SBA Revisions to Third Party Lender Agreement Overview by CDC Small Business Finance February 6, 2013
Presentation Objectives • Provide early overview of major document changes so you may work through your internal system • Provide informational resources should your bank desire further information through review and implementation
Presentation Panel • Dace Pavlovskis, SBA District Counsel & Participant on SBA Closing Task Force • Todd Kobernick, SBA Designated Closing Attorney • Mike Owen, Executive Vice President of CDC Small Business Finance
SBA Objectives for Third Party Lender Agreement Revision • Clarify language within the document • Remove extraneous language • Clarify lender obligations in loan default circumstances • Add language for loan swap scenarios
Nine Primary Sections Changed • Maximum Loan Amount • Disbursement Protocol • 18 USC 1001 Reference Added on Preference • Balloon Payment Protocol • Additional Collateral Treatment in Liquidation • Notice on Common Collateral • Notice of Collection Activity • Default Charges • Swap Agreement Costs
Paragraph 1 clarifies TPL Loan Maximum and Subordination: • Amount of Third Party Loan. The Third Party Lender represents that the Third Party Loan is fully advanced; does not exceed the amount stated in the Authorization; and, will not exceed the amount allowed by the Authorization, plus reasonable costs of collection, maintenance, and protection of the Third Party Lender’s lien. Any amounts owed by Borrower to Lender in excess of the Third Party Loan amount cannot be secured by a lien on the Common Collateral unless it is subordinate to the 504 Loan except that reasonable costs of collection, maintenance, and protection may also be included.
Paragraph 2 clarifies TPL must be disbursed in accordance with representations made to SBA • Subordination of 504 Loan. CDC agrees to make the 504 Loan to the Borrower, subject to SBA’s approval, and accept a junior and subordinate lien position in the Common Collateral upon the conditions that Third Party Lender executes this Agreement and disburses the Third Party Loan according to the terms represented to CDC and SBA .
Paragraph 3 adds reference to 18 USC 1001 - • Accurate Information. The Third Party Lender warrants and represents that all information provided to CDC, including, without limitation, all information regarding the Borrower’s financial condition, is accurate to the best of its knowledge and that Third Party Lender has not withheld any material information. Third Party Lender acknowledges that for purpose of this transaction, CDC is acting on behalf of SBA, an agency in the United States Government, except that SBA accepts no liability or responsibility for any wrongful act or omission by CDC. Third Party Lender further acknowledges that any false statements to CDC can be considered false statements to the federal government under 18 U.S.C. §1001, and may subject the Third Party Lender to criminal penalties, and that CDC and SBA are relying upon the information submitted by the Third Party Lender.
18 U.S.C.A. § 1001 • (a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully — • • (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; • (2) makes any materially false, fictitious, or fraudulent statement or representation; or • (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; • shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. If the matter relates to an offense under chapter 109A, 109B, 110, or 117, or section 1591, then the term of imprisonment imposed under this section shall be not more than 8 years. • • (b) Subsection (a) does not apply to a party to a judicial proceeding, or that party's counsel, for statements, representations, writings or documents submitted by such party or counsel to a judge or magistrate in that proceeding. • • (c) With respect to any matter within the jurisdiction of the legislative branch, subsection (a) shall apply only to-- • (1) administrative matters, including a claim for payment, a matter related to the procurement of property or services, personnel or employment practices, or support services, or a document required by law, rule, or regulation to be submitted to the Congress or any office or officer within the legislative branch; or • (2) any investigation or review, conducted pursuant to the authority of any committee, subcommittee, commission or office of the Congress, consistent with applicable rules of the House or Senate.
Paragraph 5e – Balloon payments on TPL must be clearly identified and disclosed. Note – CDC Small Business Finance discloses the TPL terms and conditions and obtains SBA consent at time of application • Maturity and Balloon Payments. The Third Party Loan must have a term of at least 7 years (when the 504 loan is for a term of 10 years), or a term of at least10 years (when the 504 loan is for 20 years). If the Third Party Lender has made more than one loan, then an overall loan maturity must be calculated, taking into account the amounts and maturities of each loan. Any balloon payment for the Third Party Loan must be clearly identified and disclosed to SBA and approved at application or subsequently approved by SBA.
Paragraph 6 waives TPL requirement to liquidate additional collateral for just cause: • No Preference. Third Party Lender must not establish a preference beyond its rights as a senior lender on the Third Party Loan without the prior written consent of CDC/SBA. If the Third Party Lender does take additional collateral or otherwise have a preference, in the case of liquidation, any proceeds received from such additional collateral, must be applied to the Third Party Lender's debt prior to the proceeds from the liquidation of the common collateral held by the CDC/SBA and the Third Party Lender. If the additional collateral no longer exists at the time of liquidation, or has insufficient value to justify the cost of collection, then the Third Party Lender is not required to liquidate such collateral, provided the Third Party Lender notifies CDC/SBA and obtains CDC/SBA’s written consent. (See 13 C.F.R. §120.10 for a definition of preference.)
Paragraph 7 requires TPL to give 60 days notice before initiating any legal or collection activity of collateral property • Notice of Default under the Third Party Loan. Within thirty (30) days of any default of the Third Party Loan or Third Party Lien, Third Party Lender must provide written notice (referencing SBA’s loan number for the 504 Loan) of the default to CDC and SBA. At least sixty 60 days prior to initiating any legal proceeding or collection activity against the Common Collateral, Third Party Lender must provide SBA with written notice of its intent to do so.
Paragraph 9d Added – Requires 60 Days Prior Notice to SBA/CDC of Note Sale & Right to Purchase at Same Terms • If the Third Party Lender proposes to sell its note, the Third Party Lender must provide CDC/SBA with sixty (60) days written notice prior to the sale including the amount of the note and the amount being offered. SBA has the option to purchase the Note at the same price offered net any default charges, including, but not limited to, prepayment penalties, late fees, other default charges, and escalated interest after default due under the Third Party Loan.
Paragraph 9e Added – TPL Default Charges Subordinate to 504 Loan in Note Sales or Transfers • If the Third Party Lender sells or otherwise transfers its note to a third party, then any default charges, including, but not limited to, prepayment penalties, late fees, other default charges, and escalated interest after default due under the Third Party Loan must be subordinate to the amounts outstanding on the 504 Loan and/or CDC Lien.
Paragraph 9f Added – All Swap Costs Subordinate to 504 Loan • If the Third Party Lender loan documents contain a swap component or hedging contract (hereinafter defined as “swap agreement), all costs associated with this swap agreement, which may be termed swap fees, termination fees, default fees or other related fees, shall be subordinate to the amounts outstanding on the 504 Loan and/or CDC Lien.
SOP Change Impacting TPL Closing Counsel • SOP 70 50 3(B) Stipulates that CDC Closing Counsel may not also represent Third Party Lender at closing • SBA is reviewing this provision by soliciting comments from Third Party Lenders and NADCO
You Will Receive by Email: • Clean copy of new Third Party Lender Agreement • Redline version of new Third Party Lender Agreement • 18 USC 1001
Questions, Answers, Comments Thank You!
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