SBA Lending: Systems and Process
Whether you’re thinking about starting or expanding your SBA Lending department, or simply updating it based on new SOPs, a key factor is your systems and process.
We wrote a while ago about things to consider as you start up an SBA Lending department. With updates to SOPs and changes in SBA’s expectations, we’re revisiting some essential points that are important even if you’ve been running your SBA Lending practice for years.
In that article, we mentioned the need for core systems. Another key system to consider is your documentation system. Does it contain all the SBA-required verbiage, historical as well as current, that’s needed for the various loan closing documents? Does it contain verbiage to notify borrowers of specific requirements that used to be listed in the SBA Authorization, but are not always listed in the Terms & Agreements or Etran input document? Always refer to the current SOP to be sure you’re documenting all the requirements! For instance, the Recoupment Fee for loans with maturities of 15 years or longer that are prepaid by more than 25%. This used to be included in the Authorization’s repayment section, but is no longer found in the Terms & Conditions Agreement. Another example is the section on standby requirements on Seller debt, which changed in May of this year (2023). Both of these are still requirements in the current SOP, but the verbiage and/or guidance for your documentation team is no longer listed in the Terms & Conditions Agreement. And what about the Insurance requirements? Again, not listed in the Terms & Conditions Agreement, but still required. You’ll notice that even the life insurance requirements aren’t documented!
As we touched on here, SBA recently told Lenders to “Do what you do!” The implication is that they trust Lenders to have the proper internal policies in place – and, importantly, they trust you to keep up to date on SOPs, including all changes. Note that the Terms and Conditions document (which replaces the SBA Authorization) provides much less guidance than before. What does that mean for you? It means going back to the SOP requirements! There’s significantly increased reliance on Lenders’ internal loan policies. This means you need to review your policies to ensure they match SBA’s definition of a “prudent lender.” How important is this? Well, we did a keyword search through SOP 50 10 7. We counted 35 instances of “prudent” in the SOP, and that’s not all: “similarly-sized” is listed 76 times, and “non-SBA” is listed 101 times. (If you do this search, look for “similarly sized” without the hyphen as well as “similarly-sized” hyphenated.) These word counts may seem irrelevant, but in fact they’re clear pointers to what SBA considers important. And we still think it’s best to review the entire SOP cover-to-cover, but we like the keyword search as an indicator of where to put extra focus. Your best option is to review your end-to-end lending policies and make the appropriate updates – with the added benefit that now your overall lending, SBA and non-SBA alike, will be more secure and robust.
Checklists, checklists, checklists. This is, as you know if you’re at all familiar with our work, something we emphasize constantly. And for good reason: checklists are your safety net when reviewing case-by-case requirements for loan documentation. Make sure you update your checklists whenever you update policies – whether your internal policies or as mandated by SOP updates.
Training – yes, you need it. Why? Because your staff can’t rely on the SBA Authorization as a road map for loan documentation. Even experienced Lenders may need to brush up on what’s needed, and training, including review of updated internal policies and checklists, is the solution.
If it feels a little like SBA has pulled the rug out from under you with this “Do what you do!” mandate, you’re not alone. And this is where we can help. With our many years of experience, we understand SBA’s expectations regarding “prudent” lending practices – and we can provide the training needed to get everyone up to speed. Give us a call at 877.576.0819 if you’re curious about how we can help – or drop us a line. We look forward to talking with you!