sba assignment form

Assumption, Assignment and Sale of SBA 7(a) Loans

https://youtu.be/mSZoxM5QVNo

You have a business with an SBA guaranteed 7(a) loan and now you are looking to sell the business.  What about the loan?  Can you simply assign the loan and have the buyer assume the loan in your sale documents without anything more?  Generally speaking, the SBA will need to approve the assumption and certain requirements must be met: 1. Unless the assumption is part of a workout or the loan is in liquidation status, the proposed assumptor must meet the applicable 7(a) Loan eligibility requirements in the most current version of the SBA’s standard operating procedures; 2. The proposed assumptor should be the primary owner of the business; 3. The proposed assumptor should have business experience and management skills that are equal to or better than the Borrower's; 4. The proposed assumptor must have a satisfactory credit history; 5. The proposed assumptor must have the ability to repay the SBA loan in full; 6. No collateral should be released; 7. No collateral should be subordinated except as otherwise provided with regard to funds that will be used to make improvements to the collateral that will maintain or increase its value; 8. The proposed assumption should not have a negative impact on the operation of the business; 9. The proposed assumption must not have a negative impact on the recoverable value of the collateral; 10. The existing collateral should be adequate to secure the loan, if not and whenever possible, additional collateral should be required as a condition for the assumption; 11. Existing Obligors must not be released without SBA’s prior written approval; 12. The terms of the assumption must be set out in a written agreement signed by all of the parties to the agreement; 13. The terms of the assumption must include a "due on sale or death" clause that prohibits any future assumption of the SBA loan; and 14. The terms of the assumption must not include a real estate contract, i.e., the seller may not retain title to the property until an agreed upon amount is paid.

If you are facing an SBA loan default, contact Protect Law Group today at www.sba-attorneys.com or 1-888-756-9969 to schedule your FREE initial consultation.

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$220,000 SBA 7A LOAN -DOT WAIVER OF ADMINISTRATIVE FEES & COSTS

Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection.  Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest.  We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.

$1,200,000 SBA 7A LOAN - SBA OHA LITIGATION

Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture.  After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against our client’s monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars.  We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA).  As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy), but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.

$337,000 SBA 504 LOAN - SBA OIC CASH SETTLEMENT

Clients personally guaranteed SBA 504 loan balance of $337,000.  The Third Party Lender had obtained a Judgment against the clients.  We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.

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Best Practices: Review of the Most Commonly Negotiated Points in Landlord Subordination Agreements

• October 2, 2019
• Katherine D. Tohanczyn

Many small businesses that seek financing under the SBA 7(a) Loan Program operate from buildings that are leased from a third-party landlord, which can take the form of stand-alone buildings, shopping centers or commercial office parks. These loans are generally underwritten on a cash-flow basis and the primary (or oftentimes the only) collateral is the tangible, business personal property (e.g., equipment, furniture, and inventory) of the borrower located at the leased property.

Whenever a SBA loan includes the borrower’s tangible personal property as collateral, the SBA requires lenders to obtain a lien subordination agreement prior to closing from landlords and sub-landlords, as applicable, giving the lender, at a minimum, in addition to lien subordination provisions: (i) notice of the borrower’s default under the lease, (ii) an opportunity to cure the default, and (iii) access to the leased premises in order to remove collateral. Further, “[w]hen a substantial portion of the loan proceeds are to be used for leasehold improvements or [ii] a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate,” the SBA also requires lenders to obtain a collateral assignment of the lease.

Ideally, lenders should provide the borrower and landlord with a copy of the lender’s form landlord subordination agreement early on in the closing process to provide adequate time for negotiations prior to closing. Commonly negotiated provisions include (i) notice, (ii) time of lender’s possession, (iii) payment of rent, and (iv) assignment of lease.

Most SBA landlord subordination forms require landlord to provide notice to the lender of the borrower’s default under the lease. This notice is important as borrowers often default under the lease prior to defaulting under the subject SBA loan. While the lender’s loan documents may provide that a lease default constitutes a default under the loan, that does not protect the lender if it does not know of the lease default. As such, the landlord subordination agreement should provide that the landlord may not terminate the lease or remove, sell or otherwise dispose of the borrower’s personal property without first providing the lender notice of the borrower’s default and an opportunity to cure or exercise lender’s rights under the landlord subordination agreement.

Time of Possession

Another frequently negotiated section of any landlord subordination agreement is lender’s right to access and occupy the premises in order to inspect and/or remove collateral.  Lenders generally request 60-90 days to enter and remove the collateral but, in some cases, landlords want the property removed in as little as five days. Lenders should carefully consider the minimum amount of time needed based on the location of the property and type of property to be removed.

While a lender is occupying the property, it is usually requested that the lender pay rent to the landlord. However, it is important for lenders to review the language used by the landlord in reference to the amount of rent owed. In some instances, landlords will request that the lender pay rent due and owing under the lease, which appears reasonable on its face. However, a review of the lease may reveal various types and amount of rent. Additionally, lenders should ensure that they are only obligated to pay rent for the time that the lender is actually in possession of the premises.  The lender should ensure it is agreeable to what rent is being paid and limit, if necessary.

Collateral Assignment of Lease

A collateral assignment of lease provision allows the lender to collaterally assign the lease over to a new borrower who is willing to assume the loan and business operation of an original borrower. Landlords are generally hesitant to agree to allow the lender to choose a new tenant. A landlord may be agreeable to allowing an assignment with the landlord’s prior written approval, which approval is generally subject to a review of the creditworthiness of the new tenant. Ultimately, the collateral assignment means that the lender is assisting the landlord with finding a new tenant to rent the property, which is to the benefit of both the landlord and the lender, assuming that the new tenant also assumes part or all of the loan.

Although landlord subordination agreements are generally one to two pages documents, these documents can be challenging to finalize and often result in lengthy negotiations. It is important that lenders are familiar with the terms of the landlord subordination agreement and understand both the lender’s internal policies and SBA requirements when negotiating with landlords.

For more information on negotiating landlord waivers, please contact the attorneys at Starfield & Smith, P.C. at 215.542.7070 or email us at [email protected].

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