The National Association of Federal Credit Unions recently expressed its support for the Small Business Administration’s proposed rule amendments designed to expand the accessibility of its 7(a) and 504 programs.
The SBA proposed to eliminate the personal resource test used to determine whether a person or entity can be considered a borrower’s affiliate and has requested public comment on whether it should replace the rule with a “facts and circumstances” evaluation or bright-line test.
“The removal of this test is especially important since it directly impacts the determination of whether a borrower is a ‘small business’ and eligible for an SBA loan,” NAFCU said in a letter. “The rule on affiliates should include a bright-line test that contemplates majority ownership of the borrowing entity to suffice for purposes of the ‘control’ analysis. However, a borrower should be able to show that, despite the majority ownership, there is no adequate control. In such cases, the SBA should evaluate the facts and circumstances.”
The SBA’s proposal would also remove three principles that relate to aggregate affiliates’ assets and eliminate the “personal resources” test, as well as the nine-month rule, from its programs.
Under the personal resources test, the amount for which a business is eligible is reduced by the liquid assets available to a shareholder with a stake of 20 percent or more.
“By removing this rule, the SBA has correctly recognized that access to liquid assets does not equate to access to credit and has appropriately expanded the pool of eligible borrowers,” NAFCU said.
NAFCU recommended that the SBA revise its policy of loan guarantee certification, saying many potential lenders are discouraged from engaging in SBA lending “because of the lack of certainty relative to the SBA guarantee.”
“Currently, a lender is not provided certification of the guarantee after the loan has been consummated,” NAFCU said. “This inaction has served to discourage entry to the SBA market…We would support a certification of the SBA’s guarantee that is subject to particular exceptions (i.e., that the guarantee would not apply in cases of fraud, material defect and failure to perfect a lien).”