i. Introduction - Credit Administration Subcomponent

i. Introduction - Credit Administration Subcomponent

Credit administration practices are the processes an SBA Supervised Lender follows when originating, servicing, and collecting loans. An examiner reviewing an SBA Supervised Lender’s credit administration practices must evaluate for those loans reviewed whether: (1) the loan officer obtained sufficient information about the borrower before extending credit; (2) the loan officer analyzed the information; and (3) the loan was structured with the income circumstances of the borrower in mind. The lending policies should specify the minimum data loan officers should obtain and review before a lending recommendation is forwarded to a manager or the loan committee. The amount of data required may depend on the purpose, size and type of loan requested and the borrower’s credit history. For example, some SBA Supervised Lenders have adopted separate policies for small loans designed to speed the credit delivery process. Credit scoring is one process commonly found in credit administration policies for small loans. However, for all loans, SBA Supervised Lenders should document all lending processes to ensure consistency and accordance with the policies of the BOD.

j. Examination Criteria - Credit Administration Subcomponent

Credit administration is most effectively examined using a systems analysis approach that compares how the process is to work, how it actually operates, and what, if anything, has gone wrong. This approach will allow the examiner to identify any deficiencies and formulate a corrective strategy. Any written process for proper credit administration, as mentioned before, must describe the documentation that is required for loan consideration and to properly monitor the borrower’s operations during the life of the loan.

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  Creditworthiness;
  
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  Collateral;
  
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  Closing and Disbursement;
  
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  Regular Servicing and Assessment of Continued Creditworthiness;
  
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  Collection Practices and Intensive Servicing and Liquidation;
  
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  Active Purchases Management;
  
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  Other Portfolio Management Items (i.e., Consistency with SBA Policy, Risk Rating Systems, etc.); and
  
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  Other Risk Characteristics (i.e., Effectiveness of Internal controls, Use of Loan Agents, Loan Sales/Participations, etc.).
  

k. Examination Objectives - Credit Administration Subcomponent

The objectives of the Credit Administration Subcomponent are:

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  Determine whether loans are originated, serviced (including those loans sold where servicing responsibility is retained), and collected in accordance with the SBA Supervised Lender’s policies and procedures and prudent lending practices;
  
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  Evaluate the SBA Supervised Lender’s ability to (i) exercise approval authority, including exception approval authority, (ii) document approvals, and (iii) review for the proper level of approval authority;
  
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  Lender’s ability to use its commercial policies for credit determinations, when applicable, e.g. for SBAExpress, to make a determination that the SBA guaranteed loan is approved upon a basis comparable to lender’s requirements for non-guaranteed commercial loans of similar size and type;
  
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  Evaluate the SBA Supervised Lender’s use of any credit scoring appropriate to the SBA program in a manner that is consistent with its use in its non-guaranteed commercial lending program (when applicable);
  
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  Lender’s oversight of loan agents;
  
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  Determine whether credit administration practices are in compliance with applicable SBA Loan Program Requirements;
  
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  Does the lender have policy in direct conflict with SBA policy, and if so, how does the lender propose resolution?
  
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  Lender’s ability to determine the creditworthiness of each applicant, in accordance with SBA policy, through consideration of (i) repayment ability, (ii) capitalization sufficiency, (iii) sufficiency of working capital; (iv) management ability of principals; (v) credit history of applicant and/or principals; (vi) sufficiency of collateral assessment; and (vii) requirement of all necessary collateral.
  
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  Evaluate whether credit administration practices, including servicing actions, adequately control risks to the loan portfolio;
  
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  Lender’s ability to manage its delegation of authority to ensure appropriate credit administration;
  
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  Evaluate the adequacy of SBA Supervised Lender’s Risk Rating System;
  
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  Lender’s maintenance of effective systems for on-going monitoring of performing loans to assess continued creditworthiness;
  
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  Lender maintenance of effective tickler systems for Uniform Commercial Code (UCC) continuations, annual review of borrower financial statements or other prescribed routines for review of the account relationship, and insurance renewals;
  
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  Evaluate SBA Supervised Lender’s use of loan agents;
  
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  Determine SBA Supervised Lender’s overall effectiveness of internal controls; and
  
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  Ensure Corrective Action is taken to remedy any deficiencies.