies of related note) on the CSA system for the CSA, the Fiscal Selling Agent and SBA to view.

C-2B-#3 - Determination of Fees and Note Payment Amount Pursuant to instructions contained in each SAA, the CSA shall calculate:

· its portion of the monthly Servicing Fees, and

· each CDC's portion of the monthly Servicing Fees;

· the Borrower's Note Payment amount, and

· the SBA on-going guaranty Fee.

The CSA shall generate amortization schedules pursuant to Section C-2B-#5. CSA shall calculate and notify the Fiscal and Selling Agent of the five-year effective rates of the loans. Such notification shall be uploaded to the secure CSA system.

C-2B-#4 - Post-Debenture Tasks No later than five (5) business days following the CSA's disbursement of the Debenture Proceeds, CSA shall upload to the secure CSA system:

· complete each SAA and the Note,

· attach the appropriate Prepayment Schedule to the copy of the Note, together with a copy of the relevant Note amortization schedule,

· retain an executed counterpart of each such SAA and a copy of each Note as completed with attachments,

· deliver to the appropriate SBA Office as the COR may determine, a completed copy of the Note with attachments and one executed counterpart or copy of the related SAA, and

· deliver to the CDC two completed copies of such Note with attachments and two copies of executed counterparts of the corresponding SAA.

Should the Trustee fail to provide the written notice (reference Section C-2B-#2 above) on one or more of the 504 Prepayment Schedules specified in the first sentence of this paragraph, the CSA shall so advise the SBA Headquarters Office no later than 10:30 AM (Eastern Time) on the third business day following such Pricing Date.

C-2B-#5 - Loan Amortization Schedules for Debentures After receipt of the computation of the dollar amount of the semi-annual payment from the Trustee, the CSA shall calculate the monthly loan amortization amount by dividing the semi-annual payment amount by six and computing a note interest rate. The CSA shall then determine the monthly payment by adding the amount of the CDC, the SBA and the CSA fees to the monthly amount necessary to amortize the loan as determined above. The CSA shall develop a system to produce such loan amortization schedules. The CSA shall work with the Fiscal and Selling Agent (presently Development Company Funding Corporation. LLC) regarding the determination of the borrower's note rate. These schedules should be posted on the secure CSA System. SBA may change the payment schedule for debentures to a monthly payment.

C-2B-#6 - Termination of Servicing In the case of acceleration of the Loan and purchase of the Debenture, the CSA, in accordance with written notice from SBA, may be notified to cease all servicing activities related to a particular loan. Notification shall specify the effective date that servicing shall cease. After the effective date, the CSA shall forward to SBA a transcript of the borrower's account as of the effective date. The transcript shall show:

· the payment history on the account and application of funds, and

· the amount of all funds, if any, paid by the Borrower which remains in the SBA Escrow/Reserve Account or MRA Escrow Subaccount after the CSA deducts applicable Fees.

The SBA must determine that the transcript is acceptable. The CSA shall forward electronically the transcript to the SBA Denver Finance Center no later than the Second Business Day following the effective date. The CSA shall forward via wire to the SBA Denver Finance Center any 503 funds remaining in the SBA Escrow/Reserve Account which relate to the defaulted Note. These funds shall be forwarded to SBA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F). The CSA shall notify the SBA of the amount of all funds, if any, paid by a Borrower on a 504 Note which remain in the MRA Escrow Subaccount. SBA shall not be liable to the CSA for any Servicing Fee deficiency in the event the SBA Escrow/Reserve Account or MRA Fee Subaccount is inadequate to cover such fees.

C-2B-#7 - Reinstatement of Terminated Accounts The SBA reserves the right to reinstate the servicing responsibilities of the CSA on 503/504 loans where the underlying debentures have been purchased by the SBA. In these cases, the fees applicable to the CSA servicing will begin on the date servicing recommences.

C-3 - Disbursements, Fees, Payments, and Prepayments of 504 Debentures

C-3A - Semi-Annual 503 Debenture Payments

C-3A-#1 - Preparation On each Debenture Payment Date, the CSA shall transfer the principal and interest portion of Note payments from the SBA Escrow/Reserve Account to the 503-MTA, with the following procedures followed;

· If the principal and interest portion of any Note Payment relevant to a Debenture Payment is received by the CSA on or after the Debenture Payment Date but before the fifth day of the month in which the Debenture Payment occurs, funds shall be transferred into the 503-MTA on the sixth day of the month or the next business day if the sixth is not a business day.

· In the event the Borrower has not paid the requisite six Note Payments by the 21st day of the sixth month, the CSA shall withdraw available funds held for the account of such Borrower in the SBA Escrow/Reserve Account to cover the deficiency and shall deposit such funds in the 503-MTA on the 21st of the month. If sufficient funds are not available, the CSA shall record such and at the next semi-annual payment date follow instructions in Section C-3A-#3 below.

C-3A-#2 - Debenture Payment The CSA shall remit the Debenture Payment amounts in the 503-MTA via wire transfer to SBA's Account at the Federal Reserve Bank of New York on the 21st calendar day following the Debenture Payment Date or, if such day is not a Business Day, then on the next business day. A detailed list to identify the application of funds shall be sent electronically to the SBA Denver Finance Center. Such list shall show the SBA loan number, the CDC's name, amount collected on each Loan, the Debenture Payment due, and the total amount being remitted to the SBA.

C-3A-#3 - Guaranty Advance Payments by SBA and Reimbursement of Such Payments When funds transferred to the SBA's Account at the Federal Reserve Bank of New York pursuant to Sections C-3A-#1 and C-3A-#2 above are not sufficient to make a debenture payment for a debenture, SBA makes a guaranty payment to the FFB for the deficient amount. The CSA shall notify the SBA Denver Finance Center electronically of the deficient amount by the 21st calendar day following the Debenture Payment Date or, if such day is not a business day, then on the next business day. A detailed list to identify the application of funds shall be sent electronically to the SBA Denver Finance Center. Deficient Amount shall be defined as the Debenture Amount Due minus the sum of Note Payments received and any funds in the Borrower's Escrow/Reserve Account. If the borrower repays the Deficient Amount in subsequent semi-annual periods, the CSA shall refund to SBA by wire transfer any funds in the Borrower's Escrow/Reserve Account that are in excess of the funds needed for the debenture payment at the Debenture Payment Date.

C-3A-#4 - Interest Earned The CSA will remit to the SBA the interest earned on the 503-MTA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F).

C-3B - Semi-Annual 504 Debenture Payments

C-3B-#1 – Preparation for Debenture Payment The Debenture Payment shall consist of funds received from borrowers to pay the semi-annual principal and interest amount, funds received from borrowers to prepay the debenture, funds received from the SBA due to Accelerations, and advanced funds received from the SBA due to borrower payment deficiencies on loans that have not been accelerated. On the third Business Day before the Debenture Payment Date, the CSA shall determine whether the aggregate amount paid into the MRA Escrow Subaccount is sufficient to pay the full amount due on such Debenture Payment Date. To be sufficient, the amount must equal the principal and interest due on the debentures, plus any optional prepayments and acceleration payments.

If the amount is not sufficient to make the semiannual debenture payment, the CSA shall determine whether there are sufficient funds in the MRA Fee Subaccount. If the amounts in the MRA Escrow Subaccount and the MRA Fee Subaccount together with the amount of such Acceleration Payments to be deposited by the SBA into the 504 Deposit Account are insufficient to make the full payment due on such Debenture Payment Date, the CSA shall tell the SBA Denver Finance Center electronically on the third Business Day prior to such Debenture Payment Date the amount of the deficiency. The SBA shall then make a Guarantee Advance Payment by depositing the amount of such deficiency into the 504 Deposit Account, by wire transfer in immediately available funds, to arrive no later than the second Business Day preceding the relevant Debenture Payment Date.

C-3B-#2 - Debenture Payment On each Debenture Payment Date, the CSA shall transfer to the 504 Disbursement Account the following amounts;

· from the MRA Escrow Subaccount the aggregate amount of the Debenture Payments and Optional Prepayments, and

· if necessary, from the MRA Fee Subaccount to the extent there are available funds in the amount of the shortfall in the MRA Escrow Subaccount taking into consideration the amount of Acceleration Payments made by the SBA to the 504 Deposit Account pursuant to Section C-3E#7; and

· any Guaranty Advance Payments relating to such debentures pursuant to Section C-3C-#7 The aggregate of the foregoing amounts shall be transferred to the trustee on the last business day of the month by 10:00 a.m. (Eastern Standard Time). At the time of such transfer, the CSA shall provide to the Trustee in writing or as otherwise agreed to by the CSA and the Trustee from time to time, a schedule listing, with respect to the funds so transferred:

· the aggregate amount of funds transferred with respect to each Debenture Pool,

· for any Optional Prepayment, the Debenture to which such Optional Prepayment relates and the amount of premium (if any) paid, and

· for any Acceleration Payment, the Debenture to which such Acceleration Payment relates.

C-3B-#3 - Reimbursement of SBA for Guarantee Advance Payments At each semi-annual Debenture Payment Date, CSA shall determine the amount of funds available for the account of each 504 loan. If there are funds in excess of those necessary to make the semi-annual payment they shall be distributed as follows and in the following order:

· to reimburse the MRA Fee Subaccount for any withdrawals made by the CSA there from pursuant to Section C-3C-#7 above, but only if the SBA has not made a Guaranty Advance Payment to the MRA Fee Subaccount pursuant to Section C-3C-#7 above with respect to such advances,

· to the SBA at the address in Section C-3C-#7, any amount paid by the SBA pursuant to a Guaranty Advance Payment to the MRA Fee Subaccount pursuant to Section C-1Bb-#4, and

· to the MRA Fee Subaccount.

C-3C - Disbursement of 504 Debenture Proceeds and Third Party Lender Fee

C-3C-#1 - Disbursement of Debenture Proceeds Upon the receipt of Debenture Proceeds into the applicable DDA, CSA shall disburse the aggregate amount of such Debenture Proceeds in the manner provided for in the related SAA. With the exception of the SBA Guaranty Fee (See Section C-3C-#3), the CSA shall make such disbursement as soon as is practicable after its receipt in collected funds of such Debenture Proceeds, but in no event later than one (l) Business Day following such receipt.

C-3C-#2 - 504 Funding Fee Upon the receipt of 504 Debenture Proceeds into the 504 DDA, the CSA shall transfer to the MRA Fee Subaccount (See Section C-1Bb#4) the portion of such Debenture Proceeds attributable to the Funding Fees specified in the related SAA. SBA receives residual after CSA administrative expenses.

C-3C-#3 - SBA Guaranty Fee Upon the receipt of Debenture Proceeds, the CSA shall transfer to SBA in accordance' with the Miscellaneous Receipts Act (Reference Section C-3F) the portion of such Debenture Proceeds attributable to the SBA Guaranty Fee specified in the related SAA.

C-3C-#4 - CDC Processing Fee Upon the receipt of 504 Debenture Proceeds, the CSA shall transfer the portion of such Debenture Proceeds attributable to the CDC Processing Fee as directed by the COR.

C-3C-#5 - CDC Closing Costs and Fees Upon the receipt of 504 Debenture Proceeds, the CSA shall transfer the portion of such Debenture Proceeds attributable to the CDC Closing Costs and Fees as directed by the COR.

C-3C-#6 -Third Party Lender Participation Fee CSA shall collect the Third Party Lender Fee if applicable. This fee may be paid directly by the third party lender or subtracted from the CDC Processing Fee. This fee shall be forwarded to the SBA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F).

C-3C-#7 - Receipt and Application of 503 and 504 Note Payments Each Borrower is required by the Note and the corresponding SAA to remit Note Payments through an Automated Clearing House (ACH) on the first business day of the month or another manner approved by the CSA in writing. Upon its receipt of funds designated by a Borrower as a Note Payment, the CSA shall determine whether such funds are sufficient to make a Note Payment or instead are a Partial Note Payment. When the CSA determines the funds received are sufficient to make a Note Payment, the CSA shall record the amount thereof in the following order and manner:

A. to SBA - Late On-going Guaranty Fee and late CDC fee (presently 1/8th of 1 per cent per annum) due from Borrower and CDCs respectively in compliance with the Miscellaneous Receipts Act (Reference Section C-3F);

B. to the MRA Fee Subaccount, in accordance with payment rejection processing, the Servicing Fee payable by the related Borrower to the CSA that was remitted to the CSA prior to the rejection notification;

C. to the MRA Fee Subaccount, in accordance with payment rejection processing, the Servicing Fee payable by the Borrower that was remitted to the CDC prior to the rejection notification;

D. to the SBA - Regular On-going Guaranty Fee and Regular CDC fee (presently 1/8th of 1 per cent per annum) due from Borrower and CDCs respectively in compliance with the Miscellaneous Receipts Act (reference Section C-3F);

E. to the MRA Fee Subaccount and then to the CSA, in accordance with Section C-3F the Servicing Fees payable by the related CDC to the CSA;

F. to the related CDC or to the appropriate Holding Account, in either case in accordance with Section C-3F, the Servicing Fee payable by the Borrower to such CDC;

G. to interest and then to the principal balance; with 503 funds to the SBA Escrow/Reserve Account, and with 504 funds to the MRA Escrow Subaccount or, when the applicable Note Payment Date is also a Debenture Payment Date, to the 503-MTA or MRA Fee Subaccount pursuant to Section C-3B-#2 or to repay any withdrawals made by the CSA pursuant to Section C-3C-#7, respectively;

H. to the appropriate Holding Account, any Late Fee received in accordance with Section C-3D-#6;

I. to restore to the SBA Escrow/Reserve Account the original Reserve amount (503 loans only); and

J. the balance (if any) to Unallocated Funds.

NOTE: Partial Note payments shall be applied in the same manner as Note Payments. However, a late fee will be assessed when less than a full payment is made unless the loan has been deferred by SBA.

C-3D - Monthly Fee Disbursement

C-3D-#1 - CSA Servicing Fees The CSA Servicing Fees received from Borrowers shall be disbursed by the CSA to itself in accordance with Section C-3C-#7. If the ACH is rejected after the CSA has paid itself, these funds shall be returned by the CSA. If these returned payments are resubmitted, the CSA may pay itself upon receipt of good funds. SBA receives residual after CSA covers administrative costs.

C-3D-#2 - CDC Servicing Fees Unless SBA directs otherwise in writing, the CDC Servicing Fees received from Borrowers shall be disbursed by the CSA to the CDCs in accordance with Section C-3C-#7. If the ACH is rejected after the CSA has paid this fee, a receivable for the CDC to repay the CSA will be created. This receivable shall be liquidated in one of three manners:

· if good funds are remitted by the borrower,

· if good funds are not received from the borrower by the next Note Payment Date, the CSA shall withhold the amount owed from the next disbursement to the CDC, and

· if there is no disbursement due to the CDC on the next disbursement date, the CSA shall issue a claim letter to the CDC.

Any CDC Servicing Fees not submitted according to the time frame in Section C-3C-#7, shall be sent to the CDC electronically on the last business day of each month. Upon the CSA's receipt of written notice from the SBA, the CSA shall disburse the CDC Servicing Fees to another CDC or to the SBA. Such payment shall be sent electronically to the CDC, SBA, or any other entity designated by SBA. If sent to the SBA, it must be in accordance with the Miscellaneous Receipts Act (Reference Section C-3F).

C-3D-#3 - SBA Ongoing Guaranty Fees The SBA ongoing guaranty fee shall be collected from the borrower each month and submitted to SBA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F). If a Treasury General Account is created to comply with the Miscellaneous Receipts Act (Reference Section C-3F), the CSA shall work with the SBA to establish a trust Treasury General Account called the "SBA Ongoing Guaranty Fee Account" in a Treasury Authorized Depository. If the ACH rejects, the fees shall be returned along with any interest earned on this account during the month. The submission shall identify the SBA loan number and the SBA Ongoing Guaranty Fee associated with that loan number.

C-3D-#4 - CDC Fee to SBA The CDC fee (presently 1/8th of 1 per cent per annum) shall be collected each month by the CSA from the servicing fees collected for the CDCs and submitted to the SBA in accordance with the Miscellaneous Receipts Act (Reference Section C-3F). If a Treasury General Account is created to comply with the Miscellaneous Receipts Act (Reference Section C-3F), the CSA shall work with SBA to establish a trust Treasury General Account called the "CDC Fee Account" in a Treasury Authorized Depository in which to deposit the CDC Fee in accordance with Section C-3F. If the ACH rejects, the fees shall be removed from the CDC Fee Account and returned to borrower's financial institution. The submission shall identify the SBA loan number and the SBA Ongoing Guaranty Fee associated with that loan number.

C-3D-#5 - Fee Disbursement The CSA shall remit by use of an electronic funds transfer mechanism the fees described in Section C-3C-#7A and B on the fifth business day after the Note Payment Date unless SBA directs the CSA to deposit any CDC Servicing Fees into the 503 Holding Account or 504 MRA Holding Subaccount as part of an enforcement action. No CDC shall have any rights with respect to any Servicing Fee placed in the Holding Account or MRA Holding Subaccount on SBA instructions unless authorized in writing by the COR.

C-3D – #6 Late Payment Fees

C-3D-#6.1 - Late Payment Fees - General Section 503 Loans and 504 Loans are subject to late payment fees, which may be waived by the CDC at its discretion.

C-3D-#6.2 - CDC Notification of Late Payments On the sixth day of each calendar month (or if such day is not a Business Day, on the next succeeding Business Day) the CSA shall create and post a web-based report that will notify respective CDCs of Note Payments due in such month which have not been received from Borrowers by the fifth calendar day of such month.

C-3D-#6.3 - Late Fee Assessment On the 16th day of each calendar month (or if such day is not a Business Day, on the next succeeding Business Day) a late fee is assessed (presently 5% of the amount of the payment or $100 whichever is greater). The CSA shall create and post a web-based report that will notify respective CDCs of Note Payments due in such month which have not been received from Borrowers by the 15th calendar day of such month.

C-3D-#6.4 - Distribution of Late Fees Any late fees received by the CSA from a Borrower shall be transferred from the applicable DDA to the Holding Account for 503 loans or MRA Holding Subaccount for 504 loans. Within ten (10) business days following the end of each calendar month, the CSA shall disburse such amount of late fees to the CDCs except where the COR has directed the CSA in writing not to disburse fees to one or more CDCs. The COR may also issue special instructions.

C-3D-#6.5 - Waivers.

The CDC shall notify the CSA that it has waived the Late Fee in writing. The CSA shall mark the file that a waiver of the Late Fee has been granted and send a copy of the action to the Servicing Center and the CDC.

C-3E - Supplemental Monthly Payments (SMPs)

C-3E-#1 - SMPs for 503 Loans When a 503 borrower is unable to meet the note repayment terms (including any modifications such as a deferment), the SBA may require that collateral securing the note be liquidated and the proceeds be sent to the CSA and deposited in the Borrower’s Escrow Reserve account. In some cases, borrowers may continue to make partial or full payments via ACH. The CSA shall automatically supplement any partial monthly payments with funds in the Borrowers Escrow Reserve to make the required monthly payment.

When the CSA receives a lump sum payment and written notification that the borrower is to be included in the SMP program, the following will occur:

· change the Status Code on the CSA system so that is reflects participation in the SMP program;

· modify the monthly ACH debit to the amount of the partial payment that the borrower has agreed to pay, if applicable; and

· post the lump sum payment to bring the loan current and then add any excess funds to the Borrower's Escrow/Reserve account, C-3E-#2 - SMPs for 504 Loans The SMP program is not available to 504 borrowers. (The calculation for a 504 prepayment penalty uses a formula based on the number of years the debenture has been outstanding rather than a change in the market interest rates. The more years the debenture has been outstanding, the smaller the prepayment premium. If the borrower defaults on the 504 loan and the SBA purchases the debenture, the SBA is not required to pay any prepayment premium to the investor). Borrowers that must resort to the liquidation of collateral to make payments should work with the CDC/SBA servicing office to determine if purchase of the debenture is appropriate.

C-3E-#3 - Deposits and Optional Prepayments A Loan is subject to Optional Prepayment by the Borrower. Optional Prepayment must be the amount necessary to fully satisfy the indebtedness due under the Note and the Debenture. Partial prepayments are not permitted. If prepayment funds do not fully satisfy the debt outstanding including the amount required to prepay the Debenture in full including any prepayment premium, the Loan will not be prepaid and funds are to be returned to the Borrower by the CSA.

C-3E-#4 - 504 Prepayments 504 prepayments occur on the third (3rd) Thursday of the month before the Debenture's semi-annual payment date. The following is a schedule of duties performed by the CSA:

· 3rd Thursday of the month – the CSA will receive wired funds; deduct the CSA fees for proper number of months; distribute aggregate amount of the CDC fees to the CDC prior to paying off the Debenture; deposit appropriate principal, interest, and premium to satisfy the Debenture in the MRA Escrow Subaccount, as well as deposit any other funds received into the MRA Escrow Subaccount to be disbursed to the SBA or other appropriate parties as instructed by the COR; and

· Appropriate Debenture Payment Date - Remit proper amount to the Trustee.

C-3E-#5 - 503 Prepayments 503 prepayments may occur on the second or fourth Thursday of any month except for November and December when the prepayments must occur on the first or third Thursday. Prepayment instructions regarding transfer of money to the Treasury Department will be provided to the CSA as needed. The CSA shall send electronic notification to the COR showing the borrower name, loan number, amount of payoff and date of payoff.

C-3E-#6 - Good Faith Deposit The CSA collected a $1,000 good faith deposit from the borrower for 503 debentures funded after June 30, 1985 and 504 debentures funded after December 31, 1992. If the prepayment does not occur, the deposit is forfeited and shall be sent by the CSA to the SBA's Denver Finance Center. It is SBA's intention to eliminate this deposit requirement. If the deposit requirement is eliminated, SBA will notify the CSA in writing, and then the procedures described in this paragraph will no longer apply.

C-3E-#7 - Accelerations This section applies to 504 loans only. The SBA shall promptly notify the CSA and the Trustee in writing or electronically of an Acceleration Event. The SBA shall cause the Trustee to provide to the CSA in writing within one (1) Business Day of the receipt of a notice of an Acceleration Event, a schedule setting forth with…