SBA SOP 50 10 8.1, C.Ch2.A — SBA Terms and Conditions

Chapter 2: SBA Terms and Conditions through Disbursement A. SBA Terms and Conditions The SBA Terms and Conditions is SBA’s agreement between the SBA and the CDC providing the terms and conditions under which SBA will issue a debenture. 1. Loan Conditions (13 CFR § 120.160): a. SBA establishes the wording for the standard 504 SBA Terms and Conditions. b. The SBA-authorized SBA Terms and Conditions for 504 loans must use the pre-approved conditions that are found in the Boilerplate. c. The party responsible for drafting the SBA Terms and Conditions is determined by the program the loan is processed under:

i. Regular and ALP: The CDC drafts the SBA Terms and Conditions and the SBA finalizes and executes and sends to the CDC for execution

ii. PCLP: CDC drafts and executes on SBA’s behalf d. SBA counsel must review and approve any SBA Terms and Conditions with the following exception. When processing a loan under PCLP lending authority, PCLP CDCs may develop the SBA Terms and Conditions and use them without prior SBA approval, provided they are only used one time. Whenever a PCLP CDC develops and uses a non-standard condition, an explanation for its development must be in the loan file. 2. Disbursement Period, Interest Rates and Loan Maturity: a. Disbursement Period: The loan must be disbursed within 48 months from the date of approval, unless an exception to policy is approved and an extension is granted by SBA through the OFPO/SLPC, with concurrency by SBA CFO to confirm funding authority. For Debt Refinance without Expansion, the loan must be disbursed within 9 months from the date of approval. For Debt Refinance without Expansion, SBA may grant an extension not to exceed 15 months. When appropriate, SLPC will also refer extension requests to OFA for concurrency with OGC and the CFO. SBA will track the approved time frame for loans and automatically cancel undisbursed dollars. The Denver Finance Center (DFC) will make a reasonable effort to mail an initial message to the CDC approximately 3 months prior to taking action on undisbursed funds. The message will inform the CDC of the undisbursed dollar amount and will provide a date on which the dollars will be automatically cancelled. After the 3-month message has expired, DFC will make a reasonable effort to mail a second message on the day the automatic cancellation is processed. To request an extension of the disbursement period, a CDC must submit the request through the SLPC as a 327 action and must include the following: i. The reason for the extension, with a detailed timeline for project completion and funding. ii. A determination of no adverse change.

iii. Updated financial statements dated within 120 days (or 90 days for personal financial statements) of the request and analysis thereof.

iv. Documentation to demonstrate how the project sources and uses have been adjusted for any increases in project costs. For loans processed under a CDC’s PCLP authority, items listed under Section C, Ch. 1, Para. F.2.a.i.-iv. must be submitted directly through the SBA Loan System with notification to the SLPC for review and consideration. b. Interest Rate: The interest rate for 10, 20, and 25 year 504 debentures is based on market conditions for long-term government debt at the time of sale. 13 CFR § 120.932 c. Maturity is 10, 20, or 25 years based upon the remaining useful life of the property being financed, in accordance with Ch. 1, Para. D.2, Loan Maturities. 3. Interim and Third Party Lender Requirements: CDC must insert the names of the Interim and Third Party Lenders and the amounts of the loans into the SBA Terms and Conditions. 4. Insurance Requirements: Lender must ensure all appropriate insurance requirements are included in the SBA Terms and Conditions. 5. IRS Tax Transcript/Verification of Financial Information: The IRS Tax Transcript/Verification of Financial Information process must be completed in accordance with Section A, Ch. 5, Para. B, IRS Tax Transcript/Verification of Financial Information. 6. Standby Agreements: a. SBA Form 155, “Standby Agreement.” CDC may use SBA Form 155 or its own equivalent standby agreement form. A copy of the note must be attached to the standby agreement. b. Standby Creditor must subordinate any lien rights in collateral securing the Loan to CDC’s rights in the collateral and take no action against Applicant or any collateral securing the Standby Debt without CDC’s consent. 7. Assignment of Lease and Landlord’s Waiver: If applicable, the SBA Terms and Conditions must include conditions for assignment of lease and landlord’s waiver. 8. Construction Loan Provisions: a. In the construction of a new building or an addition to an existing building, the CDC must obtain: i. Evidence of compliance with the “"National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Building”" (NEHRP), or a building code that has substantially equivalent provisions. (13 CFR § 120.174) a) The NEHRP provisions may be found in the American Society of Civil Engineers (ASCE) Standard 7 and the International Building Code. b) Examples of evidence include a certificate issued by a licensed building architect, construction engineer or similar professional, or a letter from a state or local government agency stating that an occupancy permit is required and that the local building codes upon which the permit is based include the Seismic standards. ii. The SBA Terms and Conditions must address the NEHRP provision when any of the use of proceeds options selected includes construction financing, including leasehold improvements. If the leasehold improvements made with loan proceeds will become permanently affixed to any structure on the leased premises, then they must comply with the NEHRP. If the leasehold improvements are only temporary, they do not need to comply with the NEHRP. Accordingly, if the Applicant can demonstrate that the leasehold improvements will be temporary, CDC may request modification of the SBA Terms and Conditions to remove the NEHRP provision in accordance with Paragraph B., Modifying the SBA Terms and Conditions, of this Chapter. The CDC must certify that the Project was completed in accordance with the final plans and specifications unless a minor portion of the project has been escrowed for a valid reason. (13 CFR § 120.891) b. If the interim financing comes from a CDC, the following additional conditions must be required in the SBA Terms and Conditions: i. Mortgages must be recorded prior to beginning construction. ii. Inspections must be made by a qualified engineer, appraiser, or other party satisfactory to SBA prior to all progress disbursements. iii. The Applicant must furnish a firm construction contract to the CDC from an acceptable contractor at a specified price, including a provision that no material changes are to be made without the prior written consent of the CDC; iv. The contractor must furnish builder’s risk and workers’ compensation insurance;

v. One complete set of plans and specifications of the proposed construction must be submitted to the CDC;

vi. Where the CDC or the Applicant is to inject funds into the construction project, these funds must be used prior to the disbursement of the interim financing;

vii. The CDC must make and document periodic inspections of construction; and

viii. When loan funds will be used to improve buildings on leased land, assignment of the lease must be obtained. 9. Special Provisions for Personal Property, Equipment and Fixtures as Collateral. If the collateral for the loan includes equipment and/or fixtures: a. The CDC must obtain a list of all equipment and fixtures that are collateral for the loan. b. For items with a unit value of $5,000 or more, the list must include a description of the equipment/fixture and serial number, if applicable. c. The list should be included in the collateral description (Item 4. COLLATERAL) on the UCC-1 Financing Statement. 10. Certifications of the CDC: The certifications required of the CDC are listed on SBA Form 2101, “CDC Certification.” 11. Certifications of the Borrower: The certifications required of the Borrower are listed on SBA Form 2289, “Borrower and Operating Company Certification.” 12. Certifications of the Interim Lender: The certifications required of the Interim Lender are listed on SBA Form 2288, “Interim Lender Certification.”