As a lender, you are aware that the relationship is between you and the SBA, not the loan applicant and the SBA. The government guarantee for the loan is not to give the borrower a cushion for default, but to be an incentive to the lender to make a loan it would otherwise decline. In fact, in order for applicants to be eligible for an SBA loan, they must not be able to get credit from any other source. A lender must provide an explanation as to why the applicant could not qualify for credit elsewhere.
The SBA recognizes six factors lenders can use to substantiate that the applicant is unable to obtain credit other than under the SBA program:
- The applicant has not been in business long enough to meet lending requirements of other loans.
- There is insufficient collateral to meet the demands of other loans.
- The business is new or in an industry to which the lender does not provide loans.
- Credit issues make it impossible for the applicant to receive other funding.
- The loan amount requested exceeds the amount the lender can give to one customer.
- The lender must sell the guaranteed portion of the loan on the secondary market in order for the lender to remain liquid.
The fact that the loan is guaranteed by the SBA should not be used by lenders as the primary factor for applicants to be able to qualify for the loan. The SBA expects lenders to require the business to demonstrate its ability to repay the loan. That is where we come in. At CGS Financial Services, LLC, we work with both lenders and applicants in various stages of the SBA loan request process including:
Credit Analysis
We work with lenders and applicants and provide a financial analysis of the loan request according to SBA’s Preferred Credit Memorandum. All who own 20 percent or more of the business must personally guarantee the loan. Lenders are required to analyze credit according to generally accepted guidelines. Although collateral is helpful and required for some types of loans, the SBA loan will not be denied solely because there is no collateral.
At CGS Financial Services, in addition to our initial financial credit analysis, we monitor credit worthiness up to the date of the loan closing.
Structuring and Eligibility
There are many eligibility requirements and we do an analysis to be certain all applicants are eligible. For example, a person recently charged with a felony is not eligible for an SBA loan. Neither is someone who previously defaulted on a government debt. There are many different types of loans depending on the needs of the business and we assist with the determination of the correct loan. We also use financial prudence to be certain all loans are in accordance with the SBA’s Standing Operating Procedure (SOP) as articulated in the Lending and Development Company Loan Program.
Packaging and Closing Compliance
At CGS Financial Services, we make sure that all packaging and closing requirements are met. Lenders know that there is more to closing than just signing papers and disbursing the funds. There are detailed SBA requirements for lenders to review at the time of closing which are designed to avoid future problems.
If there are deficiencies and the requirements are not met, the SBA may cancel or deny its guarantee. Closing provides the lender a final opportunity to determine if there are any eligibility or credit issues that should result in the denial of the loan.
Portfolio Compliance and Servicing
All loans require servicing, but there are specific requirements for SBA loans. There are reporting requirements for the governmental guaranteed loan including management reports and customer notices. We handle the 1502 reporting requirements so that the government guarantee is not revoked. Also included in our services is assisting with completion of all aspects of SBA’s 7(a) Servicing and Liquidation SOP.
