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Tip of the Week
Brushing and Flossing: Similar to Preparing for a Loan Review
Anticipating a loan audit, a Federal or State bank exam, or an SBA on site review is a bit like preparing for a check-up at the dentist isn't it? For those who floss and blush routinely (document their files right the first time), it shouldn't be a big deal. Some might even look forward to the check up, knowing that they have done what they can to maintain their health (portfolio quality). But things outside of our control like gum disease (bad economy) can upset the best of healthy regimens and that regular check up, with a trained professional, can be exactly what is needed to assure ongoing quality and health.
Another reason we may not like to visit the dentist (or the hygienist) is that we do not like to be scolded or shamed about not doing something we should have been doing. Same is true in the often tense but necessary loan review process. Suppose you are an underwriter (responsible for documenting the files "the SBA way"), or a loan processer (responsible for closing and funding the deal in strict compliance with the loan authorization), or perhaps an SBA department manager (responsible for everything!): How does it feel when you get that dreaded letter from SBA Office of Credit Risk Management - announcing an upcoming SBA on-site review? Perhaps it is the same feeling you get when your appointment calendar reminds you of your upcoming dental check-up.
So what is a prudent, well balanced, effective SBA lender to do? Here are a few tips to help you prepare for your next review and sleep better in the meantime.
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Revisit your SBA policy and procedures. We often hear that lenders do not have them; they "just follow the SOP". Or maybe they have a "one pager" that doesn't say much. Your policy is your big picture plan (vision) and your procedures are the roadmap (who does what and when). Effective policies and procedures bring discipline, consistency and accountability to the lending process. Prudent lenders use them faithfully and revisit them from time to time (at least once a year) to make sure they match up with reality. See our Policy/Procedures services on our website.
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Implement pre and post closing internal reviews. Seasoned SBA lenders know there are a lot of moving parts and a myriad of rules to follow. Often the business deal changes from the outset to closing, sometimes dramatically. Have you effectively purged stale, irrelevant (and confusing) documentation in the file or have you saved every single piece of paper attached to the deal? Does your system have built in checks and balances so that if one colleague is not as familiar with a particular set of requirements, that another will catch it before it becomes a fatal flaw in the loan file? Once closed and funded, do you have the necessary documentation in file to support a guaranty purchase test or even a routine compliance review?
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Routinely spot check/review your files. Prevention is the best medicine as they say but occasionally things fall through the cracks, even with excellent policy and procedures and internal systems. Prudent lenders have an approach to revisiting their portfolio with regular checks, conducted either by an internal, trained person not affiliated with the origination and servicing process, or perhaps through outsourcing to a professional firm that can provide a healthy, honest perspective. Think of them as your partners instead of your adversaries. Done right, they can help identify issues before a loan goes bad or before an SBA review so that systematic changes can be made to mitigate problems going forward. Many times compliance gaps can be fixed with a cooperative borrower. Worst case, you mitigate surprises at the worst possible time down the road and you remain in control. See our Loan Review services on our website.
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Stay current on SBA hot buttons. We all know SBA has their "hot buttons", typically chronic issues that they see in the guaranty purchase process or issues the Inspector General (IG) finds (remember, SBA has their reviewers too!). For example, a current hot button is compliance with the AARA from February, 2009. Also known as the Stimulus Bill (Recovery Act loans), these loans have enjoyed a higher guaranty and the guaranty fees have been waived. Lenders are responsible for obtaining the appropriate borrower certifications (easy, if you are using current SBA forms) AND lenders should specifically document their files that no funds will be used for restricted purposes (swimming pools etc). The new guaranty purchase 10 tab process has clearly identified these requirements
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Develop a net. SBA lending, particularly in these days of PLP and unilateral authority, can feel like a high wire act without a net. Get yourself a net. Smart, prudent SBA lenders do because they know that as good as they may be, they can not possibly know it all. Having a qualified sounding board to bounce questions off of in a non-threatening, highly confidential and time sensitive manner is a great help in this business. There are a number of options including our Lender Lifeline.
These are a few things you can do before SBA comes in for their inevitable visit (if you are doing much volume or if your portfolio exhibits any signs of stress). Of course once you get the list of loans you can do the fire drill of checking the files, rounding up missing information etc. But wouldn't it be a lot easier and more enjoyable if you had an approach that incorporated the steps outlined above? Then when you get your letter, you can relax and look forward to the check-up, knowing you have been good and you have flossed and brushed every day.
Take the right approach.
Brian Burke and Karen McHugh
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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