Make SBA Loan Disbursements Easy (and error-free)!
You’d think disbursing a loan would be easy. Ha. Just when you think you have it down, a Borrower throws a curveball.
Loan Disbursement errors are one of the top reasons SBA will repair or deny your guarantee.
Here are five tips for protecting that guarantee – let’s make it easy!
1. Review invoices and purchase orders closely before payment.
The Purchaser should be your Borrower, and the address should be the business location. You’d be surprised how often we see errors here. It might be an affiliate name listed as Purchaser, or the principal’s home address is listed as the shipping address.
Keep a close eye on these and require corrections before payment.
2. Reimbursement of funds paid outside of closing by the principal or borrower.
This one can get tricky, even though it’s fairly common.
Start by obtaining copies of the purchase order/invoice and canceled check/wire.
Then verify that the Borrower is the purchaser, and the shipping address is the business location.
This gets sticky when the Borrower has to inject funds. To ensure you don’t reimburse for injection proceeds, compare injection documentation to disbursement requests.
3. Use a spreadsheet to keep track of disbursements for each line item.
This ensures you don’t overfund. It also helps you know when you must prepare and obtain the proper level of approval for any reallocation of funds from one line item to another. I’ve lost track of how many times I’ve had to do a reallocation memo over the years!
4. Complete and execute Form 1050 with your first disbursement.
Complete all required fields and checkboxes! And don’t forget to fill out all columns for the total project.
If you’re paying multiple vendors, attach an addendum to the Form 1050 with every vendor listed along with the amount paid.
5. Using a third party to disburse loans?
This is a common practice – we often see escrow companies, title companies, and closing attorneys perform these tasks on the Lender’s behalf.
If this is your approach, carefully review your Estimated HUD-1 and collect the Final HUD-1 or closing statement certified by the closing agent.
Keep an eye on your disbursements, make sure you have a good process in place, and you’ll feel confident your guarantee is protected and you’ll have a successful program!