Understanding Program Preference in Business Credit and Assistance
Definition & meaning
Program preference refers to any arrangement that provides a seller, pool originator, or their affiliates with a benefit that exceeds their loan interest compared to other parties involved in a loan. This can relate to aspects such as repayment terms, collateral, guarantees, or other financial arrangements. An example of program preference is when a seller agrees to defer payments for a borrower in exchange for additional collateral on a separate loan they own.
Legal use & context
Program preference is primarily used in the context of business loans, particularly those backed by the Small Business Administration (SBA). It is relevant in legal practices involving finance, lending, and business assistance. Understanding program preference is crucial for lenders and borrowers to ensure compliance with SBA regulations and to avoid conflicts of interest.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A bank offers a loan to a small business but requires that the business owner also take out a separate loan with the bank, providing additional collateral for the first loan. This arrangement could be seen as a program preference.
Example 2: A seller agrees to defer payments on a loan for a borrower in exchange for a higher collateral requirement on another loan owned by the seller. (hypothetical example)