Tip of the Week
Don't Forget: A SBA Express Loan is Still a 7(a) Loan
When we think of the Express loan programs offered by SBA, we probably think lower guaranty (50% vs. 75% or even 90%) in trade for an expedited process (closely paralleling conventional, non-government processes). We probably also think not only offering term lending through Express, but also the ability to offer revolving lines of credit (not available through the standard 7(a) loan program).
Accepting the lower guaranty percentage can make sense if there is an ability to offer a government guaranteed product faster, easier and with less expense. Therefore, lenders approaching the product RIGHT, have set up a system (a process) where high loan volume is achievable and very profitable. However, lenders must not lose sight of the importance of accuracy and proper documentation required by SBA. Remember, the SBA Express loan is a "sub-program" of the SBA 7(a) Loan Program and all eligibility criteria still applies.
When we visited the Commercial Loan Servicing Center (CLSC) in Fresno a month or so ago, Gary Wamhof (lead staff for Express purchases) told us that one of their biggest issues with lenders is poor documentation of eligibility decisions. When breezing through a "conventional approach" to documenting the loan, how do you document the file for the SBA eligibility requirements? It can be pretty simple, but don't miss this key piece. Think about what SBA requires on:
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Franchise eligibility - check the franchise registry. If the franchise is not located on the registry, don't fail to document your analysis of whether or not the franchisor has "power of control" over the franchisee (your applicant).
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Credit elsewhere - there has to be a reason for the SBA guaranty even with a SBA Express loan AND there must be documentation of the reasons in the file.
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Refinancing - make sure you document y our calculation of the 10% payment improvement rule for long-term debt and include in your file copies of all notes refinanced with SBA proceeds.
Also, if the loan is an early default and the lender submits for payment of the guaranty, SBA will require the submission of a credit memorandum as part of the 10-TAB process. How are you documenting your credit decision for a SBA Express loan? It can be simple, but it needs to cover the 5 points of credit analysis dictated by the Form 4-I: repayment ability, equity injection, collateral coverage, management ability and credit strength of the principals. If it is a small unsecured loan, make sure the approach you take is the same you would take in your conventional processes. If you are depending solely on the credit score, be sure your credit and SBA lending policy supports that approach.
A SBA Express loan is still a 7(a) loan, so eligibility documentation is required and the credit decision must be justified if the loan ever goes into early default. Building processes to expedite a "conventionally looking" SBA loan product may sound like a slam dunk, but we find with many of our clients it is a fine balance between documenting the loan enough to meet SBA's requirements and making sure not to "over paper" the file so that the process doesn't get clogged up with government bureaucracy.
Let us help you fine tune your processes to match the products you are offering. The process for generating SBA Express loan volume is obviously totally different than the process of building a standard 7(a) loan portfolio. We have assisted many clients in developing their SBA loan policy and procedures (for multiple products). We can assist you in covering the bases for all SBA loans so at the end of the day, you remain in compliance. Please take a look at our services that pertain to installing a new product platform (SBAExpress Product Installation) and developing SBA procedures (SBA Lending Policies and Procedures) of ways we might can assist you.
Take the Right Approach.
Karen McHugh and Brian Burke
SBA Access ©2009 - All Rights Reserved
All content is copyrighted and unauthorized use is strictly prohibited. If you would like to quote any part of this text, email bburke@sbaaccess.com or kmchugh@sbaaccess.com for permission.
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