In light of the current government shutdown, lenders may wish to utilize “interim loans” as a means of short-term financing for small business applicants. However, it is important for lenders to understand the difference between “interim loans” and “interim advances” (also known as bridge loans).
Under SOP 50 10 8 with Technical Updates, whether a short-term loan must be treated as same institution debt (“SID”) for purposes of the applicable debt refinance rules depends on whether the short-term loan is provided prior to, or after, the issuance of an SBA PLP loan number.
Interim Loans
(See SOP 50 10 8 with Technical Updates, pp. 115 and 151, click here to read the SOP on the SBA website)
For Standard 7(a) Loans, SBA does not consider the following to be refinancing of SID:
- The debt is an interim loan that has been made for other than real estate construction purposes and was approved by the Lender within 90 days prior to the issuance of a PLP loan number; or
- The debt is a construction loan that has not been disbursed at the time the PLP loan number is issued.
- When there is a complete change of ownership and the seller’s loan is being paid off with proceeds from the Borrower’s loan.
For 7(a) Small Loans, SBA does not consider the following to be refinancing of SID:
- The debt is an interim loan that has been made for other than real estate construction purposes and was approved by the Lender within 90 days prior to the issuance of a PLP loan number; or
- The debt is a construction loan that has not been disbursed at the time the PLP loan number is issued.
- When there is a complete change of ownership and the seller’s loan is being paid off with proceeds from the Borrower’s loan.
Once the government shutdown has been lifted, PLP lenders may process the related SBA loan applications with their Delegated Authority. However, if the lender does not anticipate obtaining the PLP loan number prior to the 90 day deadline, then the interim loan must be treated as SID and the SBA loan application must be submitted for General Processing.
It is important to note the difference between “interim loans” and “interim advances” as follows.
Interim Advances
(See SOP 50 10 8 with Technical Updates, pp. 117 and 153, click here to read the SOP on the SBA website)
- For 7(a) Standard Loans processed on a delegated or non-delegated basis, after the loan has received an SBA loan number and prior to disbursement, a Lender or an affiliate of the Lender may make interim advances (also known as bridge loans) and 7(a) loan proceeds may be used to reimburse the interim advances. Lender notification to SBA of such advances is not required.
- For SBA Small and Express Loans processed on a delegated or non-delegated basis, after the loan has received an SBA loan number and prior to disbursement, a Lender or an affiliate of the Lender may make interim advances (also known as bridge loans) and 7(a) loan proceeds may be used to reimburse the interim advances. Lender notification to SBA of such advances is not required.
Since “interim advances” are utilized after a lender has received an SBA loan number, the “interim advances” do not provide lenders and borrowers with the same benefit during the current government shutdown as compared to the use of “interim loans”.
If your lending institution has questions about “interim loans” and “interim advances”, or any other SBA lending matter, please contact us at SBAQuestions@JellumLaw.com.