ATTACHMENT_4_-_Exhibit_4_CA_Participant_Guide_December-28-2015.pdf

Community Advantage Participant Guide

Version 4.0

Effective as of December 28, 2015

COMMUNITY ADVANTAGE (CA) PILOT LOAN PROGRAM

U.S. SMALL BUSINESS ADMINISTRATION

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COMMUNITY ADVANTAGE (CA) PARTICIPANT GUIDE

Table of Contents

I. Introduction What organizations are eligible to participate as a CA Lender?

Are there special lending requirements for CA Lenders?

Community Advantage Basic Loan Features

II. How Do I Apply to Become a Community Advantage Lender?

Step 1: Collect the Required Information

Step 2: Gather Certifications

Step 3: Submit the CA Application

III. What is Delegated Authority and How Do I Qualify?

Five-Loan Requirement

Delegation Period

Renewal Requirements

A Final Word on Delegated Authority

IV. How Do I, as a CA Lender, Apply for a Community Advantage Loan Guarantee?

Step 1: Borrower Eligibility, Forms and Documentation, Loan Terms and Conditions

Step 2: Complete Credit Underwriting and Collateral Requirements

Step 3: Submit Forms to LGPC via E-Tran (or successor method) and the 10-Tab Format14

Delegated CA Lenders:

V. How Do I Book My CA Loans? (Authorizing, Closing and Disbursing a CA Loan) Loan Authorization

Loan Closing and Disbursement

VI. What Happens After Disbursement?

Loan Servicing

Loan Liquidation

Guaranty Purchase

VII. Responsibilities of Community Advantage Lenders Part 1: Ongoing Responsibilities

Part 2: Reporting Responsibilities

VIII. Lender Service Providers (LSP)

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IX. CA Lender Oversight Oversight Review/Examination Fees

Appendix A: More About Community Advantage Eligible Organizations

Appendix B: CA Lender Application Requirements

Appendix C: How a CA Lender Application Is Evaluated By SBA Evaluation Factors

Getting Approval to Sell CA Loans on the Secondary Market, Appendix D: Change of Lender Authority

Appendix E: Renewal Requirements for Delegated Authority

Appendix F: Glossary of Terms and Definitions

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I. Introduction Community Advantage (CA) is a pilot loan program introduced by the U.S. Small Business

Administration (SBA) to meet the credit, management, and technical assistance needs of small businesses in underserved markets. CA provides mission-oriented lenders, primarily nonprofit financial intermediaries focused on economic development, access to 7(a) loan guaranties for loans of $250,000 or less. SBA’s goals for CA are to:

Increase access to credit for small businesses located in underserved areas;

Expand points of access to the SBA 7(a) loan program by allowing non-traditional, mission-oriented lenders to participate;

Provide Management and Technical Assistance (M&TA) to small businesses as needed;

and

Manage portfolio risk.

CA is scheduled to operate through March 31, 2020 unless extended or made a permanent part of

SBA’s financial assistance programs.

The purpose of the Community Advantage Participant Guide (Guide) is to provide the information mission-oriented lenders need to participate in the CA pilot program.

What organizations are eligible to participate as a CA Lender?

Organizations eligible for CA program delivery are limited to:

SBA-Authorized Certified Development Companies (CDCs);

SBA-Authorized Microloan Program Intermediaries (Microlenders);

SBA-Authorized Intermediary Lending Pilot (ILP) Program Intermediaries; and

Non-federally regulated Community Development Financial Institutions (CDFIs) certified by the U.S. Treasury Department.

Organizations that do not presently hold one of these authorities should contact the SBA Office of Economic Opportunity. See Appendix A for additional information regarding eligible organizations and on becoming a Community Advantage Network Partner.

Lenders who already participate in SBA’s 7(a) program as evidenced by an executed Loan

Guaranty Agreement (SBA Form 750) are not eligible to participate in the CA Pilot Program and should continue to use the 7(a) loan program in their current capacity.

Are there special lending requirements for CA Lenders?

Organizations approved to participate as CA Lenders are required to make at least 60% of their

CA loans in underserved markets. For the purposes of CA, underserved markets include:

Low-to-Moderate Income (LMI) communities (CA Lenders are encouraged to serve low and very-low income communities);

Businesses where more than 50% of the full time workforce is low-income or resides in

LMI census tracts;

Empowerment Zones and Enterprise Communities;

HUBZones;

New businesses (firms in business for no more than two years);

Businesses eligible for SBA Veterans Advantage; and/or

Promise Zones.

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For definitions of these underserved markets, see Appendix F: Glossary of Terms and

Definitions.

Community Advantage Basic Loan Features

The core terms of CA loans are similar to SBA’s 7(a) Small Loans, with important features and key differences highlighted in the tables below. For further information on 7(a) Loan Program

Requirements, organizations should consult 13 Code of Federal Regulations (CFR) Parts 103, 105, 120 and 121. Additionally, see SBA Standard Operating Procedures (SOP) 50 10 5(H) and subsequent revisions. Subpart B, Chapters 2, 3 and 4 of SOP 50 10 5(H), in particular, describe important terms and conditions of 7(a) loans, which include the use of loan proceeds, loan maturities, interest rates, the disclosure of fees and other expenses, SBA guaranty fees, and the

7(a) Small Loan credit standards.

7(a) Small and CA Loan Terms Description

Percent of Guaranty

85% guaranty for loans of $150,000 or less;

75% guaranty for loans greater than $150,000 and less than $250,000.

Maturity

10 years or the useful life of equipment;

Maximum 10 years for working capital;

Maximum 25 years for real estate

Guaranty Fees (on the guaranteed portion of the loan)

During FY2016*:

CA loans of $150,000 or less =

Up-front guaranty fee =0%;

Lender’s on-going fee = 0%;

CA loans $150,000-$250,000 =

Up-front guaranty fees depend on Maturity

Maturities of 12 months or less = 0.25%

Maturities over 12 months = 3.0%

On-going fee paid by lender = 0.473%

* SBA reviews these fees annually to determine if they need to be adjusted. Any changes to guaranty fees are identified by SBA notice. Fees for future fiscal years may differ from rates displayed above.

http://www.ecfr.gov/cgi-bin/text-idx?gp=&SID=cfbb7865418e12fd0b47fa7018180300&mc=true&tpl=/ecfrbrowse/Title13/13chapterI.tpl http://www.ecfr.gov/cgi-bin/text-idx?gp=&SID=cfbb7865418e12fd0b47fa7018180300&mc=true&tpl=/ecfrbrowse/Title13/13chapterI.tpl http://www.ecfr.gov/cgi-bin/text-idx?gp=&SID=cfbb7865418e12fd0b47fa7018180300&mc=true&tpl=/ecfrbrowse/Title13/13chapterI.tpl https://www.sba.gov/sites/default/files/sops/SOP_50_10_5_H_FINAL_FINAL_CLEAN_5-1-15.pdf

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Key CA Loan Terms that are Different than 7(a)

Small Loan Terms

Description

Maximum Loan Size

$250,000

The total amount of any CA loan may not exceed $250,000. The aggregate balance of all CA loans to a single borrower, including the borrower’s affiliates, may not exceed a total amount of $250,000. If more than one CA Lender makes a loan to a single borrower, then the maximum aggregate balance to that borrower remains $250,000.

Maximum Interest Rate Prime + 6%

Revolving Lines Not allowed

Loan Loss Reserve

Requirements

A minimum of 5% of the unguaranteed portion of the CA

Lender’s CA loan portfolio; must be deposited in Loan Loss

Reserve Account no later than 45 calendar days after the date of each CA loan disbursement;

PLUS a minimum of 3% of the guaranteed portion of each CA loan that is sold into the secondary market; must be deposited in

Loan Loss Reserve Account no later than 10 calendar days after the CA loan has been sold into the secondary market.

Markets Served 60% of the lender’s CA loans must be in underserved markets as stated on page 4 of this Guide.

Provision of Management and

Technical Assistance

(M&TA)

Encouraged when appropriate. The CA loan application contains a section to identify what, if any, management and technical assistance has been provided by the CA Lender to the borrower. However, M&TA is not required for each individual loan.

Note: SBA Microloan Intermediaries and SBA ILP Intermediaries may not use their SBA intermediary loans to fund CA loans, SBA does not, however, prohibit the use of other Federal funds to support CA lending if permitted by those governmental organizations.

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II. How Do I Apply to Become a Community Advantage Lender?

Eligible organizations may apply for approval to participate in the CA Pilot Program. The following sections describe the information and certifications that must be provided, where the

CA Application must be submitted, and the process SBA uses for evaluation.

Step 1: Collect the Required Information

Interested organizations should assemble the information presented in Appendix B: CA Lender

Application Requirements in order to complete SBA Form 2301, Community Advantage

Lender Participation Application.

Step 2: Gather Certifications

As part of SBA Form 2301, applicants must provide the following certifications:

Organizational

The applicant must certify that it has provided filed articles of incorporation and by-laws to either the SBA or the CDFI Fund in connection with its participation in the 504, Microloan, ILP, and/or CDFI programs, and that those organizing documents have not materially changed. If material changes have occurred, a copy of the current articles of incorporation and/or by-laws must be included with the application.

State Regulation

The applicant must either certify that it is not subject to regulation by a state regulator or, if the applicant is subject to state regulation, it must demonstrate that it is in good standing with its state regulator. The lender’s written request to participate must include a written statement that to the best of its knowledge, the lender has satisfactory: i) financial condition (e.g., capital and liquidity); ii) small business credit administration policies, procedures, and practices that it continues to adhere to in its operations; and iii) small business servicing policies, procedures, and practices that it continues to adhere to in its operations. When reviewing good standing, SBA will look to see that a lender does not have significant deficiencies or weaknesses in these areas. “Significance” may be evidenced by the number or seriousness of the deficiencies, as determined by SBA in its discretion. SBA will verify any good standing statement where possible with public

(e.g., Cease and Desist Orders and Call Reports) and/or non-public information from the lender’s primary and/or other regulators. Additionally, the following information must be included:

A copy of the State statute and/or regulations governing the applicant’s operations;

A copy of the latest examination report of the applicant by the State financial regulator, as authorized; and

A description of the State prescribed capital requirements and a certification that the applicant meets these established requirements.

Step 3: Submit the CA Application

The CA Application should be sent to the SBA Field Office responsible for the territory where the applicant is physically located. For the list of offices, visit www.sba.gov/about-offices-list/2.

http://www.sba.gov/sites/default/files/forms/SBA%202301_0627.pdf http://www.sba.gov/sites/default/files/forms/SBA%202301_0627.pdf http://www.sba.gov/about-offices-list/2

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The SBA Field Office will screen the application for completeness, and assist applicants with making any necessary changes. The SBA Field Office will submit the completed application to the Office of Credit Risk Management (OCRM), who will make the final determination and notify the applicant.

See Appendix C: How a CA Lender Application is Evaluated by SBA for more information.

III. What is Delegated Authority and How Do I Qualify?

All prospective CA Lenders will be evaluated for eligibility as a delegated lender. SBA delegated lenders have more autonomy in the loan-making process (for example, delegated lenders do not submit all of the supporting forms and credit analyses to SBA, but instead keep this documentation in their loan files). In contrast, non-delegated lenders must submit all application forms, including any attachments such as the lender’s credit memorandum, to the

Loan Guaranty Processing Center (LGPC) for approval.

If not awarded eligibility for delegated authority at the time of approval as a CA Lender, the CA

Lender may request delegated authority after six-months of participation in the CA Pilot

Program. Obtaining delegated authority is a two-step process. The first step is the evaluation for eligibility. Eligibility is based on OCRM’s evaluation of the applicant’s organizational, financial and operational strengths as well as the expertise it brings to being an SBA CA Lender. If deemed eligible, the CA Lender will still need to demonstrate to the satisfaction of OCRM, in consultation with the LGPC, that it has a satisfactory knowledge of SBA Loan Program

Requirements by means of actual closing and initial disbursement of CA loans.

Five-Loan Requirement

CA Lenders approved for delegated authority must make an initial disbursement on at least five

CA loans before they can process applications under their delegated authority. In reviewing and approving the CA loans, the LGPC will evaluate the CA Lender’s knowledge of SBA Loan

Program Requirements and its ability to adequately underwrite small business loans.

The LGPC will make the information on individual loans approved available to OCRM. Once a minimum of five CA loans are initially disbursed with no significant deficiencies in the underwriting/credit analysis of the loan, the LGPC will make a recommendation to OCRM who will make the final decision to approve the lender’s ability to process loans under its delegated authority.

Upon approval of a CA Lender to process loans under delegated authority, OCRM will provide an Addendum to the Lender’s SBA Form 750CA. Once the Addendum has been executed and returned to SBA, the CA Lender may begin originating CA loans under its delegated authority.

The CA Lender may decide on a loan-by-loan basis whether to submit CA loans non-delegated or to process under its delegated authority (except for certain categories of loans as may be specified elsewhere in this Guide - see Section VII: Responsibilities of Community

Advantage Lenders).

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Delegation Period

The initial delegation of authority will be for a period of two years (but not to exceed the remainder of the term of the CA Pilot). Prior to the end of the two year period, OCRM will conduct a delegated authority review to further assess a CA Lender’s understanding of the program and its ability to process, close, service and liquidate CA loans.

Renewal Requirements

Prior to the expiration of delegated authority, a CA Lender’s delegation may be renewed for up to two years, but not to exceed the remainder of the CA Pilot Program. See Appendix E:

Renewal Requirements for Delegated Authority for additional information.

A Final Word on Delegated Authority

SBA encourages all CA Lenders to seek and use delegated authority. This provides the best customer service for the small business borrowers, reduces CA Lender costs and empowers CA

Lenders to take ownership of the underwriting/credit decision process in a way that best meets the needs of credit worthy underserved market small businesses. With the use of credit scoring and the leveraging of the CA Lender’s internal policies and procedures to the greatest extent allowable, SBA has made it easier than ever to make CA loans. Delegated authority requires that the CA Lender is knowledgeable about SBA eligibility, underwriting, loan closing and documentation requirements. Staff in SBA’s District Offices or Office of Economic Opportunity will assist in training and responding to questions on specific issues and cases, especially as it pertains to borrower eligibility.

IV. How Do I, as a CA Lender, Apply for a Community Advantage Loan

Guarantee?

CA loan guarantee applications should include all appropriate attachments and must be sent electronically through E-Tran. E-Tran is a secure web site where lenders can enter loan information for a single loan or send multiple applications simultaneously via an XML

(Extensible Markup Language) file transfer. As needed, the SBA Field Office will provide assistance to help lenders access E-Tran, as well as assistance in reviewing and submitting CA loan guarantee applications.

The CA loan guarantee application process is a four part process as outlined below.

Step 1: Borrower Eligibility, Forms and Documentation, Loan Terms and Conditions

Eligibility: The loan eligibility requirements for CA loans are the same as for 7(a) loans as set forth in 13 CFR Parts 120 and 121, and SOP 50 10 5(H), Subpart B, Chapter 2. Organizations should consult the CFR and SOP to determine if the small business applicant is eligible. In addition, some CA loans may involve complicated eligibility factors, such as affiliates, refinancing, citizenship, etc. CA Lenders should contact SBA to discuss specialized support and assistance in assessing a Small Business Applicant’s eligibility if such factors arise.

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All Small Business Applicants must complete and sign the following forms:

SBA Form 1919, Borrower Information Form and any additional SBA forms required by

Form 1919 in response to “yes” answers (for example, SBA Form 912, Statement of

Personal History), and

SBA Form 2449, Community Advantage Addendum.

All CA Lenders must complete and sign the following form:

SBA Form 1920, Lender’s Application for Guaranty for All 7(a) Programs.

The SBA Form 1920, Lender’s Application for Guaranty for All 7(a) Programs, collects identifying information on the lender, loan terms, use of proceeds and other information, and will guide the CA Lender through the assessment of eligibility of the small business applicant and the loan. If the CA Lender has questions concerning the completion of this form, the CA Lender should contact the Loan Guaranty Processing Center (LGPC) at caloans@sba.gov for additional guidance. (Note: CA Lenders should review and complete the entire Form for the applicant business before contacting the LGPC.)

Loan Terms and Conditions: Loan terms and conditions applicable to 7(a) Small Loans are set forth in 13 CFR Part 120 and in SOP 50 10 5(H), Subpart B, Chapter 3 and Chapter 4. Chapter 3 of SOP 50 10 5(H) explains the maximum guaranty amounts, loan maturities, interest rate policy

(fixed or variable, frequency of adjustment period, etc., subject to the maximum rate identified in the Table on page 6 for CA loans), SBA guaranty fees, other fees allowed to be charged in connection with an SBA-guaranteed loan, the disclosure of fees and lender expenses, and loan agents. Chapter 4 of SOP 50 10 5(H) discusses the applicable collateral and environmental requirements.

Debt Refinancing: In an effort to maximize the capital available to CA Lenders and their respective borrowers, non-SBA guaranteed loans may be refinanced with a CA loan. Non-SBA guaranteed, same institution debt must be processed through LGPC and may not be processed under delegated authority. Non-SBA guaranteed, other institution debt may be processed under delegated authority.

All debt refinancing must meet the requirements set forth in SOP 50 10 5(H), Subpart B, Chapter

2, Paragraph IV. E. with two modifications for CA lenders:

Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 3, in order to refinance certain debts, the lender must demonstrate that the new loan will result in a 10 percent improvement in the Small Business Applicant’s cash flow. For CA loans, however, the lender must demonstrate either:

o a 10 percent improvement in cash flow, or o that the CA loan exceeds the amount being refinanced by at least $5,000 or 25 percent, whichever is greater.

For example, if the existing debt to be refinanced is $25,000, the lender may demonstrate that the new loan payments would be 10 percent lower than the existing payments or the new loan amount is $31,250 ($25,000 x 1.25%).

http://www.sba.gov/sites/default/files/forms/SBA%201919_SSN.PDF http://www.sba.gov/sites/default/files/forms/SBA%201919_SSN.PDF https://www.sba.gov/content/statement-personal-history https://www.sba.gov/sites/default/files/forms/SBA%20FORM%202449%207-14_0.pdf http://www.sba.gov/sites/default/files/forms/SBA_1920.pdf http://www.sba.gov/sites/default/files/forms/SBA_1920.pdf mailto:caloans@sba.gov http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13

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Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 5, when a lender seeks to use SBA guaranteed loan proceeds to refinance non-SBA guaranteed, same institution debt, it must include a transcript showing the due dates and when payments were received as part of its analysis and recommendation for the prior 36 months, or the life of the loan, whichever is less. In addition, the lender must explain in writing any late payments and late charges that have occurred during the last 36 months. However, for

CA loans refinancing non-SBA guaranteed, same institution debt, the lender must instead include a transcript showing due dates and 6 months of timely payments for the most recent six month period. If there are any late payments in the most recent 6 month period, the debt may not be refinanced with a CA loan. Late payments are defined as any payment made beyond 29 days of the due date.

Refinancing of existing SBA-guaranteed debt requires evidence that the lender currently holding the debt has declined to approve an increase in loan amount or a second loan and the lender is either unwilling or unable to modify the current payment schedule. The CA Lender must retain this evidence in the loan file. Additionally, a CA Lender may refinance one of its own SBA-guaranteed loans, only if the lender is unable to modify the terms of the existing loan because the secondary market investor will not agree to modified terms. Same institution SBA-guaranteed debt must meet all requirements for Standard 7(a) loans and must be processed through the

LGPC; it may not be processed under a CA Lender’s delegated authority (see SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV.E.6 for additional information).

Step 2: Complete Credit Underwriting and Collateral Requirements

CA Lenders must analyze each application in a commercially reasonable manner, consistent with prudent lending standards. The cash flow of the Small Business Applicant for an SBA Loan is the primary source of repayment. CA Lenders must follow the credit underwriting standards for

7(a) Small Loans as set forth in SOP 50 10 5(H), Subpart B, Chapter 4. This means that an acceptable credit score as determined by SBA will satisfy the need to consider several required underwriting criteria, as noted below, most importantly part of the analysis to determine reasonable assurance of repayment from cash flow. The key underwriting requirements are outlined below, but CA Lenders should review the SOP and regulations for further guidance.

At the time of submission of the application for guaranty to SBA, all applications will begin with a screening for a credit score. The CA Lender will enter certain information into E-Tran and a credit score will be issued. (The specific information is described in SOP 50 10 5(H), Subpart B, Chapter 6.) If the applicant receives an acceptable credit score, the application may be submitted via E-Tran. If the applicant does not receive an acceptable credit score, the CA Lender may submit an application to the LGPC following the procedures for Standard 7(a) loans over

$350,000 set forth in SOP 50 10 5(H), Subpart B, Chapter 4. CA Lenders with delegated authority may not process an application that does not receive an acceptable credit score under their delegated authority.

The credit score is calculated based on a combination of consumer credit bureau data, business bureau data, borrower financials, and application data. (The credit score is not to be confused with the Small Business Predictive Score (SBPS) used by SBA’s Office of Credit Risk

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Management.) The minimum credit score is based on the lower end of the risk profile for the CA

Pilot Program and may be adjusted up or down from time to time. SBA will post on its website the minimum credit score for CA applications at www.sba.gov/for-lenders. The minimum credit score for CA Loans on the effective date of this Guide is 120, which is subject to change as noted above. No loan scoring less than 120 may be processed using delegated authority. If a lender believes there are mitigating issues to justify the loan, despite an unacceptable score, the lender may contact the LGPC with a full credit write-up for consideration. The write-up must contain the credit analysis required for standard 7(a) loans over $350,000, as set forth in SOP 50 10 5(H), Subpart B, Chapter 4, a collateral analysis, and an explanation of why the CA Lender believes that the credit score is not a reasonable predictor of repayment ability for this individual borrower.

Credit Analysis: The applicant (including the Operating Company) must be creditworthy and loans must be so sound as to reasonably assure repayment. An acceptable credit score satisfies the requirement to consider the following:

a. The credit history of the applicant (and the Operating Company if applicable), its

Associates, and guarantors, including historical performance as well as the potential for long term success (character and reputation will be determined through the appropriate questions on SBA Form 1919 and, if required, SBA Form 912);

b. The strength of the business;

c. Past earnings, projected cash flow, and future prospects; and

d. The applicant’s ability to repay the loan with earnings from the business.

The CA Lender’s credit memorandum is also used to demonstrate reasonable assurance of repayment and must include the following:

a. A brief description of the history of the business;

b. A brief description of the management team of the company, considering the length of time in business under current management and, if applicable, the depth of management experience in this industry or a related industry;

c. Owner/Guarantor analysis, including obtaining personal financial statements, consistent with CA Lender’s similarly-sized non-SBA guaranteed commercial loans, if applicable;

d. Confirmation of the CA Lender’s collection of business tax returns, and verification and reconciliation of the applicant’s financial data against income tax data (received in response to IRS Form 4506-T, Request for Transcript of Tax Return) prior to submitting the application to SBA for non-delegated authority loans. For loans processed under delegated authority, the CA Lender must comply with this requirement prior to first disbursement;

e. CA Lender must determine if the equity and the pro-forma debt-to-worth are acceptable based on its policies and procedures for its similarly-sized, non-SBA guaranteed commercial loans. If the CA Lender requires an equity injection and, as part of its https://www.sba.gov/content/sba-express-export-express-small-loan-advantage-plp-caplines-and-pilot-loan-programs-partrio https://www.sba.gov/content/statement-personal-history http://www.irs.gov/Individuals/Income-Verification-Express-Service

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f. A list of collateral and its estimated value, if secured; and

g. The effect any affiliates may have on the ultimate repayment ability of the applicant.

If the CA Lender does not have policies and procedures for similarly-sized, non-SBA guaranteed commercial loans, then under subparagraphs c and e above, it must use SBA 7(a) Small Loan policy as set forth in the current version of SOP 50 10 5.

Verification of Applicant’s Financial Information: To verify the applicant’s financial information, CA Lenders must submit IRS Form 4506-T to the IRS. After submission, the IRS will respond by sending the applicant’s transcripts to the CA Lender. This process is required for both existing businesses (those that filed at least one federal business income tax return), and for purchases of a business. For a change of ownership loan, the CA Lender must verify the seller’s tax returns. Additionally, verification of financial information for the applicant’s most recent fiscal year is not required if the fiscal year-end is within six months of the date SBA received the application.

The borrower must resolve any significant differences to the satisfaction of the CA Lender and the LGPC. Any significant difference must be reasonably explained in the CA Lender’s loan file prior to submission of the application to SBA for non-delegated loans and, for delegated loans, prior to first disbursement. Failure to resolve any significant differences may result in rejection of the guarantee application, or if processed under delegated authority, denial of liability on the guaranty in the event of default.

CA Lenders should include the results of the IRS 4506-T transcript reconciliation in the credit memo prior to submitting the application to the LGPC for processing for non-delegated loans.

For loans processed under delegated authority, the CA Lender must complete the reconciliation prior to first disbursement. A copy of the completed 4506-T and transcripts should be retained in the CA Lender’s file. For further guidance on IRS verification please see SOP 50 10 5(H)

Subpart B, Chapter 5, Paragraph III.

Collateral Requirements: For CA loans over $25,000, up to and including $250,000, the lender must follow the collateral policies and procedures (what to take and how to value it) that it has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans.

However, at a minimum, the lender must take a first lien on assets financed with loan proceeds, and a lien on all of the applicant’s fixed assets to secure the loan. For additional information on applicable collateral requirements, see SOP 50 10 5(H), Subpart B, Chapter 4, Paragraph II.

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Step 3: Submit Forms to LGPC via E-Tran (or successor method) and the 10-Tab Format

Non-Delegated CA Lenders: SBA Form 1919, including any additional SBA forms required because of a “yes” answer on the 1919 (for example, SBA Form 912), and SBA Form 1920, including all attachments, must be sent to the LGPC via E-Tran.

(a) CA Lenders must submit applications to the LGPC using the 10-Tab format for all CA Loan guaranty requests. All forms and instruction for use of the 10-Tab format are located on

SBA’s website at: https://www.sba.gov/content/7a-submission-instructions-and-checklist

(b) Files too large to be submitted through E-Tran (or successor method) may be submitted using

“Send this File”. When using “Send this File,” identify the loan as a CA loan submission (ex.

CA-12345678). Please use the link below to enter the required information and attach the files:

https://www4.sendthisfile.com/sendthisfile/custom.jsp?sendthisfilecode=wtskqLiYqeyc4VJ1 uPbf53qB&balance=34914.

Delegated CA Lenders: Requests for a CA loan number must be sent through E-Tran. Delegated

CA Lenders do not need to submit supporting forms and credit analyses to SBA but must maintain this documentation in their CA loan files including explanations and supporting documentation for any “Yes” responses to character questions on SBA Form 1919 as completed by any individuals of the loan applicant (See Chapter 2, SOP 50 10 5(H)).

V. How Do I Book My CA Loans? (Authorizing, Closing and

Disbursing a CA Loan)

Upon approval of a CA Lender’s first CA loan, the LGPC will notify the appropriate SBA Field

Office. At that time, any additional training needs of the CA lender will be assessed. More information is provided in the following sections concerning authorizing, closing and disbursing

CA loans. CA Lenders should review SOP 50 10 5(H) and appropriate regulations to ensure compliance with the process and SBA Loan Program Requirements.

Loan Authorization

The Authorization is SBA’s written agreement with the CA Lender providing the terms and conditions under which SBA will guarantee a particular CA loan. (While the CA Lender sets the general terms and conditions for extending credit, SBA establishes the terms and conditions for its guaranty.)

For CA loans processed under non-delegated authority, the LGPC will prepare the Authorization and send it to the CA Lender. For CA loans processed under delegated authority, the CA Lender must prepare the Authorization, execute the Authorization on SBA’s behalf, and submit a copy to the LGPC after closing.

SBA Field Offices will provide training on E-Tran, as part of the initial training for all CA Lenders. For more information go to http://www.sba.gov/content/e-tran.

http://www.sba.gov/sites/default/files/forms/SBA%201919_SSN.PDF https://www.sba.gov/sites/default/files/forms/SBA%20%20Form%20912%20%202-13.pdf http://www.sba.gov/sites/default/files/forms/SBA_1920.pdf https://www.sba.gov/content/7a-submission-instructions-and-checklist https://www4.sendthisfile.com/sendthisfile/custom.jsp?sendthisfilecode=wtskqLiYqeyc4VJ1uPbf53qB&balance=34914 https://www4.sendthisfile.com/sendthisfile/custom.jsp?sendthisfilecode=wtskqLiYqeyc4VJ1uPbf53qB&balance=34914 https://www.sba.gov/content/sba-express-export-express-small-loan-advantage-plp-caplines-and-pilot-loan-programs-partrio http://www.sba.gov/content/e-tran

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For further guidance on the Authorization, please see SOP 50 10 5(H), Subpart B, Chapter 5.

CA loans will use the standard 7(a) authorization boilerplate. For a list of 7(a) loan package templates, please see: http://www.sba.gov/category/lender-navigation/steps-sba-lending/7a-loans/approval-authorization/7a-loan-package-templates.

Loan Closing and Disbursement

The first step in closing and disbursing a CA loan is to conduct a thorough review of the

Authorization. The guaranty fee must be paid within the timeframe stated in the Authorization.

The disbursement period must be tailored to meet the requirements of each individual CA loan.

After the CA Lender has determined that the CA loan conditions in the Authorization are appropriate for the terms of the credit, the CA Lender must close the CA loan in accordance with its provisions. If any modifications to the Authorization are necessary, the CA Lender must follow the procedures set forth in SOP 50 10 5(H), Subpart B, Chapter 5, Paragraph X.

Next, the CA Lender must obtain certain certifications from the CA loan borrower. These certifications include statements from the Applicant concerning its business operations, the approved uses of loan proceeds, and other matters related to terms and conditions of the CA loan.

For guidance, the link below includes a list of these certifications and provides helpful boilerplate language samples (please see Appendix D of the Authorization Boilerplate):

http://www.sba.gov/sites/default/files/files/a7a2011.pdf. See also, SOP 50 10 5(H), Subpart B, Chapter 7, Paragraph IV.D.

Finally, the CA Lender must comply with the environmental and insurance requirements stated in the Authorization. Please consult SOP 50 10 5(H), Subpart B, Chapter 4, Paragraph III, for the environmental requirements applicable to 7(a) Small Loans. Additionally, SOP 50 10 5(H), Subpart B, Chapter 5, Paragraph II describes insurance that may need to be obtained in connection with the CA loan.

For more information on CA loan closing and disbursement, including post approval/pre-disbursement modifications, note terms and other information, please see SOP 50 10 5(H), Subpart B, Chapters 7 and 8. CA Lenders must follow the stated procedures and requirements applicable to 7(a) Small Loans.

VI. What Happens After Disbursement?

Loan Servicing

Loan servicing involves the administration of the loan from the time the proceeds are fully disbursed until the loan is paid off. This includes sending monthly statements and collecting monthly payments, maintaining records of payments and balances, remitting funds to the note holder (for secondary market transactions), following up with borrower on payment delinquencies, and preparation and submission of Form 1502 to the applicable Fiscal and

Transfer Agent (currently Colson Services Corp) - see Section VII: Responsibilities of

Community Advantage Lenders for additional information on 1502 reporting. CA Lenders must service their CA loans in a commercially reasonable manner using prudent lending http://www.sba.gov/category/lender-navigation/steps-sba-lending/7a-loans/approval-authorization/7a-loan-package-templates http://www.sba.gov/category/lender-navigation/steps-sba-lending/7a-loans/approval-authorization/7a-loan-package-templates http://www.sba.gov/sites/default/files/files/a7a2011.pdf https://www.sba.gov/content/sba-form-1502-and-instructions

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CA Lenders must comply with SOP 50 57, Loan Servicing and Liquidation, when servicing CA loans. Additional lender responsibilities with regard to loan servicing are set forth in 13 CFR

120.535 and 120.536. Questions regarding these procedures should be directed to the Lender

Relations Specialist in the applicable SBA Field Office. Please see Servicing and Liquidation

Actions 7(a) Lender Matrix at SBA.gov:

https://www.sba.gov/content/servicing-and-liquidation-actions-7a-lender-matrix

Loan Liquidation

Loan liquidation involves the process of converting assets, such as property or investments, into cash in order for a borrower to pay its loan. SBA’s SOP 50 57, Loan Servicing and Liquidation, contains the requirements lenders must follow when liquidating loans guaranteed by SBA. In addition, lender responsibilities with regard to liquidation and debt collection are set forth in 13

CFR 120.535 and 120.536, including those liquidation actions that require the prior written consent of SBA. Frequent liquidation deficiencies that can lead to a possible reduction in the allowable purchase guarantee amount requested include: failure to make a timely site visit at time of default to ensure business collateral has been secured; failure to secure required security interest that results in a reduced recovery; release of guarantors / obligors without prior consent of SBA (please refer to SOP 50 57 for additional guidance).

Guaranty Purchase

SBA generally purchases its guaranteed portion after the lender has fully liquidated all business personal property collateral with an aggregate Recoverable Value of $5000 or more. SBA will pay up to a maximum of 120 days interest to a lender at the time of guaranty purchase. CA loan purchase requests will be processed in the Commercial Loan Servicing Center in Fresno, CA or

Little Rock, AR. Contact information for the centers is listed below:

Commercial Loan Servicing Center

(CLSC) - CA

801 R Street

Suite 101

Fresno, CA 93721

Phone: 800-347-0922 http://www.sba.gov/FresnoCLSC

Commercial Loan Servicing Center

(CLSC) - AR

2120 Riverfront Drive

Suite 100

Little Rock, AR, 72202

Phone: 501-324-5871

Fax: 202-292-3878 http://www.sba.gov/LittleRockCLSC http://www.sba.gov/sites/default/files/SOP_50_57-7(a)_Loan_Servicing_and_Liquidation_FINAL.pdf http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1535 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1535 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1536 https://www.sba.gov/content/servicing-and-liquidation-actions-7a-lender-matrix http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1535 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1535 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1536 http://www.sba.gov/FresnoCLSC http://www.sba.gov/LittleRockCLSC

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CA loans will be subject to the same requirements and procedures governing guaranty purchase of 7(a) loans and should follow the requirements of the respective service center when submitting requests for payment on the guaranty. Please see Chapter 23 of SOP 50 57 and 13

CFR 120.520 through 120.524, which establish these requirements.

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1520 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1520 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_1524

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VII. Responsibilities of Community Advantage Lenders

CA Lenders are responsible for administering their CA loans in compliance with all SBA Loan

Program Requirements and furnishing to SBA all required information. This section describes the CA Lender’s duties regarding ongoing responsibilities and specific reporting responsibilities.

Part 1: Ongoing Responsibilities

In making SBA-guaranteed CA loans, the CA Lenders must:

1. Submit applications for guaranty via E-Tran (or successor electronic method).

2. Execute the Loan Authorization (the document that identifies the conditions under which the

CA loan guaranty is approved).

3. Close the CA loan in accordance with the terms of the Authorization, SBA regulations, SOP

50 10 5(H), Subpart B, Chapter 7, and other Loan Program Requirements as defined in 13

CFR 120.10 related to loan closing.

4. Service the CA loan in accordance with SBA regulations, SOP 50 57, and other Loan

Program Requirements as defined in 13 CFR 120.10 related to loan servicing.

5. Liquidate the CA loan in accordance with SBA regulations, SOP 50 57, and other Loan

Program Requirements as defined in 13 CFR 120.10 related to liquidation.

6. Comply with SBA Loan Program Requirements as defined in 13 CFR 120.10 which are revised from time to time.

7. Maintain complete loan files.

8. Ensure that a minimum of 60% of the number of CA loans closed meet the underserved market requirements for CA. Applications for CA loans will indicate which category(ies) of underserved market the loan meets, if applicable. This will be monitored by the SBA and reviewed as part of the OCRM review process.

9. Pay the required guaranty fees – upfront and on-going fees — for all CA loans approved in a timely manner.

10. Comply with the same provisions regarding Preferences, Ethical Requirements Placed on a

Lender, Forward Commitments, and Advertising of Relationship with SBA as all other 7(a)

Participating Lenders. (See SOP 50 10 5(H), Subpart A, Chapter 1, Paragraphs II.E.3-6.)

11. Maintain adequate loan loss reserves. CA Lenders are required to create and maintain a Loan

Loss Reserve Account (LLRA) to cover potential losses arising from defaulted CA loans.

Funds held in the LLRA are to cover both losses from the unguaranteed portion of defaulted

CA loans as well as for possible repairs and denials associated with SBA’s guarantee on CA loans sold into SBA’s secondary market. Requirements are as follows:

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_110 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_110 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_110 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_110 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=36bf3fe21cacef2f329536a2941eb0c9&rgn=div5&view=text&node=13:1.0.1.1.16&idno=13#se13.1.120_110

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a) The LLRA must equal no less than 5% of the outstanding balance of the unguaranteed portion of the CA Lender’s CA loan portfolio (which equates to 1.25% for a CA loan above $150,000 and .75% for a loan below or equal to $150,000, regardless of whether or not the guaranteed portion has been sold into the secondary market). The CA Lender must deposit the required reserve amount into the LLRA no later than 45 calendar days after the date of each CA loan disbursement;

b) An additional 3% reserve amount is required to be maintained on the guaranteed portion of each CA loan that is sold into the secondary market. The CA Lender must deposit this required reserve amount in the LLRA no later than 10 calendar days after the CA loan has been sold in the secondary market;

c) The 5% reserve amount for the unguaranteed portion of the CA Lender’s CA loan portfolio and the 3% reserve amount for the guaranteed portion of the CA Lender’s loans that are sold in the secondary market may be kept in the same segregated bank account;

d) SBA may require additional amounts to be deposited in the LLRA based on the risk characteristics and/or performance of the CA Lender and its CA Loan portfolio. In addition, the CA Lender, especially those that participate in the secondary market, should carefully monitor its loan loss reserve levels to ensure it has the ability to pay its contingent liability obligation to SBA that could result from a partial or full denial of a guarantee for a particular CA loan;

e) The LLRA must be separate from all other bank accounts the CA Lender maintains, and must be a federally-insured demand or savings account, or certificate(s) of deposit in an amount, to the extent practicable, not in excess of the maximum federally insured amount. It must be considered a Restricted Reserve for financial accounting purposes;

f) The LLRA cannot be commingled with any other funds of the CA Lender, its parent or related entities;

g) The CA Lender must reconcile the LLRA on a monthly basis to ensure that the balance is maintained at the required level;

h) The CA Lender’s audited financial statements must include an assessment of the CA

Lender’s compliance with the loan loss reserve amount requirements for the CA Pilot

Program;

i) SBA Microloan and ILP Intermediaries may not use their SBA Microloan or ILP loan proceeds to fund the loan loss reserve for the CA loans (nor may they use it to fund CA loans); and

j) Failure to follow the loan loss reserve account requirements may result in enforcement action by SBA which could include removal from the CA Pilot Program and/or the imposition of additional controls or reserve requirements.

12. Maintain adequate fidelity insurance coverage. Pursuant to the Federal Register Notice published on November 9, 2012 [77 FR 67433], CA Lenders identified as SBLCs with outstanding SBA guarantee exposure of $20 million or less are required to maintain coverage in a minimum amount of $500,000. CA Lenders with outstanding guarantee exposure of more than $20 million must maintain fidelity insurance coverage in a minimum amount of

$2,000,000.

http://www.gpo.gov/fdsys/pkg/FR-2012-11-09/pdf/2012-27334.pdf

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13. Maintain compliance with SBA’s requirements for CA loan pledges in accordance with SBA regulations at 13 CFR 120.434.

14. Comply with SBA’s requirements for selling CA loans in accordance with SBA regulations at 13 CFR 120.430, 13 CFR 120.431, 13 CFR 120.432(a) and 13 CFR 120.433 (with respect to the sale of an entire CA loan). The sale of CA loans is not anticipated to be part of the normal course of CA lending. However, a CA lender may seek to sell an entire CA loan or

CA loan portfolio as part of the lender’s withdrawal from the CA Pilot Program for example.

In the event that a CA loan or CA loan portfolio is sold, the CA Lender must make a concerted effort to sell such loans to a capable and financially viable CA Lender. If no CA

Lender is interested, capable or financially viable to purchase the CA loan(s), then the loan(s) may be sold to a 7(a) lender with SBA’s prior written consent, which SBA may withhold in its sole discretion. The D/OCRM will direct CA lenders in this exercise and make the final determination on whether to approve such transactions. In all cases, CA Lenders may not sell participating interests in a CA loan.

15. Report any suspected cases of fraud, waste or abuse to the SBA Office of the Inspector

General at http://eweb1.sba.gov/oigcss/client/dsp_welcome.cfm.

Part 2: Reporting Responsibilities

CA Lenders are required to prepare and submit: a monthly report using SBA Form 1502, quarterly reports, and an annual report with audited financial statements as outlined below. Also, CA Lenders must report additional information to SBA if a change of lender authority occurs.

1. Monthly 1502 Reporting

The CA Lender must provide a monthly report on SBA Form 1502 that includes loan status information for all of its SBA-guaranteed CA loans, whether or not the borrower made a payment in the current month. 1502 reporting is accomplished through a Fiscal and Transfer

Agent (FTA) (the current FTA is Colson Services Corp.). For information and procedures on

1502 reporting, please see SOP 50 10 5(H), Subpart B, Chapter 8, Paragraph IV. (See Appendix

F: Glossary of Terms and Definitions for more information on the FTA.)

2. Quarterly Reporting

The CA Lender must submit a Quarterly Report to OCRM that includes detailed information on the following items:

Quarterly Financial Statements (internally prepared balance sheet and income…