SBA SOP 50 10 8.1, B.Ch5.A.6 — EWCP-Specific Loan Closing and Disbursement Requirements

6. EWCP-Specific Loan Closing and Disbursement Requirements See Ch. 6, Para. D of Section B for additional requirements for loan closing and disbursement. i. Loan Terms: Under EWCP, there are two options for repayment. Advances on the line of credit must not occur unless the loan is In Margin. (See Loans that are not In Margin or are Past Due below): a) Option 1: All cash and accounts receivable received are applied against the principal balance plus interest payments on outstanding balances; i) Option 2: Interest-only payments on outstanding balances. ii) EWCP with Master Notes, Sub-Notes, and Sub-Limits: EWCP loans may be structured with 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 specific purchase-orders, contract(s), or transactions. The conditions of the sub-notes must not conflict with the conditions of the Master Note, except for variances in repayment schedules. EWCP Asset Based Loans may be structured as a sublimit of a Master Note provided the sublimit conforms to the requirements of this Paragraph. iii) See Ch. 6, Para. D.2 of Section B for additional requirements for Note terms. ii. Advances and Receivables a) On Single Transaction-Specific Loans and Transaction-Based Revolving Lines of Credit where draws are made against foreign purchase orders or contracts, the maximum advance rate is 90% of the purchase order/contract or the Borrower’s costs (including overhead), whichever is less. Foreign accounts receivable will be captured by the Lender through the use of a control account and applied against the outstanding loan balance. b) On an asset-based revolving line of credit where advances are made against a borrowing base of foreign receivables and/or export-related inventory, the maximum advance rates are 90% on eligible foreign receivables and 75% on eligible export-related inventory located within the United States. Control accounts may be required at the discretion of the LGPC for non-delegated loans, or PLP-EWCP Lender for loans processed under delegated authority. At a minimum, the Borrower must submit a Borrowing Base Certificate (BBC) to the Lender at least monthly, or as frequently as the Lender customarily requires from its Borrowers on similarly-sized, non-SBA guaranteed loans if more often than monthly, along with an aging of foreign accounts receivable and listing of export-related inventory, as appropriate. If the borrowing base shows the Borrower is over-advanced, the Lender must immediately require the Borrower to make a payment to reduce the loan balance so it is within the borrowing base formula. c) Advance rates on foreign purchase orders/contracts or foreign accounts receivable when sold on open account (no credit insurance or letter of credit to mitigate the foreign risk) may not exceed 80%. When approving uninsured buyers: i) The exporter must provide favorable ledger experience with specific buyers over a significant period of time (at a minimum, 24 months) in countries with acceptable commercial or political risk. The limits extended on any uninsured buyers must be commensurate with the sales levels during the ledger history period; or ii) The uninsured foreign accounts receivables are from credit-worthy buyers (e.g., financially sound corporations; multinational or publicly-traded companies), located in countries with acceptable commercial; or iii) The uninsured foreign accounts receivables are from credit-worthy government entities in countries with acceptable commercial or political risk. d) When establishing advance rates on uninsured foreign accounts receivable; the Lender must document its loan file with the analysis and justification to support the uninsured sale. e) If the Lender is a PLP-EWCP Lender, the Lender may advance up to 90% against uninsured foreign accounts receivable when: i) The uninsured foreign accounts receivables are from credit-worthy buyers (e.g., financially sound corporations; multinational or publicly-traded companies), located in countries with acceptable commercial; or ii) The uninsured foreign accounts receivables are from credit-worthy government entities in countries with acceptable commercial or political risk. When establishing an advance rate on uninsured foreign accounts receivable in excess of 80%, the PLP-EWCP Lender must document its loan file with the analysis and justification to support the higher advance rate. f) Foreign Accounts Receivable: i) Terms of Sale:

(a) Payment terms must be in compliance with the terms and conditions in the SBA Loan System. The Ex-Im Bank Country Limitation Schedule must be reviewed for prohibited countries (such countries are identified by Note # 7 on the Ex-Im Schedule) and the Department of Treasury OFAC sanctions lists must also be reviewed at sanctionssearch.ofac.treas.gov/. (i) For federally-regulated Lenders, compliance with the procedures required by the Lender’s Federal Financial Institution Regulator will constitute compliance with the above referenced OFAC requirement. (ii) For SBA Supervised Lenders, Lender must check the OFAC sanctions lists prior to first disbursement of funds on each specific export transaction.

(b) Payment terms must be in line with prudent lending practices. Typical terms of sale include but are not limited to: (i) Confirmed irrevocable letter(s) of credit (SBA or the PLP-EWCP Lender may require for some or all of the Borrower’s foreign accounts). Foreign accounts receivable supported by acceptable letters of credit must not exceed 364 days from the invoice date; (ii) Irrevocable letter(s) of credit (SBA or the PLP-EWCP Lender may require for some or all of the Borrower’s foreign accounts). Foreign accounts receivable supported by acceptable letters of credit must not exceed 364 days from the invoice date; (iii) Open account insured through Ex-Im Bank or private sector export credit insurance for comprehensive commercial and political risk (SBA or the PLP-EWCP Lender may determine that export credit insurance is required to enhance the quality of foreign accounts receivable. If export credit insurance is obtained, the Lender must be named as Loss Payee on the export credit insurance policy.) Foreign accounts receivable supported by credit insurance must not exceed 180 days from the invoice date; (iv) Cash payment received prior to shipment; (v) Open account uninsured, with SBA’s prior written consent or documented by the PLP-EWCP Lender. Open account uninsured foreign accounts receivable must not exceed 180 days from the invoice date; and (vi) Sight draft documents against payment, with SBA’s prior written consent. ii) Jurisdiction and Currency of Foreign Accounts Receivable: Foreign accounts receivable held as collateral should be payable to the Borrower in the United States and in United States dollars. Foreign accounts receivable due and payable in non-U.S. currency may be allowed on a case-by-case basis with SBA’s prior written consent or authorized by the PLP-EWCP Lender. Depending on the stability of the currency in question, SBA may require that the Borrower mitigate the risk through hedging (purchasing of a forward currency contract, forward option, or similar mechanism) as a condition of such approval. When advancing against a transaction payable in a foreign currency, Lender must use an established foreign exchange rate and must retain documentation showing the exchange rate used and the Lender’s calculation of the amount of the advance. iii) Control Accounts: (a) For the “single transaction-specific” and “transaction based-revolving line of credit” EWCP loans, Lenders will be required to set up a control account to capture the proceeds of foreign accounts receivable as they are paid by the foreign buyers. The proceeds are required to be applied against the loan balance, either in their entirety or as a percentage of the proceeds in a sufficient amount to pay off the initial advance for that specific transaction. (b) For asset-based loans, LGPC for non-delegated loans, or the PLP-EWCP Lender for delegated loans, will determine if a control account is required based on the credit analysis. Normally, Lenders must have 100% of the foreign accounts receivable proceeds applied against the loan balance and have the Borrower request additional advances as needed based on a BBC. Another available option is to allow for the Borrower to maintain a balance within the Borrowing Base limits and to retain foreign accounts receivable proceeds (not applied to the loan balance upon collection). At a minimum, the Borrower must submit a BBC to the Lender at least monthly, or as frequently as the Lender customarily requires from its Borrowers on similarly-sized, non-SBA guaranteed loans if more than monthly, along with an aging of foreign accounts receivable and listing of export-related inventory, as appropriate. The Lender will review the Borrowing Base to ensure the Borrower is not over-advanced according to the available collateral detailed on the BBC. If the Borrower is over-advanced per the Borrowing Base, the Lender will require the Borrower to immediately make a payment to reduce the loan balance to be in compliance. For a small business with an asset-based loan to be allowed to retain the foreign accounts receivable proceeds, the small business must: (i) Be in business for at least 2 years (no start-ups); and (ii) Have financial records satisfactory to SBA for non-delegated loans, or the PLP-EWCP Lender for delegated loans, and the ability to provide a current aging of foreign accounts receivable. In deciding whether to permit a small business to retain the foreign accounts receivable proceeds, the PLP-EWCP Lender must comply with its policies and procedures for similarly-sized, non-SBA guaranteed credit facilities.

(c) Foreign Accounts Receivable Restrictions: Unless the Lender receives SBA’s prior written consent, any of the following types of accounts receivable are not eligible for inclusion in an asset-based loan borrowing base: (i) An account receivable that does not arise from the sale of items in the ordinary course of the Borrower’s business; (ii) An account receivable from a domestic (U.S.) company, unless the transaction has been approved by SBA as an indirect export; (iii) An account receivable for which an invoice has not been sent; (iv) An account receivable that is due and payable from a foreign buyer located in a country with which SBA is legally prohibited from doing business as set forth in the current Ex-Im Bank Country Limitation Schedule (such countries are identified by Note # 7 on the Schedule). (If the Borrower has knowledge that an export to a country in which SBA may do business, as set forth in the Ex-Im Bank Country Limitation Schedule, will be re-exported to a country with which SBA is legally prohibited from doing business, the corresponding receivables are not eligible for inclusion in the export-related borrowing base.); (v) A foreign account receivable that, by its original terms, is due and payable more than 180 calendar days from the date of the invoice, except those accounts receivable supported by acceptable letters of credit or credit insurance; (vi) A foreign account receivable that is still outstanding more than 60 calendar days from its original due date; (vii) A foreign account receivable that the Lender deems uncollectible or unacceptable; this category includes, but not limited to, finance charges or late charges imposed on the foreign buyer by the Borrower as a result of the foreign buyer’s past due status; (viii) A foreign account receivable that does not comply with the terms of sale; (ix) A foreign account receivable that arises from a bill-and-hold, guarantee sale, sale-and-return, sale on approval, consignment, or any other repurchase or return basis or is evidenced by chattel paper; (x) A foreign account receivable that is subject to any offset, deduction, defense, dispute, or counterclaim, or the buyer is also a creditor or supplier of the Borrower or the account receivable is contingent in any respect or for any reason; (xi) A foreign account receivable for which any of the items giving rise to such account receivable have been returned, rejected, or repossessed; (xii) A foreign account receivable due from an affiliated company; and (xiii) When 50% or more of the total foreign accounts receivable for a specific buyer are over 60 calendar days past the original due date, then the total foreign accounts receivable for that buyer are excluded.

(d) In addition, the Lender shall apply the same policies in reference to foreign accounts receivable eligible to be included in the borrowing base as the lender applies to its own similar asset-based loans which are not guaranteed by SBA or any other government entity.

(e) The Lender may verify that no ineligible foreign accounts receivable (as described above) are included in the borrowing base by obtaining a Borrower certification to this extent at the bottom of the BBC or on a separate certification form. g) Export-Related Inventory: i) General Guidelines: (a) Export-related inventory taken as collateral must be located within the United States, until shipped to the foreign buyer. (b) Export-related inventory must be valued at the lower of actual cost or market value (including cost of work-in-process inventory) as determined in accordance with Generally Accepted Accounting Principles (GAAP). (c) Export-related inventory may include raw materials, work-in-process, and finished goods. (d) Advance rates against eligible export-related inventory may vary depending on inventory quality. ii) Export-Related Inventory Restrictions: Unless the Lender receives SBA’s prior written consent, any of the following types of export-related inventory are not eligible for inclusion in the export-related borrowing base: (a) Export-related inventory that is not subject to a valid, perfected, and enforceable first priority lien in favor of the Lender; (b) Export-related inventory located at an address that has not been disclosed to the Lender in writing; (c) Export-related inventory that is not located in the United States; (d) Export-related inventory that is placed by the Borrower on consignment or held by the Borrower on consignment; (e) Export-related inventory that is demonstration inventory;

(f) Export-related inventory that consists of proprietary software (i.e., software designed solely for the Borrower’s internal use and not intended for resale);

(g) Export-related inventory that is damaged, obsolete, returned, defective, recalled, or unfit for further processing; and

(h) Export-related inventory that is to be incorporated into items destined for shipment to a country with which SBA is legally prohibited from doing business as designated in the current Ex-Im Bank Country Limitation Schedule (such countries are identified by Note # 7 on the Schedule), or that the Borrower has knowledge will be re-exported by a foreign buyer to a country in which SBA is legally prohibited from doing business. iii) In addition, Lender shall apply the same policies in reference to export-related inventory eligible to be included in the borrowing base as the Lender applies to its own similarly-sized, asset-based loans which are not guaranteed by SBA or any other government entity. iv) The Lender may verify that no ineligible export-related inventory (as described above) is included in the borrowing base by obtaining a Borrower certification to this extent at the bottom of the BBC or on a separate certification form. h) Field Examinations. i) The Lender must perform a field examination prior to the first disbursement on all Asset-Based EWCP loans that are $1,000,000 or greater. ii) Lenders are not required to perform field examinations on Transaction-Based EWCP loans, as each transaction is reviewed individually by the institution. iii) The field examination is an out-of-pocket expense and may be conducted by the Lender’s internal audit staff or a third-party examiner. An examination is a verification of the assets that compose the borrowing base. Examinations must include a sampling of the assets (receivables and inventory) included in the borrowing base. iv) If the Asset-Based EWCP loan is $2,000,000 or greater, the Lender must conduct a field examination at least annually. v) For Asset-Based EWCP loans less than $2,000,000: After the initial field exam prior to the first disbursement (if applicable), the frequency of field examinations may be determined by the Lender based upon the quality of the records, risk profile of the Borrower and seasonality of the line. If the Lender determines that a field examination is not necessary as part of the annual review, the Lender must document the specific circumstances that enabled the decision. Acceptable criteria for not conducting an annual field examination for loans of less than $2,000,000 includes but is not limited to: overall line utilization, level of inventory reliance, suppressed availability, etc. i) Borrowing Base Certificates. i) All Asset-Based RWCP loans must be administered using a Borrowing Base Certificate. The Lender may require a BBC more frequently than stated below if it does so in accordance with the policies and procedures the Lender uses for its similarly-sized non-SBA guaranteed commercial lines. ii) For EWCP loans of $1,000,000 or less, the Lender must obtain BBCs at least quarterly. iii) For EWCP loans greater than $1,000,000, the Lender must obtain BBCs at least monthly. iv) A Lender may require BBC submissions with each draw on the line to support a line structure that updates the accounts receivable availability throughout the month. To administer this method, the Lender must obtain a new BBC with each draw. BBCs used to support a draw that occurs before a monthly BBC is due must identify the new billings and collections that occurred since the last certificate was received. j) BBC Collection. i) The Lender must obtain the appropriate accounts receivable, accounts payable, and inventory reports necessary to determine their collateral position and for the coming period. Lenders may use their own forms for the BBC. ii) Most Lenders require that the BBC is received by the 15th day of the following month. Lenders may choose when the BBC is due, but in no case may the due date be more than 30 calendar days after the end of a month. iii) If the Borrower fails to submit the required monthly BBC to the Lender within 60 days of the month end, advances on the line of credit must stop until the BBC is obtained and the loan is confirmed to be In Margin. iv) If the Borrower fails to submit the required quarterly BBC to the Lender within 30 days of the month end, advances on the line of credit must stop until the BBC is obtained and the loan is confirmed to be In Margin. v) When the line is not in use with no outstanding principal balance and is not supporting the issuance of any letters of credit, the Lender may suspend the collection of Borrowing Base Certificates. Once suspended, the Lender must obtain a new BBC or complete a full credit memo documenting the current collateral position prior to making an advance. k) Loans that are not In Margin or are Past Due. i) If the Borrowing Base Certificate shows the Borrower is not In Margin or has not submitted a required BBC, the Lender must immediately require the Borrower to make a payment to reduce the loan balance to the point that it is within the borrowing base formula or obtain additional eligible collateral (i.e. marketable securities). The Lender must document their attempts to address the out-of-margin scenario in their credit file. ii) No additional advances may be made against a line that is not In Margin until the line is brought back in balance unless the Lender receives SBA’s prior written consent through 7aLoanMod@sba.gov (regardless of whether the loan is processed on a non-delegated or PLP-EWCP delegated basis). l) Certifications: i) The Borrower must certify that appropriate withholding tax deposits on advances for payroll have been made and that no loan proceeds will be used to pay delinquent withholding taxes or other similar trust funds (state sales tax, etc.). The Lender may include this certification as part of its Borrowing Base Certification reporting package. ii) The Borrower must provide a copy of valid export license(s) for each different product, and each different country, or a letter from the Borrower stating a valid export license(s) is not required, citing the authority for this statement. The Borrower may provide these items with a Borrowing Base Certification reporting package.