Process to Obtain Construction Bond Waivers
SOP 50 10 6 provided a blanket waiver of the requirement for lenders to obtain construction performance and payment bonds, provided the lender met the requirements set forth in SOP 50 10 6.
SOP 50 10 7 (effective August 1, 2023) does not contain the prior blanket waiver for construction performance and payment bonds, as statutorily required by 13 CFR 120.200. As a result, the SBA has provided the following guidance for lenders to obtain SBA’s waiver of the bonding requirement when processing SBA 7(a) loans with their delegated authority (as shared at a recent SBA lending conference):
- If a lender has a construction loan and the lender does not want to get a performance and payment bond, lenders may send an email to Dianna Seaborn at Dianna.Seaborn@SBA.Gov requesting a waiver of the regulator requirement at 13 CFR 120.200 for a 100% payment and performance payment bond and builder’s risk insurance. When submitting the request, the lender must provide Dianna Seaborn with a list of the loans for which they are requesting the waiver.
- Dianna Seaborn will respond with an email stating that, for those specific loans, SBA has granted a waiver. The lender should keep a copy of Dianna Seaborn’s email in the respective loan files. Lenders with Delegated Authority should NOT approve the loan until after they receive the email from Dianna Seaborn issuing the waiver.
SBA 7(a) Blended Loan Maturities
Under SOP 50 10 6 when loans were approved for multiple purposes, lenders were allowed to utilize a blended maturity or, when 51% or more of the use of proceeds was approved for real estate, the lender was allowed to utilize a maximum maturity of up to 25 years. SOP 50 10 7 does not contain the aforementioned 25-year maturity option. As such, the SBA has confirmed that lenders may currently choose from the following three options:
- Approve and close a separate loan for each use of proceeds.
- Structure a single loan utilizing a non-standard, split amortization, duplicating the debt service of the multiple uses of proceeds but with one Note. For example: If there is one use of proceeds with an applicable 10-year maturity, and another use of proceeds with an applicable 25-year maturity, then the singular loan may be structured with a 25-year maturity, where the loan payments would be based upon the portion allocated to real estate calculated over the full 25-year term, and the portion allocated for working capital over a 10-year term, such that the first 10-years of repayment would have a higher principal and interest payment, and then at the end of the tenth year, the principal and interest payment would decrease to reflect the remaining portion of the loan that is solely allocable to real estate. With this structure, the borrower is making payments on the working capital portion and the real estate portion for the first 10 years. At the end of 10 years, the working capital portion is paid off and the borrower is only making payments on the real estate portion.
- One Note with a maturity calculated as a weighted average by the use of proceeds. For example: If 75% of the loan proceeds is being used to purchase real property (maximum maturity = 25 years) and 25% is being used for working capital (maximum maturity = 10 years), the allowed maximum maturity for the loan would be 21 years and 3 months (21.25) years. Calculation: (25 x .75) + (10 x .25) = 21.25
The information provided within this newsletter is reflective of the SBA’s current guidance.
If your lending institution has questions about SOP 50 10 7, or any other SBA lending matters, please contact us at SBAQuestions@JellumLaw.com.