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  • Writer's pictureLori N. McCausland

The 8 Most Common Loan Review Deficiencies

In light of the SBA’s 7a Connect Call in January, this is a good time to review the most-common mistakes or problems that SBA’s Office of Credit Risk Management (OCRM) typically finds – as well as those that we often see in reviewing our clients’ portfolios.

Here’s the list of the top 8, with quick points about what usually needs to be done to correct the deficiencies.

Loan Review findings that may affect payment of your Guarantee:

1. Insufficient source of injection

  • Bank statements – two months’ statements at loan approval AND at injection

  • Gift Letters – the gift or must also provide two months’ statements

  • Evidence of assets injected into the project

2. Insufficient evidence that the required funds were injected into the project

  • Copies of checks from the source account

  • Wire confirmation from the source account

  • Closing statements and/or a HUD-1 Settlement Statement

  • Complete documentation to support disbursements

  • Changes to use of proceeds throughout the disbursement phase requires:

- Evidence that the Lender is amending the loan approval to state actual use of

proceeds and that the amendment has been approved by the Lender

- Communication with SBA to document their knowledge and approval of changes

- Etran updated once all disbursements have been made

3. Insufficient evidence of disbursements

  • Canceled checks with supporting invoices

  • Wire confirmations with supporting invoices

  • Evidence that funds were disbursed to the borrower (working capital)

  • Full documentation to support reimbursements to the borrower

4. Insufficient evidence of matching disbursement categories

  • Lender’s approved credit memo

  • SBA Authorization

  • Form 1920

  • Loan fully entered into Etran

5. Insufficient documentation to support eligibility of refinanced debt

  • Copies of original Notes to be refinanced

  • Documentation confirming eligibility of the original use of proceeds

  • Evidence that the loan to be refinanced was on “unreasonable terms”:

- Interest rate was unreasonable

- Payment / term did not match use of proceeds

- Loan has a demand feature

- Excessive collateral was required

6. Insufficient evidence of appropriate life insurance

  • Lender’s credit memo addresses the need for life insurance

  • Evidence of life insurance as stated in the Authorization

  • Evidence that the Lender is monitoring up-to-date status of life insurance payments

7. Inconsistent with loan level searches as required in SOP 50 10 6

  • Searches completed on all required parties to the loan

  • Searches completed on parties added to the loan after original searches were processed

8. Insufficient collateral documentation

  • Complete collateral descriptions, including collateral schedules

  • Accurately value collateral per SBA requirements

  • Lenders must monitor lien filings:

- Ensure proper lien position was obtained

- Ensure that collateral lien was sufficiently perfected

- Obtain proper post filing/recording lien searches

- Ensure collateral is properly insured

LRM Lender Consultants conducts dozens of loan reviews for our clients every year. We’re just a phone call or Zoom meeting away from being able to help you prevent Loan Review deficiencies, and / or resolve any deficiencies that may have been reported to you by the SBA. Contact us today to schedule an initial no-fee consultation.


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