SBA Notice 5000-17057
Dated 4/3/2017 this Notice revises and clarifies several policies in SOP 50 10 5(J), with changes effective immediately.
Here's a summary of the key points:
- Credit Elsewhere and Owner Liquidity: Lenders are now required to consider the liquidity of owners of 20% or more of the applicant business. The Notice increased the ownership percentage for which liquidity must be considered from 10% to 20%.
- Equity Requirements for Loans Financing Changes of Ownership between Existing Owners: Under the new guidance, the SBA 7(a) loan can only finance up to 90% of the purchase price of the partner buyout unless the following additional two conditions are met: (1) The remaining owner(s) must certify that they have been actively participating in the business and have held the same ownership interest(s) for at least the past 24 months; and (2) The business balance sheet for the most recent FY and the current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the ownership change. This Notice replaces prior guidance that required the post-sale pro forma equity position to be at leasts 10% of assets.
- Ineligibility of Businesses Engaged in any Activity that is illegal under Federal, State or Local Laws: Guidance and clarification of the ineligibility of marijuana-related business including direct and indirect marijuana businesses, as well as hemp related businesses. This ineligibility includes a prohibition against an SBA borrower leasing any part of a building acquired with SBA loan funds to a business that is illegal under federal, state or local law.
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