What is a creditor in a position to sustain a loss?
Short answer
It is a creditor that could lose money on existing debt if an SBA loan did not pay it off. SBA-guaranteed loans may not pay a creditor in a position to sustain a loss (13 CFR 120.201; SOP 50 10 8.1, App. 14, Para. A). SBA sets no numeric test.
It is a creditor that could lose money on existing debt if an SBA loan did not pay it off. 13 CFR 120.201 bars paying such a creditor with 7(a) proceeds if that would shift any potential loss to SBA. Section A, Chapter 3, Paragraph B.8 and Appendix 14, Paragraph A of SOP 50 10 8.1 repeat it.
The SOP does not define the phrase or give a numeric test. The lender makes the judgment and documents it.
Where the rule shows up
- Written analysis. The application must state the factors showing the refinance will not pay a creditor in that position (App. 14, Para. A).
- Same-institution debt. An SBA loan may not refinance it where there is an appearance the lender will shift a potential loss to SBA (Para. A.4.c).
- Delegated lenders. A lender may not use delegated authority to reduce its credit exposure to the applicant (Para. A.4.b; 13 CFR 120.452).
- Working Capital CAPLines. If a same-institution refinance defaults within 90 days of initial disbursement, SBA presumes a prohibited shift and may deny liability on the guaranty (App. 14, Para. B.4).
- 504 loans. 13 CFR 120.884(b) applies the same bar.
What this means for you
The SOP lists no warning signs. Its related rules look at payment history and at keeping the old collateralProperty a lender can take and sell if a loan is not repaid. . If your existing lender is pressing for payoff on a struggling loan, expect close review.
Sources
- 13 CFR § 120.201
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. B, Restrictions on Uses of Proceeds, Para. B.8 (p. 53)
- SOP 50 10 8.1, App. 14, Para. A, General Requirements, Paras. A and A.4 (p. 355)
- 13 CFR § 120.452
- SOP 50 10 8.1, App. 14, Para. B, Program-Specific Requirements, Para. B.4, Working Capital CAPLine (p. 358)
- 13 CFR § 120.884
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