Note: New SOP 50 10 5 (K) is out and is effective April 1, 2019. We’re knee deep in analyzing the major changes with a focus on 7(a) lending. Stay tuned for our analyses over the next few weeks.
Your Credit Memos Need to Cover All the Bells and Whistles — Keep this list handy!
Clean lines. Fewer details. “Less is more” is well and good if you like modern architecture. It’s not so well and good when you’re processing SBA loans. Whether you’re a PLP or a GP Lender, it’s important that your credit memos include all the bells and whistles. Doing this shows SBA that you have the necessary knowledge. And importantly, it reminds your staff what to look for in closing and funding as they process each loan.
Here are a few common eligibility items we know SBA Process Center(s) focus on:
CAIVRS. If you’re a GP Lender SBA will do a CAIVRS search after you submit the application. But why waste time processing a loan only to hear from SBA weeks later that the loan isn’t clear on CAIVRS? That’s why we recommend that ALL lenders, regardless of delegation, run a CAIVRS search as part of their due diligence as soon as an application comes in.
Project Breakdown Table. Be sure your Use of Proceeds includes the full project scope, not just what’s covered by your loan. Your documentation also should include the sources of all funds. Doing this eliminates having to repeat fund sources in later documents. It also will help ensure that you have met any percentage injection requirements.
SOP. Note which SOP the loan applies to. This lets staff know where to look if there are any issues at closing.
SAM.gov. Make a note that you have performed the required searches and the entities searched. Also include where to find the documentation, e.g., in a central file or a loan file.
NAICS / Size Standard. Provide a table showing three years of sales on average and the number of employees. Having this information in your credit memo makes it easy for your processors and SBA to find and compare it to Form 1920 and ETran.
Affiliates. List all affiliates. Discuss their ownership and whether and why they might not be considered in the size standard. Showing your work is better than answering to OCRM or NGPC later when the staff that underwrote and processed the loan could be gone and you can’t find the reasons for their findings.
Franchise. Include a paragraph on what the Franchise Directory states is required for the franchise and be sure to condition for any items such as exceptions or Addendums that need to be addressed for eligibility.
Refinancing. The latest SOP no longer lists questions to be answered in your credit memo. Yet requirements remain. You’ll find them in SOP 50 10 5(I). You might want to list them in your CAM along with a refi table supporting Demand Payment or 10% improvement.
Character/Citizenship/1919. Summarize your review of Form 1919. Include your responses to questions 17-19 referring to character and question 22 referring to citizenship, showing that you reviewed the form submitted and that it’s in compliance. You also have the opportunity to double check for signatory initials on questions 17-19 and question 22.
Credit Elsewhere. Key critical: Be sure you address whether funds are available to the borrower from non-federal resources. And if they’re not, why not?
Each loan has eligibility issues you’ll consider with every application. Yet addressing these key components will go a long way toward protecting your guaranty.