SBA Economic Disaster Assistance: Express Bridge Pilot Program

What SBA Economic Disaster Assistance is Available in Response to COVID-19 Part II: SBA Express Bridge Pilot Program

Overview

Pursuant to its authority under the Small Business Act, the U.S. Small Business Administration (“SBA” or the “Agency”) provides direct loan assistance to small businesses located in communities impacted by Presidentially-declared disasters and disasters declared by SBA under its own authority. The EBL Pilot Program, announced by publication of a notice in the Federal Register on October 16, 2017 (82 FR 47958), is designed to supplement the Agency’s direct disaster loan capabilities. As originally announced, the EBL Pilot Program authorizes SBA Express Lenders to provide expedited SBA-guaranteed bridge loan financing on an emergency basis in amounts up to $25,000 for disaster-related purposes to small businesses located in communities affected by Presidentially-declared disasters while those small businesses apply for and await long-term financing (including through SBA’s direct Disaster Loan Program, if eligible).

 

Effective March 25, 2020, (announcement by publication of a notice in the Federal Register will follow), SBA expanded program eligibility to include small businesses nationwide adversely impacted under the Coronavirus Disease (COVID-19) Emergency Declaration issued by President Trump on March 13, 2020 (“COVID-19 Emergency Declaration”). Because the COVID-19 Emergency Declaration covers all states, territories, and the District of Columbia, eligible small businesses under the EBL Pilot Program include small businesses located in any state, territory and the District of Columbia that have been adversely impacted by the COVID-19 emergency. The notice also stated that all references to disasters in the EBL Pilot Program requirements will include the COVID-19 emergency. In the same notice, SBA extended the term of the EBL Pilot Program through March 13, 2021.

 

EBL loans can only be made up to six months after the date of an applicable Presidential Disaster Declaration. For the COVID-19 Emergency Declaration, EBL loans can be approved through March 13, 2021.

 

The EBL Pilot Program applies the policies and procedures in place for the SBA Express program, with a few exceptions. In the October 16, 2017 Federal Register Notice, SBA exercised its authority under 13 CFR § 120.3 to modify the requirements of 13 CFR § 120.150 (“What are SBA’s lending criteria?”) to allow SBA Express Lenders to use a streamlined underwriting process for EBL loans. The modification of the 7(a) lending criteria will minimize the burden on small businesses applying for loans through the EBL Pilot Program and encourage SBA Express Lenders to participate in the pilot.

 

What Lenders are authorized to make an EBL?

Only those SBA Express Lenders that had a valid SBA Form 2424 “Supplemental Loan Guaranty Agreement SBA Express Program,” in effect as of March 13, 2020 can make EBL loans.  Moreover, EBL loans may only be made to eligible small businesses with which the Lender had an existing banking relationship on or before the date of the applicable disaster. A relationship with any of the SBA Express Lender’s affiliates will not satisfy the requirement of an existing banking relationship.

 

What Small Business are eligible for the EBL Pilot Program?

Small businesses located in any state, territory and the District of Columbia that have been adversely impacted by the COVID- 19 emergency are eligible, provided that all other eligibility requirements are met. The small business must have been operational when the declared disaster commenced and must meet all other 7(a) loan eligibility requirements as set forth in 13 CFR §§ 120.100 through 120.111 and SOP 50 10.

 

What are the required terms and conditions for EBL loans?

 

  1. Credit Not Available Elsewhere. As with all 7(a) loans, EBL applicants must demonstrate the need for the desired credit (i.e., they must meet the SBA’s “credit elsewhere” requirements). See 13 CFR §§ 120.101 and 120.102. The Lender must certify on the SBA Form 1920, “Lender’s Application for Loan Guaranty,” that the EBL applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal sources, including the Lender, without SBA assistance, and requires the Lender to fully document the basis for that determination in its loan file. Failure of the Lender to adequately address the EBL applicant’s need for the desired credit may result in SBA denying liability on the guaranty.
  2. Adverse Impact (COVID-19 Emergency Declaration Only). For EBL loans made under the COVID-19 Emergency Declaration, the Lender must document in the credit memorandum that the EBL applicant had an operating business as of March 13, 2020 and that the applicant has demonstrated that it has been adversely impacted by the COVID-19 emergency.
  3. Eligibility period. For COVID-19 Emergency Declaration loans, Lenders may obtain SBA loan numbers for EBL loans through March 13, 2021.
  4. Multiple loans. An EBL applicant (including affiliates, as defined in 13 CFR § 121.301(f)) may obtain only one EBL loan per Declaration. An EBL loan will not count towards the maximum limitation on the amount of SBA Express loans that can be outstanding to any borrower (including affiliates). An EBL loan will, however, count towards the maximum limitation on the amount of 7(a) loans that can be outstanding to any borrower (including affiliates).
  5. Maximum loan amount. The maximum gross loan amount under the EBL Pilot Program is $25,000.
  6. Maximum guaranty percentage. For an EBL loan, the SBA guaranty percentage is limited to the maximum guaranty percentage for SBA Express loans. The guaranteed amount of an EBL loan will count towards the maximum SBA exposure that may be outstanding for all SBA loans to a borrower and its affiliates at any one time.
  7. Maximum maturity/loan term.
    1. The EBL loan must be structured as a term loan (revolving lines of credit are not permitted).
    2. The maximum EBL loan term is 7 years.
    3. The Lender may require the EBL borrower to pay the EBL loan in part or in full if the borrower is approved for long-term disaster financing (including an SBA Direct Disaster loan) that allows loan proceeds to be used for EBL loan reimbursement; or
    4. The Lender may permit the loan to amortize over a maximum term of 7 years if the borrower does not obtain long-term disaster financing.
  8. Secondary market sales prohibited. EBL loans cannot be sold in SBA’s secondary market. EBL loans are intended to be interim loans, thus SBA has determined pursuant to 13 CFR § 120.612(a)(3) that the sale of such loans in SBA’s secondary market would not be conducive to the successful operation of the secondary market program.
  9. Use of Proceeds.
    1. For the COVID-19 Emergency Declaration, EBL loan proceeds must be used exclusively to support the survival and/or reopening of the small business.
    2. For the COVID-19 Emergency Declaration, Lenders must certify in the credit memorandum that the EBL loan proceeds will be used by the borrower to support the survival and/or reopening of the small business. This certification must be included with any guaranty purchase request to SBA.
    3. For the COVID-19 Emergency Declaration, EBL loan proceeds must be disbursed as working capital.
  10. Maximum Allowable Interest Rate. The EBL Pilot Program follows the SBA Express interest rate policy. An EBL loan may have a fixed or variable interest rate.
    1. Because an EBL loan is limited to $25,000, a Lender may charge up to 6.5% over the Prime rate, regardless of the maturity of the loan.
    2. For variable rate loans, a Lender may use the same base rate of interest it uses on its similarly-sized, non-SBA guaranteed commercial loans; however, the interest rate throughout the term of the loan cannot exceed the maximum SBA Express interest rate allowed of Prime + 6.5%.
    3. A Lender may charge a default interest rate if it does so for its similarly-sized, non- SBA guaranteed commercial loans, as long as the interest rate does not exceed the amount stated above.
  11. Fees.
    1. Upfront Guaranty Fee. All EBL loans are subject to the same upfront guaranty fees as required for 7(a) loans of similar size and maturity. See 13 CFR § 120.220 and SOP 50 10.
    2. Lender’s Annual Service Fee (SBA Ongoing Guaranty Fee). All EBL loans are subject to the same Lender’s annual service fee as required for all 7(a) loans. See 13 CFR § 120.220(f) and SOP 50 10.
    3. Other Fees. In order to ensure that EBL applicants and borrowers are charged only those additional fees reasonably necessary in connection with an EBL loan, SBA published the May 7, 2018 Federal Register Notice (83 FR 19921) modifying the regulation at 13 CFR § 120.221 to permit Lenders to collect only the following:
      1. Lender Fees. A Lender must not impose any fees or direct costs on an EBL applicant or borrower, except for the following:
        1. Application Fee: Lenders may charge an EBL applicant an application fee. The maximum permissible application fee is 2% of the loan amount or $250, whichever is greater. If an application fee is charged, it must be disclosed on SBA Form 159, “Fee Disclosure and Compensation Agreement.” If an undisbursed loan is canceled, the Lender may retain the application fee. The application fee is optional; therefore, a Lender may choose not to collect an application fee.
        2. Late Payment Fee: A late payment fee not to exceed 5 percent of the scheduled EBL loan payment; and
        3. Liquidation Costs: The reasonable direct costs of liquidation.
      2. Prohibition on all other fees and charges, including by loan packagers, referral agents or brokers. Except as permitted in K.3.a) above, no other fee or costs may be charged to an EBL applicant or borrower by the Lender or any third party in connection with an EBL loan, including any referral fee, broker’s fee or similar fee. Because an existing banking relationship is a requirement for an EBL loan, there is no need for either the applicant or the Lender to pay a referral fee, broker’s fee, or similar fee in connection with an EBL loan.
  12. Collateral. The SBA Express collateral policy applies to EBL loans. Because the maximum amount of an EBL loan is $25,000, Lenders are not required to take collateral for EBL loans.

 

The EBL program also provides for a streamlined underwriting process and screening process by the SBA Express Lender.  The EBL Borrower may be required to pay the EBL loan in part or in full if the borrower is approved for long terms disaster funding that allows loan proceeds to be used for EBL loan reimbursement.  First disbursement of loan proceeds usually occurs within 45 days of the Lenders’ receipt of the SBA loan number and must occur no later than 90 days from that date.

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