|
There have been numerous mergers and acquisitions involving SBA 7(a) Lenders over the past several months. As such, it is helpful for Lenders to familiarize themselves with the SBA 7(a) loan portfolio transfer requirements set forth in 13 CFR § 120.432(a) (click here for the CFR) and SOP 50 56 1, Lender Participation Requirements, effective August 1, 2023 (click here for the SOP on the SBA website):
- SBA allows SBA 7(a) loan portfolio transfers under limited circumstances. Lenders may encounter situations that result in the ownership transfer of their entire interest in SBA 7(a) loans from one Lender to another. These situations may arise when Lenders merge, decide to leave a specific operating area, cease participation in the SBA 7(a) loan program, or as may be directed by other Federal financial regulators.
- Pursuant to 13 CFR § 120.432(a), Lenders selling or transferring the entire interest in a SBA 7(a) loan are required to obtain SBA’s prior written consent. All loan transfers must occur between Lenders in the 7(a) loan program.
-
When a transfer involves more than one SBA 7(a) loan, Lenders are required to obtain SBA’s prior written consent to the proposed portfolio transfer. Prior to conducting a review for approval, Lenders must pay all outstanding SBA receivables that are more than 30 days in arrears. Lenders must contact DFCActionDesk@sba.gov in advance of their consent request for information on any SBA receivables outstanding. All SBA receivables must be satisfied with proof of payment to SBA in order to consider a portfolio transfer of loans.
-
Requests for consent for transfers involving more than one SBA 7(a) loan are submitted to the Office of Financial Assistance (“OFA”) at 7aPortfolioTransfers@sba.gov. Failure to secure SBA consent will prevent the transfer of related SBA loan guarantees accompanying the loans scheduled for transfer. The written request shall include documents describing the basis for the portfolio transfer. These documents are either in the form of an asset purchase agreement or plan of merger agreement. If the transfer takes the form of an asset purchase, SBA will also require submission of a loan list (preferably in a Microsoft Excel spreadsheet) identifying the loans to be transferred. Listed loans are to be assembled in ascending order by SBA Loan Number and must include the name of the Borrower and the original loan amount. SBA will also require the proposed purchaser of the loan portfolio to submit a signed Lender Statement of Obligation which will identify points of contact and the purchasing Lender’s responsibilities and obligations after the transfer is completed.
-
Upon SBA approval, the Lender purchasing the 7(a) loans and/or loan portfolio must take possession of the promissory notes and the other loan documents and service the 7(a) loans. The purchasing Lender will assume all of the obligations and responsibilities of the selling Lender, including but not limited to, all obligations, responsibilities and liabilities resulting from the making, servicing, closing and liquidation of the selling Lenders’ loans. The purchasing Lender purchases the 7(a) loans subject to SBA’s existing rights to deny liability on its guarantee as provided in 13 CFR § 120.524 (click here for the CFR).
- Lenders that receive SBA approval must notify the Secondary Market Division once the proposed transaction is completed. At that time, OFA will notify Office of Performance and System Management (“OPSM”) to transfer loan accounts into the purchasing Lender portfolio. (Note that separate reporting and transfer requirements exist for PPP loans.)
Additionally, if a Lender (including a Delegated Lender) makes a major change in its structure or organization after execution of the SBA Form 750, it must notify the Office of Credit Risk Management (“OCRM”) at OCRM@sba.gov (with a copy to the Lead District Office) in writing. SOP 50 10 8, Appendix 3 defines the Lead District Office for the 7(a) Loan Program as the SBA district office or branch office serving the geographic area where the Lender’s principal office is located. Major changes that may impact continued SBA participation include:
- Acquisition by another entity;
- Merger into another legal entity;
- A change of name;
- Substantial changes in management;
- Establishment of a subsidiary or affiliate, or acquisition of another entity, to administer Lender’s SBA loan portfolio;
- Substantial changes in how the Lender handles SBA loans, including a proposed sale of its SBA loan portfolio; or
- Takeover or closure of the Lender by a regulatory agency.
To process 7(a) loan portfolio transfers, lenders must submit the information required by the SBA to determine whether to provide its prior written consent to the transfer of the SBA loan guarantees. The requests must be fully executed and submitted on the institution letterhead of the divesting and acquiring institutions. As such, it is important that lenders submit the required information and requests well in advance of the first legal day of the acquisition or merger to ensure that all necessary documents have been executed by the divesting lender while it legally exists.
If your lending institution has questions about the loan portfolio transfer requirements related to mergers or acquisitions, or other SBA lending matters, please contact us at SBAQuestions@JellumLaw.com.
This article is provided for general information and educational purposes only. It does not solicit, establish, or continue an attorney-client relationship. The contents should not be construed as legal advice or opinion. If the organization would like formal legal advice, our professional liability insurer (as well as the applicable attorney ethical rules) requires that we establish a formal attorney-client relationship. If you are interested in learning more about working with Jellum Law, please contact us at SBAQuestions@JellumLaw.com.
| 
