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.
Why establish the PROCESS?
There is a history of lenders who make a few SBA loans with little to no experience. Too often one of these loans go bad and the lender discovers that the SBA will not honor the guaranty because of a failure in SBA compliance. There are other lenders who make a significant number of SBA loans. When one loan goes bad, there tends to be 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.
However, 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 represent only .05%. This shows that the vast majority of SBA lenders focus on compliance throughout the life of the loan and they apply compliance on a very consistent basis. You can too!
Compliance Requirements
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. Other additional compliance requirements are in the processing, closing, funding and servicing of the loan.
Identifying these requirements and making policy and procedures to ensure compliance throughout the process should be documented in an SBA Loan Policy and Procedures Manual. The SBA SOP 50-10-6 covers these processes and requirements in great detail. However, it is vital for your SBA team to have these processes outlined. This mitigates no balls are 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 where to go for 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.