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When Two Become One, in Three Parts: Part I

Writer's picture: Lori N. McCauslandLori N. McCausland
SBA lender training

Mergers are seldom easy, no matter what industry you’re in.

Bank mergers, with all the associated regulations and financial complexities, are even less easy.

And in our experience, some lenders don’t place enough focus on SBA loans, since this is a small portion of their overall portfolio. When determining who represents the Lending area, it is important to include staff with SBA lending and SBA systems expertise – otherwise you could be inviting trouble.

So, for our SBA 7(a) readers and clients, we’re covering the three stages of mergers, each in its own article.

Here, in part I, we’ll look at what needs to happen before the merger closes – while you’re still in the due diligence phase and assessing the ultimate feasibility of acquiring the bank under consideration. In part II, we’ll discuss the actual process of merging, and in III, we’ll look at what happens afterwards.

How to ensure appropriate attention to SBA loans?

Please make sure you have experienced, senior-level SBA 7(a) experts from your SBA loan administration team, including your SBA Portfolio Manager and your SBA Loan Administration Manager. They’ll be doing the heavy lifting in determining the status of the other bank’s SBA portfolio and their Lender underwriting process.

Conduct a deep dive into their SBA loan portfolio, on a loan-by-loan basis

  • Where’s the documentation? It should all be in the loan file, and not in someone’s email or on their local hard drive.


  • When was the loan funded? Review the disbursement history. Are all related documents in the file?


  • And review payment history. Is it up to date, or are problem loans lurking?


  • While you’re at it – review the full loan history, all the way back to origination. What’s the Note date? Were there system conversions in the past – and if so, were loan histories brought over from the old system during the conversion? SBA requires submission of the entire loan history from the date of initial disbursement if a loan is submitted for SBA repurchase.


  • Are there loans previously acquired from another Lender that are now part of this acquisition, but don’t have full history and documentation?


  • Reconcile each loan to Etran and the FTA’s records, reviewing interest rates, dates of interest rate changes, interest paid to date, outstanding balance, interest basis, and so on. If you’re out of sync on any of these points, investigate to determine why.


  • What’s the status of each (and every!) loan payment on SBA’s / FTA’s records?


  • Are there any repurchased loans in the portfolio? If so, make sure SBA has approved the repurchase and closed their review of the Universal Purchase Package (UPP) with no findings.


  • Which loans have been charged off on SBA records?


  • Is there collateral remaining? If so, is collateral still being pursued?


  • If liens are in place, they must be monitored.


  • Does the Lender still have full loan files for all loans that were charged off?


  • And do they have full files for loans that were repurchased, but not yet charged off?


It’s a lot. This is a lengthy list, and we’d expect your SBA loan experts to add more!


The process of reviewing a potential acquisition’s SBA 7(a) loan portfolio is demanding and challenging – and as you’re undoubtedly aware, it’s essential to be as rigorous and detail-oriented as possible. You don’t want to close the acquisition and only then discover that there are problems lurking.


And you know we’re here to help, of course. Details are our speciality, as is SBA lending. We’ve said it before, we’ll say it again: it really helps to have your very own SBA consultants in your back pocket. Give us a call at 877-576-0819, or drop us a line through our contact form. Whether you need SBA lender training, help with ensuring Lender SBA compliance when considering another bank for acquisition, or any other Lender service provider support we can offer – let’s talk.


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