SBA Management and Operations Review Component

3. SBA Management and Operations Review Component

a. Introduction

The SBA management and operations review component provides an overall assessment of a Lender’s SBA lending operations. It assesses the adequacy of the Lender’s corporate organization relative to the SBA lending operation including defined lending and decision making authorities; lending policies and procedures; management oversight and internal controls; ability to plan operationally and respond to changing circumstances; managerial expertise, leadership and administrative ability; and overall compliance with laws and SBA Loan Program Requirements, for the 7(a) loan program.

b. Review Criteria

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  SBA Corporate Organization and SBA Management;
  
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  Delegations of Authority;
  
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  Operating Plan and Performance;
  
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  Internal Oversight;
  
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  External Oversight; and
  
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  Any other Risk Characteristic(s) Identified in the Plan.
  

c. Review Objectives

The objective of the SBA Management and Operations component is to assess the completeness and effectiveness of the Lender’s management of its SBA loan program, as evidenced by, for example, the adequacy of its lending policies, procedures, operations and internal controls. It is also to assess the management leadership and expertise in SBA lending.

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  Determine completeness of corporate guidance, including policies, procedures and other operational direction applicable to the Lender’s SBA loan program;
  
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  Assess implementation of policies, and procedures;
  
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  Identify demonstrated competence, leadership, and administrative ability by Lender’s SBA management;
  
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  Identify completeness and implementation of delegated lending and exception approval authority throughout the SBA department;
  
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  Determine sufficiency of knowledgeable SBA loan personnel;
  
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  Determine whether training is adequate to maintain well-informed SBA loan personnel;
  
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  Determine the adequacy of the SBA organizational structure;
  
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  Identify if normal geographic lending area for SBA is well-defined;
  
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  Identify authority for consideration of exceptions to policy.
  
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  Assess SBA management’s performance in maintaining up-to-date and reliable operating policy, procedure, SBA budgets and performance reports;
  
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  Determine adequacy of internal controls over the SBA loan program, including internal loan review function and SBA compliance review activities;
  
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  Determine whether lender is in good standing with its Federal Financial Institution Regulator; and
  
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  Determine adequacy and effectiveness of independent oversight of the SBA operation.
  

A Lender’s portfolio performance, credit administration practices for both performing and problem loans, and compliance is largely affected by the result of decisions made by management. Findings and conclusions in these other components, made during the course of the review of these components, will strongly influence SBA’s evaluation of management. However, an “acceptable” assessment in one does not necessitate an acceptable assessment for SBA Management and Operations. Judgment in evaluating this component is essential. For example, in positive economic conditions, a Lender’s portfolio performance can be strong even though policies, procedures and controls may be inadequate.

4. Review Procedures

This assessment is conducted through review and analysis of (i) the Lender’s corporate governance documents, (ii) structure of SBA program governance, (iii) operational and management policies and procedures, (iv) underwriting and loan monitoring policies and procedures, and (v) exception to policy processes. This assessment is then tested through observations and interviews with Lender’s SBA program management.

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  Review organizational chart and identify the chain of command from the Board of Directors (BOD) to senior management of the Lender’s SBA program.
  
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  How does BOD/senior management maintain awareness of and direction over SBA operations through this chain of command process?
  
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  Identify what meetings, reports or other methods of communication are conducted to accomplish direction of SBA operations, and obtain documentation or records of these meetings, reports, and methods.
  
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  Are there any policy or procedural weaknesses which must be corrected by lender in the direction of the SBA portfolio?
  
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  Determine whether any long-range planning demonstrates a significant change to the lender’s approach to its SBA program. Describe the proposed change(s) and management’s intent. Is it prudent?
  
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  Determine whether Lender’s SBA management is knowledgeable of SBA lending requirements.
  

Delegations of Authority

Determine whether management communicated its delegations to the SBA portfolio staff to meet the goals and objectives of senior direction.

What internal controls exist to ensure that exceptions to delegations are properly handled?
Operating Plan and Performance
Describe Lender’s business plan for SBA lending, including SBA loan program goals.

Determine whether Lender’s SBA business plan is realistic in terms of lender’s capacity, expertise and lending infrastructure.

Describe and analyze materials and methods employed to periodically communicate the SBA financial results, production data, portfolio performance, liquidation and charge-off information to senior lender management. Obtain reports (or copies) which demonstrate this reporting.

Determine what the Lender does to train and maintain proficiency in lending for its SBA personnel.

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  To what extent is the SBA program and/or the SBA loan portfolio subjected to third party/independent examination, review or audit over past three years or since the most recent SBA review?
  
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  Obtain and review copies of available independent reports, examinations, reviews or audits on Lender’s SBA loans or SBA portfolio.
  
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  Review report Findings and recommendations for deficiencies.
  
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  Determine what actions has been taken by Lender to address deficiencies and the results achieved.
  
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  If Lender cannot provide copies of examination reports from its Federal Financial Institution Regulator, obtain confirmation from Lender that it is in good standing with its Federal Financial Institution Regulator.
  
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  Obtain any copies of available supervisory agreements, memorandums of understanding, cease and desist orders or any other relevant documents. Review documents provided and determine any impact on SBA lending program. Determine what actions has been taken by the Lender to address deficiencies.
  

Other Risk Characteristics

Conclude on adequacy of SBA management and operations.