Small Business Administration (SBA)
The SBA itself is not a direct lender, and a business does not apply directly to the SBA. Rather, a commercial loan applicant submits the request to a financial institution (bank or non-bank), which then underwrites the loan request as per the institution's credit guidelines and gnerally accepted industry practices, and then submits the approved loan package (including specific SBA documents) to request a loan guaranty (against payment default by the Borrower) on the behalf of the lender. The lender pays a Loan Guaranty Fee to the SBA during the term of the loan in exchange for the SBA Guarantee. The SBA only guarantees a portion of any particular 7(a) or 504 Gurantee Program so each loan will also have an unguaranteed portion, giving the lender a certain amount of exposure and risk on each loan. The percentage the SBA guarantees depends on either the dollar amount or the program the lender uses to obtain its guaranty. SBA-approved lenders include commercial banks, savings and loan institutions, credit unions and finance companies.
- There are three types of SBA approved Lenders qualifications:
- Financial institutions just starting in the program or institutions that infrequenly submit applications may submit a loan guarantee application for review to their local SBA office under the regular delivery program. The SBA conducts a separate credit analysis and review of the file and then notifies the lender of its decision (SBA review usually requires 10 business days).
- Certified Lenders Program (CLP): approved by the SBA District Director after demonstrating that the credit department has a satisfactory performance history with SBA, including the submission of complete and accurate loan guarantee application packages and has an acceptable SBA purchase rate. The paperwork for application is reduced compared to the regular delivery program (the SBA only reviews the lender's credit analysis) and CLPs receive a three-day turn around from the SBA.
- Preferred Lenders Program (PLP): approved by the SBA Associate Administrator of Financial Assistance after a period of having attained CLP status, after which the SBA delegates loan approval (PLP lenders can approve an SBA guaranty prior to first sending the application to the SBA for review), closing, and most servicing and liquidation authority. Lenders are considered for PLP status based on their record with SBA, and must have demonstrated a proficiency in processing and servicing SBA-guaranteed loans. In the event of payment default by the borrower and the need for enforced collections, the PLP lender agrees to liquidate all business assets before asking SBA to honor its guaranty.
- What is the advantage to financial institutions to become an SBA-approved Lender?
- The guaranteed portion of the loan is saleable on an active secondary market which can provide liquidity.
- The guaranteed portion of SBA loans has a lower risk-based capital requirement.
- Can provide support for loans with less than optimal collateral coverage.
- SBA Certified Development Company (504) loans can provide fixed asset financing for up to 90% of the project cost.
- How does a financial institution become an SBA-approved lender?
- The process to apply first requires a Resolution of the Board of Directors authorizing the institution to request approval to become an SBA lender.
- Formal letter of request to the SBA to be considered for approval.
- The institutionís name, address, telephone number, and contact email address.
- A copy of the institutionís Articles of Incorporation and by-laws certified by an appropriate officer.
- Amount of the institutionís capital and additional paid-in capital.
- A description of the institution's geographical area of operations.
- A copy of the institution's credit policies and procedures, including loan origination, servicing, and liquidation, and how originations would differ on loans made under the SBAís loan programs as opposed to those made under the institutions own underwriting criteria alone.
- A copy of the most recent audited financial statements of the institution.
- A copy of the resume of the key credit decision personnel, which would include analysts and members of the Loan Committee.
- A certification (written statement from the institution) indicating that the institution is not a financing subsidiary which engages primarily in financing the operations of an affiliate.
- A written statement as to why the institution is seeking SBA approval.
SBAExpress Loan Guaranty Program
The SBAExpress program is widely utilized by lenders because the SBA grants some lenders the authorization to make the eligibility determination and credit decision of the loan request, which substantially reduces the response time to the applicant.
- SBAExpress guidelines include:
- Maximum Loan Amount: $350,000
- Maximum SBA Guaranty percentage: 50.0%
- Interest Rate:
- Lenders and borrowers can negotiate the interest rate. Rates can be fixed or variable and are tied to the prime rate (as published in The Wall Street Journal), LIBOR, or the optional peg rate (published quarterly in the Federal Register) and may be fixed or variable, but they may not exceed SBA maximums: lenders may charge up to 6.5 % over the base rate for loans of $50,000 or less, and up to 4.5 % over for loans over $50,000.
- Revolving Lines of Credit Term: Up to seven years with maturity extensions permitted at the outset.
- Collateral: Lenders are not required to take collateral for loans up to $25,000; may use their existing collateral policy for loans over $25,000 up to $350,000.
- SBA Documentation included in the SBAExpress package, which are uploaded at the ended of ETRAN session:
- SBA 1919 Borrower Information Form
- SBA 1920
- Fors 1919 and 1920 replace Forms 4 and 4I
- SBA checklist & Cover Sheet
- Financial institution's documentation related to the decision making process, T1 thru T9 (10-Tab Template)
CAIVRS (Credit Alert Verification Reporting System) is operated by the U.S. Department of Housing and Urban Development (HUD) and is used to determine if a loan applicant has any federal debt that is currently in default or foreclosure or has had a claim paid by the reporting agency within the last three years. SOP 50 10 5(D), Subpart B, Chapter 2, indicates that delegated lenders are responsible for checking the Credit Alert Verification Reporting System (CAIVRS) to determine if any of the individuals or businesses identified in paragraph (4) immediately above has either delinquent federal debt or a prior loss which would result in the small business applicant being ineligible for SBA financial assistance.
Fees: Loans guaranteed by the SBA are assessed a guarantee fee. This fee is based on the loanís maturity and the dollar amount guaranteed, not the total loan amount. The lender initially pays the guaranty fee and they have the option to pass that expense on to the borrower at closing. The funds to reimburse the lender can be included in the overall loan proceeds.
SBA Standard 7(a) Loan Guaranty Program
Loan Amounts: Standard 7(a) loans have a maximum loan amount of $5 million. SBA does not set a minimum loan amount.
Standard 7(a) loans Fixed Base Rate interest rate is published monthly
SBA System Access
In May 2015, the Office of Capital Access (OCA) migrated the Capital Access Financial Systems (CAFS) to a new URL. All existing logins will be accessible in the new URL. Any user accessing the following systems was affected: Electronic Transaction (ETRAN) Origination, ETRAN Servicing, ETRAN Post Servicing (PSA), LANA, GPTS, Electronic Lending System (ELIPS), Surety Bond Guaranty, Partner Information System (PIMS), Wizards/Loan Authorization, MPERS (Microloan Program Electronic Reporting Systems), ILPERs (Intermediary Lender Program Electronic Reporting System), CLCS (Centralized Chron System), and LAORS (Loan Accounting Report Systems).
The new CFAS / Capital Access Login System (CLS) access URL is https://caweb.sba.gov/cls/dsp_login.cfm
Any financial institution, which wants to submit loans to the SBA must sign up and request a password, which is required for access to ETRAN. The institution needs to request an SBA User ID to register.
ETRAN is accessed through CLS. The ETRAN web-based application provides access to origination and ETRAN Servicing.
ETRAN data entry is required on all 7(a) loans.
Colson Services Corp.
Colson Services Corp. functions as the SBA's Fiscal Transfer Agent (FTA)l for the SBA's 7(a) guaranty loan program (since 1989). Colson also acts as the Central Servicing Agent (CSA) for the SBA's 504 Development Company Program. Colson is compensated by the collection of fees (e.g., issuance, service, transfer, origination, etc) that it earns on various program-related transactions. The FTA earns additional revenue from its role as an intermediary between lenders that sell the guaranteed portions of SBA-backed loans (either as individual guarantees or in loan pools) to investors on SBA's secondary market.
SBA & SBA-Related Resources
CAIVRS stands for Credit Alert Verification Reporting System and it is a system maintained by the federal government that lists persons who have defaulted or had a loan foreclosed within the last three years on a debt owed to the Federal government or are currently delinquent on a debt owed to the Federal government. CAIVRS is operated by the U.S. Department of Housing and Urban Development (HUD). https://entp.hud.gov/caivrs/public/home.html
Colson Services Corp. https://www.colsonservices.com/main/index.shtml
Franchise Registry http://www.franchiseregistry.com/
Internal Revenue Service (IRS) Form 4506-T, Request for Transcript of Tax Return http://www.irs.gov/uac/About-Form-4506T
Pay.gov is the convenient and fast way to make secure electronic payments to Federal Government Agencies. There is a specific page for SBA-related activities. https://www.pay.gov/public/search/agencyforms?agencyFilters=Small+Business+Administration+(SBA)&searchCategory=PAYMENT&searchType=AGENCYPAYMENT&agencyId=
SBA Business Loans and Lender Oversight https://www.sba.gov/oig/category/oig-navigation-structure/audit-reports-program-area-or-topic/business-loans-and-lender-oversight
SBA For Lenders https://www.sba.gov/for-lenders
SBA Instructions for 1502 Lender Reporting https://www.sba.gov/content/instructions-1502-lender-reporting
SBA Office of Credit Risk Management https://www.sba.gov/offices/headquarters/ocrm
Delegated Franchise Review: firstname.lastname@example.org
Loan Authroization Modification: 7aLoanMod@sba.gov