Sba sop 51 00 On-Site Lender Reviews/Examinations Office of Lender Oversight

5. Compliance Review Component

a. Introduction

The compliance review component of the risk-based review is focused on those areas of SBA lending that are uniquely SBA requirements. These areas are not associated with credit and portfolio management activities but with eligibility and other Agency and/or program specific requirements (e.g. borrower eligibility, reporting, and others, as stipulated).

b. Review Criteria

Each Lender must demonstrate that it is in compliance with SBA lending requirements, in accordance with 13 CFR §§120.100-397, §120.452-453, §120.500-554 and SOP 50-10(4). The criteria upon which the assessment of the Lender’s compliance is performed is listed below. The criteria listed are not all inclusive and during the course of the review, additional criteria may be identified, as well as certain criteria may be determined not to apply. The criteria are as follows:

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  Borrower Eligibility;
  
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  Reporting to SBA; and
  
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  Any other Compliance matters identified.
  

c. Review Objectives

Making loans guaranteed by SBA imposes unique loan origination, servicing, liquidation, and reporting requirements on the Lender. The objective of the compliance component of the review is to determine whether the Lender is knowledgeable of these unique SBA requirements and maintains a lending program that meets these requirements so that only loans eligible for an SBA guaranty are made. An additional objective of the compliance component is to assess whether the Lender meets SBA program and reporting requirements.

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  Knowledge and application of eligibility requirements set forth in 13 CFR §§120.100, 120.103, 120.110, 120.111, 120.120, 120.130, 120.131 and SOP 50-10(4), Subpart A, Chapter 2;
  
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  Accuracy of “Guaranty Loan Status & Lender Remittance Form”, SBA Form 1502 reporting;
  
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  Timeliness of SBA Form 1502 reporting and accuracy of remittances (including all fees);
  
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  Resolution of issues on SBA Form 1502 exception reports;
  
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  Accurate and timely reporting and remittance of any required daily SBA Form 1502 reports for sold loans;
  
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  Accurate and timely reporting and remittance of any unscheduled transactions;
  
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  Remittance of guaranty and all other fees accurately; and
  
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  Remittance of guaranty and all other fees in a timely manner.
  

d. Review Procedures

The following procedures are provided as guidance in conducting the compliance component of the review. The procedures are not an exhaustive list. They will be expanded, contracted and adapted, as warranted within SBA’s sole discretion based on (i) the circumstances of the individual lender, particularly if there are program and operational changes, (ii) changes in economic conditions, and (iii) Agency policy changes.

Identify all compliance deficiencies in each sample file reviewed, and determine whether there are patterns of deficiencies among all files, reviewing for the following:

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  Determine whether all principal owners of the business are eligible and of good character as demonstrated on “Statement of Personal History”, SBA Form 912 (13 CFR §§120.100 and 120.150(a) and SOP 50-10(4), Subpart A, Chapter 2);
  
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  Determine whether the Lender obtained SBA Form 912, Statement of Personal History, on all persons required (SOP 50-10(4), Subpart A, Chapter 6, Paragraph 4.d.);
  
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  Identify that the applicant business is small by SBA size standards (13 CFR §120.100(d) and Part 121 and SOP 50-10(4), Chapter 3);
  
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  Determine whether credit is not otherwise available on reasonable terms from non-Federal sources without guaranty provided by the SBA (13 CFR §120.101 and SOP 50-10(4), Subpart A, Chapter 2, Paragraph 3);
  
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  Determine whether desired funds are available from the personal resources of any owner of 20% or more of the equity of the applicant, including limits on outstanding personal liquid assets, and if available are injected (13 CFR §120.102 and SOP 50-10(4), Subpart A, Chapter 2, Paragraph 4);
  
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  Determine whether the business is for profit, domestic operation, and otherwise eligible in accordance with SBA SOP (13 CFR §120.100(a) and (b) and SOP 50-10(4), Subpart A, Chapter 2, Paragraph 2);
  
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  Determine whether the applicant has ever caused prior loss to the Government from prior federal financial assistance (13 CFR §120.110(q) and SOP 50-10(4), Subpart A, Chapter 2, Paragraph 8.q.);
  
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  Identify all use of proceeds of the loan as eligible, including funds used to purchase any portion of rental real estate, pay debts or change ownership of the applicant business (13 CFR §§120.120, 120.130, 120.131, 120.160(d), 120.201 and 120.202 and SOP 50-10(4), Subpart A, Chapter 2, Paragraph 10);
  
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  Identify that any franchise financing is eligible (SOP 50-10(4), Subpart A, Chapter 3, Paragraph 3.e.);
  
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  Determine whether all principal owners of the business are U.S. citizens or eligible resident aliens (SOP 50-10(4), Subpart A, Chapter 2, Paragraph 15.h.);
  
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  Identify any actual or apparent conflicts of interest or preferences (13 CFR §§120.110(o), 120.140, 120.453(a) and SOP 50-10(4), Subpart A, Chapters 2 and 3, and Subpart D, Chapter 3, Paragraph 7.a.(4)(j));
  
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  Determine whether all SBA delegated program-specific eligibility issues (e.g. PLP, SBAExpress) are met (13 CFR §§120.450-455; SOP 50-10(4), Subpart D, Chapter 3, Paragraph 7.a. and SBAExpress Program Guide, Paragraph 5.A.);
  
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  Determine whether all CommunityExpress loan applicants are eligible and have received pre-and post-closing technical and management assistance arranged and, if necessary, paid for by Lender (CommunityExpress Program Guide, Paragraphs 6, 7 and 9.A.); and
  
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  Identify any other SBA statutory, regulatory or SOP violations of eligibility.
  
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  Compile a list of all eligibility deficiencies by issue type and by errors per file, and identify any trends of deficiencies which warrant lender attention.
  
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  Compile a list of material eligibility deficiencies by loan file number and reason for deficiency. (Material Deficiency is defined in Chapter 2 of this SOP).
  

Reporting and Payments to SBA

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  Determine whether Lender is providing SBA accurate loan payment information.
  
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  Review Lender’s transmittal records for SBA Form 1502 reports for the most recent three months to determine timeliness of reporting to SBA’s Fiscal and Transfer Agency (FTA). (The month-end SBA Form 1502 Report is due on the third business day following the end of the month with a two-day grace period).
  
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  Review the Lender’s Automated Clearing House (ACH) or manual payments records for the past three months to determine that remittances have been paid accurately and in a timely manner to the FTA. The remittance of scheduled receipts must be made by the third business day following the end of the month with a late fee being assessed on the second day following the due date.
  
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  Determine whether all transmittals include all required payments and fees, including secondary market fees, basis points fees, late fees and/or prepayment fees.
  
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  Review exception reports received by the Lender during the most recent three-month period to determine timeliness of necessary Corrective Action taken by the Lender.
  
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  Determine whether Lender responds to error/exception reporting to successfully resolve any such errors.
  
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  Identify any steps Lender management has taken to resolve any patterns or trends, and any additional steps required to meet SBA standards.
  
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  Review loan transcript for each loan in the review sample to identify any unscheduled “daily remittance transactions” (on sold loans) due, and compare to the appropriate “daily” SBA Form 1502 Report to assess accuracy and timeliness of remittances. Unscheduled transactions on sold loans include such items as payoffs, late payments, and interest only payments.
  
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  Review ACH records to identify any unscheduled transactions remitted to determine if they were made in a timely manner. Reporting and remittance of unscheduled receipts must be made by the second business day following the receipt of good funds. The reviewer must determine if the funds were “good” at the time of receipt, i.e. cash, wired or on deposit with the Lender, in which case they must be remitted by the second business day following receipt. Regarding “paper” funds drawn on another institution, for review purposes, remittances made by the fifth business day following of the receipt would be considered timely.
  

Conclusion

Determine whether all SBA requirements regarding collateral have been met and determinations regarding sufficiency of collateral have been made (13 CFR §120.150(h) and SOP 50-10(4), Subpart A, Chapter 4, Paragraph 1.h.).

Determine whether Lender has verified any required borrower injection prior to disbursement (13 CFR §120.150(f) and SOP 50-10(4), Subpart A, Chapter 4, Paragraph 1.f.).

Determine whether Lender has obtained any required personal guaranties, appraisals, environmental assessments, flood insurance, or other required insurance, prior to disbursement (13 CFR §§120.160(a), (b) & (c), §120.170 and SOP 50-10(4), Subpart A, Chapter 5).

Determine whether Lender required, obtained and reconciled IRS tax transcripts for any applicant when required by SOP (13 CFR §120.191 and SOP 50 10(4), Subpart A, Chapter 6, Paragraph 4.f.).

Determine whether Lender followed SBA requirement for site visit or other intensive servicing activity when loan is 60-days or more past due, or there are other reasons for concern (SOP 50 51 2, Chapter 8, Paragraph 8.B.).

Determine whether Lender has followed all SOP requirements regarding management of liquidation cases, including preparation of a liquidation plan, timely site visits, use of current appraisals, consideration of environmental issues, and preparation of a wrap-up report at conclusion of liquidation (SOP 50 51 2, Chapter 8, paragraph 11).

Identify whether Lender has forwarded all recoveries on repurchased loans within 15 days of receipt (SOP 50 51 2, Chapter 8, paragraph 25.).