SBA SOP 50 10 8, C.Ch1.B.1 — Third Party Loan 13 CFR § 120.920
Verbatim text of SBA SOP 50 10 8 section C.Ch1.B.1 (Third Party Loan 13 CFR § 120.920), effective 2025-06-01. 2 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 SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.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, C.Ch1.B.1 — Third Party Loan 13 CFR § 120.920 — 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 C.Ch1.B.1
1. Third Party Loan 13 CFR § 120.920 The Third Party Lender must be in place at the time of application and must be evidenced by a letter of intent/term sheet or commitment letter included in the application package outlining the terms and conditions of the Interim and/or Third Party Loan to enable SBA to evaluate the 504 application. The terms of the Third Party Loan are defined in 13 CFR § 120.921. The Third Party Loan must be at least as much as the net debenture proceeds. However, the Third Party Loan must total at least 50% of the Project costs if the Borrower (or Operating Company if the Borrower is an Eligible Passive Company) has operated for 2 years or less or the Project is for the acquisition, construction, conversion or expansion of a limited or single purpose asset. The Third Party Loan may be closed and begin amortizing prior to the debenture funding as long as the Third Party Lender obtains the Borrower’s written consent. The Third Party Lender’s note and loan documents must not have any cross- default, “deem-at-risk,” or any other provisions which allow the Third Party Lender to make demand prior to maturity unless the loan is in default. The 504 loan is usually collateralized by a second lien on Project Property. The Third Party Lender may obtain additional collateral or other security for the Third Party Loan in addition to its lien on the Project Property (“Additional Collateral”) only if in the event of liquidation and unless otherwise approved in writing by the D/OFPO: i. The Third Party Lender liquidates or otherwise exhausts all reasonable avenues of collection with respect to the Additional Collateral no later than the disposition of the Project Property, and ii. The Third Party Lender applies any proceeds received as a result of the Additional Collateral to the balance outstanding on the Third Party Loan prior to the application of proceeds from the disposition of the Project Property to the Third Party Loan. Interest Rate Swap Contracts: i. An interest rate swap is a contract between two parties where one party pays a fee in exchange for an agreement by the other party to pay any interest in excess of an established amount. The contract may last for all or part of the term of the loan. The swap contract only relates to the payment of interest. Example: A Borrower has a prime plus 2% interest rate on a Third Party Loan variable rate loan (presently 5.25%). The Borrower could purchase an interest rate swap contract that would set the interest rate at 7%. When the Note rate is lower than the rate paid by the Borrower on the swap contract (7%), the swap seller keeps the extra amount as compensation for the risk that rates will at some point exceed 7%. When the Note rate is higher than the rate paid by the Borrower on the swap contract, the Borrower would continue to pay the fixed rate of 7% and the swap seller would pay the difference above 7% to the lender. The ability to stabilize the amount of the loan payment each month is the benefit to the Borrower of an interest rate swap contract.
SOP 50 10 8 C.Ch1.B.1.ii
ii. Third Party Loans may use swap contracts. In order to use an interest rate swap on a Third Party Loan, the interest rate swap contract must meet the following conditions: a) The interest rate swap contract is an agreement between the small business Borrower and the lender or, if the swap seller is not the lender, a third party. SBA is not a party to the interest rate swap contract. b) SBA will not review swap contracts for Borrowers or provide guidance on their use. While swap contracts should not have a significant impact on the cost of the loan, SBA will not publish any guidelines on the cost of these contracts. c) Swap contracts may be used on new or existing Third Party Loans. d) The swap contract does not have to last for the entire length of the Third Party Loan. e) SBA does not have a standard form for an interest rate swap contract. f) Any fees owed the swap counterparty as a result of the default by the Borrower will be subordinated to the SBA 504 loan. CDCs must not enter into any Intercreditor agreement with the Third Party Lender other than SBA Form 2287, “Third Party Lender Agreement,” without the prior written consent of SBA.
Operationalizing SBA SOP 50 10 8, C.Ch1.B.1 — Third Party Loan 13 CFR § 120.920
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Source of record: https://claudeforcompliance.com/regs/sba-sop-c-ch1-b-1/
· register sba-sop-c-ch1-b-1 · Claude for Compliance. Free to read and download;
see regulatory updates and methodology.