....and How to Avoid Them
Whether you’re using non-delegated (GP) or delegated (PLP) submission processes, be sure to keep SBA Screen-Outs in mind while putting together your files.
For a GP submission, SBA looks at the package you present, performs their own analysis, and potentially sends you a Screen-Out that will slow your loan closing.
For a PLP Lender, an OCRM review has the same guidelines for your audit as the LGPC has in reviewing a GP loan.
Here are some of the most-common reasons for loan Screen-Outs.
Form 1919 or 1920 is incomplete or missing signatures.
The Lender’s Credit Memo is missing required information.
Debt Refinance is missing supporting documentation or doesn’t meet requirements.
Business Acquisitions are missing a valuation, purchase agreement, or equity injection.
Valuation wasn’t based on SBA percentages, so not all available collateral was taken.
These seem broad – and they are. Each of these issues has a multitude of things tied to it that could result in a Screen-Out.
Here are some tips for avoiding the Screen-Out:
Checks and Balances. If you have a team member preparing the Form 1920, be sure the person signing it calls it back to ensure it’s fully completed and in alignment with the terms in your Credit Memo.
Review the Form 1919 for accuracy, completion, and signatures. Deals change during the analysis. For instance, what started as a single Borrower becomes an EPC/OC, or the loan amount changes. By drawing an updated Form 1919 for the Borrower to sign, you ensure it’s accurate to the terms in your Credit Memo and is dated within the required 90 days of submission.
Credit Memo errors are common when you use a universal credit memo for all your commercial loans. They’re often missing components necessary for an SBA loan. Quick fix: create an addendum or section for SBA eligibility including all the requirements in the current SOP for underwriting. As new guidance is provided by SBA through Notices and SOPs, update the addendum accordingly.
Checklists solve the problem of missing documentation. Make sure your checklists include those documents required in the SOPs to support Debt Refinance, Business Acquisitions, Injection, RE purchases, and more.
Review SBA SOPs for the collateral values SBA uses and incorporate them into all your SBA deals. If you overvalue Inventory by using 50% and think you have 100% collateral coverage – you don’t. SBA gives only 10% value to Inventory, and you’ll have a loan that’s under-collateralized, and you won’t have taken additional collateral that might be available.
If you know me, you’ve heard me say, “Package and process with liquidation and guaranty purchase in mind, not with loan closing in mind.” If the loan is eligible, the closing happens. But if you miss any steps, your guaranty is at risk.
Processes, Procedures, Checklists, and Training (oh my!). These will keep you and your staff on the right path and improve the health and performance of your portfolio.