Lori N. McCausland
The Guaranty Purchase Package: avoiding costly pitfalls
Ever failed to get to the finish line on a Guaranty Purchase for an SBA loan in default?
It’s not a good thing, for obvious reasons: you’re failing to collect funds from SBA that you’re entitled to receive. So let’s take a look at the five most common reasons why you might not be wrapping them up.
1. Your staff doesn’t know how to handle SBA loans in liquidation status
If you haven’t had to deal with many loans in liquidation – congratulations! That’s good news, for sure. But it might leave you with some training gaps for the (hopefully rare) occasions that you do have a loan in liquidation. If your staff doesn’t know how – how can they be successful? So perhaps it’s time to review their knowledge and offer a refresher.
2. You haven’t established a process, procedure, or checklist for your staff to follow, or your process is out of date
There are steps to follow and hoops to jump through to ensure your Guaranty Purchase Package adheres to SBA’s requirements. A good resource is SBA’s web page detailing those requirements, which you can find here.
Also – how long ago did you last review your procedures? We recommend at minimum an annual review to make sure your processes are up to date with changing SBA requirements. Just as an example, the required Regular 7a Guaranty Purchase Package tabs were updated in March of 2020. Yes, that’s two years ago – but are you sure your procedures are current?
And the required Small 7a loan and Express loan tabs were updated effective October, 2021. We typically recommend that when submitting a loan package for guarantee purchase, always pull the newest tabs from SBA’s website. But sometimes finding them is like looking for a needle in a haystack.
3. The required documents aren’t in the loan file
When the loan file isn’t kept up to date, all sorts of problems arise – this just being one of them. Many lenders are both busy and short-staffed these days, so it’s easy to inadvertently let things slip. Taking the time to make sure your loan files are kept up to date should be an essential part of your process, and avoids the time, frustration, and scramble to locate missing documents.
4. You failed to obtain SBA approval for non-routine litigation
SBA doesn’t require approval for what it considers to be “routine” litigation.
But if – for instance – legal fees exceed $10,000, you must first obtain approval or you won’t receive reimbursement. SBA will refuse to include attorney fees they deem “unnecessary, unreasonable, or not customary.”
5. Borrower continues to promise payments – but fails to follow through
As the saying goes, hope is not a strategy – and if your borrower is continuing to claim that they’ll pay, but aren’t actually sending you a check, it’s time to stop believing them and place the loan in liquidation status.
No lender wants to deal with loans in liquidation status!
It’s not pleasant for anyone involved.
And there’s no point in making it more painful than necessary. If your Guaranty Purchase Packages tend to get stuck on any of these five points – or with other problems you’re encountering – we can help, whether with handling package completion on your behalf, reviewing and updating your processes and procedures, and/or conducting training for your staff.
Just go here to schedule a consultation and we’ll discuss the best options for your situation!