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U.S. Small Business Administration

SBA Little Rock

Commercial Loan Servicing Center Presents

Guidance on Community AdvanGuiGuitage Loan Guaranty Purchasing

Guidance on SBA Community Advantage Loan Guaranty Purchasing

Agenda

CA Guaranty Purchase Roles and Responsibilities

Requirements for Guaranty Purchase Collateral Liquidation

Deadline for submission of the Purchase Package Guaranty Purchase Package Tabs

Top Reasons for Repairs or Withdrawals Required SBA Forms

Additional Information Questions

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CA Guaranty Purchase

Roles and Responsibilities

Both LRCLSC and FCLSC are responsible for reviewing and processing the guaranty purchase requests for the Community Advantage program loans. • There are different versions of the Guaranty Purchase Package Tabs that are used depending on the

loan program. These Tabs Documents are also referred to as the Purchase Demand Kit (PDK). For Community Advantage (CA) loans the Small Loan Advantage PDK is used which includes 9 Tabs.

• The PDK document was designed to help the lender assemble their guaranty purchase request with step by step instructions for putting the package together. This is to ensure the lender has all the appropriate documents when the demand for SBA to honor its guaranty is requested.

• The use of all the Tabs is mandatory, all supporting documents should be placed behind the appropriate tabs. Please read and follow instructions provided in each tab sheet to ensure all the correct information and documentation is provided.

• When the PDK is submitted with all the correct information/documentation, the purchase process will move more efficiently and the guaranty funds will be paid without delays.

Guaranty Purchase

Requirements for Guaranty Purchase: • Uncured Loan Default The Borrower must be in default on a payment due on the Note for more than 60 calendar days unless SBA agreed otherwise in writing. (13 C.F.R. § 120.520)

• Loan Classified in Liquidation The Lender must report the loan as in “liquidation” status in Etran prior to submitting the guaranty purchase request. Once the loan is in Liquidation Status, recovery proceeds must be applied to Principal.

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Guaranty Purchase • Collateral Liquidated Prior to requesting guaranty purchase, Lenders should liquidate all of the collateral for the loan. At a minimum, liquidate the following: (a) Loans Approved on or after May 14, 2007 a. For loans approved on or after May 14, 2007, unless the Borrower filed for bankruptcy, the Lender must liquidate the business personal property collateral with an aggregate Recoverable Value of $5,000 or more (13 C.F.R. § 120.520(a)); (b) Loans Approved Prior to May 14, 2007 For loans approved prior to May 14, 2007, the Lender must liquidate the collateral according to the requirements of the program under which the loan was made. For example, the following collateral must be liquidated: …………..Express and Pilot Loan Programs—All collateral; in addition, all cost-effective means of recovery must be exhausted unless: (a) The remaining principal balance of the loan is $50,000 or less; or (b) The loan involves prolonged litigation or other circumstances that will extend the liquidation process more than 90 calendar days past the earliest date that the Lender could request guaranty purchase.

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Guaranty Purchase

Deadlines for Submission of the Purchase Package Submitted to SBA

To request a guaranty purchase, Lenders must submit a complete PDK to the appropriate SBA Loan Center within 180 days of maturity or within 180 days of the completion of liquidation/debt collection activities in connection with a loan that has matured. Refer to 13 CFR Ch. I 120.524

If SBA purchased the guaranteed portion of the loan from the secondary market investor, the Lender must submit a complete Purchase Package to the appropriate SBA Loan Center within 45 calendar days of the purchase.

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Guaranty Purchase Package Tabs Small Loan Advantage Program

Effective 12/01/2015

• First page = Summary Lists the 9 Tabs and what goes within each Tab.

Provides the Contact information for both Little Rock and Fresno including email and ‘send this file’ site.

Submitting the PDK through “Send This File” is the preferred method of submission.

Ensure all documents are clearly labeled and presented in the order outlined on this page behind the appropriate tab. If unable to provide required documents, please explain in advance to expedite processing. Failure to meet the requirements outlined in the Summary Page instructions and throughout the PDK could result in unnecessary delays , possible repairs or withdrawal of

the purchase request.

Complete each section Entirely….

The PDK contains drop down menus on most of the pages throughout the document. This can be identified on the boxes with an arrow to the right which will open the drop down menu for a selection. Depending on the selection will determine what is displayed for the appropriate document(s) and/or information required which may include additional instructions.

The PDK also contains the ability to download SBA Forms or informational notices by clicking on the blue underlined name that opens the link to the correct form.

Tab 1- General Information

• Loan Authorization • Companion Loans • Wire Instructions

The Basis of Credit Decision - select if the loan is a: Delegated Approval Non-Delegated Approval

By clicking on the Lender’s Demand for Purchase link on the General Information Screen, Tab 1, the Request to Honor SBA 7(a) Loan Guaranty Form can be downloaded from SBA.gov.

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Click on the Red DOWNLOAD.PDF bar to access the document.

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This form must be completed, signed and dated by the lender and included in the PDK package.

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Tab 2 – Loan Summary • Purchase Type: Purchase with Charge Off (Standard Purchase) Purchase without Charge off (Expedited Purchase) Each selection opens the requirements for the type of purchase requested. I. With Charge Off – The Agency will charge off the loan and if appropriate refer to Treasury. Select from the drop down

box to provide instructions on the referral or non referral of the Obligors/Guarantors. • If there is a referral to Treasury, include an executed SBA Assignment.

II. Without Charge Off - The Agency will NOT charge off the loan at this time. Select from the drop down box to provide information and reason the loan is not ready for charge off.

• Information regarding Reporting Requirements/providing Updates/ and loan will be included on the SAR Report • Wrap Up Requirements per SOP 5057 are provided. Lenders are required to submit an acceptable Wrap-Up Report to appropriate Loan

Center within 24 months after purchase unless an extension is approved. The loan will be included on the Lender’s Semi Annual Report (SAR).

Loan Summary (also known as the Wrap Up Report) to include: Nature of Business, Cause of Default, Summary of Servicing Actions, Liquidation Efforts, Actions taken to pursue obligor(s)/guarantor(s).

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• Purchase with Charge Off (Standard Purchase)

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• Purchase without Charge off (Expedited Purchase)

Tab 3 – Transcript of Account

Terms of the Loan. Use the Table to identify each change in terms of the loan. Must include the Original Note and continue adding a new row for each change in terms. Must submit copies of the Original Note any Note Modifications, Amendments, Deferments, and Workout Agreements (include all revised repayment terms including dates, interest rate adjustments, and payment revisions).

Loan Transcript Summary allows you to enter the following information:

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SBA Form 1149 – Transcript of Account SBA Form 1149 is the Agency's preferred Transcript of Account Form.

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Expenses for the Care and Preservation of Collateral

• Please use the Care and Preservation of Collateral (CPC) Tabs when submitting Recoverable Expense requests with the Purchase Package (Standard Purchases) or Wrap-up Report and/or Charge Off Tabs (Expedited Purchases).

• When submitting your request with this Purchase Package, please attach the CPC Tabs and supporting documentation behind TAB 9.

• Important Consideration: requests for approval of Recoverable Expenses may only be submitted with the Lender's Purchase

Package or with the Lender's Wrap-up Report (Charge Off Tabs). Refer to SBA Informational Notice 5000-1311 for guidance on when lenders may submit requests for approval of Recoverable Expenses.

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Tab 4 – Early Default Determination There are a series of questions in Tab 4 that will guide you through the early default determination process. Depending on the boxes selected will determine if the loan is an Early Default. If so, continue to Tab 5 – Early Default Documentation.

Tab 5 – Early Default Documentation

• Delegated or Non-Delegated • For all early default loans approved under delegated authority, attach a copy of borrower's credit

write-up and documentation used and/or relied upon to justify loan approval • Lender’s Credit Memorandum must address mandatory and minimum elements of Credit and

Collateral Analysis: A series of Yes/No questions are to be completed to indicate whether or not the Credit Memo included certain elements.

• Lenders must attach copies of IRS Tax Transcripts and the financial statements and/or other

financial information submitted by the applicant/seller that were compared with the tax transcripts in the lender's credit analysis during loan origination process.

• EQUITY INJECTION:

• If an Equity Injection was required by the Loan Authorization or the Credit Memorandum – the Equity Injection requirement(s) must be documented.

Tab 5 – Early Payment Default (continued)

• Provide a copy of Bank credit memorandum • All supporting documentation used by lender in credit analysis • IRS Income Tax Verification (Form 4506-T) - Transcript Verification • Evidence of Equity/Asset Injection - invoices, receipts, cancelled checks, HUD-1 • Standby Agreement (Form 155) - Copy of stand-by note • Complete copy of borrower application • SBA 912 (if borrower answered yes on 1919 questions 1,2,&3) • SBA will review to determine if deficiency by lender in making or closing of loan contributed to business

failure.

• Note: The early default loans are the ones most likely to be audited. Purchases deemed an

“early default” must undertake the highest degree of scrutiny.

Tab 6 – Business Eligibility

• Be familiar with the Community Advantage Procedural Guide and Community Advantage Participation Guide, SOP 50-10-5, SOP 50-57-2, 13 CFR and Policy Notices, which can be located on the SBA website.

• For Loans approved prior to 06/01/2012, attach SBA Form 2301 (Parts B): Lender’s Application for Guaranty; and Form 7: Eligibility Information for Preferred Lenders Program (PLP) Loans [This form is also referred to as the ‘Eligibility Checklist’].

• For Loans approved on or after 06/01/2012, attach SBA Form 1920 parts B and C with applicable attachments.

If the Business applicant had affiliates, include the analysis of affiliation. If the borrower operated under a franchise, license, dealer, jobber or similar agreement – attach

the required document(s) as indicated on the Tabs page.

Tab 7 – Obligors/Guarantors – Business Entities / Individuals Add a Tab for each Obligor and Guarantor and complete each tab separately. Select the type of Obligor: Borrower / Co-Borrower / Guarantor

Always confirm and verify the Tax Identification Number (EIN) and Social Security Number (SSN) is correct. List what documentation will verify the SSN/EIN identified.

For loans approved on a Delegated basis, was CAIVRS checked to determine if this individual had outstanding “Delinquent Federal Debt”?

Attach SBA Form 1919 or SBA Form 2301, Part A (if 20% owner a 1919 is required).

If individual is not a US Citizen, attach copy of stamped G-845 or INS verification. If individual has a criminal history, attach evidence that SBA cleared the SBA Form 912.

• Attach SBA Form 2449 – Community Advantage Addendum • Did this individual file Bankruptcy (include BK information, POC filed). • Does this individual remain liable. • Who should be referred to Treasury. • Include Associate information as outlined in the Tab, if 20% owner a 1919 is required.

Tab 8 – Use of Proceeds • Check Boxes for each Use of Proceeds identified in the Loan Authorization or most

recent modification.

• For each item selected, a page will be created for detailed information. Complete each section entirely.

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• Complete the following information and additional questions related to the purpose of the proceeds the refinanced debt was used to pay. Complete each section entirely.

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Tab 9 – Collateral Liquidation

Select: Unsecured or Secured • Unsecured – Include a copy of this Tab with the demand • Secured – Check applicable box and a series of questions will be created based on the

selection. Always Complete each section entirely.

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• If the principal balance at the time of this request does not exceed $25,000.00, in lieu of documentation to confirm liquidation is complete, the lender may certify that all cost effective liquidation has been completed. A series of questions is provided:

If the principal balance at the time of this request exceeds $25,000.00.

Identify collateral as required by the Loan Authorization or any subsequent modification. A page will be created for each item of collateral checked.

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• Select from the drop down menu of items and complete the remaining questions related to the collateral.

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Top reasons for repair/withdrawal on loans submitted for guaranty purchase:

• Bankruptcy deficiency- Failure to file a timely proof of claim on asset bankruptcies • SBA Forms 1919 or 912 deficiency without satisfactory alternate documentation • Ineligible use of loan proceeds • Failure to obtain required collateral lien position – UCC filings • Failure to obtain required guarantor • Lack of meaningful collateral evaluation resulting in loss to Agency • Release of collateral without justification • Guarantors released/compromised without SBA Approval • Untimely or lack of site visit resulting in loss of collateral • Collateral abandoned without justification • Purchase not requested within 180 days of maturity or within 180 days of the completion of liquidation/debt collection

activities. Refer to 13 CFR Ch. I 120.524 • Negligent lender credit analysis (Early Payment Default Loans) • Lack of Special loan program documentation (the Community Advantage Addendum) • SBA Loan eligibility: e.g. Ineligible franchise, Ineligible loan purpose, ineligible business • Recovery Act loans----lender did not obtain special borrower Immigration Law/use of loan proceeds certification.

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Required SBA Forms / Documents • Guaranty Purchase Package (the PDK)

• Request to Honor Guaranty • Loan Authorization • Loan Summary or Wrap Up Report • Transcript of Account – SBA Form 1149 • Original Note • Form 1920 • Form 1919 • Guaranty Agreement • Security Agreement • Community Advantage Addendum – SBA Form 2449 • CPC Tabs (if applicable) • Charge Off Tabs (if applicable)

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SBA Form 2449 Community Advantage Addendum

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Information • The websites are currently being updated to be 508 compliant, adding the new logo and working on a greater

consistency between the Centers.

• The CA lender can use either the 8/2015 or 12/2015 version.

• If unable to locate or download the Guaranty Purchase Package from the SBA.gov website, email the respective Center for the document.

• Where to locate the PDK?

• Go to https://www.sba.gov/

• Click on MENU on the top right, scroll down to About SBA and on the About SBA page under SBA Locations (the last column on the right), go down to Loan and Guaranty Centers link that takes you to ‘Find a SBA Resource / Find a Center. Click on the Commercial Loan Service Center link for Little Rock or Fresno. This opens the CLSC page for that Center and under Resources contains Center Forms and Useful Links. This lists the forms you need including the Community Advantage Purchase Demand Kit.

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https://www.sba.gov/