May 16, 2013
By Karen McHugh
Having a SBA loan policy is important for many reasons. SBA will use your own bank policy as a measuring stick at the time of loan review or risk assessment. Basically, are you doing what you say you are doing, not only in regard to SBA regulations, but also according to your own internal policy? Also, a SBA loan policy provides the guiding principals to those responsible for building the SBA loan portfolio.
However, the SBA loan policy should be differentiated from the SBA procedures document. They serve different purposes. The SBA loan policy is a high level document that changes infrequently. Meanwhile the SBA loan procedures is more of a mid level or ground level document, with all the detail pertinent to the roles and responsibilities assigned to the SBA lending team. It will probably change more frequently than actual policy so it will stay current and match up to SBA regulations and bank procedural changes.
The philosophy and guidelines depicted in the loan policy will depend on:
• Bank culture
• Lending environment
• Conventional lending approaches and policy
• Size of lending institution
• Nature and scope of SBA lending operation
Therefore, a standard “template” would not apply across the board to every SBA lending operation. The SBA loan policy should be truly customized to what fits with the overall lending environment already in place.
Having a SBA policy is an important piece of SBA lender review process. SBA will audit the lender’s SBA lending operations in terms of:
• Portfolio performance: SBA reviews the size, composition, performance, and credit quality of an SBA lender’s SBA portfolio
• Management and operations: SBA assesses a lender’s overall management of its SBA loan program. Here, SBA reviews the SBA lender’s policy and procedural guidance, management and oversight of the SBA loan function.
• Credit Administration: SBA assesses the SBA lending operation policies, processes, and controls for origination, servicing, and liquidation of SBA loans for prudent lending practices.
• Compliance: Lender’s compliance with SBA specific requirements, including eligibility and reporting to SBA is a review component.
Be sure to link the SBA policy with a high level statement to the more detailed processes that will be more fully outlined in the SBA procedures. The policy should “tee up” the procedures document. The statement is brief, something like “Each team member should understand the overall approach and flow, and the various roles and responsibilities (as dictated in the SBA Loan Procedures document).”
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Karen McHugh presented a webcast this week for the Western Independent Bankers discussing the creation and development of SBA loan policy and loan procedures document for lending institutions actively engaged in SBA guaranteed lending.