State-Specific SBA 7(a) Collateral Requirements: SBA Appendix B

The SBA makes it easier for financial institutions to help small businesses through the SBA 7(a) program.

To ensure fair lending practices throughout the United States, the SBA developed a national standard language that’s required of all lenders through the SBA National 7(a) Authorization Boilerplate (also known simply as the “Boilerplate”). The SBA also provides an automated Microsoft Word template often called the “Wizard.” Together, the Boilerplate and the Wizard produce the SBA Authorization.

The Boilerplate includes appendices that provide specific information about SBA 7(a) collateral requirements. This includes an index of standard collateral conditions, state-specific language/requirements for real estate collateral conditions, and frequently asked questions. More specifically, Appendix B to the Boilerplate sets the title options and other requirements for real property collateral liens in SBA 7(a) loans for each state and U.S. territory.

In this overview, you’ll learn about the key information related to the Boilerplate and, in particular, Appendix B. Encourage your team to become familiar with both so you always know what’s required for your 7(a) loan submissions.

What is the SBA National 7(a) Authorization Boilerplate?

The Boilerplate is the mandatory national standardized language for all SBA 7(a) and Community Advantage Authorizations. Together with the SBA Standard Operating Procedures manual (SOP), the Boilerplate is the go-to guide for lenders to assure loan closings are in compliance under both SBA rules and regulations and state-specific requirements.

The Boilerplate is an invaluable resource for specific SBA loans requirements. Appendix B specifically sets the state-specific SBA 7(a) collateral requirements and options when using real estate for collateral in SBA 7(a) and Community Advantage loans.

It’s important to note: The SBA National 7(a) Authorization Boilerplate is in addition to, not in replacement of, the more comprehensive SBA Standard Operating Procedures manual (SOP 50 10 Version 6, effective October 1, 2020).

When should lenders refer to Appendix B?

Each time a loan requires a collateral interest in real estate, whether it be residential, commercial, or vacant property, it is essential that the lender review the requirements of Appendix B. As a lender, you need to inform your clients as early in the loan process as possible so that your borrower understands what is required to close the loan, as well as how their real estate may be impacted.

How is Appendix B used?

The legal requirement for using real estate for collateral varies from state to state, and Appendix B provides the following for each state:

1. the type of instrument required to collateralize real estate (for example: mortgage, deed of trust, etc.)
2. what type of title policy or title search is required (ALTA Policy, Attorney Opinion, Title Search, etc.)
3. boilerplate provisions required
4. optional provisions that can be included at the lender’s discretion

Per the Appendix B guidance, “This appendix describes the title options and other requirements for real property collateral liens in SBA authorizations, for every U.S. state and territory. For each state, this appendix lists below the types of lien instruments available, the available evidence of title options, and additional provisions required by the SBA for real property liens, called Boilerplate Provisions. Unless indicated otherwise, the Boilerplate Provisions for each state are mandatory.”

Are there circumstances in which some of the requirements can be waived?

Appendix B is straightforward and explicit about which requirements are mandatory (Boilerplate Provisions) and these requirements cannot be waived by lenders unless otherwise indicated. These requirements need to be expressly met to perfect and secure the lender’s collateral interest in the real estate.

If you make any attempt to waive the Boilerplate language by SBA 327 modification, the SBA will remind you that the boilerplate language cannot be waived. And if you fail to comply with Appendix B, it can result in a partial or total denial by SBA to honor your institution’s SBA guarantee.

These requirements were selected by each state’s local SBA District Counsel to assure real estate collateral perfection. If you truly cannot meet one of these requirements, speak with your Loan Service Provider and local SBA District Counsel for case-by-case options. A 327 modification is not available to deviate from these boilerplate requirements. 

Remember, offering SBA 7(a) and Community Advantage loans is a win-win!

SBA 7(a) loans are the SBA’s most popular loan product, with loans available between $50,000 and $5 million. And, SBA Community Advantage (CA) loans fill the need for small business financing for borrowers in underserved communities. Together, these loan product options give you the power to keep the door open for entrepreneurs in your community, helping you build opportunities and success together.

Prudent Lenders is here to help

At Prudent Lenders, our goals are focused on helping you. As one of the country’s most experienced lender service providers, we empower your financial institution to offer SBA loan programs to the business communities you serve, in ways that reduce your risks and enable you to help strengthen small businesses.

In addition to developing proprietary tools, like our Fast Track Assessment, we partner with banks and other lending institutions to make SBA-backed loans more broadly available to their small business clients.

If you have additional questions about SBA 7(a) collateral requirements, Appendix B, or any other SBA-related issues, please give us a call, we’re always happy to help.

And if your financial institution isn’t one of our SBA partners yet, we encourage you to contact us today. We make it easy for lenders to launch and manage SBA loan programs immediately, effectively, and without any fixed costs, with information and assistance that makes SBA lending easier for you.