eBulletin Archives 2017

Business Lending Community ‘Must Reads’

We provide an ongoing stream of articles on issues concerning the business lending community. Articles are in PDF format and you’ll need Adobe Acrobat Reader to view them.

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SBA’s REMODELED EPC/OC RULE: A GOOD THING FOR BORROWERS … WHAT YOU NEED TO KNOW
EPC/OC a fixer upper? Not at all. The structure is sound. But SBA’s latest fixes to the Eligible Passive Rule (EPC/OC Rule) are more than paint and paper. Regulatory changes that became effective in late September loosen the ties affecting 7(a), 504, and all SBA business loan programs in three significant ways: 1) use of proceeds; 2) terms of the EPC/OC lease; and; 3) identification of guarantors, all resulting in improved credit quality for lenders.

‘LIKE SANDS THROUGH THE HOURGLASS …’ DAYS ARE NUMBERED FOR SBA’S EXTENDED CHARGE-OFF SUBMISSION REQUESTS
Time is running out for SBA’s extended 24-Month Prudent Lending Deadline. The Charge-off Deadline is December 1, 2017. Submissions for Extension Requests are due no later than November 1, 2017, 30 days ahead of the deadline. You’ll remember that SOP 50 57 2 established a first-time requirement for lenders to “make every effort” to fully liquidate all purchased 7(a) loans within 24 months of the guaranty purchase and submit a Wrap-up Report within 30 days of liquidation. Failure to comply came with heavy consequences.

ANNUAL LOAN REVIEWS: KEY TO YEAREND REPORTING — AND STRATEGIC PLANNING. DON’T PUT ‘EM IN THE BOTTOM DRAWER!
About now your bank is engaged in strategic planning to set your organizational priorities for the next fiscal year. At the same time, you should be scheduling internal loan reviews in preparation for yearend reporting because it’s important for your board of directors and executive management to know the quality of your loan portfolio.

WHAT TO DO ABOUT SBA’S REP FOR ‘TOO LONG, TOO MUCH WORK’ … KEY: SETTING REASONABLE BORROWER EXPECTATIONS!
Likely you’ve heard it from SBA loan prospects time-after-time: SBA loans take too long and require too much paperwork. As we all know, many small business owners have the perception that SBA loans come with too much hassle and aren’t worth the bother. So they don’t apply. And your organization loses the business before you get started. What to do?

CAUTIONARY TALE #2: FORM 1919 OR FORM 912 MISSING OR INCOMPLETE? RARE, BUT IT CAN HAPPEN! WHAT TO DO …
This month, we continue to address issues that come up only rarely in the course of an SBA loan. In this case, we’re looking at situations where there are errors on SBA Borrower Information Form 1919 and/or the Statement of Personal History Form 912 (for older loans) – or where one or both forms are missing altogether. This is important because these forms are required at application and mandatory when submitting the application to the SBA for the purchase of the guaranty.

REVISITING SBA FORM 159: A ‘HOW-TO’ GUIDE. REMINDER: IT’S CRITICAL TO COMPLY!
Some Background. For as long as we can all remember – and continuing with SOP 50 10 5 (I)* – an SBA small business loan applicant or the lender must complete SBA Form 159(7a). Its provisions include a requirement to identify the names of “…Agents engaged by or on behalf of the Applicant for the purpose of expediting the application and the fees to be paid to any such person.”

JRB e ALERT! THE LENDERS ARE COMING! THE LENDERS ARE COMING!! AMERICA EAST SBA LENDERS CONFERENCE IN BOSTON AUGUST 2-4
Hear ye, hear ye! We’re meeting up in Boston with SBA leaders and lenders from up and down the Eastern Seaboard at this year’s America East SBA Lender’s Conference, August 2-4. As always, America East is a great opportunity for networking with peers and getting the latest updates from industry experts. This year’s conference is jam-packed with information. Breakout sessions range from SBA Underwriting and Eligibility to Servicing & Liquidation, to 504 Secondary Market Sales – and more.

A CAUTIONARY CAIVRS TALE: SEE POSSIBLE RED FLAGS? DIG A LITTLE DEEPER. CONTACT SBA!
Since SOP 50 10 5 (D) became effective in October 2011, lenders are required to perform CAIVRS searches for all SBA loan applications. As you know, the Credit Alert Verification Reporting System (CAIVRS) is a database run by the U.S. Department of Urban Development (HUD). A CAIVRS search tells you if one or more of the parties to a federal/government-guaranteed loan – SBA loan, FEMA loan, or student loan – has ever defaulted.

UPDATE! TICK TOCK: RESETTING THE LIQUIDATION CLOCK ON SBA’S 24-MONTH REQUIREMENT FOR 7(a) LIQUIDATION AND WRAP-UP
Effective December 1, 2015, SBA’s updated SOP 50 57 2 came with significant changes. Importantly, for the first time SBA established a requirement for lenders to “make every effort” to fully liquidate all purchased 7(a) loans within 24 months of the guaranty purchase and submit a Wrap-up Report within 30 days of liquidation.

SBA’S PARRiS TARGETED REVIEWS … NO FLAGS IN YOUR PORTFOLIO: THINK YOU’RE SAFE? THINK AGAIN!
Get ready. An SBA Targeted PARRiS Risk-Based Review could be coming your way. A PARRiS Analytical Review (PAR) Notification Letter from the Office of Credit Risk Management (OCRM) will make it a sure thing. As we know, PAR Notifications may or may not be triggered by red flags in a portfolio. SBA could be taking the initiative to analyze trends, manage credit risk and monitor lender performance as a way to plan for greater process efficiency.

WATCH THOSE SCREEN OUTS! BETTER YET: STAY AWAY. HERE’S HOW!!
You’ve heard this stuff: “Measure twice. Cut once.” “The definition of insanity is doing the same thing over and over and expecting a different result.” Non-Delegated (General Partner) Lenders: If you’re looking for PLP status down the road, the last thing you want is to “measure once” and have a bunch of screen outs from the Loan Processing Center on your record.

BIG STORE CLOSINGS: WHAT’S IT MEAN FOR SMALL BIZ IN THE MALL? … AND WHAT ABOUT MAIN STREET?
The great department store decline is upon us. Big-timers like Macy’s, Sears, K-Mart and JC Penney’s are closing stores in record numbers. And some, like high-end retailers BeBe and BCBG are shutting their doors altogether. An estimated 3,000 retail stores – many of them shopping mall flagships – will close up in 2017. Some will keep an online presence, but the spate of brick-and-mortar closings is fast changing the face of the American shopping mall.

HEADS UP, SBA & BUSINESS LENDERS: KEY NEGATIVE FACTORS TO BE EXCLUDED FROM CREDIT REPORTS.
What it Means: Axing tax liens and civil judgments from credit reports will lift FICO Scores. As reported in a recent Wall Street Journal article, in response to regulatory pressure noting the significant role credit reports play in lending decisions, Equifax, Experian and Trans Union – the three top credit-reporting companies – will no longer include tax-lien and civil judgment information in people’s credit reports. Citing a history of credit report errors adversely affecting consumers, the new exclusions are among several changes the credit-reporting firms have enacted over time.

NAGGL’S LENDING TECHNICAL CONFERENCE. MAY 2-4: HYATT REGENCY, INDIANAPOLIS
As always, NAGGL is a key gathering place for lenders, lender service providers, congressional staffers and SBA leadership – and a great way to get the latest scoop on all things SBA. This year’s conference has the inside track on what’s coming down the pike at SBA … from keynote speaker SBA Administrator Linda McMahon, to the new team at the Office of Capitol Access, to news from the Hill, to what to expect from SBA for the rest of 2017.

SBA’s NATIONAL SMALL BUSINESS WEEK. APRIL 30-MAY 6, 2017
SBA’s National Small Business Week is a big deal. A really big deal for SBA and America’s small businesses. SBA’s 54th Small business week kicks off in Washington D.C. on April 30 and May 1, with award ceremonies honoring outstanding small business owners and entrepreneurs from across the country. After that, SBA Administrator Linda McMahon will attend Small Business Week events in New York City, Indianapolis, Dallas, and Fresno, California. There also will be recognition and educational events in SBA’s 10 regions and 68 Districts all week.

SERVICING SBA LOANS: PLAY IT SAFE. PLAY DOMINOS!
You know about playing dominos: Connect the dots and create a number trail that goes on and on. The Domino Effect. Just as with dominos, whenever there’s a change in the status of an SBA loan, one service action doesn’t stop there. It can – and usually does – trigger a range of necessary actions. And if they’re not handled properly, you could see a serious impact on the guaranty.

WE’RE GROWING!! LONGTIME SBA EXPERT RICHARD JEFFREY JOINS OUR JRB TEAM
We’re excited to announce a great addition to our team: JRB Associate Richard Jeffrey. Richard brings more than 30 years of SBA and business lending experience to JRB, and has held executive and senior management positions including executive vice president/chief credit officer, vice president/senior loan officer, and vice president/lending manager at several major financial institutions and CDCs. He is a past chair of The National Association of Certified Development Companies (NADCO).

PROTECT YOUR GUARANTY: ENSURE PROOF OF INSURANCE IS SUFFICIENT, SUPPORTED – AND DOCUMENTED
The last thing you want is denial of a claim on an SBA loan. So what’s the first thing you want? Proper documentation to support proof of insurance and the proper endorsements are among the first things to consider – and are an important layer of protection of your SBA Guaranty. Up front: Make sure all insurance requirements are in your Authorization and are properly documented. And it’s just as important not to require coverage above and beyond what’s called for. Yet some lenders do.

SBA CONSTRUCTION LOANS: BUILDING YOUR PORTFOLIO STEP-BY-STEP
With residential and commercial construction picking up, contractors and construction companies are hungry for financing. So it’s a good time to give a leg up to local construction companies and at the same time help build up your local economy – and your SBA portfolio.

NEW YEAR, NEW SOP: OUR TAKE. SOP 50 10 5 (I) FRANCHISE & CREDIT ELSEWHERE CHANGES
The updated SOP streamlines eligibility procedures for SBA’s eligibility review of franchise applicants, and clarifies the “affiliate” relationship between Franchisees and Franchisors. Most significant is the SBA’s new Addendum to Franchise Agreement, Form 2462. How significant? Without it, there’s no loan.

NEW YEAR. NEW SOP: SIGNIFICANT CHANGES. SOP 50 10 5 (I): FORM 912 REVIEW PROCEDURES STREAMLINED
The updated SOP streamlines the procedures in SBA Form 912 Statement of Personal History. These changes simplify SBA’s review of businesses where the principal/applicant gave “Yes” answers to questions 1, 2, & 3 on SBA Borrower Information Form 1919, which ask about the applicant’s criminal background. So what’s new? As an SBA lender, what are your responsibilities? Here’s a recap:

REMINDER: CLOCK TICKING ON SOP 50 57 2 REQUIREMENTS FOR LIQUIDATION AND SUBMISSION OF CHARGE-OFF TABS
It’s more than a year already. The SBA’s updated SOP 50 57 2 became effective December 1, 2015. With it came significant changes, clarifications and modifications to the agency’s Servicing and Liquidation Policies and Wrap-up Procedures. In many cases, SBA tightened deadlines for 7(a) lenders to complete liquidations and submit Wrap-up Reports.

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