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 CDC must be able to demonstrate that it is in compliance with SBA lending requirements, in accordance with 13 CFR §120.100-195 and 120.860-941 and SOP 50-10(4). The criteria upon which the assessment of the CDC’s compliance is performed are listed below. The criteria 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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  Whether CDC has submitted its annual report within 180 days of its fiscal year end, in accordance with 13 CFR §12.830, and if not, why not.
  
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  Determine whether the most recently submitted Annual Report and Operational Review reflect accurately the status of the management, operations and financial condition of the 504 CDC;
  
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  Whether the Central Servicing Agent (CSA) monthly “45-day delinquent report” is handled in accordance with CSA requirements;
  
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  Whether CDC notifies SBA of detailed analysis, plan and steps to be taken to bring borrower current for 45-day delinquent accounts;
  
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  Whether CDC reports to CSA in a timely fashion all negotiated catch-up agreements; and
  
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  For PCLP CDCs, whether the loan loss reserve accounting accurate and does it reconcile to CDC’s loan transaction record to identify and reconcile any discrepancies. When necessary, contact the applicable SBA field office to fully determine nature of discrepancies
  

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 if there are patterns of deficiencies among all files, reviewing for the following:

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  Determine whether 504 project meets specified economic development goals in accordance with 13 CFR §120.862
  
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  Determine that the 504 project meets job opportunity criteria in accordance with 13 CFR §120.829;
  
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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, 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 for 504 program (13 CFR §120.301(b));
  
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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. ALP, PCLP) are met (13 CFR §120.840-846; SOP 50-10(4), Subpart H, Chapters 6 and 7); and
  
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  Identify any other SBA statutory, regulatory or SOP violations of eligibility.
  

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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  Compare most recently submitted Annual Report (as required by 13 CFR §120.830) to internal records and reports to determine that it accurately reflects the status of the management, operations and financial condition of the 504 CDC;
  
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  Determine whether the Annual Report was submitted in accordance with time requirement of 13 CFR §120.830, and if not, why not;
  
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  Obtain the CSA monthly “45-day delinquent report” for the most recent three months, to identify loans more than 45-days past due, and review a sample of these files to determine that CDC has notified SBA of required analysis, plan and steps to be taken to bring borrower current for any such 45-day delinquent accounts;
  
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  Determine whether internal CDC records of servicing status of all problem loans (or a sample) has been reported to Colson in a timely fashion on all negotiated catch-up agreements;
  
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  For Premier Certified Lender Program (PCLP) CDCs, obtain the loan loss reserve accounting report(s) for the most recent three months, and compare to CDC’s loan transaction record to identify and reconcile any discrepancies, in accordance with 13 CFR §120847. As necessary, contact the applicable SBA office to fully determine nature of discrepancies.
  
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  For PCLPs, determine that all required loan loss payments from reserve fund have been made to SBA, in accordance with 13 CFR §120.847(i).
  

Other Compliance Characteristics

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  Determine that all SBA requirements regarding collateral have been met, and determinations regarding sufficiency of collateral, when applicable, have been met (13 CFR §120.934).
  
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  Determine that CDC has verified any required borrower injection prior to disbursement (13 CFR §120.910).
  
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  Determine that CDC has obtained any required appraisals, environmental assessments, flood insurance, or other required insurance, prior to disbursement (13 CFR §§120.160(b),(c), 170).
  
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  Determine that CDC required and reconciled IRS tax transcripts for any applicant when required by SOP (SOP 50 10 4e, Subpart A, Paragraph 4.f).
  
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  Determine that CDC obtained executed SBA Form 1506 Servicing Agent Agreement (SOP 50 10 4e, Subpart H, Chapter 22).
  
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  Determine that CDC followed SBA requirement for site visit or other intensive servicing activity when loan is 60-days or more past due, or there is other reasons for concern (SOP 50 51 2, Chapter 8, Paragraph 8.B).
  
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  As applicable to delegation of authority, determine that CDC 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).
  
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  Identify that CDC has forwarded all recoveries on repurchased loans with 15 days of receipt of any (SOP 50 51 2, Chapter 10, Paragraph K.3).
  

Dated:

Steven C. Preston,

Administrator