One of the hottest topics in our industry today is how to best approach SBA for a guaranty purchase once a loan goes into default. The slowdown of the economy and the softening of SBA loan portfolios all over the country has caused lenders to shift their focus to this side of the business. It is essential that SBA demonstrate that the integrity of the SBA guarantee is not in question, especially during times like these. However, we take the approach that the lender has to make SBA's job easy so that they may honor their "brand promise" to respond to a lender's guaranty purchase request within a timely manner. Also, all curves in the road must be taken out of the process for both the lender and SBA, to get a win/win for everyone.

Some of the questions that arise for lenders when struggling with the National Guaranty Purchase Center (NGPC) include:

What is the secret to presenting a guaranty purchase package in its best light?

• Remember "Tell the Story" from a previous sbaAccess Tip of the Week?
  There is much more to discuss on this approach with a description of best practices on an executive summary that should accompany every guaranty purchase request.

How do you handle a pari passu loan structure that goes into default?

• Remember, SBA no longer allows piggyback structures for companion loan structures so now the pari passu (sharing of liens) is the only way to go when financing same purpose loans. When liquidating collateral, there is a proper way to allocate expense and equal lien interests.

What can lenders do up front to avoid guaranty repairs and denials?

• Remember, to begin with the end in mind regarding every aspect of the loan making process (eligibility, equity injection, collateral lien position, disbursement of proceeds and collateral disposition.

Once a relationship defaults, what are some key points to getting a successful guaranty purchase?

• Remember, above all to protect the collateral so it does not disappear or get damaged.

I learn from example. What examples have other lenders encountered where the guaranty was denied by the NGPC, but the lender ultimately got paid by SBA?

• Actually, there is much more room for negotiation with SBA than most lenders would expect or assume. SBA's goal is to pay the guaranty (NOT to deny liability) and is open to a way to resolve issues that confound the process.

What advice would you give lenders when confronted with a repair or denial?

• In making your case, determine whether or not the information "required" has any real bearing on the reason the business failed. For instance, if the reason the claim is denied for lack of insurance, did the principals die? Or if there was a death, was the loan made before May 2008, was underwriting of the credit strong enough without requiring life insurance (more than adequate collateral, strong operations in management not dependent on just one person, etc.)

When dealing with multiple loans to the same borrower, what are the "curves in the road" that must be considered when liquidating collateral and paying recovery expenses?

• Make good use of tools designed to present your situation to SBA like a collateral/expense allocation worksheet that takes the mystery out of a possible convoluted nature of the loan structure.

What are commonly misunderstood issues when dealing with SBA on a guaranty purchase?

• One that seems to be a secret to most lenders not experienced in dealing with the guaranty purchase process is the proper date of default and payment of interest on loans made prior to 5/14/07.

These questions will be answered more specifically in a Coleman Audio conference called "How to Turn a Herndon Denial or Repair into Full Payment" scheduled for Tuesday, March 17 at 2:00 p.m. EST. You can register for the event by emailing bob@colemanpublishing.com or call 1-800-617-1380.

Now for the exciting announcement. sbaAccess is very proud to announce that John Cumbey (formerly with US Bank) has decided to join forces with us to provide more depth to our guaranty purchase recovery services. HE IS ONE OF THE BEST in the industry. He will be making his debut with Karen McHugh on the Coleman Audio Conference, so you won't want to miss his insight on these very important questions.

John says, "I am enthusiastic about joining sbaAccess and helping expand the range of services offered. This collaboration will allow sbaAccess to utilize my forty years in small business banking and finance to the benefit of its clients. Many SBA bank lenders and CDCs have not had extensive experience with complex workout issues such as structuring forbearance arrangements, dealing with bankruptcies, litigation, and forced liquidation of collateral, especially in the context of SBA loans where protecting the guaranty is paramount. However, in the current economic environment, these issues are becoming commonplace and it is the objective of sbaAccess to be able to guide our clients through these matters for the best possible outcome." Welcome, John!

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