SBA rules · SOP 50 10 8.1

What is the third party lender in an SBA 504 loan?

A Third Party Lender (TPL) is an independent commercial or private lender that provides senior financing covering at least 50% of an SBA 504 project's costs.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Definition and role: A TPL is usually a financial institution that provides the Third Party Loan (typically 50% or more of project financing) and holds a first lien on project collateral, but a CDC cannot serve as the TPL on projects it finances.
Loan size and maturity: The Third Party Loan must equal at least the net debenture proceeds (and at least 50% of project costs if the business has operated for two years or less or the asset is limited/special purpose), with a minimum maturity of 7 years for a 10-year debenture or 10 years for a 20- or 25-year debenture.
Prohibited terms and agreements: TPL loan documents must not contain cross-default, "deem-at-risk," or pre-default demand provisions, and the CDC cannot enter into any intercreditor agreement other than SBA Form 2287 without prior written SBA consent.
Collateral and liquidation rules: When a TPL takes additional collateral beyond the project property, it must exhaust all collection avenues against that additional collateral no later than the disposition of the project property and apply those proceeds to the Third Party Loan first.
Fees and large project underwriting: A one-time participation fee of 0.50% applies to senior Third Party Loans, and for projects of at least $5,000,000, the TPL credit memorandum or underwriting analysis must be submitted to SBA.

The source

What the SOP says

“Third Party Lender: (504) usually a financial institution that provides the Third Party Loan and typically has a first lien on the project collateral. SBA does not permit the CDC to be the Third Party Lender on Projects financed by the CDC.

SOP 50 10 8.1, Appendix 3: Definitions > SOP (lines 4415-4423)✓ Verified

“a Third Party Lender provides 50% or more of the financing; a Certified Development Company (CDC) provides up to 40% of the financing through a 504 debenture (guaranteed 100% by SBA); and an applicant (Borrower) injects at least 10% of the financing (13 CFR §§ 120.801 and 120.900).

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Borrower (lines 3098-3102)✓ Verified

“The Third Party Lender (TPL) 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.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Third Party Loan 13 CFR § 120.920 (lines 3103-3105)✓ Verified

“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.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > There are two options for delivering this information to the SBA: (lines 3106-3119)✓ Verified

“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.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > There are two options for delivering this information to the SBA: (lines 3106-3119)✓ Verified

“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

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > There are two options for delivering this information to the SBA: (lines 3106-3119)✓ Verified

“A Third Party Loan must have a term of at least 7 years when the 504 loan is for a term of 10 years and 10 years when the 504 loan is for 20 or 25 years.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Loan Maturities (lines 3385-3392)✓ Verified

“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.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Example (lines 3122-3130)✓ Verified

“0.50 % of the senior mortgage loan – One -time fee

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > 0.50 % of the senior mortgage loan – One -time fee (lines 1194-1199)✓ Verified

“For any 504 project with total project costs of at least $5,000,000, the SBA requires either the TPL’s credit memorandum or underwriting analysis to be submitted to SPLC to support the Agency’s underwriting and review of the transaction.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Third Party Loan 13 CFR § 120.920 (lines 3103-3105)✓ Verified

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