The Small Business Administration (SBA) Guaranty Purchase process was developed by the SBA to evidence a participating lender has originated, closed, serviced, and liquidated a loan in accordance with SBA requirements and prudent lending practices before honoring the guaranty. The components of the 10 Tab Package should be understood by all levels of a lender’s SBA loan department as virtually all phases of the process are subject to scrutiny during a guaranty purchase. To follow is an outline of common questions raised by lenders in Innovative Financing Solutions’ network regarding this process.
What must be included within the 10 Tab Guaranty Purchase Package?
The following list is an outline of the 10 Tab components. The full package can be downloaded on the SBA’s website with detailed descriptions of the requirements for each component.
- Demand Letter
- Loan Authorization & Modifications
- Eligibility Information
- Legal Documentation
- Disbursement Documentation
- Transcript of Account
- Early Default (Origination information if loan defaults within 18 months of initial disbursement)
- Reconciliation of Business Personal Property Collateral
- Collateral Disposition
- General miscellaneous information including environmental documentation, care and preservation of collateral, SBA Form 159.
The SBA has an expedited guaranty purchase process for loans of $350,000 or less which is an abbreviated version of the above.
When should I assemble the 10 Tab Guaranty Purchase Package?
Lenders should begin assembling the 10 Tab as early as possible in the loan process. We recommend lenders integrate 10 Tab components within their checklists, filing system, and pre-closing/post-closing audit processes. This will ensure documentation required through origination, loan closing, and disbursement are adequately documented while a borrower is cooperative. If this process is followed, the balance of the documentation requirements consist of servicing and liquidation related documents only – limiting the need to backtrack and locate documents that should have been obtained earlier in the process.
When should I submit the 10 Tab to the SBA?
The 10 Tab must be submitted within 45 days after the SBA repurchases the guaranty from the secondary market, within 180 days of loan maturity, or within 180 days of liquidating collateral.
I’m missing items, will the Guaranty be denied or repaired?
Lenders should approach their borrowers to try to obtain missing information if possible. Certain documents with critical timing issues cannot be rectified.
The SBA encourages lenders to be transparent and to explain the reason for missing documentation and in some cases, recommends a repair if the missing item clearly decreased recoveries. In other cases, the SBA does give the lender the benefit of the doubt and honors the guaranty if there was no harm created by the missing item.
The Director of the National Guaranty Purchase Center stated at a recent trade conference that 95% of guaranty purchases are honored. The Purchase Center staff is encouraged by SBA leadership to help Lenders overcome issues to the extent possible.
What are common reasons for a repair or denial?
The SBA typically recommends a repair or denial when loss is attributable to the lender and there was material harm to program integrity. Some of the top reasons for a repair or denial include:
- Failure to perfect a lien or failure to perfect a lien in the proper position
- Absence of IRS tax transcripts
- Repayment analysis not adequately justified
- Missing or unsupported verification of equity injection
- Unauthorized, undocumented or ineligible use of proceeds
- Undocumented servicing actions
- Ineligible business type
- Unauthorized Lender preference
- Failure to conduct a site visit
- Misrepresentation or failure to disclose material information
Summary
We encourage you to contact the experts at Innovative Financing Solutions if you are having trouble navigating the SBA 10 Tab Guaranty Purchase process. Our streamlined process tempers the fear and anxiety often created by a lack of understanding relative to SBA program requirements.
By: Christopher A. Meccariello
Chief Operating Officer