lerch early sba seminar november 2011
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New revisions to Small Business Administration SOP 50 10 5(D) regarding participation in SBA lending programs, including: Sale of Businesses (asset sale vs. stock redemption), Maximum Allowable Fixed Interest Rates, CAPLine Overhaul, Franchise Reviews.
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lerch early sba seminar november 2011
- 1. What Lenders Need to Know About the New SBA SOP 50 10 5(D) Alison W. Rind Arnold D. Spevack Lerch, Early & Brewer, Chtd. www.lerchearly.com November 16, 2011
- 2. Overview Changes to the 7(a) Program Changes to the 504 Program 2 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 3. Changes to the 7(a) Program 3 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 4. Maximum Loan Amounts and Net Worth 7(a) loan max=$5 million Tangible net worth of applicants ≤$15 million Average net income after taxes ≤$5 million for 2 full years 4 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 5. SBA Express Loans Capped at $350K SBA Revised CAPline program Asset Based Lines Working Capital Lines Contract Lines 5 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 6. CAPline Program Provides up to $5 million in loan funds Use own form and own PLP lenders 6 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 7. EPC/OC Structure May not use for business acquisitions Availablefor real estate purchase Working Capital Purchase of fixed Assets May need to structure as 2 separate loan transactions 7 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 8. Change of Ownership Asset Purchase Stock Sale Cannot purchase 100% of stock May buy out shareholders through stock redemption May include a 100% stock redemption whereby new principal contributes to redemption price – Apply CLP 8 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 9. Debt Refinancing Cannot refinance debt in principal’s name Exception Credit Card Debt where expenses on credit cards are justified as business debt 9 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 10. Packaging Fees Lenders may only charge fees for time spent on assisting the borrower on completing the borrower’s portion of the SBA application Lenders may not charge a standard flat fee to all borrowers Lenders must document the services provided to borrowers. 10 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 11. Changes in Interest Rates Pre-Disbursement Post- Disbursement 11 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 12. Extraordinary Servicing Fees Submit fee request to SBA SBA may determine if fee is unreasonable, it must be refunded to borrower 12 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 13. Lender Service Providers May impact Broker Fees Referral Fees Awaiting SBA input 13 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 14. Franchises Obtaining a certificate of no change from franchisor is no longer required Instead, lender must Review Franchise Registry and confirm that franchise agreement provided matches registry Print out certificate of no change from 14 registry © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 15. Other changes Leased Space Credit Elsewhere Life Insurance Flood Insurance OREO Transactions Prior government loss 15 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 16. Other Changes Lender Preference – Piggy Back SBA Loans Approved on Non- Delegated Basis PLP Requests – E-tran only New Authorization- 9/15/11 To be further revised for 50 10 5 (D) changes 16 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 17. Changes to the 504 Program 17 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 18. Third Party Lender Lender preference Additional collateral preference no longer in existence at time of liquidation not a problem if CDC/SBA acquiescence 18 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 19. Interest Rate Swaps SBA Requirements Minimal guidance from SBA 19 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 20. Special Purpose Property Minor Changes in Policy 20 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 21. Eligibility: Non-profits Non-profits Test: Loan proceeds used for benefit of non-profit 21 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 22. Eligibility: “Small” TNW Requirement - $15M Average Net Income Requirement - $5M 22 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 23. Eligibility: Franchises Agreement executed prior to submittal Franchise-findings website Franchise Registry Control Issues “Curves” rule 23 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 24. Eligibility: Trusts Liquid assets held by revocable trust Applicant owned by trust 24 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 25. Eligibility: Prior Loss Applicant causing prior loss to government 25 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 26. 504 Debt Refinancing “Substantially all” of proceeds test Also may now include eligible business expenses 1st Trust Loan to be based upon 50% of total eligible costs – 504 Loan to be at 40% of total eligible costs 26 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 27. Liquidation/Servicing The SBA has advised that the issuance of the SOP 50 51(4) – the combined 7(a) servicing and liquidation SOP is expected to be released around December 21, 2011 27 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 28. Speakers Alison Rind's practice is focused on representing commercial lenders in loan transactions and other commercial matters. These include participants in SBA and other government-guaranteed lending programs. Her experience crosses a broad spectrum of lending areas. In addition to government programs, she handles (301) 657-0750 real estate and asset-secured loans, construction loans, awrind@ foreclosures and loan workout arrangements. Her clients include lerchearly.com large national and regional financial institutions as well as smaller community banks in the Washington, D.C., metropolitan area. Arnie Spevack represents individuals, businesses, lenders and borrowers in financings, closings, negotiations and in the courts. Arnie's experience includes all aspects of commercial lending, as well as providing assistance in the acquisition, development, (301) 657-0749 operation and management of office, retail and residential adspevack@ projects. An experienced creditor's rights attorney, Arnie assists lerchearly.com both borrowers and lenders in workout negotiations and helps them refinance existing real estate mortgages and business 28 loans. © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
- 29. For more information Lerch, Early & Brewer, Chtd. 3 Bethesda Metro Center, Suite 460 Bethesda, MD 20814 (301) 986-1300 www.lerchearly.com Thank you for your participation 29 © Lerch, Early & Brewer, Chtd. 2011 www.lerchearly.com
Hinweis der Redaktion
- To address this issue, the SBA has revised the CAPline program, to provide for up to a $5 million working capital line and allows lenders to use this program in a similar version of its own asset-based lines of credit. Lenders may use their own forms and their own delegated authority (PLP lenders) for this program (there is specific verbiage that must be used in the lender’s forms). This is a welcome revision for the lending community and the hope is that more lenders will use this revised program. The maximum maturity is ten years.In order to determine the loan amount, lenders may either use their own policies and procedures for similar unguaranteed lines of credit or the SBA’s formula. If the line is based on a borrowing base, then lender must have a first lien on Accounts and Inventory. If no borrowing base is used, the lender must secure the line with sufficient collateral to ensure a 1:1 ratio (unlike a normal 7(a) loan) – lender must review every 12 months. If the working/trade assets do not provide this ratio, then lender must take additional collateral to meet the ratio requirement, including personal assets. If there is an existing line of credit, it can be refinanced (short-term notes), so long as eligibility requirements for refinance are met (if same institution debt, application must be submitted through the loan guaranty processing center and the SBA may deny guaranty if default occurs within 90 days of initial disbursement). If borrower does not have a deposit account with the bank, then a lockbox is required for asset based lending. Contract CAPlines finance all costs associated with specific contracts (lenders could not finance overhead costs previously). The contract must permit the lender to obtain an assignment of the proceeds (with some exceptions) and these CAPlines have a ten year maximum term. Under the Contract CAPline program, an applicant may finance multiple contracts (using a master note and subnotes). The lender must retain a first lien in the contract and proceeds (including UCC filing and separate assignment). A lender may take additional collateral if that is the practice in the lender’s unguaranteed contract lines. Lender does not have to take a direct assignment of the contract –see pages 237-238 for exceptions(payments need to be deposited in account controlled by the bank). Lender can now finance 100% of labor and materials and related expenses (overhead – new). Can also finance purchase ordersCan be PLP processed – use forms 1919 and 1920, don’t’ need a 7(a) application, use own credit memo instead. Can use the bank’s own cash flow and credit criteria12/24 month projections no longer neededIf loan is not borrowing base, then, if loan is <$1m, annual financial statement needed, if >$1m, use compiled, audited or reviewed – based upon what the bank requires for non-SBA loans.BB- annual field exams (<$1m – site visit – staff or 3rd party), must secure trade assets (AR/INV based on line base)Also, annually, include site visit, monitor loan consistent with bank policy on non-SBA loans. Proceeds must be used to paydown line (see page 247)BB- must get monthly statements – not just on advance. Cap on extraordinary servicing fee of 2% is waived – must follow standard bank procedures, but no renewal fees are allowed.
- Some of the revisions to the SOP are not as welcome. In connection with an EPC/OC structure (where one company owns the real estate and the other company operates the business), the EPC (eligible passive company which owns the real estate) may not use loan proceeds to acquire a business, acquire stock in a business or any intangible assets of a business, or refinance debt that was incurred for those purposes. This new language effectively prohibits the purchase of business where an EPC is involved, as now, only the purchase of fixed assets/working capital can be purchased by the operating company. It is unclear as to whether a lender can structure an asset business purchase involving real estate by splitting the transaction into two separate loans. We are awaiting further clarification from the SBA.
- In addition, the SBA has clarified what sort of vehicles may be used for the purchase of 100% of a business, and situations where the small business application is attempting to buy out his or her remaining partners. In the first circumstance, where the small business application is purchasing 100% of the business, the applicant may do so either as an asset purchase, and transfer of a partnership interest or the redemption of stock. When a change of ownership is between existing owners, the transfer must be accomplished through either a redemption of stock by the corporation or the transfer of partner’s interest by the partnership. A partner, shareholder or an unrelated third party may not use SBA-guaranteed loan proceeds to purchase an existing owner’s interest in the business. Therefore, stock or partnership purchases are not eligible for SBA financing. Borrowers and sellers should also be mindful of the income tax ramifications of structuring a transaction as a stock redemption vs. an asset transfer. Remaining questions linger. For example, if a corporation redeems the stock of all of the existing owners, then does the corporation reissue stock to new owner? If there are multiple owners, and an redemption increases a prior owner’s interest to over 20% once the redemption takes place, must that minority owner guarantee the loan? Again, we are awaiting further clarification from the SBA.
- The SBA now specifically excludes from eligible refinancing any debt in the personal name of the owners (except for credit card debt). It does not matter whether the debt is shown on the borrower’s balance sheet.
- Another area of concern is the changes made regarding fees of packaging and other services. The SBA added a new definition for “packaging services.” Such services relate to assisting an applicant with completing the borrower’s application, preparing a business plan, preparing cash flow projections and preparing other documents related to the application). “Other services” are defined to include consulting as to the type of financing needed and broker or referral fees. A standard fee charged to all borrowers is not acceptable. Also, a lender cannot pass on the lender’s costs associated with the underwriting of the loan, including any services provided by a third party hired by the lender to complete application forms for the lender or prepare the lender’s analysis. Thus, even though a lender may charge the applicant for lender’s completion of applicant’s application forms, it cannot charge the borrower for completing the lender’s application forms. Furthermore, a lender must tell the applicant, in writing, prior to rendering any services, that the applicant is not required to obtain or pay for unwanted services. To satisfy this requirement, lenders should include a statement in their loan applications notifying the applicant in writing that it does not have to use or pay for services and what will be charged if they choose to accept the services.
- The SBA clarified that when a lender desires to use a fixed rate (which may be higher than the maximum rates for variable rate loans but less than the maximum allowable fixed rate), then the fixed rate must remain in effect for the entire loan, without adjustment or reset. Otherwise, the maximum allowable rate for a fix rate loan will be limited to the current maximum allowable rate for variable rate loans (currently 6% to 2.75% over prime). If a lender desires to change the rate after the initial approval, if disbursement has not yet occurred, the lender must obtain the borrower’s written consent. If the rate change is made post disbursement, the change must be based on the method permitted when the loan was approved and be consistent with the interest rate regulations in effect at that time. In either event, the lender must notify the SBA of the change (through E-tran).
- With respect to extraordinary servicing fees, the SOP was clarified to provide that a lender can comply with the prior requirement to obtain written approval of the fee by submitting the amount of the fee and certifying that it is reasonable and prudent based on the level of effort required via E-tran. The SBA will notify the lender if it deems the fee unreasonable, and if so, the lender must refund the fee to the borrower. As a reminder, the amount of the extraordinary servicing fee is limited to the lesser of 2% per year on the portion of the loan requiring extraordinary services (i.e., construction proceeds, borrowing base monitoring) or what the lender charges on similar non-guaranteed loans for the same services. With respect to out-of-pocket expenses, the SOP revisions provide that:The lender must itemize the expenses and retain a list in the file for SBA review Software costs for loan document preparation cannot be passed on to the applicant Lenders are prohibited from passing on charges for work performed by in-house counsel Direct costs associated with document preparation (i.e., outside counsel preparing the loan documents) does not require SBA Form 159 reporting. It now appears that if a lender charges a loan fee on an Express Loan (as a lender is allowed to charge this fee if it charges the same fee on non-guaranteed loans), the SBA must prepare and submit a SBA Form 159 to disclose this fee.
- There is also a new section on lender service providers and what can and cannot be accomplished. It is unclear how this new section impacts broker or referral fees paid by lenders, this is being addressed directly with the SBA.
- A revision to the franchise section of the SOP places an additional burden on lenders where franchises are involved. Typically, a lender was required to obtain a “certificate of no change” from the franchise to confirm that the approved franchise agreement conforms with the version being used in the transaction. A certification of no material change form is no longer used. Instead, lenders must obtain login credentials for the franchise registry, log in, review the specific franchise eligibility and the effective date of the agreement (if no specific year is listed, a lender shall treat this franchise as if it is not on the registry). The lender must include the executed franchise license/addenda and the executed certification of franchise documents (contained on registry) in its loan file and shall comply with any required eligibility notes. If there are findings, a lender must check the form to see if the negotiated fixes are included in the applicant’s agreement. If not, a lender must verify that the findings are included in the franchise agreement. Lenders must review the franchise disclosure document, any credit information provided (i.e., number of failed franchises and cash flow projections) and include this analysis in its underwriting documentation.
- Leased SpaceThe SOP clarifies what constitutes “leased space” (it may be residential or commercial), however, a borrower cannot use loan proceeds to improve leased space unless, the residential space is occupied by someone needed for the business purpose.Credit ElsewhereChanges to the credit elsewhere section of the SOP were also made. It adds to the list of persons needing to comply with the “personal resources test” any trustor of a trust. It also confirms that 529 plans (college tuition) are exempt from consideration as liquidated assets and includes liquid assets in revocable trust among the assets to be considered when applying the personal resources test.Life InsuranceEven though life insurance is no longer mandatory under the new SOP and is dependent on the lender’s analysis of active participation in the business, adequacy of collateral, presence of secondary sources of repayment and succession plans, the SOP provides that if there is loss on a loan due to the death of the owner, the lender will be responsible for the loss. However, a lender may now establish escrow accounts for payment of life insurance premiums (by following the same requirements as escrowing for real property taxes) to make sure life insurance premiums are kept up to date.Flood InsuranceThe SOP clarifies the flood insurance requirements for condominiums and cooperatives. The condominium/cooperative association must maintain flood insurance on the building and the owner must maintain flood insurance on the contents.OREO TransactionsThe SOP now allows lenders to receive a sales price that exceeds the mortgage balance plus care and preservation expenses or the liquidation value, whichever is less, so long as the SBA guaranty is reduced accordingly.The eligibility section has added some additional requirements. A trustor of a trust must now complete SBA Form 912. The SOP revisions also include much more detailed guidance on what constitutes a “prior loss” to the government. Prior loss equals the dollar amount of any deficiency on a federal loan or federally assisted financings that has been incurred and recognized by a federal agency after it has concluded its write-off and/or close out procedures for a particular account, including, a loss on the sale or disposition of collateral acquired after default, compromises where the loan was settled for less than the full amount, bankruptcy by a borrower and/or any guaranties and any unreimbursed advance payment by a federal agency. The amended SOP now includes prohibitions against making a loan to an applicant if there is delinquent federal debt (more than 90 days past due). However, it is not delinquent if the creditor agency has released the obligor, the obligor is subject to or has been discharged in bankruptcy, the obligor is under a written repayment agreement, or the debt is in an administrative or judicial appeal process. The delinquency prohibition exempts unpaid delinquent taxes and losses incurred by the FDIC if the loan is sold at a discount. These provisions apply to any business in which an Associate or Applicant owned, operated or controlled a business that incurred the delinquent debt or caused a prior loss (again the lender must document in the underwriting of the loan that it made this review). A lender may request a waiver of the prohibition regarding delinquent debt from the SBA, and if debt is fully satisfied (as documented by the lender), no waiver is required.
- Lender Preference Prohibition and Piggy Back StructureThe prohibition towards lender preference was expanded to add that a lender may not take an additional guaranty (i.e., from a state or local government program) on the unguaranteed portion of the loan without prior SBA approval. In addition, the revised SOP provides that a piggy back structure also exists if there is a companion loan made at the time of the SBA financing for a similar purpose where the SBA has no lien position in certain collateral taken in the non-guaranteed loan (in addition to the prohibition where the SBA has a junior lien position). The SOP did clarify that where the SBA has a senior lien position, there is no piggy back structure.SBA Loans Approved on a Non-Delegated BasisA confusing revision to the SOP relates to SBA loans approved on a non-delegated basis. The new SOP provides that the SBA must approve all changes to the Authorization prior to the final disbursement under a loan approved on a non-delegated basis. After final disbursement, a non-delegate lender must send requests to changes in the Authorization to the commercial lending servicing center for approval. This directly contradicts the current SBA servicing matrix. We have been advised that the servicing matrix will be revised with respect to pre-final disbursement and a new SBA notice may go out related to post final disbursement changes (servicing actions), as we have been advised that the SBA did not intend to change the post disbursement servicing actions of non-delegated authority lenders.PLP RequestsThe SOP now mandates that all PLP requests for loan numbers (including PLP CAPlines, PLP-EWCP, SBA Express, Export Express and Patriot Express by submitted via E-Tran.The SOP also added qualification requirements for PLP lenders and additional loans prohibited from PLP processing.There are also numerous other less controversial revisions to the SOP. A red-line version of the changes to the SOP can be found on the SBA website at www.sba.gov.There is also a new loan Authorization (9/15/11) that covers 50 10 5(D) changes only; there will be a new version to incorporate the new SOP 50 10 5(D). This version should now be used.The SBA continually seeks feedback from the lenders on the SOP and the revisions. Lenders should send their comments to SOP501-Modernization@sba.gov. The SBA has advised that the issuance of the SOP 50 51(4) – the combined 7(a) servicing and liquidation SOP is expected to be released around December 21, 2011.
- Third Party LenderSLIDE – THIRD PARTY LENDERLender preferenceAdditional collateral preference no longer in existence at time of liquidation not a problem if CDC/SBA acquiescenceIf 3rd party lender takes additional collateral or otherwise has a preference, in case of liquidation any proceeds received as a result of the preference must be applied to the 3rd party lender debt prior to proceeds of liquidation of collateral held in common with the CDC/SBA and 3rd party lender. If the additional collateral or preference no longer exists at the time of liquidation or has insufficient value to justify the cost of collection, the 3rd party lender is not required to liquidate the additional collateral or the preference if 3rd party lender notified CDC/SBA and obtained CDC/SBA’s written consent.No criteria included for CDC/SBA acquiescence to circumstances where the 3rd party lender is not required to liquidate additional collateral.
- Defined as contract between 2 parties where one party pays a fee in exchange for agreement by other party to pay any interest in excess of established amount. May last for all or part of loan term.3rd party loans may use interest rate swap contracts. The requirements for swap agreements are:The swap agreement is between borrower and lender or a 3rd party. SBA is not a party.SBA will not review swap agreements. SBA will not publish any guidelines for swap agreements. No standard form Swap agreement.Swap agreements may be used on new or existing 3rd party loans.Swap agreement need not be for entire 3rd party loan term.Any fees owed the swap counterparty as a result of default by the borrower must be subordinated to the 504 loan.
- Borrower equity injection requirement – Special Purpose PropertySLIDE -- SPECIAL PURPOSE PROPERTYMinor Changes in PolicyOnly the following types of entities are considered special purpose property – a few changes from the prior listAmusement parksBowling alleysCar washesCemeteriesClubhousesCold storage facilities where more than 50% of the total square footage is refrigeratedDormitories FarmsFuneral homes with crematoriumsGas stationsGolf coursesHospitals, surgical centers, urgent care centers and other health or medical facilitiesHotels and motelsMarinasMinesMuseumsNursing homes (including assisted living facilitiesOil wellsQuarriesRailroadsSanitary landfillsService centers (oil and lube, brakes or transmissions) with pits and in ground liftsSports arenasSwimming poolsTennis clubsTheatersWineriesOnly a slight change in the list of types of properties
- Eligibility requirementsNon profits – slight change in languageSLIDE – ELIGIBILTY – Non-ProfitsNon-profits – Test: Loan proceeds used for benefit of non-profitNow where there is a for profit affiliate, if the loan proceeds are used for the benefit of the non-profit rather than the for-profit business, the for-profit business is not eligible.Language used to provide that if the profits are used for the benefit of the non-profit as a test of eligibility.
- Applicant must be “small” under SBA size requirementsSLIDE – ELIGIBILTY – “Small”TNW Requirement - $15MAverage Net Income Requirement - $5MTNW requirement increased to $15 MillionAverage net income requirement increased (for preceding) 2 fiscal years ≤ $5 Million
- FranchisesSLIDE – ELIGIBILTY – FranchisesAgreement executed prior to submittalFranchise-findings websiteFranchise RegistryControl Issues“Curves” ruleFranchise/license/dealer/jobber agreement must be executed by all parties prior to submission of the closing package to the SBA for fundingChange from prior requirement – which was “prior to first disbursement”CDC must go to “franchise-findings” website to see if there have been any findings for particular form of agreement to see if still in the agreement would make the agreement ineligibleNew requirements for checking the SBA’s franchiseregistry.com website.If the franchise is not listed on the registry, CDC/lender must consult the “franchise-findings” website to see if there findings for a particular franchise or license arrangement. Check the “fix available” category to see if there are any specific approved “fixes” to remedy a specific issue that has been noted.ControlAgreement may not require that the billing activities be handled by the franchise/license/dealer/jobber or a third party chosen by the franchise/license/dealer/jobber“Curves” ruleFitness centers that appear to cater to one gender but have a policy that allows both men and women must provide an affidavit that men and women are allowed to use the facility and provide a diagramed layout showing separate bathrooms/changing facilities
- Trust issuesSLIDE – ELIGIBILTY – TrustsLiquid assets held by revocable trustApplicant owned by trustIn determining the liquid assets subject to being injected in the project, now include liquid assets held by a revocable trust.In determining eligibility, the character test now applies to the grantor if the small business applicant is owned by a trust
- Applicant causing a prior loss to the GovernmentSLIDE – ELIGIBILTY – Prior LossApplicant causing prior loss to government New section now covers loss on collateral acquired after default, compromise of a prior obligation, bankruptcy and any unreimbursed advance payments by a Federal agency
- Permissible debt refinancing:SLIDE – 504 DEBT REFINANCING“Substantially all” of the proceeds test Substantially all (≥ 85%) of the proceeds of eligible prior indebtedness used for acquisition, construction of land, building or equipmentAlso may now include eligible business expensesEligible business expenses1st Trust Loan to be based upon 50% of total eligible costs – 504 Loan to be at 40% of total eligible costsAmount of combined 1st trust and 504 2nd trust can now include both outstanding principal amount of debt being refinanced and eligible business expensesEligible business expenses may include rent, utilities, inventory, paydown of business lines of credit or other business obligations.This means expenses incurred (but not paid) prior to the date of the 504 application that will become due within 18 months of that date. Excess equity (up to 90% LTV) to refinance existing eligible debt and eligible business expenses.Amount of 1st trust loan will no longer be based on 50% of appraised value. Now, to be based upon 50% of total eligible costs with the 504 loan at 40% of the total eligible costs – more similar to typical 504 loan structure.Additional flexibility in the documentation required to support that the loan to be refinanced was used for eligible project costs.