Last week we focused our tip on “putting the service” back in SBA loan servicing and our comments included guidance on lender unilateral authority.   Well old dogs can certainly learn new tricks (and can stand corrected) so we want to correct communication regarding PLP vs. non-PLP unilateral authority in servicing SBA loans.  SBA reads our stuff weekly and we are glad to share that it was pointed out to us that as of May 14, 2007 (with the issuance of the final liquidation rules), SBA “standardized” across the various loan programs the particular servicing/liquidation actions that require prior SBA approval (which means what used to be just PLP authority is now applicable to ALL lenders).  This may seem like old news to some, but we wanted to highlight that point in this follow up newsletter to make sure everyone is working from the same set of rules (many of the curves have been taken out of the road). 

However, there are still a few servicing actions where SBA distinguishes the authority for a PLP lender vs. a non-PLP lender, such as:

• Maturity extensions – non-PLP lenders must obtain SBA approval; PLP lenders only notify SBA
• Change in interest rate – non-PLP lenders must obtain SBA approval; PLP lenders only notify SBA
• Loan authorization changes – non-PLP lenders must obtain SBA approval; PLP lenders do not

Also, this week the SBA National Guaranty Purchase Center released their version of a lender unilateral authority matrix for “intensive servicing” (our verbiage, not theirs) and liquidation (a great service, so thank you! SBA).  Some interesting actions requiring SBA approval include:

• Amendments to litigation plans where fees increase by more than 15% - require SBA approval
• Liquidation plans for CLP loans must be approved by SBA.
• Change in interest rate for a workout – no SBA approval or notification required (different from when loan is paying as agreed).

You will want to use SBA’s new servicing unilateral action matrix (updated 1/26/09) and  SBA’s new liquidation unilateral action matrix (provided 3/31/09) for complete guidelines.  You can find a copy of each of them on our website at www.sbaaccess.com.

Don’t forget that lenders must submit a loan status report within 15 business days of purchase by SBA from the secondary market.  The report should address the status of the borrower, guarantors, collateral, workout/restructuring plans, liquidation activities, foreclosures and litigation.  Also, a quarterly status report is required after guaranty purchase by SBA while still liquidating the loan. 

SBA loan servicing centers cannot provide approvals for unilateral actions anymore.  So, if you have the authority to take an action, SBA emphasizes to document your files to explain and justify the actions taken (but don’t send anything to SBA).  This is essential since SBA is still required to ensure that your actions (both servicing and liquidation) are “prudent”, commercially reasonable and consistent with loan program requirements.

As a reminder to the final liquidation rules effective 5/14/07, lenders must liquidate business personal property securing a loan prior to requesting SBA to purchase the guaranteed portion of the loan.  There is an exception to this requirement if the borrower files bankruptcy. Also, after that date, SBA limits interest to 120 days for guarantees purchased by SBA (this does not apply to secondary market purchases). 

It is important to make sure your SBA loan policy and procedures keep up to date with changes as SBA implements them.  SBA Information Notice 5000-1017 (issued when final liquidation rules became effective) states that the loan program requirements in effect when a 7(a) lender or CDC takes an action govern that specific action.  Up-to-date internal procedures is critical to remaining as efficient as possible when dealing with SBA servicing centers and the guaranty purchase center. You can call on us to assist with these changes, either through a technical assistance “lifeline” (where we become available to you for technical questions, research and back up) or through the implementation of a short-end project geared at bringing your policy and procedures in line with current SBA requirements.

Take the right approach.

Karen McHugh and Brian Burke