SBA Hot Topic Tuesday — What Are You Thinking? The Importance of Good Memo Writing

August 4, 2015

Walter McLaughlin
Coleman Report Contributor
Senior Vice President
Banner Bank

Consider SBA to be your governmental spouse. Like yours, they want to understand your thoughts, interpretations and decisions. This is especially so when working with the LGPC on a loan approval, the Servicing Center for a Loan Action, Herndon for a repurchase or an audit team during a file review.

The importance of a credit memo cannot be overstated, as it is one of the centerpieces of the SBA loan package. A good SBA credit memo should be clear, informative, accurate and formatted properly.

As former SBA Little Rock Servicing Deputy Director Lance Sexton says:

“The Credit Memo for a SBA Loan is a critically important document. Aside from the SBA Loan Authorization, it may be the most important document. It is important to note that the credit memo should be a living breathing document. If there are changes in the proposal such as changes in loan amount or term, the credit memo and its analysis should reflect those changes.”

That said, there are certain other memos that should at least occasionally find their way into your SBA loan file. These include:

Site Visit: Whether performed during the normal due diligence process or post-default, a site visit report should thoroughly document your visit to the borrower’s place of business.

Equity Injection: Along with the evidence itself, a memo with an attached spread sheet helps the reader fully understand the borrower’s compliance with the equity injection requirement.

4506-T Reconciliation: The 50-10-5 (H) says on page 187: Borrower must resolve any significant differences to the satisfaction of lender and the LPGC or appropriate SBA CLSC. A memo with corroborating evidence is appropriate for those situations.

Assignment of Lease/Landlord’s Waiver: When not requiring one or the other (SOP says “should” but not “must”), an explanation justifying your decision should be in the loan file.

Special Provisions for Franchises: On page 191 of the H, SBA says you should consider obtaining an agreement from the franchisor that allows access to books and records, defers royalties upon payment default, and other potential concessions. Documenting your efforts in memo form is a good idea.

There are many other types of memos that I could cite, but the moral of the story is this: don’t assume the SBA will understand what was going on when you were visiting the borrower or making key decisions during the documentation and closing processes. Memorialize your thoughts, interpretations and decisions. Your government spouse wants to know what you’re thinking.