Tip of the Week

Tips for preparing for an On Site Review by SBA

If you’re a high volume SBA 7(a) lender, chances are you’ve already experienced SBA’s current onsite review process which is designed to be a comprehensive risk review (not strictly a file compliance review as in the past).  However, if you haven’t yet had your onsite review by SBA (conducted by contractors), there are some steps you may want to take to prepare yourself adequately.

Many of our clients have retained us over the past year to simulate the review so that they can anticipate issues in advance and hopefully correct significant deficiencies.  This is important not just for compliance in the review but more importantly, to plug possible gaps in their policies and procedures for all future deals.

We have heard repeatedly that our approach tends to go deeper and provide a more comprehensive coaching tool for the SBA department manager and the staff.  Some lenders have actually been disappointed that they didn’t learn more from the SBA onsite review other than the fact that they’re “fine” and won’t be losing their PLP any time soon.  The question is: how can we all up our game in the spirit of continuous improvement?

SBA published an onsite review issues list of 42 items.  Theoretically, the reviewers will be testing for all of these items as they conduct their file review.  Our tip this week is put your best foot forward by demonstrating that you have an approach to consistently and adequately address pre closing, post closing and portfolio management issues.

1. A Pre-closing system must assure that the lender consistently obtains proper documentation per SBA prudent lending standards and requirements. Typical areas of non-compliance include:

• Missing life insurance assignment, policy and home office acknowledgement
• No Form 159s disclosing fee paid by the borrower AND the lender (referral agents must be disclosed now)
• No appraisal reviews
• Incomplete or inadequate justification in the credit memo for critical lending decisions

2. A Post-closing system should be set up to obtain quality assurance

• Get another set of eyes on the documents to compare the loan authorization to the closing checklist to the actual closing documents
• Complete a post-closing checklist, assign tasks and set ticklers to prompt for follow through
• Connect the dots between internal process and outsourced activities such as legal counsel support for closing and disbursements
• Make sure key documents are signed and dated appropriately

3. Portfolio management should be implemented to address standard servicing actions and regular servicing items

• Insurance tickler process to assure that premiums are paid
• Obtain and analyze ongoing financial information to document continued creditworthiness
• Site visits, especially in conjunction with problem loan situations

Many of you will be attending the NAAGL annual conference next week in Indian Wells, California.   Please stop by our booth and say hello!

Take the right approach

Brian Burke and Karen McHugh