As we all know, different lenders have different loan policies. And from time-to-time, the line between a lender’s Credit Policy and SBA’s requirements can get blurred. That’s what Paulette called us about the other day. Paulette is an experienced underwriter who had just started a new job with a different lender and ran smack up against that dilemma – and eventually, her Chief Credit Officer. Here’s what went down:

PAULETTE. Richard, I’m just checking with you. My old financial institution used to credit score every SBA 7(a) Small Loan, and my new one doesn’t credit score commercial loans at all. But am I correct in understanding that SBA requires that I credit score every new 7(a) Small Loan?

ME. Yeah, it’s pretty cut and dried. At least to me. The SOP says, “All 7(a) Small Loan applications will begin with a screening for a FICO® Small Business Scoring Score.SM (SOP 50 10 7.1, pg. 141)

PAULETTE. What happens if the SBSS score is less than the minimum

ME. SBA sets the bar relatively low. The minimum SBSS score is currently 155. But even then, the lender can still do the deal. The loan just has to be submitted to E-Tran with all that entails, unless of course the lender simply wants to use delegated authority.

However, here’s JRB’s recommendation. Most of the time, we do not recommend using delegated authority for a loan with that low an SBSS score. Instead, we would recommend that the lender submit the application thru E-Tran for processing under non-delegated procedures.

PAULETTE. Hmm. What would that involve?

ME. For one, it would include writing a full credit memorandum, containing a cash flow analysis detailing all business debt payments, including the proposed 7(a) loan, showing that the business can repay the loan through its cash flow.

PAULETTE. Here’s the problem: I ran into a very nice $400,000 loan request and I was all set to credit score it. But then, since my Chief Credit Officer had told me we do not credit score any commercial loans, I now must provide full underwriting. Wish I had known that before I accepted this job. I would have asked for a lot more money!

ME. Paulette, I know you’re an experienced underwriter, but I’m reminding you that underwriting assistance is one of the services JRB offers our clients. In any event, I’m not sure what’s gained by not checking the score. I would think your institution would want to know of any issues ahead of time. But whether or not the credit score was checked before submission,E-Tran will check it again when the loan is submitted. But, hey! Nothing to be done about it from your end.

PAULETTE. Oh yes, there is! I’m going to develop a whole bunch of 7(a) deals and show the CCO how many more loans they could originate and how much more profitable the department could be if we just credit-scored their Small 7(a) Loans!

ME. Go for it! And if you run into any problems, let me know. I’ll be glad to help! Contact JRB.

Richard Jeffrey, Senior Associate
Chief Underwriter