Coleman Certified SBA 7(a) Loan Closer Lance A. Sexton, Coleman Faculty Instructor

Transcription

1 Coleman Certified SBA 7(a) Loan Closer Lance A. Sexton, Coleman Faculty Instructor

2 Setting Up the SBA Loan File There are a number of ways to set up a loan file. My recommendation for the SBA Loan File is to setup the File in the Ten Tab PDK Format.

3 Section 1 Loan Authorization Put a clean signed copy of the authorization Include any Loan Authorization Change Request Include any approval on those LA Request SBA Form 1920

4 Section 2 - Eligibility SBA Form 1919 All supporting Eligibility Information

5 Section 3- Legal Docs 1. Note 2. Guaranties 3. UCC Filings and Searches 4. Security Agreements 5. Purchase or Sale Agreement 6. SBA Form 912if required

6 Section 4 - Disbursements SBA Form 1050 Proof of all disbursements Receipts, Invoices, lists, etc. documenting the disbursements

7 Section 5 Transcript of Account Keep a current transcript of account here.

8 Section T and the transcripts 2. Proof of equity injection 3. Standby agreements, landlord waivers, assignment of rents 4. Credit Memorandum 5. Change in Ownership Information

9 Section 7- Business Personal Property Collateral Mortgages, Titles, UCCs Appraisals Title Insurance Asset Valuations

10 Section 8-Business Collateral Mortgages Appraisals Title Insurance Equipment List Equipment Valuation UCC Filings Business Valuation if needed

11 Section 9 - Financials Business Financials 3 years and a current Current Personal Financial Statement Business Tax Returns 3 years Personal Tax Returns 3 years Projections

12 Section 10 Miscellaneous Docs SBA Form 159 Post Closing Servicing Actions Approvals of Servicing Actions Any documentation not included in the previous section that is needed

13 Using the 10 Tab Format You make the loan relying on the SBA guaranty Why not set up the file in a way that expedites the guaranty purchase process if needed?

14 Coleman Certified SBA 7(a) Loan Closer Lance A. Sexton, Coleman Faculty Instructor

15 File Review When should you do a file review? 1. Immediately after closing the loan to find any exceptions and clear them. 2. In preparation for a SBA On-Site Review or Off Site Review to insure that the file is in its best condition. 3. When a loan is put into liquidation to insure that any documentation deficiencies can be corrected before going through liquidation.

16 File Review Providers Internal Employees with good SBA Experience 3rd Party Service Providers like Prudent Lenders LLC. Bank s regular review provider given that they have SBA Experience

17 File Review Format The SBA recommends that you use the Lenders Risk Based File Review Form.

18 File Review Format

19 File Review Format

20 File Review Format

21 File Review Format

22 File Review Format

23 Key Elements of File Review 1. Eligibility Review 2. Credit Review 3. Collateral, Appraisal, Environmental Review 4. Authorization, Closing, and Disbursement Review 5. Servicing and Liquidation Review

24 Coleman Certified SBA 7(a) Loan Closer Lance A. Sexton, Coleman Faculty Instructor

25 The SBA Lender Review Preparing for the Lender Review Have a written SBA Lending policy and procedures guide for your bank. 3. Make sure that your SBA Lending staff has regular training and evidence of that training. 4. Conduct consistent ongoing, proactive portfolio management. Manage your SBA Portfolio the same way you do your other commercial loans. Review each SBA Loan. If you do not have a review process, use the SBA Lender Risk Based Review sheet discussed in our last session.

26 The SBA Lender Review Hot Topic Issues Make sure that every loan that requires an equity injection has credible proof of that equity injection in file. Make sure that the Use of Proceeds on every SBA loan matches up to the Use of Proceeds in the authorization. If there are differences, make sure there are loan authorization change request and approvals to explain those differences. Make sure and have a completed 4506T, copies of the transcripts, and a memorandum documenting the review of the tax returns compared to the transcripts received.

27 The SBA Lender Review The reviews are scheduled 3-6 months in advance. The SBA Lender usually gets days written notice followed by a phone call confirmation.

28 Review Components Portfolio Performance Review Component Key performance statistics; Loan production activity; Comparative performance analysis; Credit quality; and Any other risk characteristic(s) identified in the Review Plan.

29 Review Components SBA Management and Operations Review Component SBA Corporate Organization and SBA Management; Delegations of Authority; Operating Plan and Performance; Internal Oversight; External Oversight; and Any other Risk Characteristic(s) Identified in the Plan.

30 Review Components Credit Administration Review Component Creditworthiness; Collateral; Closing and Disbursement; Regular Servicing and Assessment of Continued Creditworthiness; Collection Practices and Intensive Servicing and Liquidation; Active Purchases Management; Other Portfolio Management Items (i.e., Consistency with SBA Policy, Risk Rating Systems, etc.), and Other Risk Characteristics (i.e., Effectiveness of Internal Controls, Use of Loan Agents, Loan Sales/Participations, etc.).

31 Review Components Compliance Review Component Borrower Eligibility; Reporting to SBA; and Any other Compliance matters identified.

32 On Site Review Report Executive Summary Components Findings and Conclusions Appendices Summary of findings, recommendations. Report findings

33 SBA On Site Review The review report generally comes back to the participant bank in 60 days. Reports that are acceptable require no response. Unacceptable reports require a lender response. You can appeal the findings if you believe the review has errors.

34 Coleman Certified SBA 7(a) Loan Closer Lance A. Sexton, Coleman Faculty Instructor

35 The Early Default Loan Probably one of the most scrutinized loans in the SBA Loan portofolio.

36 Early Default Early Default means any of the following events of default that occurred either within 18 months of the initial disbursement of the loan or within 18 months of the final disbursement of the loan if the final disbursement occurred more than six months after the initial disbursement. Failure to make a scheduled loan payment Funding a scheduled loan payment from the sale of collateral rather than from business operations. Deferment of more than three consecutive scheduled full payments. Any other event of default that required the loan to be classified in liquidation status, e.g., bankruptcy.

37 Early Default Early Default Loans are important because they are one of the primary causes of denial or repair on the SBA Guaranty.

38 The Early Default Loan Early Default Due to the lender not properly making or closing the loan. A full Denial of Liability is almost always justified if the Lender's failure to make or close the loan in accordance with prudent lending practices and SBA Loan Program Requirements contributed to or allowed an Early Default unless the Lender provides credible evidence that the business failure was for totally unrelated reasons

39 The Early Default Loan If a lender under delegated authority makes an SBA Loan not using prudent lending practices, a full denial of guaranty is justified. Examples: 1. The Lender made the loan even though the Borrower's projected expenses greatly exceeded projected revenues and the Borrower had no other source of income. 2. The Lender made the loan to a startup business without comparing the Borrower s projected revenue against an industry standard or some other reliable measure including the Lender's own experience making loans to similar businesses.

40 The Early Default Loan Examples: 3. The Lender s cash flow analysis failed to take into account an obvious fact that could easily affect the Borrower's repayment ability, such as the owner s monthly draw. 4. The Lender s cash flow analysis contained unjustified and overly optimistic revenue projections, e.g., revenues projected to increase by 100% in year one even though the industry standard is 25% maximum and there is no explanation for the difference. 5. The Lender made a material mathematical error in its cash flow calculations, i.e., if the mathematical error had not been made, the Lender would not have made the loan or would have structured it in a way that would not have led to an Early Default.

41 The Early Default Loan A full denial of guaranty is warranted if the lender failed to complete the 4506T, receive the transcripts, and compare the information as required by SOP 5010.

42 The Early Default Loan Early Default Caused by the Failure to Buy Key Assets A full Denial of Liability may be justified if there was a total or near total loss on the loan due to operational problems caused by the Borrower's failure to purchase the key assets listed in the "Use of Proceeds" section of the Loan Authorization, which resulted in an Early Default.

43 The Early Default Loan Verifying and Documenting the Equity Injection If there was an Early Default on the loan, documentation verifying that any equity injection required by the Loan Authorization was not only made, but that it came from a proper source, must be included in the Lender's Purchase Package. Early Default was caused by the lack of the injection and a full Denial of Liability is justified.

44 The Early Default Loan How to avoid issues with the early default loan: 1. Complete the 4506T, receive the transcripts, and document the file with a memo comparing the financials to the transcripts Make sure and verify and document the required equity injection. 4. Make sure and use Prudent Lending practice in making and closing the loan. Make sure that the Use of Proceeds in the authorization matches up with the disbursement of funds. If there are any changes make sure to have submitted and approved Loan Authorization changes to explain the differences.