The Costs of Delay

As an SBA lender, the SBA guaranty offers essential protection supporting your institution’s willingness to extend credit to small businesses.

But that protection comes with responsibilities, not the least of which is the duty to act in a timely manner throughout the life of the loan – and especially when the loan is in distress.

It’s always wise to think things through before taking action, and as Lenders to small businesses we want to support our Borrowers to the extent possible. But letting things slide for too long risks denial or repair of the SBA guaranty as well as impact the overall health of your SBA portfolio.

Here are a few situations where delay jeopardizes your position – and what you can do to avoid it.

1. SBA Loan Servicing and SBA Loan Liquidation

   
   

   SBA expects Lenders to act with the same care they’d use with their non-SBA loans. Delays in obtaining or acting on appraisals, failure to secure collateral, or waiting too long to initiate legal action are all errors of due diligence. And that can result in a repair or full denial of the guaranty. For instance, when collateral loses value due to a delay, SBA may reduce the guarantee to account for that loss.

   
   

2. Guarantor or Borrower Defaults

   
   

   When a Guarantor or Borrower defaults, delays in issuing demand letters or enforcing personal guarantees can severely impact the Lender’s ability to collect. In this situation, SBA is likely to determine that the Lender’s inaction directly caused a loss and will repair the guaranty accordingly.

   
   

3. Litigation and Bankruptcy

   
   

   Time is of the essence when your Borrower faces bankruptcy. Failing to file a timely Proof of Claim, request relief from the automatic stay, or participate in adversary proceedings can limit recovery. SBA expects Lenders to participate actively to protect SBA’s interest.

   
   

   SBA must be notified as soon as possible of any bankruptcy filings or litigation affecting the loan. Failing to do so is a compliance issue.

   
   

4. Wrap-Up Reports and Final Tabs

   
   

   As a loan comes to the end of its lifecycle, delayed submission of the Wrap-Up Report or the Final Liquidation Tab can slow down or jeopardize your guaranty purchase. Not something you – or SBA – wants to have happen.

   
   

Best Practices to Protect the Guaranty

• Establish clear internal timelines. Yes, we’re back to our favorite topic: checklists for key actions such as demand letters, legal referrals, litigation plans and liquidation milestones.

  
  

• Document your actions and decisions. When a delay is unavoidable – court backlogs or Borrower cooperation, for instance – be sure to document them. And always document the choices you make as you take action.

  
  

• Know the SOPs. Is your staff trained on SOP 50 57 (for 7(a) loans) and SOP 50 56 (for 504 loans)? These SOPs outline servicing and liquidation requirements, and your team should know them inside and out.

  
  

• Ask SBA for guidance. When there’s uncertainty around any situation, SBA is available to help. Don’t just “wait and see” – reach out.

Remember: an SBA guaranty isn’t automatic; it’s earned. And the burden is on the Lender to demonstrate that every action taken was reasonable and timely, and that you remain in full SBA compliance. Act quickly, document clearly, and protect your guaranty.

Remember too that we’re here to help. We offer Lender SBA consulting and packaging support for Lenders whose SBA portfolio includes loans in default or liquidation. If your Borrowers are in trouble, let us help you to help them – and yourself.

Call us today at 877-576-0819, or use our contact form to schedule a consultation.