September 11, 2019
By Caity Witucki
Contributing Editor, C-Suite Tips Wednesday
SBA C-Suite Tips Wednesday — Assume the Credit Memo Reader is SBA’s Inspector General
The number one reason that the SBA denies a guaranty is the lender’s failure to properly document the borrower’s eligibility in the credit memorandum. Therefore, it is crucial for lenders to maintain good standing with the SBA by writing credit memos according to the rules and procedures that would be considered by the SBA Inspector General (OIG) if the loan were to go into default.
Participating lenders enter into an agreement with the SBA to make loans to small businesses in accordance with SBA rules, regulations, policies and procedures. When an SBA loan goes into default and a lender requests guaranty payment, the OIG will review loan documentation to determine if the lender made, closed, serviced, and liquidated the loan in accordance with prudent lending standards and SBA requirements.
If the OIG finds that the lender failed to comply with any material SBA loan program requirements, the SBA will be released from liability on the guaranty and the lender will be forced to bring the loan into compliance or seek recovery of the loss (plus any interest that has accrued since the loan was purchased).
In order to avoid early defaults and denial of your SBA guaranty, it is recommended that you write your credit memos under the assumption that they will be read by the SBA Inspector General.