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Tip of the Week
Getting ready for your next SBA On-Site Review
If you are an "old hand" at small business lending, you know that loan reviews are not only part of the "gig", but they are absolutely necessary to help you and your organization control quality and consistency. But you also know, they can be a pain, right? You may already know the drill - but do you know why SBA hasn't been in to see you in awhile?
If you are fairly new to lending, especially the world of SBA, don't stress. If you are learning the correct fundamentals, if you are following a clear set of policies and procedures, and if you execute you role consistently and soundly, fear not. But it may be a good time to pay attention to what may be in store for you and your organization if (and when) the SBA decides to come and inspect your work product.
Let's face it; accountability is essential in our world. Without it, we might have rogue lenders who ruin it for the rest of us, which could cause the program to be curtailed or worse yet, over relegated to a point that we wonder why we are utilizing the program at all. We have to know that there is a level playing field and generally that folks are "playing" fairly. That's the point of oversight, of risk review. Ultimately as tax payers, we should all feel good that we have a strong and effective office of Credit Risk Management in place at SBA.
So let's get tangible. What does all this really mean, down in the trenches? First, know that if your SBA guaranteed lending balances are consistently below $10 Million, you probably won't be hearing from SBA for an onsite loan review any time soon. The exception is, of course, if your portfolio indicates above normal risk and potential for loss (remember SBA is watching your performance regularly through information submitted via the Form 1502 and other information disclosed in your Lender Portal). $10 Million may not be a big deal on Wall Street but it is huge on Main Street.
If your balances exceed $10 Million consistently, then you are one of about 235 lenders plus/minus that are on the radar screen of SBA for routine, on site loan reviews on a 24-month cycle. In other words, you should expect a review every 2 years or so.
You fit the bill but you haven't heard a peep from SBA in a long time, so what's up with that? It is a long story, but suffice it to say, it is not about you - it is a change in process at SBA that is playing out and according to senior folks at SBA, it should be resolved in the next month or so. The "606 process" is code for "inside baseball" at SBA. They have their compliance sign-off process that involves a lot of different folks whenever there is a major change like this. The tweak in the models tripped the trigger for what needs extra scrutiny and that is what we are dealing with right now.
So now what? Here are a few tips to be prepared if you are "in the cycle" for an upcoming review.
What is the line-up? What are our chances for being reviewed sooner than later?
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Have you paid all your fees to SBA? If not, expect a review, sooner than later.
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Has your portfolio deteriorated more than your peers of late? If so, expect a visit soon.
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Are you a high volume lender? Regardless how bullet proof you are, expect SBA in soon.
It is a combination of volume, bad credit, and lack of cooperation that will trigger a review. So if you get the call and the letter anytime soon, what should you and your team do? Here is a short list of tips based on a recent webinar that we did for a client on this subject. Naturally we go into more detail in the training.
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Revisit your policies and procedures. Make sure you document who does what, and when and how - so that your outcomes are consistent and of high quality.
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Have a plan to get ready. Everyone on the team has a role to play to help get ready for an SBA Review. Does everyone know their role? Do you have a process to address loan reviews? Is it tangible and time bound? Now is the time to get your plan in order.
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Review a sample of loans. If you have the luxury of an internal loan review process, good going. Just make sure they are trained (and knowledgeable about SBA requirements) to give you good, honest feedback (otherwise let us know if we can help bring them up to speed). Or arrange for a professional, competent 3rd party review (we can help with that too). You might want to click here to use SBA's own review checklist to prepare yourselves.
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Do it right the first time. The best way to be ready for any kind of oversight review is to do it right the first time. Sounds simple, but few get this right early in their development.
If you are reading this and nodding and saying, yep, we are golden, Great! Go on to the next challenge. But if you are like most lenders, and you get a bit of pit in your stomach, relax. Give us a call and let's discuss what is really concerning you and how we might be able to help. It's free, it's confidential and it may be the next best step you can make to make sure your next review is just a health check up, not a health crisis. Policies and procedures, on-site reviews, training and much more - we are here to make your next visit from SBA a lot less stressful.
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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