Best Practices in SBA Lending
Compliance and the SBA Guaranty
The fourth “P” is Process
At the beginning of this blog series, we discussed the foundation of an SBA lending platform: the SBA Credit Policy (aka: the PLAN). Just as important to your success is to write an SBA Loan Policy and Procedures Manual establishing the PROCESS.
There is a history of lenders who make a few SBA loans with little to no experience. Too often one of the loans goes bad and the lender discovers that the SBA will not honor the guaranty because of a failure in SBA compliance. There are others who make a significant number of loans. But when one loan goes bad, there are some sleepless nights wondering if the SBA will find a reason to not honor the guaranty. As long as you are lending, you will have loans that default. But, you do not need to worry or have sleepless nights. The facts are that the loans not honored by the SBA due to a compliance issue are only .05%. This shows that the vast majority of SBA lenders are focused on compliance throughout the life of the loan and the compliance issue is being applied on a very consistent basis. You can too!
It is important to know that the SBA loan has significant compliance requirements throughout the entire loan process. Ensuring the request is eligible may be the most simple of all the compliance requirements. There are many other compliance requirements in the processing, closing, funding and servicing of the loan.
Identifying these and making policy and procedures to ensure compliance throughout the process should be documented in an SBA Policy and Procedures Manual. The SBA SOP 50-10-6 covers these processes and requirements in great detail. But it is vital for your SBA processing team to have these outlined in such a way that no balls get dropped through the cracks and that every loan follows the exact same process.
By establishing your process with compliance built in, the lender can develop a premier fast and efficient loan process. I am asked often by SBA lenders how they can attract more loan applicants.
The lenders who have a streamlined process that delivers timely results for the applicant can build a strong reputation in the marketplace. When the focus is “results for the customer”, word spreads quickly as to where to go to get an SBA loan.
A thoughtful and practically written Policy and Procedures can ensure this and give the bank a very competitive edge.
(For more on writing an SBA Policy and Procedures Manual, please contact Tim Terry at Tim@SBAadvisors.com)
“The Top 5 Requirements to Starting or Expanding an SBA Lending Platform” written by Tim Terry, CEO of SBA Advisors.