SBA SOP 50 10 8, B.Ch3.i.2 — Eligible Uses of Proceeds for International Trade Loans

SOP 50 10 8 B.Ch3.i.2

Effective 2025-06-01 · publisher's stamp for this provision

2. Eligible Uses of Proceeds for International Trade Loans Proceeds of an IT loan may only be used for the following eligible purposes (proceeds of an IT loan may not be used for any other purpose):

Source: SBA SOP 50 10 8, B.Ch3.i.2 — Eligible Uses of Proceeds for International Trade Loans · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.i

Effective 2025-06-01 · publisher's stamp for this provision

i. Acquire, construct, renovate, modernize, improve, or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade and to develop and penetrate foreign markets; ii. Working Capital; iii. Debt Refinancing with an International Trade (IT) loan. SBA-guaranteed loan proceeds may not be used to pay a creditor in a position to sustain a loss (including the same institution’s debt). This includes any refinancing that will shift all or part of a potential loss from the original lender to the SBA. The debt to be refinanced must be, and must have been, current for at least the last 12 months or for the life of the loan, whichever is less. “Current” means that a required payment has not remained unpaid for more than 29 days. A loan that has matured and not been paid within 29 days of the maturity date is not current and is not eligible for refinancing. 13 CFR §§ 120.140(j)(1) and 120.201. a) In accordance with 13 CFR § 120.452, a Lender may not use PLP delegated authority to reduce the Lender’s credit exposure to the Applicant. Loans that reduce a Lender’s credit exposure to the Applicant must be processed under non-PLP delegated authority. b) Loan proceeds may be used to refinance the following types of business debt see Paragraph iii) below for additional requirements if refinancing same institution debt). i) Any debt structured with a demand note or balloon payment; ii) Debt with an interest rate that exceeds the SBA maximum interest rate based on size or term; iii) Credit Card Debt Used for Business Expenses – The Applicant must certify that the proceeds from the debt were used exclusively for the Applicant’s business and were not used for any ineligible purpose as set forth in 13 CFR § 120.130. If a Lender submits a loan with proceeds refinanced from credit card debt where the Applicant certified that the proceeds from the debt were used exclusively for the Applicant’s business but the Applicant certification is determined to be invalid, SBA will not use this as a basis to deny or repair the guaranty purchase request. The Lender can rely on the Applicant certification. iv) Debt that is over-collateralized based on SBA’s collateral requirements– see Paragraph 4.c., Collateral below, which describes SBA’s collateral requirements used to determine if a loan is “fully secured;”

Source: SBA SOP 50 10 8, B.Ch3.i.2.i — Acquire, construct, renovate, modernize, improve, or expand facilities and · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.i.v

Effective 2025-06-01 · publisher's stamp for this provision

Source: SBA SOP 50 10 8, B.Ch3.i.2.i.v — Revolving lines of credit (short-term or long-term) where the original · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.i.i

Effective 2025-06-01 · publisher's stamp for this provision

i) It is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms, or ii) An increase in the amount of an existing SBA-guaranteed loan is not possible. k) Refinancing an SBA 504 loan. Refinancing an existing 504 loan can be processed by non-delegated or delegated authority if: i) The loan meets the SBA 10 percent improvement to debt service coverage requirement in Paragraph iv) above. ii) The justification to refinance the existing SBA-guaranteed 504 loan must be included in the credit memorandum. iii) Any applicable 504 prepayment penalties will apply. iv) The Lender may not solely refinance the Third Party Lender’s loan for an existing 504 project. l) Other conditions that apply to debt refinancing: i) A 7(a) loan may not be used to refinance a debt owed to a Small Business Investment Company (SBIC) or a New Markets Venture Capital Company 13 CFR § 120.130(b). ii) The payment of trade payables is not considered to be debt refinancing. iii) Interim Advances: For loans processed non-delegated, but prior to disbursement, a Lender or an affiliate of the Lender may make interim advances (also known as bridge loans) and SBA loan proceeds may be used to reimburse the interim advances. Lender notification to SBA of such advances is not required. iv. Change of Ownership (13 CFR § 120.202). a) An Applicant may use International Trade loan proceeds for a change of ownership, whether the change of ownership is accomplished through a stock purchase or an asset purchase, only under the circumstances described in this Paragraph. An asset purchase will be deemed a change of ownership and must comply with all of the requirements of this Paragraph if the Applicant is purchasing all or substantially all of the assets of the seller’s business. The following requirements apply: i) The Applicant must purchase 100% of the ownership interest in another small business or acquire all or substantially all of the assets of another small business through an asset purchase. ii) Regardless of whether the change of ownership is a stock purchase or an asset purchase, the Applicant must acquire from the seller facilities or equipment to be used in the United States in the production of goods or services involved in international trade and to develop and penetrate foreign markets. An SBA-guaranteed loan cannot be made solely to an individual. The small business must be either the Borrower or Co-Borrower. iii) The Applicant must be eligible for an International Trade loan. iv) The following changes of ownership are not eligible for financing as an International Trade loan: A change of ownership between existing owners of the Applicant, and a change of ownership where the Applicant is purchasing less than 100% of the ownership of a business. v) The maximum 7(a) loan uses of proceeds for any change of ownership is capped at the business valuation amount. When the business valuation is lower than the sales agreement, any financed capital required to meet the shortfall (in addition to the 7(a) loan and any equity injection) must be subordinate to the 7(a) loan. vi) Seller earnouts/buyer rebates: Seller earnouts are prohibited; however, buyer rebates based on business performance are allowed because this is a benefit to the Borrower. If the Borrower receives funds based on the rebate, it should first be applied to pay down the 7(a) loan to a point that will not trigger a subsidy recoupment fee, and any remaining funds may be used for business purposes; vii) The seller may not remain as an officer, director, stockholder, or employee of the Applicant. If a short transitional period is needed, the small business may contract with the seller as a consultant for a period not to exceed 12 months including any extensions. b) The Lender must comply with the requirements for IRS verification identified in Section A, Ch. 5, Para. B, IRS Tax Transcript/Verification of Financial Information. c) The following changes of ownership are not eligible: i) A change of ownership between existing owners of the Applicant. ii) A change of ownership where the Applicant is purchasing less than 100% of the ownership of a business. d) The Applicant may be the Borrower, or the Applicant and the small business being acquired may be Co-Borrowers. e) The Lender’s loan documentation must include: i) A current business valuation (not to include any real estate) that meets SBA requirements in Paragraph 4.d., Real Estate Appraisal and Business Valuation Requirements, below. ii) A site visit of the business being acquired. The Lender must document in its loan file the date of the site visit as well as comments. iii) An analysis of the following: (a) The Applicant meets Loan Program Requirements under paragraph C.1. above; and (b) How the change of ownership will result in the acquisition of facilities or equipment to be used in the United States in the production of goods or services involved in international trade and to develop and penetrate foreign markets. iv) Business stock and asset purchase agreements as applicable.

Source: SBA SOP 50 10 8, B.Ch3.i.2.i.i — It is unable to modify the terms of the existing loan because a · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.i.v

Effective 2025-06-01 · publisher's stamp for this provision

v) Evidence that all assets conveyed as a result of the purchase are properly secured as collateral by the Lender. f) The “purchase price of the business” includes all assets being acquired, such as real estate, machinery and equipment, and intangible assets. g) Intangible Assets: An International Trade loan may be used to finance a change of ownership that includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks, intellectual property, and agreements not to compete) as long as it is supported by an independent business valuation that complies with Paragraph 4.d., Real Estate Appraisal and Business Valuation Requirements below. i) If any of the loan proceeds will be used to finance intangible assets, the amount must be specifically identified in the Use of Proceeds section of the application. ii) The value of the intangible assets is determined by either the book value as reflected on the business’s balance sheet, a separate appraisal for the particular asset, or the value of the business as identified in a business valuation that complies with Paragraph 4.d.v, Real Estate Appraisal and Business Valuation Requirements below minus the sum of the working capital assets and fixed assets being purchased. iii) While a change of ownership financed by an International Trade loan may include the acquisition of intangible assets, the change of ownership must also include the acquisition of facilities or equipment to be used in the United States in the production of goods or services involved in international trade and to develop and penetrate foreign markets. 3. Loan Terms and Conditions for International Trade a. Maximum Loan Amount i. The maximum loan amount is $5,000,000.

Source: SBA SOP 50 10 8, B.Ch3.i.2.i.v — Evidence that all assets conveyed as a result of the purchase are · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.a.ii

Effective 2025-06-01 · publisher's stamp for this provision

ii. Maximum Loans to Businesses with Affiliates 13 CFR § 120.151 Lenders must determine whether the Applicant has any affiliates and document the results in their credit analysis. If affiliation exists, SBA’s loan maximums apply to the Applicant, including all affiliates, as if all were a single business.

Source: SBA SOP 50 10 8, B.Ch3.i.2.a.ii — Maximum Loans to Businesses with Affiliates · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.b

Effective 2025-06-01 · publisher's stamp for this provision

b. Maximum Guaranty Amounts and Percentages Except for International Trade and EWCP loans, the maximum dollar amount outstanding of SBA’s guaranty to any one business (including affiliates) must not exceed $3,750,000. SBA considers an EPC and an OC to be “one business” for this purpose. However, both International Trade and EWCP loans permit a maximum dollar amount outstanding of SBA’s guaranty of $4,500,000. When calculating the maximum guaranty percentage available to a Borrower and its affiliates, the Lender must include the approved loan amount for a revolving line of credit. The SBA’s guaranty is also known as the “SBA share” or “guaranteed portion.” i. The maximum guaranty amount is $4,500,000. ii. Maximum guaranty percentage: a) IT loans may receive a maximum guaranty of 90 percent or $4,500,000, except: b) The amount guaranteed for working capital for the IT loan combined with any other outstanding 7(a) loan for working capital cannot exceed $4,000,000. (Small Business Act, Section 7(a)(3)(B)); iii. Combination of 7(a) and 504 loans. a) When an Applicant applies for any combination of 7(a) and 504 loans, the order in which the loans are approved determines the maximum loan and guaranty amount available. Because the 7(a) loan has a lower maximum guaranteed amount, the 7(a) loan should be processed and approved first. b) Lenders must advise the SBA processing centers that there is a companion 504 application to ensure the 7(a) loan is processed and approved prior to the 504 loan application being processed and approved. iv. Zero Percent Guaranty Cannot be Provided for Ineligible Purposes: A 7(a) loan cannot include proceeds for an ineligible purpose or have any portion of the loan made to an ineligible business and no part of an SBA 7(a) loan may be guaranteed at zero percent. c. Loan Maturities 13 CFR § 120.212 A loan’s term must be: i. The shortest appropriate term, depending upon the Borrower's ability to repay;

Source: SBA SOP 50 10 8, B.Ch3.i.2.b — Maximum Guaranty Amounts and Percentages · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.c.ii

Effective 2025-06-01 · publisher's stamp for this provision

ii. Working capital or inventory loans and the financing of intangible assets (including goodwill) must not exceed 10 years. iii. Generally, equipment, fixtures, or furniture loans should not exceed 10 years. However, the term may be up to 15 years if the IRS asset class useful life supports the term. The term for a loan to finance equipment and/or leasehold improvements may include an additional reasonable period, not to exceed 12 months, when necessary to complete the installation of the equipment and/or complete the leasehold improvements. iv. Real estate loans (including acquisition, rehabilitation, renovation, construction, or improvements to leasehold interests in land) must not exceed 25 years, unless a portion of the loan is used for construction or renovation of the real estate. If the use of proceeds on a real estate loan includes construction or renovation, an additional period reasonably necessary for the construction or renovation period may be added to the 25-year maximum maturity. v. Loans for leasehold improvements (except for leasehold interests in land) may not exceed 10 years, plus an additional period reasonably necessary to complete the leasehold improvements, as determined based on the specific nature of the leasehold improvements, but in no case more than 12 months.

Source: SBA SOP 50 10 8, B.Ch3.i.2.c.ii — Working capital or inventory loans and the financing of intangible assets · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.c.vi

Effective 2025-06-01 · publisher's stamp for this provision

vi. Mixed purpose loans and loans for all types of changes of ownership: When 7(a) loan proceeds are used for changes of ownership and/or for multiple purposes (land and building, working capital, machinery & equipment), or the refinancing of any of these purposes, the maturity may be a blended maturity or, if 51% or more of the use of the 7(a) loan’s proceeds are for real estate, the maximum maturity may be up to 25 years. For stock purchases, the loan maturity may be based on the underlying assets/interest financed by the 7(a) loan as supported by a business valuation/appraisal. vii. For loans to farm enterprises: a) Where land and structures (including poultry houses) for farming comprise 51% or more of the use of proceeds, the maximum maturity is 20 years. b) Where machinery and equipment comprise 51% or more of the proceeds, the maximum maturity is the useful life of the machinery and equipment, not to exceed 15 years, plus an additional period reasonably necessary for installation, which may not exceed 12 months.

Source: SBA SOP 50 10 8, B.Ch3.i.2.c.vi — Mixed purpose loans and loans for all types of changes of ownership: When · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.d

Effective 2025-06-01 · publisher's stamp for this provision

d. Interest Rates SBA QUICK REFERENCE CHART: Maximum Interest Rates Allowed (See additional information below) Product Interest Rate International Trade Loans The maximum allowable fixed rate is available on SBA’s Wiki page. Maximum variable rates are: Loans $50,000 or less Cannot exceed Prime or SBA Optional Peg Rate + 6.5% Loans $50,001 up to and including $250,000 Cannot exceed Prime or SBA Optional Peg Rate + 6.0% Loans $250,001 up to and including $350,000 Cannot exceed Prime or SBA Optional Peg Rate + 4.5% Loans $350,001 and greater Cannot exceed Prime or SBA Optional Peg Rate + 3.0% i. General Policy on Interest Rates (13 CFR §§ 120.213 & 120.214): a) A loan may have a fixed or variable interest rate. The maximum interest rate that may be established for any IT loan is governed by SBA’s regulations on interest rates, which preempts any provisions of a state’s constitution or law. The Lender negotiates the interest rate with the Applicant, subject to SBA’s maximum allowable rates. b) SBA will periodically publish the maximum allowable fixed interest rate in the Federal Register. The maximum allowable fixed interest rate will be the Prime rate in effect on the first business day of the month, plus an allowable spread over Prime, as set forth in the most recent Federal Register Notice. For a listing of the current maximum allowable fixed interest rates, go to SBA’s FTA Wiki. The maximum allowable fixed rate may only be used by a Lender if such rate will be in effect for the entire term of the loan, without adjustment or reset. Otherwise, the maximum rates for variable rate loans will apply. c) For variable interest rate loans, the basis for the SBA maximum interest rate is an acceptable base rate plus allowable spread. The base rate in effect on the first business day of the month will determine the basis for the initial interest rate for any complete loan application received by SBA during that month. (Note: The date the “complete loan application is received by SBA” is the date the loan is approved and assigned an SBA loan number (for both delegated and non-delegated processing).) The initial note rate must not exceed SBA’s maximum interest rate. The spread above the base rate as identified in the Note may not be changed during the life of the loan without the written agreement of the Borrower. For further discussion of variable interest rates, see “Policy on Variable Interest Rates” below. d) Default interest rates are not permitted. e) For loans with a variable interest rate, the following terms must be defined in the Note: i) Base Rate and spread: (a) There are two acceptable base rates: The Prime Rate; or The SBA Optional Peg Rate. (b) The Prime Rate will be that rate which is in effect on the first business day of the month, as identified in a national financial newspaper or website. This rate may be found in the newspaper on the second business day of the month. If a website is used, please ensure whether it is publishing the current day’s rate or the previous day’s rate as some newspaper websites publish the previous day’s rate. The Optional Peg Rate is a weighted average of rates the Federal government pays for loans with maturities similar to the average 7(a) loan. SBA calculates and publishes the Optional Peg Rate quarterly in the Federal Register. Base Rates will be rounded to two decimal places with .004 being rounded down to .00 and .005 being rounded up to .01. ii) Frequency of change; iii) Range of fluctuation; and iv) Ceiling and floor (if any). f) After approval and prior to final disbursement, Lender must either notify the LGPC of any changes to the Note terms related to the interest rate or make the change through E-Tran Servicing. After final disbursement, Lender must either notify the appropriate Commercial Loan Servicing Center of any changes to the Note terms related to the interest rate or make the change through E-Tran Servicing. g) The 7(a) Lender may not split a loan into two loans for the purpose of charging a higher interest rate to the Applicant. ii. Base Rate, Allowable Spread, and Allowable Variance (13 CFR § 120.214) a) A loan may have a variable interest rate. The base rate may be one of the following:

Source: SBA SOP 50 10 8, B.Ch3.i.2.d — Interest Rates · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.d.i

Effective 2025-06-01 · publisher's stamp for this provision

i) The Prime Rate; or ii) The SBA Optional Peg Rate. b) The allowable spread is based on the loan amount. i) Loans of $50,000 and less: Base rate + 6.5%; ii) Loans of $50,001 up to and including $250,000: Base rate + 6%; iii) Loans of $250,001 up to and including $350,000: Base rate + 4.5%; iv) Loans of $350,001 and higher: Base rate + 3%. c) The Lender must designate on its application for guaranty the amount of the percentage spread to be added to the base rate at each adjustment date.

Source: SBA SOP 50 10 8, B.Ch3.i.2.d.i — The Prime Rate; or · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.d.iii

Effective 2025-06-01 · publisher's stamp for this provision

iii. Policy on Variable Interest Rates a) Standard Policy: SBA’s maximum allowable interest rate applies only to the initial Note rate on a variable rate loan. Subsequent changes in the base rate are not subject to the maximum rate at the time of loan application; however, the maximum spread over the base cannot exceed SBA’s stated maximum. b) Post-Approval Changes to the Interest Rate:

Source: SBA SOP 50 10 8, B.Ch3.i.2.d.iii — Policy on Variable Interest Rates · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.d.i

Effective 2025-06-01 · publisher's stamp for this provision

i) Pre-Disbursement Changes: After loan approval and prior to first disbursement, the Lender may change the initial Note rate, including changing the base rate, the spread over the base rate, or change from a fixed rate to a variable rate, or from a variable rate to a fixed rate, provided the new interest rate does not exceed the maximum allowable interest rate at the time of the loan application. The Lender must obtain the Borrower’s written consent to the change in the interest rate (separate and apart from executing the loan documents) and must either notify the LGPC of the change or make the change through E- Tran Servicing. For example, an SBA-guaranteed loan was approved with a variable rate. Since the loan was approved, the prime rate changed. The Borrower has asked the Lender if the loan can be switched to a fixed rate. If the loan has not been disbursed and the fixed rate selected does not exceed the maximum allowable fixed rate at the time of loan application, the Lender may make this change per the Borrower’s request. ii) Post-Disbursement Changes: After the loan is disbursed, on a variable rate loan, the Lender may change the base rate or the spread over the base rate as long as the new base rate or spread is based on a method permitted when the loan was approved and is consistent with the interest rate regulations at the time the loan was approved. The Lender must obtain the Borrower’s written agreement and must either notify the appropriate SBA CLSC of the change or make the change through E-Tran Servicing. For further guidance see SOP 50 57. c) Frequency of Interest Rate Adjustment: i) The first adjustment may occur on the first calendar day of the month following initial disbursement, using the base rate in effect on the first business day of the month. Lenders may delay the initial adjustment period. For example, Lenders have used periods as long as 5 years in order to provide the Borrower with an interest rate that is set for the first 5 years of the loan. After that time, the interest rate will begin to fluctuate as stated in E-Tran. ii) The Lender must specify in the Note the frequency at which the interest rate adjustment will occur. (a) This adjustment period as identified in the Note may not be changed without the written consent of the Borrower. (b) Subsequent adjustments may occur no more frequently than monthly. All subsequent adjustments will set the interest rate on the first calendar day of the adjustment period using the base rate in effect on the first business day of the adjustment period. (c) The rate of interest will change on the first calendar day of the adjustment period even though the rate may not be known until the second business day of that period. For example, if the first of the month is a Sunday, the base rate is the prime rate in effect on Monday. This rate will be reported in the Wall Street Journal on Tuesday, the third calendar day and second business day of the month. Many lenders use the calendar quarter as the adjustment period, especially those that sell the guaranteed portion in the Secondary Market. d) Interest Rate Requirements for an SBA Note: i) For fixed rate loans, the Lender must state the specific interest rate in the Note. ii) For variable rate loans, the Lender must include the following information in the Note: (a) Identification of the rate being used as the base rate; (b) The publication in which the designated base rate appears regularly (e.g., Wall Street Journal or the Federal Register if using the SBA Optional Peg Rate); (c) The percentage spread, including any changes to percentage spread if applicable, to be added to the base rate (e.g., in a construction loan); (d) The initial interest rate of the loan (from disbursement to first adjustment); (e) The date or timing of the first rate adjustment; and (f) The frequency of rate adjustment. e) Interest Rate Ceilings and Floors: SBA will permit a Lender to limit the upward and downward adjustments by establishing a floor and ceiling provided that:

Source: SBA SOP 50 10 8, B.Ch3.i.2.d.i — Pre-Disbursement Changes: After loan approval and prior to first · source URL · snapshot 535743ffe062cc34

SOP 50 10 8 B.Ch3.i.2.d.i

Effective 2025-06-01 · publisher's stamp for this provision

i) Both the floor and ceiling are stated in the Note; and ii) The difference between the stated rate in the Note and the floor is equal to or greater than the difference between the stated rate in the Note and the ceiling. For example, if the Note rate is 10% and the ceiling is 12%, the floor must be 8% or lower. f) Accrual Method: SBA does not require a specific accrual method, unless the loan is sold in the Secondary Market. Loans sold on the Secondary Market must either use 30/360 or Actual/365 as the interest accrual methods. While the interest accrual method 365/360 is permitted on loans not sold on the Secondary Market, Lenders are cautioned that they cannot use this accrual method and charge the maximum allowable rate of interest because this will result in an Annual Percentage Rate that exceeds SBA’s regulatory maximum. iv. Amortization: (13 CFR § 120.214(e)): Lender should use an amortization schedule that is appropriate for the type of loan. SBA does not allow balloon payments. A fixed interest rate loan must use a payment that will fully amortize the loan by the maturity date. Typically, variable rate loans are re-amortized every time the interest rate is adjusted to ensure full amortization by the maturity date. The amortization schedule may also be adjusted to meet the cash flow needs of the business. v. Fixed and Variable Rate Combinations: The Lender may use a fixed rate on either the guaranteed or unguaranteed portion and a variable rate on the other portion of the loan. SBA allows such combinations as long as neither rate exceeds the SBA maximum interest rate. A Lender may use this structure to make a loan that permits it to retain a variable interest rate on the unguaranteed portion and sell a fixed rate guaranteed portion on the secondary market. If the Lender uses a combination, the entire loan is considered to be a variable interest rate loan. The interest rate on both the guaranteed and unguaranteed portions must be based on the variable rate. vi. Interest Rate Swap Contracts: a) 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 7(a) variable rate guaranteed loan. The Borrower could purchase an interest rate swap contract that would set the interest rate at 8%. When the Note rate is lower than the rate paid by the Borrower on the swap contract (8%), the swap seller keeps the extra amount as compensation for the risk that rates will at some point exceed 8%. 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 8% and the swap seller would pay the difference above 8% 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. b) In order to use an interest rate swap in the 7(a) program, the interest rate swap contract must meet the following conditions: i) 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. ii) The interest rate swap contract does not affect the amount of money owed by the Borrower to SBA in the event SBA purchases the guaranty. In the event of a Borrower default, interest will be calculated using the base rate and spread in the variable interest rate Note, not the swap contract. iii) SBA will not be responsible if the swap seller defaults during the life of the contract. The Borrower will be liable for the interest as required in the Note. iv) Loans with accompanying interest rate swap contracts may be sold on the Secondary Market. The Lender is still required under the Secondary Market contract (SBA Form 1086) to forward interest and principal pursuant to the original terms of the loan. It is the Lender’s responsibility to work with the swap seller to make sure funds are available for submission to the fiscal and transfer agent according to the time schedule in the Form 1086. v) The full amount of the principal and interest required under the Note must be reported by the lender on the SBA Form 1502. vi) 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. vii) The Borrower must sign a statement acknowledging that interest will be calculated at the Note rate if the swap contract is terminated. viii) The following statement must be included in the swap contract that is executed by the Borrower and the swap seller: “The Small Business Administration is not a party to this contract and does not guarantee it. In the event SBA is called upon to honor its guaranty to the Lender, the Borrower’s debt will be determined by the terms of the Note, including the variable interest rate provision.” ix) Swap contracts may be used on new or existing loans. x) The swap contract does not have to last for the entire length of the loan agreement. xi) SBA does not have a standard form for an interest rate swap contract. xii) Any fees owed the swap counterparty as a result of the default by the Borrower will be subordinated to the SBA 7(a) loan.

Source: SBA SOP 50 10 8, B.Ch3.i.2.d.i — Both the floor and ceiling are stated in the Note; and · source URL · snapshot 535743ffe062cc34