SBA Fee Disclosure Form: How to Fill out SBA Form 159

SBA Fee Disclosure Form: How to Fill out SBA Form 159

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The Small Business Administration (SBA) guarantees commercial loans made to small businesses at below-market rates by banks and other lenders. These guarantees compensate the lender if the borrower defaults. The SBA also directly originates certain loans—such as those to companies and individuals who suffer from a declared disaster. SBA Form 159 is used when a borrower receives help from certain third parties to help complete other SBA Forms.

What is SBA Form 159?

The SBA acknowledges that applying for one of its loans can be a daunting task, and that potential borrowers may want to receive the assistance of third parties, collectively known as agents, who offer fee-based services that help expedite SBA loans. For SBA 504 Loans, agents include certified development companies (CDCs) that charge fees. Form 159 requires certain agents who help borrowers apply for certain SBA loans to identify themselves, their type (e.g., loan packager or broker), the type of services they provide, and the total compensation charged to loan applicants. While the exact makeup of Form 159 varies among the three SBA loan programs, its purpose is to ensure that agents don’t rip off applicants by charging exorbitant fees or implying that applicants who apply on their own will be turned down by the SBA.

The SBA offers three loan programs—SBA 504, SBA 7(a) and SBA Disaster Loans—that require Form 159. The first two programs guarantee loans to small businesses for the purchase of commercial real estate, machinery and other fixed assets. The third program is a direct loan available to businesses, private non-profits, homeowners and renters that have been affected by a declared disaster.

  • SBA 504 Loan: SBA 504 10- or 20-year loans are available for up to $5 million to eligible businesses that occupy at least 51% of the underlying commercial property. The business owner must put down 10% of the property value, while the lender provides 50% and a nonprofit CDC contributes 40%.
  • SBA 7(a) Loan: This program guarantees private lender loans up to $5 million at below-market interest rates for companies to purchase commercial property, expand an existing business, or purchase assets. These loans have terms ranging from five to 25 years.
  • SBA Disaster Loans: These loans can be used when a declared disaster damages or destroys real estate, machinery and equipment, personal property, inventory, and other business assets.

Who Needs to Complete Form 159?

On Form 159, the SBA identifies an agent to be a party “that receives compensation from representing an applicant or lender in connection with an SBA loan.” Typical agents include brokers, accountants, loan packagers, referral agents, consultants, and attorneys. Each agent compensated by the applicant must complete a separate Form 159. The form is also required if the lender pays a referral fee.

The following persons are not considered agents by the SBA:

  • The applicant’s accountant who prepares financial statements during the normal course of business, not specifically for the loan application.
  • A state-accredited appraiser who appraises collateral for the SBA loan.
  • A lender service that operates under a lender service provider agreement approved by the SBA.
  • A person that provides business valuations, but who otherwise is not involved with the loan application.
  • A professional employed by the lender to assess any environmental issues associated with the loan’s collateral property.
  • A real estate agent who collects a commission on the sale of real estate connected to the SBA loan.
  • The attorney who closes on the SBA loan.

Agents must satisfy certain requirements in connection with SBA loans:

  • Agents must notify loan applicants, in writing, that their services are not required in order to apply for an SBA loan.
  • Agent fees must be reasonable—as defined by the SBA. Depending on the complexity and size of the loan, agents might reasonably charge $500 to $4,500 or more. The fee must bear a necessary and reasonable relationship to the services provided. The SBA can force the partial or total refund of fees it deems unnecessary or not allowed under SBA rules.
  • Agents cannot charge “any commitment, bonus, broker, commission, referral or similar fee.”
  • Compensation cannot depend on whether the applicant receives the loan.
  • Compensation that exceeds $2,500 must be itemized.
  • Agents must certify that they are not “debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from participation” in the loan transaction.
  • For SBA 504 loans in which the CDC acts as an agent, the CDC’s compensation cannot exceed 1.5% of the loan amount. The CDC can collect a deposit from the applicant up to the lesser of $2,500 or 1% of the loan amount. The CDC fee need not be reported on Form 159. However, any referral fee the CDC charges to the third-party lender must be disclosed on Form 159. This referral fee cannot be charged to the applicant.
  • Agents must file Form 159 for SBA disaster loans if the loan exceeds $500 for homeowners or $2,500 for businesses. Compensation in excess of these amounts must be itemized and justified.

What Information Do You Need?

Form 159 requires the following information:

  • The loan applicant’s name.
  • The business’s name if different from the applicant’s name.
  • The total compensation charged to the applicant.
  • The agent’s business name and representative’s name, phone number and business address.
  • If applicable, the name of the loan applicant’s authorized representative.

When compensation exceeds $2,500, the agent must attach a schedule itemizing:

  • What services were performed.
  • The number of hours and hourly rate billed for each service.

When necessary, Form 159 and any attached schedules must accompany the loan application form and any other documents required by the loan application form, such as financial statements or tax returns.

Step-by-Step Instructions

Form 159 isn’t difficult to fill out. Most of it is devoted to signature blocks.

1. Identification: Enter the loan applicant’s name and business name (if different).

2. Type of agent (for SBA 7(a) and SBA 504 Loans): Check one of the following:

  • Independent loan packager.
  • Lender/CDC compensated by applicant for loan packaging service.
  • Broker of referral agent employed by applicant.
  • Other, with description.

3. Type of services agent provided to applicant: Check one or more of the following:

  • Loan packaging.
  • Financial statements or tax returns prepared specifically for the application.
  • For Disaster Loans: Legal services performed specifically for the loan closing.
  • For 7(a) Loans: Broker or referral services paid by applicant.
  • Other services, including descriptions.

4. Total compensation charged to applicant: Fill in the total amount charged to the applicant. Attach an itemized schedule if compensation exceeds the amounts specified on the form.

5. Agent signature block: The agent must sign and date this section. The agent will also need to fill in their name, phone number, business name and business address.

6. Applicant signature block: The loan applicant will need to sign and date this form. The applicant will also need to fill in their name. If an authorized representative is completing this form, they should sign and date this section.

7. Lender’s/CDC’s Certification (for 7(a)/504 Loans): An authorized representative of the lender or CDC will need to sign and date this section. It will also need to fill in the name of the lender/CDC, any referral fees paid, the name of the referral agent, and the business name and address of the agent.

8. If CDC is a referral agent (for 504 Loans): An authorized representative of the CDC will need to sign and date this section. They will also need to fill in the name of the CDC, any referral fees paid to the CDC by a third-party lender, and the business name and address of the agent.

Justin is a Sr. Research Analyst at ValuePenguin, focusing on small business lending. He was a corporate strategy associate at IBM.