As community and regional banks continually strive to expand their lending capabilities, it has become increasingly important to understand the many guaranteed loan programs offered by the federal government. Understanding the scope of these programs can significantly impact a bank’s ability to expand beyond its traditional “footprint,” while adhering to strict bank underwriting and regulatory requirements.
One of the critical requirements the lender should follow relative to the proper closing of a Small Business Administration (SBA) loan, is ensuring the use of proceeds are properly documented in accordance with the lender’s credit approval and the SBA Loan Authorization (Authorization). Documentation supporting the use of proceeds is highly scrutinized during an SBA audit, and errors are one of the most common reasons for a “repair” during a guaranty purchase – which is closely reviewed in connection with early defaults. Taking measures to properly document the use of proceeds can minimize costly loan guarantee repairs or even full denial of the SBA guarantee.
One of the most important requirements of SBA lending relates to the lender’s monthly reporting requirements utilizing SBA Form 1502, Guaranty Loan Status & Lender Remittance Form. This form includes loan status information for all SBA guaranteed loans, regardless of whether the borrower made a payment in the current month. Lenders must submit these completed forms to the SBA’s 7(a) Fiscal and Transfer Agent, Colson Services Corp. (Colson). The due date for transmitting loan account updates and payments to Colson is the third calendar day of each month, or the next business day thereafter if the third calendar day of the month is not a business day, plus a two-business day grace period.
Many community banks have seen their deal pipelines grow over the past several years as the effects of the recession and lending meltdown have faded. Today, new financing opportunities are abundant, and many lenders need to do little more than answer the phone to find a business owner in need of financing. Nevertheless, it is very important to plan beyond the present surge in loan demand and continually focus on building and maintaining a database of prospective business customers.
Having identified and examined changes to the Small Business Administration (SBA) Standard Operating Procedures (SOP) in Part 1 of this article series (published in December 2017), Part 2 will explore additional changes Innovative Financing Solutions believes both lenders and borrowers should understand when utilizing an SBA loan for their new and continuing financing requirements.
As we begin 2018, the IFS team pauses to reflect upon our many successes achieved, and the challenges we have overcome over the past nine years. More importantly, we take the time to thank our valued customers for the opportunity to be of service, and are grateful for the many fine business relationships we have established since our inception.
The Small Business Administration (SBA) recently released an update to its Standard Operating Procedures, (SOP) 50 10 5(J), effective January 1, 2018. The SOP establishes the SBA’s procedures for supervision of and enforcement actions for SBA’s 7(a) Lenders, Certified Development Companies (CDCs), and Microloan Intermediaries as it relates to their SBA lending operations.
As banks continue to experience interest margin compression, lenders of all types are consistently seeking ways to earn non-interest fee income. This hunger for non-interest income has created numerous secondary markets for loans – including a Secondary Market for Small Business Administration (SBA) 7(a) loans. This article provides a brief overview of the criteria required to participate in the SBA’s Secondary Market; insights into the premium levels for various loan maturities and rate types; and reveals the magnitude of this market on a historical basis.
As energy costs continue to rise and climate change remains a major topic in the public’s mind, agricultural producers are increasingly seeking ways to increase their production of renewable energy – a strategy that not only reduces their energy costs, but simultaneously supports America’s mission to achieve energy independence and develop clean energy sources. To encourage this socially responsible activity in the agriculture sector, and to assist banks in lending to agricultural borrowers, the U.S. Department of Agriculture (USDA) created the Rural Energy for America Program (REAP).
Many business owners in need of commercial financing often find themselves unprepared to complete the loan application and undergo the loan approval process. Banks require a significant amount of financial and related information, as well as supporting documentation in order to complete the underwriting of a loan in order to gain loan approval. As a result, many business owners become frustrated when the process moves slowly – and it often seems as if there is a never-ending need for additional information and documentation.
