Closing Tip

With changes in the economy, in many cases, we are finding that construction costs for projects closing now are less than was anticipated at the time of application.  Our loan is predicated on financing 90% of cost, so the borrower needs to contribute 10% of the reduced project amount.  We are not able to give the borrower “equity” credit for bringing the project in under budget.  The challenge comes if the bank allows the borrower to draw down all of the loan funds to pay project costs themselves.  In this situation, we find that the borrowers often have not contributed sufficient equity.

SBA Issues NEW Standard Operating Procedures (SOP)

SBA has issued a new SOP which is slated to go into effect on May 1, 2008, and is the first update to the SOP since 1997.  It is much shorter and is available on the internet at SBA’s web site with electronic search features.  Unfortunately, we have several concerns about potential policy changes that seem to have been incorporated.
 
A major change for the 504 program is in the appraisal section.  Over the last three years while our loans have been processed through the Sacramento Loan Processing Center, we have not been required to have the appraisal addressed to us or SBA.  Now, SBA will require that the ENGAGEMENT LETTER issued by the bank to the appraiser include Business Finance Group and the SBA as parties who may rely on the appraisal.  A reliance letter issued subsequent to the appraisal being completed will not be sufficient.  As you are ordering appraisals on potential 504 projects, please add Business Finance Group and SBA to the engagement letter now to save problems later on.

As soon as the final SOP is issued, and we are able to determine how the 504 program is impacted, we will announce training sessions for our first trust lending partners.  Stay tuned!