...AND HOW TO AVOID THEM
Submission of the monthly 1502 report is one of the most important tasks for Lenders. The deadlines are tight, and accuracy is essential. Here are the most common errors – and tips for avoiding them.
1. Late 1502 report and monthly payment submissions
For loans sold on the secondary market, Lenders are charged penalties plus interest if loan payments received in the previous calendar month aren’t submitted by SBA’s due date. See Notice 5000-20066 for the 2021 due dates.
2. Late Pre-Payment submissions
When a borrower prepays an SBA loan sold on the secondary market, the Lender must take steps to avoid owing additional interest to the secondary market investor. The prepayment must be submitted via a special 1502 report. Refer to the Form 1086 signed when the loan was sold for the requirements.
For loans with a recoupment fee component, the applicable recoupment must be collected at the time of prepayment. Submit the recoupment with the prepayment to SBA via the special 1502 report.
3. Notifying Colson Services about staffing changes
The 1502 report includes space for the Lender to provide the name and contact information for the Lender’s point person for all Colson Services and SBA 1502 report-related correspondence. Be sure to check the appropriate box when updating contact information.
4. Watch the calendar when SBA loans become delinquent
When an SBA loan becomes delinquent (more than 60 days past due), or when there is an adverse event, certain servicing requirements may be needed. Omitting these steps as required by SBA SOP may result in an adverse effect to the guarantee purchase.
For loans that are ultimately repurchased by SBA, SBA only pays 120 days of interest. Watch the calendar for loans sold on the secondary market so the Lender can request that either SBA or the Lender repurchase the loan from the secondary market before past-due interest exceeds 120 days.
5. Inputting new SBA loans into your core processing system
It’s easy to make input errors on a new SBA loan – and this can affect your bottom line. These errors include, but are not limited to, the original loan amount, the base rate, the interest margin, rate change frequency, prepayment parameters, payment re-amortization structure, late fee parameters, and so on.
HOW TO AVOID ERRORS
1. Staff training – Make sure the staff responsible for submitting the monthly report and payments have a clear understanding of the process and the deadlines for submission.
2. Back-up – Have back-up personnel available to complete the submission if your primary person is out of the office when the submission is due.
3. Checklists – These are especially helpful for tasks that aren’t completed on a regular basis or for those with multiple steps. They’re also a great tool for the back-up employee to use to ensure no steps are missed.
4. Written procedures – The 1502 reporting process has multiple steps, with many “if this, then that” scenarios. Robust, step-by-step, written procedures are an important tool for your personnel to refer to, especially for those tasks that happen infrequently.
5. Procedure reviews – Schedule a periodic review of procedures to ensure you‘re meeting the most up-to-date requirements. Changes can happen at any time, so it’s imperative to review them at least annually, plus whenever SBA Notices, SOPs, and other updates are issued.
6. Second set of eyes review – Lenders who submit an inaccurate 1502 report and associated payment may risk penalties. Therefore, having a “second set of eyes review” should be part of your overall SBA loan procedures.