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SBA Lenders: Beware of BSA
While Small Business Administration (SBA) loans bring added value to your institution and its customers/members, they don’t come without added risk. Assessing credit risk levels and evaluating risk management processes, an independent loan review serves an essential function in minimizing risk while ensuring internal controls are adequate. Whether you conduct your review internally or leverage an external reviewer, it’s critical to prepare in advance so your institution is positioned for a successful review. Consider these ten helpful tips when preparing for your next review.
1. Ensure your documents are readily identifiable.
Assemble your loans into a 10-Tab or a similarly organized format where all documents are readily identifiable. When the SBA performs a review, they send out a Loan File Document Checklist to assist in assembling the loan files selected for their audit. You may want to consider leveraging this format for your loan files.
2. Verify only the most recent, signed documents are in the folder.
Remove duplicate documents of the same form(s). All documents should be final, executed and signed.
3. Organize servicing documents.
If servicing your loan file is part of the review, ensure all related documents, notes and emails to borrowers are documented in the file. This includes documentation of your institution’s attempts to follow-up on documents required to be in the loan file.
4. Prepare documentation for servicing requirements residing in a separate system.
This includes documents such as proof of continuing insurance coverage(s), payment of real estate taxes, uniform commercial code (UCC) continuations, etc.
5. Be ready to provide valid reasoning behind deferrals.
If the loan received a servicing action to include a deferral, include the written analysis used to justify the action.
6. Review the SBA Form 1919s.
Ensure the SBA Form 1919s are complete for the loans chosen to be reviewed. Are all required attachments documented in the file? Are all applicable areas initialed, dated and signed prior to submission to the Loan Guaranty Processing Center (LGPC) or for delegated lenders, prior to loan approval?
7. Evaluate the SBA Form 1920s.
Review all the SBA Form 1920s to confirm they are completed for the loans chosen to be reviewed. Are all the answers accurate? If a section is not applicable to your loan, be sure the “N/A” checkbox is selected on the title line of any not-applicable sections. Are all applicable areas initialed, dated and signed prior to submission to the LGPC or for delegated lenders, prior to loan approval?
8. Review any SBA Form 159s for accuracy.
Are all applicable sections/boxes completed? Are any required itemizations and supporting documentation attached? Is the SBA loan number included in the form? Have you provided evidence in the loan file for the date of Form 159 submission to the SBA?
9. Allocate time to respond to the exception sheets.
Make sure you have sufficient staffing available to respond to the exception sheets within the allotted amount of time for each loan (typically two days). Your response to each loan’s exception should include supporting documentation and a clear explanation indicating why the exception should be cleared.
10. Display loan history.
Provide a transcript or loan history for each of the sampled loans. Be sure to provide a description for any transaction codes appearing on the loan transcript.
Whether you perform your SBA loan review function internally or partner with a third-party provider, it’s important to stay proactive to ensure a smooth and successful review. If you do have a third party perform the review, be sure to partner with qualified professionals who specialize in SBA loans, as they will have an in-depth understanding of the SBA expectations and compliance. Having performed over 15,000 SBA independent loan reviews, Doeren Mayhew’s SBA loan specialists stand ready to assist in helping your institution with its next review. Contact us today to learn more about our SBA loan services.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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