Exhibit_5_-_Community_Advantage_Participant_Guide.pdf

Community Advantage Participant Guide

Version 3.0

November 13, 2012

COMMUNITY ADVANTAGE (CA) PILOT LOAN PROGRAM

U.S. SMALL BUSINESS ADMINISTRATION

COMMUNITY ADVANTAGE PARTICIPANT GUIDE

Table of Contents

I. Introduction Is my organization eligible to participate as a CA Lender?

Are there other ways to be part of CA without being a CA Lender?

More about organizations that are eligible to become CA Lenders Why should I become a Community Advantage Lender?

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 How will the CA Application be Evaluated?

Decision

III. Delegated Authority Explained Ten Loan Requirement Delegation Period Renewals

IV. How do I apply for a Community Advantage Loan Guaranty?

Step 1: Is the Borrower Eligible? Eligibility, Loan Terms and Conditions Step 2: Credit Underwriting, Collateral and Environmental Requirements Step 3: Complete Required Documentation for All CA Lenders Step 4: Submit Required Eligibility Checklist Depending on Lender’s Delegated Authority Step 5: Submit Forms to LGPC via E-Tran

V. What’s Next? - Authorizing, Closing and Disbursing the Loan Part 1: Loan Authorization Part 2: Loan Closing and Disbursement

VI. After Disbursement is Made: Loan Servicing, Liquidation and Guaranty Purchase Loan Servicing Loan Liquidation Guaranty Purchase

VII. Responsibilities of Community Advantage Lenders Part 1: Ongoing Responsibilities Part 2: Reporting Responsibilities

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VIII. Lender Service Providers Requirements

IX. Small Business Administration Oversight Monitoring Reviews and Examinations Oversight Strategy for Community Advantage Billing Supervision and Enforcement

Appendix A: Terms and Definitions

Appendix B: Business Plan Components

Appendix C: Change of Lender Authority

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I. Introduction

Community Advantage (CA) is a new 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 is designed to provide 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), as needed; and

• Manage portfolio risk at acceptable levels.

CA will operate through March 15, 2017 and may be extended or made permanent at SBA’s discretion. This guide intends to provide the information mission-oriented lenders need to become eligible for CA participation and to ultimately make responsible CA loans. In the following sections, the guide will outline which organizations are eligible to participate, describe how an organization should apply for the program, provide steps for submitting an application for a loan guarantee, and detail the responsibilities of CA Lenders throughout the loan administration process. Additionally, the guide will describe how the SBA evaluates CA Lender applicants, issues the loan guarantees, and oversees CA Lenders.

Is my organization eligible to participate as a CA Lender?

Certain organizations making loans in underserved markets are eligible to participate in CA.

Eligible organizations are SBA-Authorized Certified Development Companies (CDCs), SBA- Authorized Microloan Intermediaries, and Non-Federally Regulated Community Development Financial Institutions (CDFIs). Each organization is described below in more detail. For the purposes of CA, underserved markets include:

• Low-to-Moderate Income (LMI) communities (while not a specific requirement, CA Lenders are encouraged to serve low and very-low income communities);

• Businesses where more than 50% of their 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); and/or

• Businesses eligible for Patriot Express including Veteran-owned businesses.

(Definitions for these terms can be found in Appendix A: Terms and Definitions.)

Are there other ways to be part of CA without being a CA Lender?

Mission-oriented organizations (such as housing focused CDFIs, community development corporations, faith–based institutions, etc.) that want to bring new sources of capital to small businesses in their communities are encouraged to act as Referral Agents (as defined in 13 CFR 103.1(f)) to existing CA Lenders. Mission- oriented Referral Agents who refer applicants to CA Lenders may be referred to as “Community Advantage Associates” (“CA Associates”). The use of CA Associates can expand the reach and impact of Community Advantage. CA Lenders

-4-that use CA Associates are required to abide by SBA policies concerning the use of agents (see SOP 50 10 5(E), Subpart B, Chapter 3). If the CA Associate meets the definition of an “Associate” of the lender in 13 CFR 120.10, the CA Associate may not charge the applicant a referral fee. The CA Lender and Small Business Applicant must complete and sign Form 159(7a) detailing any fee charged to the borrower and/or paid by the CA Lender for the referral.

If a borrower is charged a fee, then the Referral Agent must also sign the form. The CA Lender should send the completed form to Colson along with their first 1502 report following the first loan disbursement (see page 26 for more info on 1502 reporting).

More about organizations that are eligible to become CA Lenders

1. SBA-Authorized Certified Development Companies (CDCs) CDCs are generally non-profit corporations certified and regulated by the SBA to package, process, close and service 504 loans. 504 project financing is accomplished through a 100 percent guaranteed debenture issued by a CDC, a non-guaranteed loan issued by a third party lender, and a contribution by the borrower. There are a small number of for-profit CDCs that were grandfathered into the current 504 program in 1986 and may also apply to become CA Lenders.

2. SBA-Authorized Microloan Intermediaries Microloan Intermediaries are entities participating in SBA’s Microloan Program that make and service microloans to eligible small businesses. They provide marketing, management, and technical assistance to their borrowers. A Microloan Intermediary may be:

• A private, nonprofit community development corporation or other entity;

• A consortium of private, nonprofit community development corporations and other entities;

• A quasi-governmental economic development entity, other than a state, county, municipal government or any agency thereof; or

• An agency or a nonprofit entity established by a Native American Tribal Government.

3. Non-Federally Regulated Community Development Financial Institutions (CDFIs) Only CDFIs certified by the Department of the Treasury that do not have a Federal financial regulator are eligible to participate in CA (for example, a state-regulated CDFI would be eligible). CDFIs are financial institutions that provide:

• Economic development (job creation, business development, and commercial real estate development);

• Affordable housing (housing development and homeownership); and/or

• Community financial services (provision of basic banking services to underserved communities, financial literacy training, and predatory lending alternatives).

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Why Should I Become a Community Advantage Lender?

CA loans enable mission-oriented lenders to increase the flow of capital to underserved communities and achieve a greater impact. Lenders focused on economic development within their communities will be provided with a timely application process, will enjoy the benefits of SBA’s guarantee, and will be allied with SBA’s extensive network of experienced resource partners. For more experienced and well capitalized mission lenders, this may include access to SBA’s liquidity enhancing secondary market for the sale of the guaranteed portion of SBA loans.

This very efficient market of brokers, loan pool originators, institutional and individual investors facilitates the purchase of the guaranteed portion of SBA loans, thus providing greater leverage for participating lenders, which can substantially increase the flow of capital to the target underserved communities that CA is designed to reach. Through participation in the pilot program, CA Lenders should be able to build capacity and stronger balance sheets, and may have greater access to the kind of patient capital that complements mission lenders’ proven track record of low overall defaults and high percentage of loan repayments.

Community Advantage Basic Loan Features The basic terms of CA loans are the same as SBA’s standard 7(a) loans with some important differences highlighted in the table below. For further information please see SBA’s regulations at 13 Code of Federal Regulations (CFR) Part 120. Additionally, see SBA’s Standard Operating Procedures (SOP) 50 10 5(E), Subpart B, Chapter 3. This chapter of the SOP governs important conditions which include interest rate policy, loan maturities, the disclosure of fees and other expenses, SBA guaranty fees, and other fees applicable to an SBA-guaranteed loan.

Features Description Percent of Guaranty 85% guaranty for loans of $150,000 or less;

75% guaranty for loans greater than $150,000 Maturity Max 10 years for working capital

10 years or the useful life of equipment Max 25 years for real estate

Guaranty Fees Maturities of 12 months or less = 0.25% Maturities over 12 Months

- Gross CA loan $150,000 or less = 2.0%

- Gross CA loan over $150,000 = 3.0% On-going guaranty fee paid by the lender = 0.55%

Key Differences from 7(a) Maximum Loan Size $250,0001 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 A minimum of 3% of the guaranteed portion of each CA loan that is sold into the secondary market

1 The total amount of any Community Advantage Loan may not exceed $250,000. The aggregate balance of all Community Advantage loans to a single borrower, including the borrower’s affiliates, may not exceed a total amount of $250,000.

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Markets Served 60% of the lender’s CA loans must be in underserved markets as defined in 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.

*SBA Microloan intermediaries, SBA Intermediary Loan Pilot Program participants and other recipients of SBA re-loadable funds may not use their SBA intermediary loans to fund CA loans. However, loans, grants, and funds received from other governmental organizations may be used to support CA lending.

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 gathered, where the CA Application must be submitted, and the SBA evaluation process. After applying, CA applicants must email caloans@sba.gov to notify SBA that an application is forthcoming.

Step 1: Collect the Required Information Interested organizations should assemble the information below in order to complete SBA Form 2301, Part E, Community Advantage Lender Participation Application.

a. Tax Exempt Certification – A copy of the applicant’s IRS Tax Exempt certification, if applicable.

b. Good Standing – A copy of a Certificate of Good Standing from the Secretary of State from the State where the lender is organized.

c. Opinion of Counsel – An opinion of independent counsel that the lender is chartered to conduct business in the proposed operating area and is in compliance with applicable local, State and Federal laws in the formation and organization of the company. “Independent Counsel” is counsel that is not an “Associate of the lender” as defined in 13 CFR 120.10.

d. Officers and Directors – A list of officers and directors. For each individual listed, include a resume and SBA Form 1081, Statement of Personal History, signed and dated within 90 days of submission to SBA. Any officer or director who answers “yes” to question numbers 10a, 10b, 10c, or 11 on the form must also submit fingerprint cards.

e. Key Personnel – A list of key personnel (current and proposed) who will be involved in loan packaging, processing, closing, disbursing, servicing and liquidating the lender’s CA loans.

If any of these services are contracted out, that should be noted in the applicant’s business plan explaining what those services are and how they exercise control of the services provided. A copy of the contract should also accompany the application. For each key individual listed, include a resume and SBA Form 1081 signed and dated within 90 days of

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f. Board Resolution – A certified copy of a Resolution of the Board of Directors authorizing submission of the application.

g. CDFI Certification – If a CDFI, a copy of the most recent certification from the U.S.

Treasury, CDFI Fund.

h. Business Plan – A business plan addressing the applicant’s small business lending activities and proposed operations for the CA Pilot Program. Please consult Appendix B: Business Plan Components, to view the items SBA expects to be included in the business plan.

i. Audited Financial Statements – Copies of the applicant’s year-end audited financial statements for the last two years. If the applicant has no prior audited financial statements, it may submit compiled financial statements for consideration. (Approved CA Lenders will be required to submit audited financial statements annually going forward.)

j. Interim Financial Statements – Interim financial statements dated within 90 days of the application, covering the period from the last audited statement to the end of the most recent quarter. (Note: CDCs that become CA Lenders have to comply with the 7(a) requirement of submitting their annual report 90 days after year-end and not the CDC timeframe of 180 days.)

k. Funding Sources – A schedule of funding sources and funds received and available for the two year period covered by the audited financial statements.

l. Loan Performance History – Default and loss rates for the applicant’s entire small business loan portfolio for the prior two fiscal years in consolidated format. Current delinquency, default and loss rates for the applicant’s entire small business loan portfolio.

m. Loan Loss Reserve – A description of existing loan loss reserve methodology, including any risk assessments or classifications. This should include a schedule of loan loss reserve components with calculations for the previous eight quarters, and a description of the loan loss reserve allocations for the loan programs that the applicant currently participates in.

n. Lending Policies – A copy of lending policies and procedures governing business loan origination, servicing and liquidation.

o. Other Information – Any other information the lender considers relevant for SBA to consider in evaluating the application. To the degree an applicant has provided equivalent information on or as part of an application or for continued participation in the CDC, Microloan or CDFI programs, that information may be substituted provided it meets the intent of the requirement. SBA may follow-up if additional information is needed.

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Step 2: Gather Certifications As part of SBA Form 2301, Part E, applicants must provide the following certifications:

• Organizational The applicant must certify that it has filed articles of incorporation and by-laws with either the SBA or the CDFI Fund in connection with its participation in the 504, Microloan 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 financial regulator or, if the applicant is subject to state regulation, the applicant must provide a certification that it is in good standing with the state financial regulator. 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 report of examination of the applicant by the State financial regulator; 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 area where the applicant is physically located. For the list of offices, please go to www.sba.gov/about-offices-list/2. The process for applications is as follows:

• After the application is submitted to the appropriate SBA Field Office, please send an email to: caloans@sba.gov to notify that the application has been submitted.

• The SBA Field Office will screen the application to ensure it is complete, and assist applicants with completing the application, if necessary.

• The SBA Field Office will then submit the application to the Director, Office of Credit Risk Management (D/OCRM), who will make the final decision and notify the applicant of the decision.

How will the CA Application be Evaluated?

Applicants will be evaluated to determine if they have the necessary expertise, financial capacity and infrastructure to participate in SBA’s 7(a) loan program through the CA Pilot Program. The evaluation will include three decisions:

• Is SBA satisfied with the mission lender’s ability to successfully operate as a CA Lender;

• If yes, should the lender be given delegated authority to make credit decisions without prior SBA review; and

• If requested, should the lender be authorized to submit CA loans to the secondary market for SBA approval to sell?

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If an applicant is approved to participate in the CA Pilot, it will be designated a Community Advantage Lender (CA Lender). The CA Lender will not be able to make 7(a) loans other than through the CA Pilot.

In the Pilot phase of CA, SBA will err on the side of caution if there are concerns with a CA Lender’s ability to meet contingent liability requirements that come with the inherent leverage provided by the SBA guaranty. This is due to the possibility of the SBA guaranty not being honored in whole, or in part, as a result of a lender’s failure to comply with SBA Loan Program Requirements. On average, that happens to less than two percent of all similar SBA loans and represents about two percent of the dollars of SBA loan guarantees. A decision not to admit a lender into the CA Pilot Program should not be construed as a negative judgment on their current success and effectiveness in providing capital to their communities. In addition, the lender may be a CA Associate making referrals to an approved CA Lender.

Evaluation Factors The following criteria will be used to evaluate an application to participate in the CA Pilot Program. Applicants will be evaluated based on their experience, portfolio size, financial viability and other factors described below:

a. Form of organization, compliance with requirements governing organization, and standing with Secretary of State.

b. Knowledge of SBA’s 7(a) Loan Program Requirements (as defined in 13 CFR 120.10).

Approval of a CA Lender will be conditioned on completion of training on 7(a) Loan Program Requirements. Additionally, if applicable, prospective CA Lender’s experience with the 7(a) loan program should be described and quantified (for example, if applicant packages SBA 7(a) loans for other lenders, indicate the number of packages prepared and the number of years performing this activity).

c. Experience with small business lending and the applicant’s capacity and ability to make, service and liquidate small business loans. If any of these services are contracted out that should be noted in the application and copy of the contract attached. (Note: If a CA applicant is approved and intends to use a lender service provider, the lender must submit the agreement to SBA for approval. See page 27 for further discussion of lender service providers.)

d. Ability to provide or obtain services to provide management and technical assistance

(M&TA).

e. Financial viability, including adequacy of loan loss reserves. The lender must show that it is financially viable in its own right and able to support its own operation (inclusive of grants, fundraising, and in-kind support).

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f. Ability to meet the needs of CA underserved markets and an understanding of how participation in CA will further that reach in terms of geography, products, loan size, volume, and very low income populations.

g. Adequate infrastructure and internal controls to manage the CA Lender’s SBA loan program and portfolio. See 13 CFR 120.460.

h. Adequate staffing to manage and service the CA Lender’s SBA 7(a) loan portfolio. Key personnel must have requisite skills and abilities to underwrite, approve, service and liquidate small business loans. If any of these services are contracted out that should be noted in the application and copy of the contract attached. (Note: If a CA applicant is approved and intends to use a lender service provider, the lender must submit the agreement to SBA for approval. See page 27 for further discussion of lender service providers.)

i. Other risk characteristics that SBA may identify (for example, rapid growth, inadequate capital or loan loss reserves, outstanding enforcement actions, or any adverse or supervisory actions issued by a state regulator or SBA against the applicant and/or its employees).

j. Information from the CDFI Assessment and Rating System (CARS) and CDFI assessments, SBA risk ratings and reviews, and/or other similar types of information, as available.

k. Other factors that may be identified by SBA.

The following additional factors will be considered for SBA-CDCs and SBA-Micro-Lenders applying to participate in CA as well as delegated authority and, if applicable, secondary market participation:

• Continued Good Standing with SBA (for example, acceptable risk rating, satisfactory results of reviews/examinations, satisfactory operational and portfolio performance, satisfactory capacity to make, service and liquidate 7(a) loans and other relevant factors) as determined by SBA in its judgment;

• Compliance with SBA Loan Program Requirements governing these programs;

• Any SBA enforcement actions (proposed or final); and

• Compliance with reporting requirements, remittance of required guaranty, servicing, and review fees, as applicable; and responsiveness to requests for information from SBA.

For applicants applying to participate in the secondary market, the following factors will be considered:

• Dollar amount of unrestricted net assets;

• Loan performance history for small business loan portfolio;

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• Applicant’s approach to reserving for 7(a) loan losses including additional reserves for secondary market loans;

• Net assets to total assets;

• Positive net income/surplus;

• Operating liquidity;

• Knowledge of SBA Loan Program Requirements including eligibility requirements;

• Existence of proposed or final supervisory actions; and

• Other factors identified by SBA.

SBA Evaluation SBA will do the following during the evaluation of the lender’s application:

1. For existing SBA-CDC or SBA-Microloan Intermediaries, determine compliance with SBA

Loan Program Requirements governing the 504 and Microloan programs. For CDFI’s, determine that the CDFI is certified by the CDFI Fund, U.S. Department of Treasury.

2. Determine whether the applicant has the necessary capacity to make, service and liquidate SBA loans. (Approval of a CA Lender will be conditioned on completion of CA Lender Training. This training must be completed prior to making CA Loans.)

3. Assess the qualifications and ability of the applicant to meet the goals of CA including the provision of M&TA. Information about the availability of M&TA, either from the Lender or outside providers, should be available to each borrower.

4. Assess the lender’s ability to participate in the secondary market, if applicable.

5. Make a recommendation to the Director, Office of Credit Risk Management (D/OCRM) to approve or decline the applicant’s participation in the CA Pilot Program, participation as a delegated lender, and, if applicable, potential participation in the secondary market. Other offices within SBA (e.g., the Office of Financial Assistance, the 504 or Microloan program offices, etc.) will have an opportunity to provide input.

Decision The Director of the Office of Credit Risk Management (D/OCRM) makes the final determination on whether to approve an applicant as a CA Lender, approve delegated authority, and, if applicable, approve potential participation in the secondary market.

SBA’s goal is to provide an approval or denial decision within 45 days of the receipt by OCRM of a complete application package. Once a final determination is made, the D/OCRM will notify the applicant in writing of the decision with a copy to the Director, Office of Financial Assistance (D/OFA) and the appropriate SBA Field Office. If an application is not approved, the applicant will be notified in writing with the reasons the application was not approved. If a CA Lender requests to participate in the secondary market, and is approved, the CA Lender will be notified in writing along with any restrictions that may be applied.

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Approved applicants will receive designation either as a delegated or non-delegated CA Lender (please see Section III: Delegated Authority Explained for more information). Furthermore, each CA Lender will be identified as either a Small Business Lending Company (SBLC) or a Non- Federally Regulated Lender (NFRL), depending on whether the lender is subject to regulation by a state. Accordingly, all CA Lenders will be SBA Supervised Lenders, as that term is defined in 13 CFR 120.10, and will be subject to all regulations applicable to SBA Supervised Lenders unless specifically waived or modified in the Federal Register Notices published on February 18, 2011 [76 FR 9626], September 12, 2011 [76 FR 56262], and February 8, 2012 [77 FR 6619], and November 9, 2012 [77 FR 67433].

The CA Pilot Program has been extended and will now expire 3/15/2017. The duration of each CA Lender’s authority to participate in CA will be set forth in a Loan Guaranty Agreement (SBA Form 750CA), discussed more fully below. If CA is extended or made permanent, each CA Lender’s authority to participate will be renewed based on the lender’s compliance with SBA Loan Program Requirements, including the requirement to make 60 percent of their loans to small businesses in the CA underserved markets, satisfactory SBA performance as determined by SBA in its discretion and other risk-related criteria.

If CA is not extended or made permanent, each CA Lender will be required to continue to service and liquidate its CA loans in accordance with the terms of the pilot, but will not be able to make any new CA loans. If the program is not extended, the SBA guaranty will remain in effect for the life of the CA loan, assuming the loan is serviced and liquidated according to SBA Loan Program Requirements. In addition, if a CA Lender wants to exit the program or is required to exit, it must cooperate with SBA to transfer responsibility for servicing and liquidating its CA loan portfolio and related fees.

Reconsideration Procedure If the D/OCRM declines the application to participate in the CA Pilot Program, or delegated authority and/or secondary market access, the applicant may submit a request for reconsideration within 30 days from the date of the notification letter. The reconsideration request is to be sent to the attention of the D/OCRM and should include all substantive facts and documentation in support of the request. The D/OCRM will evaluate the request for reconsideration and make a recommendation to the Associate Administrator for Capital Access who will make the final decision. SBA expects to notify the applicant of the decision within 30 days of receipt of the request for reconsideration.

Steps After Approval If your organization is notified of approval to participate, you will be instructed to complete SBA Form 750CA by the Office of Credit Risk Management (OCRM). Please complete two original copies of this form and return them to the appropriate SBA Field Office. Two signed copies must be returned within 30 days of notification of approval. The Field Office will execute these documents on behalf of SBA and return one original to the CA Lender.

Once the SBA Field Office receives your signed 750CA agreements, it will notify the Standard 7(a) Loan Guaranty Processing Center (LGPC). The LGPC will enter your information into the

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Partner Information Management System (PIMS). After these steps are completed, a training and orientation program will then be provided by the local SBA Field Office with assistance from OFA. After your organization completes the training and orientation program, it will be allowed to submit CA loans to the LGPC.

CA requires a demonstration of deep organizational capacity, financial strength, proven track record and commitment to mastering all facets of SBA lending at the highest level, either internally, or in partnership with lender service providers. CA applicants are invited to request authority to submit CA loans for SBA approval for secondary market sale either at the time of application or at any time thereafter. Secondary market authority will be granted at SBA’s discretion. If authority is not awarded as a result of the first request, the CA lender should resolve any weakness or deficiency indicated as reasons for rejection for secondary market authority before submitting a request for reconsideration.

Organizations that have been granted permission to access the secondary market must also complete additional training related to secondary market activities and requirements before they will be allowed to initiate these sales. This training is intended to provide information to the CA Lender that will assist them in their negotiations with brokers, pool assemblers, as well as inform the CA Lender about the effect of a sale on their ability to modify the terms of a loan to the small business borrower. CA lenders need to provide certification that this training has been completed before the authority to sell loans on the secondary market will be granted.

III. Delegated Authority Explained

When a lender is first approved to participate in CA, a determination will be made as to whether the CA Lender will be granted delegated authority. 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 them 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 LGPC for approval.

CA Lenders that were not granted delegated authority when initially admitted into the CA program may request delegated authority after participating in CA for one year and the approval of at least 10 CA loans and the disbursement of five CA loans. Upon receipt of such a request, OCRM will conduct a review of the CA Lender’s performance (e.g. quality of underwriting, determination of eligibility, and servicing of CA loans, etc.), and determine if granting delegated authority is appropriate.

Lenders that are approved for delegated authority at time of application as a CA Lender must make at least 10 CA loans to the satisfaction of the LGPC in their first year as a CA Lender before they will be able to submit applications using their delegated authority. In this case, OCRM in consultation with LGPC will determine if the delegated CA Lender is ready to begin submitting applications under its delegated authority. Once delegated authority is fully bestowed, -14-it is up to the discretion of the CA Lender to exercise its delegated authority as allowed on any given loan.

Ten-Loan Requirement CA Lenders who are granted delegated authority must satisfactorily submit at least 10 CA loans to the LGPC before they will be allowed to use their delegated authority. Satisfactorily submitting a loan includes receiving approval for the loan from the LGPC.

In reviewing and approving the 10 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 criteria applied to each loan will include the following:

• Was the loan package submitted via E-Tran and was the lender knowledgeable with E- Tran operation?

• Did the District Office assist in processing the loan?

• Was the loan package complete?

• Was the credit underwriting analysis complete?

• Was the eligibility assessment adequate?

• Was additional information needed?

• If additional information was needed, was the lender responsive?

• Was the lender knowledgeable about what additional information was needed and why?

• Did the loan package demonstrate that the lender has an understanding of SBA Loan

Program Requirements?

• Did interactions with the lender provide confidence about their knowledge of the credit and their ability to adequately close and manage the loan?

• Does LGPC have any reservations about the lender’s ability to make loans on a delegated basis?

The LGPC will make the information on the individual loans approved available to OCRM.

Once at least 10 CA loans are submitted and approved with no significant concerns identified, OCRM will notify the CA Lender when it is approved to make CA loans on a delegated basis.

OCRM will provide an Addendum to the SBA Form 750CA to the CA Lender at that time. Once the Addendum has been executed and returned to SBA and entered into PIMS, the CA Lender may begin making CA loans on a delegated basis.

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, or when the lender has disbursed $1.5 million under the program, OCRM will conduct a desk review to further assess a CA Lender’s understanding of the program and its ability to process, close, service and liquidate CA loans.

Renewals 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, based on the following factors:

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1. Demonstrated achievements in reaching underserved markets with at least 60% of the number of CA Loans made to businesses in:

• Low-to-Moderate Income (LMI) communities (while not a specific requirement, CA Lenders are encouraged to serve low and very-low income communities);

• Businesses where more than 50% of their 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); and/or

• Businesses eligible for Patriot Express including Veteran-owned businesses.

2. Continued ability to effectively process, close, service and liquidate SBA loans; and compliance with SBA Loan Program Requirements (as defined in 13 CFR 120.10).

3. If an existing SBA-CDC or SBA-Microloan Intermediary, compliance with SBA regulations and procedures governing these programs.

4. Continued good standing with SBA and satisfactory performance of the SBA loan portfolio as determined by SBA in its discretion. Performance criteria the SBA will consider include:

• The lender’s risk rating;

• On-site reviews/examination assessments;

• Historical performance measures (such as default rate, purchase rate, and loss rate, performance averages are comparable to peer group, such as delinquent, past due, liquidation and purchase rates);

• Loan volume to the extent that it impacts performance measures;

• Other performance related measurements and information, including the portion of the portfolio in CA underserved markets; and

• Any other risk characteristics SBA may deem appropriate.

5. In good standing with its State Secretary of State and state regulator, if applicable. The lender must disclose any adverse action, and SBA will determine whether those actions make the lender ineligible for CA delegated status or participation in the CA Pilot Program.

6. In compliance with capital requirements as prescribed by the CA Lender’s state regulator, if applicable.

7. Financial viability including adequacy of capital and/or loan loss reserve account.

8. No enforcement actions (proposed or final) issued by the SBA or State regulator against the CA Lender and/or employees, officer or directors.

9. Adequate staff to manage and service the CA Lender’s portfolio and key personnel has requisite skills and abilities to underwrite, approve, service and liquidate small business loans, particularly the CA portfolio.

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10. Current in submitting required monthly, quarterly and annual reports including 1502 reports;

is responsive to SBA program offices’ request for information; and current in remitting required guaranty, servicing and review fees.

11. Changes to the CA Lender’s organizational structure, SBA Loan Department, business plan and/or business model.

12. Other relevant factors that may be identified by SBA.

The D/OCRM makes the final determination on the renewal of delegated authority and notifies the CA Lender, SBA Field Office, and the D/OFA. If the renewal of delegated authority is approved, OCRM executes a new Addendum to SBA Form 750CA with the CA Lender. If the renewal is not approved, the CA Lender must process new loans using non-delegated procedures and may reapply for delegated authority after it overcomes the reasons for the decline.

IV. How do I apply for a Community Advantage Loan Guarantee?

Loan applications, including all attachments, must be sent to SBA electronically (the application process is described more fully below). If necessary, your SBA Field Office can assist you in reviewing and submitting the loan applications.

Applying for a CA Loan Guarantee involves several steps, and different forms are required depending on whether your organization has delegated authority. The process is outlined briefly below:

Step 1: Is the Borrower Eligible? Eligibility, Loan Terms and Conditions The loan eligibility requirements for CA loans are the same as for standard 7(a) loans as set forth in 13 CFR Part 120 and SOP 50 10 5(E), Subpart B, Chapter 2. Please consult these links to determine if your small business applicant is eligible.

In addition, some loans may involve complicated eligibility factors, such as affiliates, refinancing, citizenship, excessive personal resources, etc., that will require additional information and possibly discussion between SBA and the lender. As a result, the Agency will provide participating lenders with specialized support and assistance in assessing an applicant’s eligibility. This includes an enhanced Eligibility Questionnaire (SBA Form 2301, Part C), which will help lenders quickly and easily assess most applicants’ eligibility for an SBA loan. CA Lenders without delegated authority must use SBA Form 2301, Part C to assist in determining the eligibility of the applicant.

The Eligibility Questionnaire has been established to address each eligibility issue with a statement which, for the applicant to be immediately eligible, must be answered as “True.”

In cases where “False” is chosen, the lender will need to provide SBA additional information. In such cases, lenders should contact the LGPC at caloans@sba.gov for additional guidance. (Note:

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Lenders should review and complete the entire questionnaire for the applicant business before contacting the LGPC.)

The lender is required to complete the Eligibility Questionnaire after the Applicant and lender have reviewed the statements. The lender must sign the questionnaire.

CA Lenders with delegated authority will use SBA Form 2301, Part C for their first 10 loans approved through the LGPC. Once the lender is approved to use its delegated authority, the lender will use SBA Form 2301, Part D as the eligibility checklist.

With the exceptions noted on pg. 6 of this guide, the basic terms of CA loans are the same as standard 7(a) loans. The loan terms and conditions applicable to standard 7(a) loans are set forth in 13 CFR Part 120 and in SOP 50 10 5(E), Subpart B, Chapter 3. This chapter of SOP 50 10 5(E) governs maximum guaranty amounts, loan maturities, interest rate policy (fixed or variable, frequency of adjustment period, etc., subject to the maximum identified on pg. 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. In an effort to maximize capital available to SBA Microloan program borrowers, loans made to small businesses in that program may be refinanced with a CA loan. Loans that involve the refinancing of a microloan held by the CA Lender or from an affiliated or parent organization of the CA Lender cannot be processed under delegated authority and must be submitted to the LGPC for approval. All debt refinancing in the CA Pilot must meet the requirements for refinancing set forth in SOP 50 10 5(E), Subpart B, Chapter 2, Paragraph IV.E.

Step 2: Credit Underwriting, Collateral and Environmental Requirements Lenders must analyze each small business application in a commercially reasonable manner, consistent with prudent lending standards. CA Lenders must follow the credit underwriting standards for the Small/Rural Lender Advantage (S/RLA) loan program established in SOP 50 10 5(E), Subpart B, Chapter 4, Paragraph I.A. Additional instructions are provided in SBA Form 2301, Part B, Lender’s Application for Guaranty, which includes a required credit memorandum as part of the underwriting process. Some of the key underwriting requirements are outlined below, but CA Lenders should review the SOP and regulations for further guidance.

The lender’s credit memorandum must meet reasonable and prudent industry standards, including at a minimum:

1. Description of the history and nature of the business;

2. Description of and comments on the business plan including:

a. Management experience of principal(s), particularly in the industry;

b. Financial condition of the business; and

c. Nature of any competition;

3. Spread of proforma Business Balance Sheet (current business balance sheet + changes in assets and liabilities as a result of the loan, other debt, any required equity injection and use of proceeds);

4. Ratio calculations (based on the proforma Balance Sheet and historical and projected Income Statements) for the following ratio benchmarks: Current Ratio, Debt/Tangible Net Worth, -18-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 http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(5-16-2012)%20clean.pdf

Debt Service Coverage, and other ratios the lender considers significant for the business/industry (e.g., inventory turnover, receivables turnover, and payables turnover, etc.);

5. Analysis of working capital adequacy to support projected sales growth in next 12 months;

6. Analysis/calculation of cash flow relative to debt service:

a. Show how historical cash flow would cover total debt service after the SBA loan.

(Lenders may use “rule of thumb” cash flow, defined as earnings before interest and taxes, plus depreciation and amortization, less total debt service. Each component (including total cash flow) must be shown.); and

b. Show how projected cash flow covers debt service after the SBA loan. (Lenders may use “rule of thumb” cash flow as defined above.) Also, provide an analysis of the reasonableness of the assumptions supporting the projected cash flow.

7. Collateral adequacy assessment (using liquidation values) to offset risk of default;

8. Explanation of and justification for the refinancing of any debts as part of the loan request, particularly Same Institution Debt;

9. Discussion of credit analysis, including lender’s rationale for recommending approval;

10. Discussion of any:

a. Seller financing;

b. Stand-by agreements;

c. 90+ day delinquencies; and/or

d. Trade disputes;

11. For a change of ownership, discussion/analysis of business valuation (based on generally accepted valuation methods used for the pertinent industry) used to support the purchase price. (See SOP 50 10 5(E), Subpart B, Chapter 4, Paragraph II.C.5 for business valuation requirements.);

12. Discussion of any judgments or bankruptcy filings; and

13. Any additional information the lender considers relevant to the credit decision.

Finally, CA Lenders must follow the collateral and environmental requirements applicable to standard 7(a) loans. Please consult SOP 50 10 5(E), Subpart B, Chapter 4, Paragraphs II and III, for the applicable requirements.

Step 3: Complete Required Documentation for All CA Lenders

1. Complete, sign and date SBA Form 2301, Part A, Lender Advantage Initiative, including the

Addendum for CA applicants only. Only one principal needs to complete, sign and date the entire form; all other principals only need to complete, sign and date Section D.

2. Complete, sign and date SBA Form 2301, Part B, Lender’s Application for Guaranty, including the credit memorandum.

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Step 4: Submit Required Eligibility Checklist Depending on Lender’s Delegated Authority

Non-Delegated Lenders (and Delegated Lenders until the lender has been approved to process using its delegated authority)

Delegated Lenders (after the lender has been approved to process using its delegated authority)

Step 4.

Complete Eligibility Checklist

Complete, sign and date SBA Form 2301, Part C, Eligibility Questionnaire. Furnish any additional information due to any “false” responses indicated on the form. The lender must sign this form.

Complete, sign and date SBA Form 2301, Part D, Eligibility Information for Community Advantage (CA) Loans. The lender must sign this form.

Step 5: Submit Forms to LGPC via E-Tran

Non-Delegated Lenders (and Delegated Lenders until the lender has been approved to process using its delegated authority)

Delegated Lenders (after lender has been approved to process using its delegated authority)

Step 5.

Submit the application documents and attachments

Submit loan and applicant information via E- Tran.*

SBA Form 2301 Parts A, B and C, including all attachments, must be sent to the LGPC electronically using one of the following options (please put the E- Tran application number in the subject line and identify the loan as a Community Advantage loan submission)

(ex. CA-12345678):

(a) Use “Send this File”. This is the preferred method because it is easy to use, does not have file size limitations, and can be accessed by several SBA personnel. To send it this way, please use the link below, enter the required information and attach the files:

https://www4.sendthisfile.com/sendthisfile/cu…