SBA 7(a) Paperwork Explained: Form 159
While Form 159, “Fee Disclosure Form and Compensation Agreement,” is only required for about a third of SBA loan applicants, you definitely want to be sure that if you need it, you have it – and it’s filled out correctly! Luckily, it’s one of the simplest SBA forms, but because it seems so simple (it’s mostly made up of signature blocks), a whopping 40% are found with errors after being submitted. And if you submit SBA Form 159 incorrectly, you’ll be risking your loan guarantee. Pay attention, because the SBA will be!
What kinds of errors should you watch out for?
- Missing or inaccurate loan number
- Using a different “Loan Applicant Name” than you used on your submitted loan application
- Incomplete referral agent or referral compensation information
- Forgetting to disclose compensation amounts (amounts must be itemized if total compensation is more than $2500)
Before we get started, here's the official form 159:
Why Would You Need SBA Form 159?
Well, as you may have already noticed, an SBA loan is a time-consuming process. Most lenders even have an entire dedicated team! Is anyone representing you for a fee? Did anyone refer the loan to your lender for a fee? Are your lender’s packaging services fees “reasonable and customary” for those services? Did your lender outsource to a Loan Service Provider or a Professional Service Contractor?
When you filled out Form 1919, you were asked whether you’re paying for help to prepare or secure your SBA 7(a) loan (including related materials). If you said yes and you’ve either paid for help or still plan to hire someone to assist you, Form 159 is a must. It records any fees getting paid for SBA financing in order to keep lenders from paying related parties additional fees – and then charging you. This keeps the total costs of the loan lower, making affordable loans more of a possibility for small businesses.
Before any agent services are provided, your lender must tell you -- in writing -- that you aren’t required to receive or pay for unwanted services in order to apply for an SBA loan. Nor can any payments you make be dependent on whether you receive the loan. There’s also a “two-masters rule” that won’t allow both you and your lender to pay the same agent for the same services. The SBA will allow you both to pay a fee to the same individual/entity if and only if you’re paying for (and can prove) two distinctly different purposes.
If you paid your bank any loan packaging fees for closing your loan, or if they’re involved with referral fees, you’ll need SBA Form 159. If you or your lender hired a loan packager, referral agent, broker, accountant, attorney, or independent consultant, you’ll need SBA Form 159. You’ll also need one of these forms for each and every paid party involved in the financing process.
Don’t worry; there are some professionals who don’t require the form. You won’t need a Form 159 for your regular accountant, collateral or business appraisers, commissioned real estate agents nor closing attorneys. Only those individuals directly involved with your loan financing process warrant the extra paperwork.
The Hunt: Gathering Information for SBA Form 159
You’ll need to gather the following information and have it on hand for each agent or entity who’s received compensation before you sit down to complete Form 159:
- The total amount you were charged by each agent
- The business and representative’s name for each agent, along with complete contact information (phone number and business address)
- The loan applicant’s authorized representative’s name (if applicable)
- An itemized list (schedule) of services performed, number of hours, and hourly rate billed for each service. for any agents paid more than $2500
- An itemized and justified compensation list if a disaster loan exceeds $500 (or $2,500 for businesses)
Ready, Set, Go: Filling Out Form 159
Loan Applicant Name
In this section, be sure to use the same name that you used on your loan application (and use on your tax forms).
Loan Applicant Business Name (if any)
Here’s where you’ll include your business name, if different from your Loan Applicant Name. Use the business name you used on your loan application forms (if applicable) and federal tax forms.
Type of Agent (applicable to SBA 7(a) and SBA 504 Loans)
Which of the following categories fits your agent?
- Independent loan packager
- Lender/CDC compensated by applicant for loan packaging service
- Broker of referral agent employed by applicant
- Other, with description
Type of Services Agent Provided to Applicant
What did your agent do for you?
- 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
Total Compensation Charged to Applicant
Add up the total of all the bills your lender has given you. If the total is more than $2500, ask your lender for an itemized list of all services provided, showing the hourly rate, the number of hours charged for each item, and the cost per item.
SBA Loan Number
At the very bottom of the form, fill in the SBA loan number associated with your SBA loan application (either you or your lender can do this).
Get It Signed: Your Form 159 Signatures
Make sure you’ve got the signatures you need from the agent, your lender, and yourself. Remember, each you’ll be filling out a unique Form 159 for each agent involved in the loan process.
Agent’s Name and Signature
Have the agent sign and date this section, also filling out the name, phone number, business name and business address fields.
Sign here if all of the information provided by your agent is accurate. Make sure you use the same applicant name that you used at the beginning of the form. If the “Applicant’s Name” is a corporation or LLC, you’ll need to have this signed by a duly authorized officer or other representative of the business entity. For a partnership, a general partner must sign. If you’re having an authorized representative complete this form for you, they should sign and date this section.
An authorized representative of the lender or CDC will need to sign and date this section; have your lender or representative certify the accuracy of the information by filling out the lender/CDC name and then signing here. Also have them fill out the business name, address, and personal name for the agent used, along with the amount of any referral fees paid.
If CDC is a referral agent (for 504 Loans), an authorized CDC representative will need to sign and date this section as well as 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.