Time To Review Your SBA Debt Refinance Process!
Did you see the September 8th, 2021, SBA Notice 5000-814473 with the really long title?
“Interim Advances: Guidance for Processing Short-Term Interim Loans prior to the SBA 7(a) Loan Approval”
Based on its guidance, you’ll definitely want to revisit your SBA Debt Refinance process. So here are our tips to help ensure you’re underwriting, documenting, and closing your file in a way that supports eligibility and payment of the guarantee should the loan default.
1. Underwriting should answer key questions regarding the debt being refinanced.
Here are a few examples of questions SBA used to expect Lenders to address. Even
though SOPs have been updated with more general language, answering these
questions will help you be sure you’ve covered all the details.
a. Why was each debt incurred?
b. Are there factors that indicate the creditor(s) are at risk to sustain a loss?
c. Why is the debt being restructured?
d. Are there factors supporting debt not on reasonable terms? A balloon payment,
maturity shorter than life of equipment purchased, interest rates higher than SBA’s
e. How does the new loan improve Applicant’s financial condition? Is there a 10%
increase to cash flow or other improvement?
f. Why doesn’t the current debt meet the needs of the Applicant?
2. Be sure your file includes a fully executed copy of the Original Note and/or Lease
3. Compare the Debt Schedule from Borrower to the Notes provided. Is the data
consistent? Is the Debt Schedule in your file?
4. If the debt being refinanced was a personal credit card or HELOC, obtain Borrower
certification that the debt was used exclusively for business purposes.
5. If you’re a PLP lender preparing your own Authorization and your borrower is
refinancing several debts, remember that creditors receiving $10,000 or more from
proceeds must be itemized separately in the use of proceeds section. And if any of the
debt is an SBA loan, include the SBA Loan number and the amount to be refinanced.
Any time SBA issues a Notice changing or enhancing a critical section of the SOP (such
as, in this case, debt refinance), it’s a good time to go through your policies,
procedures, forms, and checklists to ensure the updates are made for all to reference.
And note that when you sign up for our newsletter, you get access to the LRM Notice Nook, your one-stop-shop for recently issued SBA 7a Notices & Information.