The EDF v SBA court case was argued in late December, and the opinion was reported on December 21, 2012. In addition the SBA estimated that “EDF’s potential PCLP loss reimbursement exposure on the 334 other non-performing PCLP loans totals approximately $29 million.” EDF’s loan loss reserve accounts totaled a little less than $2 million. SBA was in the process of invoicing EDF another $3.6 million for additional SBA losses. By the time that EDF shut down, the SBA had already invoiced EDF over $11 million for SBA’s charge off of over $99 million. EDF became responsible for funding loan loss reserves equal to 15% of the SBA’s losses on defaulted PCLP loans. The risk-based approach turned into a time bomb when economic conditions spawned by the “Great Recession” devastated real estate values in California. EDF opted to use an Alternative Loan Loss Reserve that allowed it to use a risk-based approach instead of the 1% approach. The Standard Loan Loss Reserve is 1% of the original PCLP Loan balance. A PCLP CDC’s Loan Loss Reserve Fund must be a deposit on account with a federally insured depository institution. The purpose of the reserve fund is to ensure that there are sufficient funds available, in reserve, for the PCLP CDC to pay its PCLP CDC share of 504 Loan losses. EDF has had PCLP CDC status since 1997.Īll CDCs are required to calculate, fund as needed, and maintain a Loan Loss Reserve Fund. PCLP CDCs, like EDF, are statutorily required to bear a share of losses suffered by the SBA on PCLP loans.
#SBA PCLP FULL#
If a 504 Loan defaults and the borrower does not resume regular payments within a certain time period, the SBA is obligated under the terms of its guarantee to purchase the full amount (principal and accrued interest) of the SBA-guaranteed CDC debenture from the investor holding the debenture.ĮDF also had additional authority under SBA’s Premier Certified Lender Program (“PCLP”) to make SBA determinations of credit worthiness for the 504 Loans they arrange on the SBA’s behalf. Such projects require equity contributions from the small business borrower at a minimum of 10% of the project cost.
504 Loans from CDCs on behalf of the SBA are funded through the CDC’s issuance of a 100% SBA-guaranteed debenture secured by a junior or subordinate lien covering up to 40% of the project cost.
CDCs do not use their own funds to make any 504 Loans. CDCs deliver SBA 504 Loans on behalf of the SBA. The SBA does not make loans directly to small businesses under the 504 Loan Program. The SBA 504 Loan Program provides long-term financing not otherwise available to small business concerns for the acquisition, construction, conversion or expansion of fixed assets, including real estate and heavy machinery and equipment. Since 2006, EDF has received over $49 million in fees from its participation in the 504 Loan Program. EDF, on behalf of the SBA, received processing and closing fees for both originating as well as servicing 504 Loans. As such it was allowed to arrange, close, service and when necessary collect on SBA 504 Loans. EDF was an SBA-authorized Certified Development Company (CDC). brings the need for lender knowledge to life. United States Small Business Administration (“SBA”) et al. Lenders have been cautioned by regulators to “Know Your Customer: It’s Not Just a Good Idea, It’s the Law.” We counsel our clients to “Know Your Lender: It’s Not Just a Good Idea, It’s Essential.”ĮDF Resource Capital, Inc. Understanding how state and federal regulatory oversight and processes impact lenders is an important part of representing borrowers and guarantors against lenders. They generally have financial strength, a strong body of favorable federal and state law supporting lender-initiated actions, and professional, skilled and experienced lawyers. A recent case illustrates that an entire wolf pack might also be at the lender’s door. By the time that our law firm is engaged, it’s not unusual that “the wolf is at our client’s front door”, and there can be precious little time to be deliberative. Hackard Law attorneys regularly represent borrowers and guarantors in negotiating with and litigating against lenders.