SBA SOP 50 10 8, B.Ch5.D — LOAN CLOSING AND DISBURSEMENT
Verbatim text of SBA SOP 50 10 8 section B.Ch5.D (LOAN CLOSING AND DISBURSEMENT), effective 2025-06-01. 17 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch5.D — LOAN CLOSING AND DISBURSEMENT — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch5.D
D. LOAN CLOSING AND DISBURSEMENT The following instructions for loan closing and disbursement pertain to all 7(a) loans. 1. Disbursement Period: The disbursement period must be stated in the E-Tran Terms & Conditions. The loan must be fully disbursed within 48 months of approval, or any remaining undisbursed balance will be canceled by SBA. SBA considers a line of credit as fully disbursed at the time of first disbursement. Requests for exceptions to the 48-month disbursement policy: Any requests for an exception to this policy must be submitted in accordance with the “Exceptions to Policy” discussion on page 9 of this SOP and must contain the SBA loan number, a detailed explanation of how cost increases are being financed or, if applicable, explain why there are no cost increases and include any other relevant information. Additionally, the Lender must state how many months the Lender requests to be added to the disbursement period. Lenders may use an escrow account for not more than 5 business days to facilitate a loan closing. A Lender must not report the loan on SBA Form 1502 as “disbursed” or charge the Borrower the guaranty fee until all funds are disbursed from the escrow account. The Lender may only charge the Borrower interest on funds that have been disbursed out of escrow to the Borrower. A loan is considered to be fully disbursed and then may be sold on the Secondary Market when the Borrower has access to all of the loan proceeds and is able to use them in accordance with the E-Tran Terms and Conditions. 2. Note Terms: Note terms must include: All interest rate requirements including, if applicable, any interest-only payment period. The date of initial adjustment and the frequency of subsequent adjustments; Maturity date. Repayment terms: i. Lenders using the SBA Note are required to insert the repayment terms from E-Tran Terms and Conditions into the Note. ii. Lenders using their own Note form are required to comply with SBA repayment terms but are not required to use the specific language set forth in the E-Tran Terms and Conditions. Loans with a maturity of 15 years or more must contain prepayment/subsidy recoupment fee payable to SBA in accordance with 13 CFR § 120.223. State-specific language: Lender must ensure that any necessary state-specific provisions/language is contained in the appropriate loan documents. Repayment terms for CAPLine Loans: i. Interest only payments for any period exceeding the Borrower’s cash cycle, seasonal cycle, contract final payment date, or project completion date are not permitted.
SOP 50 10 8 B.Ch5.D.ii
ii. Master Notes and Sub-Notes: Each loan will have a Master Note to cover the total loan amount and general repayment period. Lenders can also use a system of sub-notes to establish specific repayment periods for particular seasons, contract, or construction/renovation project. When the CAPLine will be used to finance the creation of more than one asset (such as the completion of two contracts) sub-notes should be used. The conditions of the sub-notes must not conflict with the conditions of the Master Note, except for variances in repayment schedules. See Paragraph D.4, Required SBA Forms, below. Escrow Policy for Commercial Real Estate Taxes and Insurance: i. The Borrower and Lender may agree to establish an escrow account for the purpose of collecting and paying real estate taxes, hazard insurance, and/or flood and earthquake insurance, when applicable; ii. The amount of money collected for an escrow account may not exceed 105% of the amount charged in the current year by the taxing authority or insurance company for the total requirement to pay the annual real estate taxes and insurance; iii. The account must be FDIC-insured and pay the Borrower a money market rate of interest, or the rate typically paid on escrow accounts for commercial real property on non-SBA guaranteed loans, whichever is greater;
SOP 50 10 8 B.Ch5.D.ii.iv
iv. Except for those items covered in subparagraphs h.ii and iii immediately above, the account must be consistent with accounts required of the Lender’s conventional Borrowers and the Lender must use similar procedures to administer the escrow accounts on its SBA loans as it does for its non-SBA guaranteed loans (SBLCs must be consistent with the practices followed by federally-regulated Financial Institutions); v. Lender must remit to the Borrower all accrued interest on the account and provide annual statements, unless otherwise required by state or Federal law; and
SOP 50 10 8 B.Ch5.D.ii.iv.vi
vi. Upon termination of the account, the remaining funds must be returned to the Borrower within 15 business days. For loans being sold on the secondary market, in addition to the above: i. The date the complete loan application is received by SBA. This is the date the loan is approved and assigned an SBA loan number.
SOP 50 10 8 B.Ch5.D.ii.iv.ii
ii. Initial interest rate as percent. iii. If Note interest rate fluctuates, full description of Base Rate, e.g., Prime Rate; publication source, e.g., WSJ; spread over Base Rate as a percent; date of first fluctuation as either an exact date or a description of date, e.g., first calendar quarter following first disbursement; change period, e.g., calendar quarterly. iv. If applicable, interest rate ceiling and floor. v. Maturity as exact date or description of date, e.g., 300 months from date of Note. vi. First payment due date as either an exact date or a description, e.g., one month from date of Note. vii. Payment frequency, e.g., monthly viii. Payment due date, e.g., 14th of the month ix. Payment amount
SOP 50 10 8 B.Ch5.D.ii.x
x. With regards to Borrower payment application: Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal. xi. Language covering prepayment: Notwithstanding any provision in this Note to the contrary, Borrower may prepay this Note. Borrower may prepay 20% or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20% and the Loan has been sold on the secondary market, Borrower must: a) Give Lender written notice; b) Pay all accrued interest; and c) If the prepayment is received less than 21 days from the date Lender receives the notice, pay an amount equal to 21 days' interest from the date lender receives the notice, less any interest accrued during the 21 days and paid under b., above. If Borrower does not prepay within 30 days from the date Lender receives the notice, Borrower must give Lender a new notice. xii. Subsidy Recoupment Fee language, if applicable: When in any one of the first three years following the date of first disbursement Borrower voluntarily prepays more than 25% of the outstanding principal balance of the loan, Borrower must pay to lender on behalf of SBA a prepayment fee for that year as follows: a) During the first year after the date of first disbursement, 5% of the total prepayment amount; b) During the second year after the date of first disbursement, 3% of the total prepayment amount; c) During the third year after the date of first disbursement, 1% of the total prepayment amount. 3. Closing Documentation: For all 7(a) loans, Lender must disburse the loan proceeds in accordance with the E-Tran Terms and Conditions. All Lenders must document each disbursement on an SBA-guaranteed loan. Except under SBA Express, Export Express, and 7(a) Small Loans, Lender and Borrower must use and complete and sign SBA Form 1050 or Lender’s equivalent form at the time of first disbursement. If there are subsequent disbursements, Lender must document each disbursement and attach the documentation to the original SBA Form 1050. The documentation must contain sufficient detail for SBA to determine: i. The recipient of each disbursement; ii. The date and amount of each disbursement; and
SOP 50 10 8 B.Ch5.D.ii.x.iii
iii. The purpose of each disbursement. The Lender must obtain evidence to support disbursements, such as cancelled checks or paid receipts, to ensure that the Borrower used loan proceeds for purposes stated in the E-Tran Terms and Conditions. If the E-Tran Terms and Conditions identifies working capital as a use of proceeds and those proceeds will be used to pay normal operating expenses (e.g., payroll, utilities, etc.), then the working capital disbursement does not need to be documented. The following documentation is acceptable to verify disbursement in accordance with the E-Tran Terms and Conditions: i. Joint payee checks; ii. Copies of receipts, invoices or other supporting documentation marked paid by the seller or vendor; or
SOP 50 10 8 B.Ch5.D.ii.x.iii
iii. Evidence of an electronic funds transfer to a vendor along with a copy of the invoice. The Lender must retain in its loan file the signed SBA Form 1050 as well as all supporting documents. Documentation of Equity Injection:
SOP 50 10 8 B.Ch5.D.ii.i
i. With the exception of SBA Express and Export Express loans, Lenders must verify the SBA-required equity injection prior to disbursing any loan proceeds and must maintain evidence of such verification in their loan files. Lenders are expected to use reasonable and prudent efforts to verify that equity is injected and used as intended, and failure to do so may warrant a repair or partial/full denial. Lenders must submit this documentation with each purchase request on a loan for which SBA requires an equity injection. Verifying a cash injection requires the following documentation: a) A copy of a check or wire transfer along with evidence that the check or wire was processed showing the funds were moved into the Borrower’s account or escrow; b) A copy of the most recent statement(s) (covering at least 30 days) from the account where the funds are being withdrawn (showing that funds were available); and c) A statement from the Borrower’s account documenting the funds were deposited or a copy of a settlement statement or HUD-1 showing the use of the cash. ii. A promissory note, “gift letter,” or financial statement is not sufficient evidence of cash injection without corroborating evidence consistent with Subparagraph b.i. immediately above. iii. If the equity injection will come from any form of borrowed funds, such as a HELOC or seller financing in excess of the minimum Borrower injection requirements outlined above, Lender must address the proposed repayment terms as well as any Standby or Subordination terms that will be in place. iv. For SBA Express and Export Express loans, if a Lender requires an equity injection and, as part of its standard processes for similarly-sized, non-SBA guaranteed commercial loans verifies the equity injection, it must do so for its SBA Express and Export Express loans. 4. Required SBA Forms: For all 7(a) loans, Lenders have the option of using their own Note and guaranty agreements or the SBA versions (SBA Forms 147, 148 and 148L). i. If the Lender uses its own Note form, the Lender must ensure that the Note is legally enforceable and assignable, has a stated maturity and is not payable on demand. In addition, regardless of delivery method, when the Lender uses its own Note form, the Note must include the following language: “When SBA is the holder, this Note will be interpreted and enforced under Federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any Federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt Federal law.” ii. Lenders that intend to sell the loan guarantee into the SBA Secondary Market are strongly encouraged to use the SBA Form 147. If a Lender uses its own form of a note, all terms and conditions in the SBA Form 147 must be included in the document. The Fiscal Transfer Agent reviews notes other than the SBA Form 147 to ensure that all required terms and conditions for sale are satisfied, which may increase processing time for loan sales settlement.
SOP 50 10 8 B.Ch5.D.ii.i.iii
iii. Regardless of the delivery method, when the Lender uses its own guaranty form (Lender’s equivalent of SBA Form 148/148L), the guaranty must include the following language: “When SBA is the holder, the Note and this Guarantee will be interpreted and enforced under Federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any Federal immunity from state or local control, penalty, tax, or liability. As to this Guarantee, Guarantor may not claim or assert any local or state law against SBA to deny any obligation, defeat any claims of SBA, or preempt Federal law.” The following language must appear in all lien instruments, including mortgages, deeds of trust, and security agreements: “The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations: i. When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with Federal law. ii. Lender or SBA may use local or state procedures for purposes such as filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does not waive any Federal immunity from local or state control, penalty, tax, or liability. No Borrower or Guarantor may claim or assert against SBA any local or state law to deny any obligation of Borrower or defeat any claim of SBA with respect to this Loan. iii. Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument. Any documentation the lender uses for its similarly-sized, non-SBA commercial loans. Fee Disclosure and Compensation Agreement, SBA Form 159, for Lender fees in excess of $2,500. Fee Disclosure and Compensation Agreement, SBA Form 159 for any Agents. Equal Employment Opportunity Poster, SBA Form 722 (for all loans). IRS Form 4506-C, IVES Request for Transcript of Tax Return or IRS Form 8821, Tax Information Authorization, in accordance with Section A, Ch. 5, Para. B, IRS Tax Transcript/Verification of Financial Information. 5. Collateral: The Lender must obtain all required collateral with evidence of proper lien priority and must meet all other required terms and conditions as applicable before or at the time of disbursement, including obtaining valid and enforceable security interests in any loan collateral. These conditions include requirements identified in the credit memorandum, such as cash/equity injections, standby agreements, appraisals or evaluations, etc. 6. Licenses: The Lender must obtain evidence from the Borrower of all licenses required to operate the business within no more than 90 days after final disbursement of the loan. The loan may not be sold into the secondary market until all required licenses are obtained. 7. Required Lender Action: In accordance with the Debt Collection Improvement Act of 1996, Lenders are required to report information to the appropriate credit reporting agencies whenever they extend credit via an SBA loan. Thereafter, the Lender should continue to routinely report information concerning servicing, liquidation, and charge off activities throughout the life cycle of the loan, as specified in SOP 50 57 or a successor procedural guide. 8. Borrower Certifications: Lender must obtain certain certifications and agreements from the Borrower(s) (OC and EPC) prior to disbursement of loan proceeds. Borrower and OC must certify that: i. They received a copy of the E-Tran Terms and Conditions; ii. There has been no adverse change in Borrower’s (and OC’s) financial condition, organization, operations, or fixed assets since the date the Loan Application was signed;
SOP 50 10 8 B.Ch5.D.ii.i.iii
iii. No principal who holds at least 50 percent of the ownership or voting interest of the Borrower or OC is delinquent more than 60 days under the terms of any administrative order; court order; or repayment agreement requiring payment of child support; iv. Borrower and OC are current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes and sales taxes; and v. If applicable, the Borrower(s) and the 401(k) plan are in compliance with all applicable IRS, Treasury, and Department of Labor requirements and will comply with all relevant operating and reporting requirements.
SOP 50 10 8 B.Ch5.D.ii.i.vi
vi. Environmental - For any real estate pledged as collateral for the loan or where the Borrower or OC is conducting business operations, the Borrower or OC are in compliance with all local, state, and Federal environmental laws and regulations and will continue to comply with these laws and regulations. Furthermore, they are unaware of any other actual or potential environmental hazards related to the collateral or business premises. They agree to fully indemnify Lender and SBA against all liabilities or losses arising from the contamination of the property before or during the term of the loan. vii. The Borrower and/or OC will reimburse Lender for out of pocket expenses incurred in the making and administration of the loan; viii. The Borrower and/or OC will maintain proper books and records, allow Lender and SBA access to these records, and furnish financial statements or reports annually or whenever requested by Lender; ix. The Borrower and/ or OC will post SBA Form 722, Equal Opportunity Poster, where it is clearly visible to employees, applicants for employment and the general public; x. To the extent practicable, they will purchase only American-made equipment and products with the proceeds of the loan; xi. They will pay all Federal, state, and local taxes, including income, payroll, real estate, and sales taxes of the business when they come due; xii. For debt refinance, the debt being refinanced was used exclusively for the Applicant’s business, including any credit card, HELOC, and/or debt on the balance sheet; and xiii. During the life of the loan, the real estate if purchased by proceeds of the 7(a) loan pledged as collateral for the loan or where the Borrower or Operating Company conducts its business operations will not be leased to or occupied by any business that Borrower or Operating Company knows is engaged in any activity that is illegal under Federal, state or local law or any activity that can reasonably be determined to support, promote, or facilitate any activity that is illegal under Federal, state, or local law. Borrower and OC must certify that they will not, without the Lender’s prior written consent: i. Make any distribution of company assets that will adversely affect the financial condition of the Borrower and/or OC; ii. Change the ownership structure or interests in the business during the term of the loan; or
SOP 50 10 8 B.Ch5.D.ii.i.iii
iii. Sell, lease, pledge, encumber (except by purchase money liens on property acquired after the date of the Note), or otherwise dispose of any of the Borrower’s property or assets, except in the ordinary course of business. 9. Separate Loan Agreement: SBA does not require a separate loan agreement to be signed by the Borrower. If the Lender requires a separate loan agreement on its non-SBA guaranteed loans, it must do so on its SBA-guaranteed loans. The Lender may use its own form of loan agreement. 10. PLP Program: SBA closing requirements are the same for loans guaranteed through PLP processing as for non-delegated loans. The same forms are required. The Lender should not send SBA any other closing documentation, including disbursement information, except through the required periodic loan status reports using SBA Form 1502 or as specifically requested by SBA (e.g., OCRM). 11. SBA Express, Export Express, and 7(a) Small Loans: A Lender must use the same written closing and disbursement procedures and documentation as it uses for its similarly-sized non-SBA guaranteed commercial loans in addition to meeting the requirements of Paragraph D.4., Required SBA Forms above. There must be a promissory note that is legally enforceable and assignable in the event that it would ever have to be assigned to SBA. The Lender must obtain all required collateral and must meet all other required conditions before loan disbursement, including obtaining valid and enforceable security interests in any loan collateral. These conditions include requirements identified in the loan write-up, such as standby agreements, appraisals or evaluations, business licenses, and cash/equity injections. Before disbursing an SBA Express, Export Express or 7(a) Small Loan, the Lender must: i. Verify Borrower financial information in accordance with Section A, Ch. 5, Para. B, IRS Tax Transcript/Verification of Financial Information.
SOP 50 10 8 B.Ch5.D.ii.i.ii
ii. Obtain evidence of no un-remedied adverse change since the date of the application (or since any of the preceding disbursements in the case of multiple disbursements), in the financial or any other condition of the Borrower that would warrant withholding any disbursement. For revolving line of credit disbursements, Lenders should essentially follow the same practices as they do for their non-SBA guaranteed commercial revolving lines of credit. iii. Obtain, where applicable, required hazard insurance.
SOP 50 10 8 B.Ch5.D.ii.i.iv
iv. Make, where applicable, the required flood hazard determination and require flood insurance, if applicable. v. In the construction of a new building or an addition to a building, obtain the Borrower's agreement that the construction will conform to the "National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Buildings".
SOP 50 10 8 B.Ch5.D.ii.i.vi
vi. Obtain the Borrower’s agreement that it will, to the extent feasible, purchase only American-made equipment and products with the proceeds of the loan. This certification is included on the SBA Form 1919. vii. Obtain Borrower’s certification that any 50 percent or more owner of the Applicant on SBA Form 1919 is not more than 60 days delinquent on any obligation to pay child support.
SOP 50 10 8 B.Ch5.D.ii.i.viii
viii. Require, where applicable, appropriate environmental reviews and compliance in Section A, Ch. 5, Para. E, Environmental Policies and Procedures. Lenders may not request a loan number for a loan that will be secured by collateral that will not meet SBA’s environmental requirements or that will require use of a non-standard indemnification agreement. Regardless of processing method or size of loan: Within 15 business days after final disbursement, the Lender must submit to SBA through E-Tran Servicing any changes to the terms and conditions that were in place at the time the SBA loan number was issued and retain all other documents in the Lender’s loan file. Access to Funds: Loan funds may be accessed through a variety of methods consistent with the way the Lender normally conducts business for its similarly- sized, non-SBA guaranteed commercial loans. Use of a credit or debit card to access the loan funds is acceptable. In providing access through credit or debit cards, Lenders must ensure that these loans are documented by legally enforceable and assignable promissory notes. Section C: 504 Loan Program Specific Requirements SECTION C. 504 LOAN PROGRAM SPECIFIC REQUIREMENTS This section, along with section A, Core Requirements for all 7(a) and 504 Loans, contains the policies and procedures governing SBA’s 504 Loan Program. CDCs must always start by reviewing the contents of Section A, Core Requirements for all 7(a) and 504 Loans. SBA recognizes the importance of giving special consideration to veterans in its loan programs. SBA will prioritize processing applications from businesses that are owned by veterans when those loans are processed by SBA under non-delegated procedures. For loans processed under delegated procedures, SBA encourages CDCs and Third Party Lenders to give special consideration to veterans during application processing.
Operationalizing SBA SOP 50 10 8, B.Ch5.D — LOAN CLOSING AND DISBURSEMENT
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