“Let’s begin with the end in mind.”
Stephen Covey (1932-2012)
American educator, author, businessman,
You’ve jumped the hurdles, followed SBA requirements and prudent lending practices, and originated, closed, serviced and liquidated a loan. One more hurdle to clear. Actually 10. SBA developed the mandatory Guaranty Purchase process aka. The 10 Tab Package, to certify that files are complete and documentation is in order before honoring the guaranty.
As we know, the 10 Tabs are your instructions on preparing a package requesting SBA to honor the guaranty and purchase the loan. Thoroughness, transparency and accuracy are key. It’s important that everyone on your SBA loan team understands the 10 Tab Package because every phase of the process is subject to scrutiny.
Where to Begin. Thank you, Stephen Covey. Look at areas that could cost you all, or a portion of the guaranty from a “What could go wrong here?” standpoint. Fixing things takes longer than doing everything right the first time:
- Assemble your loan file in the order you would submit the package to SBA. You already know the file inside and out. Ask yourself, if the lending institution, borrower, or SBA picked up the file without knowing anything about the loan, would they understand it as you do now?
- Focus on what would cause SBA to deny the guaranty or repair it, and catch any items as early as possible with what you know at the time, for example, equity injection. If a loan goes south within the first 18 months from the initial disbursement, SBA reviews the equity injection very closely.
- SBA scrutinizes business acquisition loans heavily because there’s a higher percentage of issues in those deals. Loans that are more complex could also raise questions. Why is a transaction so complex? Could there be something hidden purposefully among the complexity? Auditors also look at what is missing.
When to put the Purchase Package together. Begin as early as possible in the loan process. It’s a good idea to have your documents and filing systems in tune with the 10 Tab components. Then you’ll only need the servicing and liquidation documents if you need to submit to SBA.
When to submit the 10 Tab Package to SBA. Submit the Package 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 the collateral.
Common reasons for a repair or denial. The good news: an overwhelming number of purchase requests are honored. In general, repairs and denials occur when lenders are responsible for the losses and there was material harm to the program. Top 10 reasons for repair or denial:
- 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
No matter how often you go through this process, there’s sometimes a level of anxiety that makes even experienced lenders want to run and hide. No need. We’re experts at seeking out and clearing up any reasons for repair or denial of an SBA 10 Tab Guaranty Purchase Package. If you need assistance: Contact JRB.