After our client loan reviews in 2022, many of which included Screen Outs, we realized that we often see some of the same, repeating, common problems. So we’re starting a four-part series on handling these annoying, stress-inducing Screen Out notices. We’ll cover the most common errors, what you can do to resolve them, and yes, why they can actually be a Good Thing for you and your team.
PLP Lenders! This means you too! You no longer get Screen Out notices from SBA, which means you’re at risk for not realizing you’re out of compliance. You don’t want to discover this in an OCRM review or when you’re submitting your loan packages!
That said, let’s start with five common errors we see in Loan Origination Packages.
1. Breakdown of Closing Costs
Are you allocating large dollar amounts to closing costs? Lumping closing costs into a single sum is easy – but SBA is now zeroing in and asking Lenders to provide a more itemized breakdown.
2. Pro Forma Balance Sheets
The SOP requires that each loan, regardless of Use of Proceeds, contains a Pro Forma Balance Sheet. It’s a requirement, so include it as a table in your Credit Memo or as a separate document.
3. Personal Financial Statements
This seems to be the new hot button at SBA. They’re asking Lenders to ensure the Borrower has entered data in all fields. If a field isn’t applicable, you must state “N/A” instead of leaving it blank.
4. Projections with assumptions
Projections often make it into the Credit Memo and the packages, but they don’t always include the assumptions on which they’re based – or SBA may not believe the assumptions are reliable. Make sure your assumptions have a solid foundation in reality, and that you’re communicating that foundation in your documentation.
5. Form 1919 or 1920
According to SBA, these forms are often incomplete. Be thorough in your review and completion of them to ensure the information is accurate and all inapplicable fields contain an N/A, as noted in item (3) above.
There are some simple steps you can take when handling Screen Outs to make sure you clear them quickly.
1. Open the email right away
Most will have a deadline, and you need to get that on the calendar to stay compliant.
2. Avoid the knee-jerk defensive reaction
Don’t get defensive and hammer out a quick response. You usually have a three-to-five-day window before the deadline. Take that time to review the issues, your documents, the SOP (if necessary), and develop a well-thought-out response, with relevant backup documentation.
3. Don’t send in piecemeal responses
Seriously: do not send piecemeal responses. SBA is a once-and-done organization. Send one coherent response with all your arguments and documentation for every item in their letter.
4. Keep your response focused
Don’t just put your response on their email or letter. Draft a letter, using their numbering system and a subject line for each item, followed by your response. The more focused you are, the more focused they will be, and the faster you’ll get approval.
We know: timing doesn’t always allow for us to slow down. However, if you take the time to do it carefully and correctly, you only need to do it once. In the long run, you’ll make SBA happy because they’ll only have to touch the loan once – and that will make you happy because you won’t have the increased stress when you see a Screen Out email pop up in your notifications.
Want some help with that? We work with many clients on clearing Screen Outs, and would be glad to talk with you about what you’ve got on your plate. Let’s talk and see how we might be able to relieve some of your stress!