1. Servicing & Guaranty Recovery
Presented by:
Mary Wamsley and Lisa Preston
Proprietary and Confidential. Do not Distribute without permission.

2. SBA Portfolio Management / Lender Portal
Objectives
SBA Portfolio Management / Lender Portal
SBA SOP Guidance
Regular Servicing
Servicing Actions / Matrix
Intensive Servicing / Liquidation
SBA Lender Portal
Proprietary and Confidential. Do not Distribute without permission.

3. SOPs are available on the SBA Website @
SOP Version 2
SOP , Version 2 became effective Dec. 1, 2015 and provides clear policies and guidance for both 7(a) Loan Servicing and Liquidation related to loans that have been fully disbursed and are in “regular servicing” and “liquidation” status.
The SOP provides guidance for lenders to resolve guaranty purchased 7(a) loans in a timely and commercially reasonable manner, and add consequences for when lender fails to comply with these policies
SOPs are available on the SBA
Proprietary and Confidential. Do not Distribute without permission.

4. SOP 50 57 Version 2 Performance Standards
All Lenders must service and liquidate their SBA loans in a diligent, commercially reasonable manner that is free of conflicts of interest and Preferences, and is consistent with the Loan Authorization, Prudent Servicing and Prudent Liquidation practices, including the SBA Loan Program requirements in effect at the time the action is taken (13 C.F.R. § )
Proprietary and Confidential. Do not Distribute without permission.

5. Definitions What is 'Servicing‘? What is liquidation?
Servicing is the administrative aspect of a loan from the time the proceeds are disbursed until the loan is paid off. This includes collecting monthly payments; maintaining records of payments and balances; ensuring taxes are paid, insurance and lien positions are current/correct; reviewing the loan annually; maintaining contact with the borrower, and following up on delinquencies.
What is liquidation?
The authority to foreclose and liquidate property and assets of a defaulted loan that was funded with the proceeds of a loan guaranteed by the SBA.
Proprietary and Confidential. Do not Distribute without permission.

6. Regular Servicing Begins
An SBA loan is considered to be in regular servicing when:
Term loan - is closed and is fully disbursed
Revolving lines of credit – when the loan is closed and the first disbursement is made
Proprietary and Confidential. Do not Distribute without permission.

7. Regular Servicing The following is included in regular servicing:
Collection of Payments
Reporting and payment to the FTA (Colson Services) on a monthly basis for the SBA ongoing monthly fee or payment to the Secondary Market
Proprietary and Confidential. Do not Distribute without permission.

8. Regular Servicing (Continued)
Annual Credit Review
Collection and analysis of financial information on an annual basis:
Business Tax Return & most recent Interim Balance Sheet & Income Statement
Personal Tax Return
Updated PFS
Updated Credit Report
Proprietary and Confidential. Do not Distribute without permission.

9. Regular Servicing (Continued)
Verification of lien position
Verification proper insurance is in place
Hazard
Liability
Personal Property
Life Insurance
Verification property taxes are current
Proprietary and Confidential. Do not Distribute without permission.

10. Site Visit Requirements
Site visits must be performed:
Within 60 days of a payment default, or sooner if there are assets with significant value that could be moved or depleted
If payment default does not exist, but an event has occurred which would cause the loan to be put in liquidation (i.e. liquidation, bankruptcy filing, business shutdown, or foreclosure by a prior lienholder) a site visit must be made with 15 days of the event
NOTE: It is considered “Prudent Lending” to conduct a site visit on an annual basis for those loans that are in regular servicing.
Proprietary and Confidential. Do not Distribute without permission.

11. Included in Servicing
Prudent Servicing is also considered Portfolio Management. If you manage a commercial loan portfolio, you are probably already doing 75% of what is required for SBA Loan servicing.
As part of portfolio management, you may be required to perform a Servicing Action, which must be reported to the SBA, in some cases.
Proprietary and Confidential. Do not Distribute without permission.

12. What is a “Servicing Action”?
Servicing Actions are considered to be any changes in the loan that will conflict with the original SBA Authorization, such as:
Change in payment terms
Changes in collateral
Changes to guarantors
Decreased loan amount
Increased loan amount
Extending the term
Complete list of Servicing Actions can be found in the Servicing & Liquidation Actions 7(a) Lender Matrix published by SBA dated 07/20/2016, Version 13. (Handout provided)
Note: For loans sold in the secondary market, prior written consent for changes to the original loan approval may be required before the lender approves the action and notified SBA.
Proprietary and Confidential. Do not Distribute without permission.

13. Servicing Actions (aka Post Approval Actions)
SBA outlines the approval requirements in the
Servicing & Liquidations Actions 7(a) Lender Matrix
which can be different for:
Delegated vs Non Delegated Lenders
Note: Version 14 in Final Clearance
Proprietary and Confidential. Do not Distribute without permission.

14. Servicing and Liquidation Actions 7(a) Lender Matrix
Proprietary and Confidential. Do not Distribute without permission.

15. (Unilateral Authority)
Servicing Actions
As shown in the previous slide, SBA has developed a Servicing & Liquidation Matrix that will outline what types of actions must be taken. The matrix includes actions that:
Do not require notification or approval , i.e.
(Unilateral Authority)
Require notification, but do not require approval
Require SBA approval
Proprietary and Confidential. Do not Distribute without permission.

16. Servicing Actions Requiring Approval
SBA formally used Form 2237 to request certain types of servicing actions. That form was recently discontinued. To request approval for a Servicing Action, the lender must
Fresno:
Little Rock:
Include the borrower name, SBA name, SBA loan number and an explanation of the servicing action being requested and the center will get back to the lender with a decision.
Proprietary and Confidential. Do not Distribute without permission.

17. E-Tran Servicing
Since February 1, 2015, the lender is required to notify the SBA via E-Tran for a number of unilateral actions:
Cancel SBA Guaranty
Extend Maturity
Change from revolving to non-revolving
Adding a Guarantor
Classify loan in liquidation
If a loan is sold in the secondary market, the lender is sometimes required to get approval from the secondary market prior to any modification. Check with Colson Services to find out if a servicing action will need Secondary Market approval.
Proprietary and Confidential. Do not Distribute without permission.

18. Colson Reporting (aka 1502 Reporting)
Every lender is responsible for reporting to Colson Services, Fiscal Transfer Agent, for SBA on a monthly basis all activity in the lenders SBA portfolio.
Three Components to the 1502 Reporting:
1. Guaranty Loan Status Information
2. SBA Ongoing Servicing Fee
3. Secondary Market Payments
Proprietary and Confidential. Do not Distribute without permission.

19. Colson Reporting Lender is required to remit to Colson:
the ongoing SBA Fee if the loan is held in the portfolio
the guaranty portion of principal and the guaranty portion of interest for payment to the secondary market on all sold loans
NOTE: There are specific training classes dedicated to Colson Reporting
Proprietary and Confidential. Do not Distribute without permission.

20. Credit Bureau Reporting
Lenders are required to report the borrower(s), not the guarantor(s) of an SBA loan to the commercial credit reporting agencies following initial disbursement.
Lenders should continue to report to the commercial credit bureau reporting agencies information concerning the extension of credit, including servicing, liquidation, and charge-off activities throughout the life-cycle of the loan
Note 1: Appendix 3 of the Guide to the Federal Credit Bureau Program (“GFCBP”) lists the designated credit reporting agencies for commercial accounts
Note 2: SOP provides guidance on credit bureau reporting requirements. (Chapter 3 – Lender Responsibility and Authority – pages 28-29)
Proprietary and Confidential. Do not Distribute without permission.

21. Liquidation Status
An SBA Loan moves from regular servicing to liquidation status if the loan is in default and has been classified in liquidation pursuant to Chapter 14 of SOP
Lenders do not have a legal right to accelerate, make demand, or liquidate the collateral unless there has been a default on the Note
(Specifically the lender’s rights in the event of a default are outlined on the Note used to document the loan – SBA Form 147)
Proprietary and Confidential. Do not Distribute without permission.

22. Prudent Liquidation Prudent Liquidation
means Lenders must liquidate and conduct debt collection litigation for 7(a) loans in their portfolio:
no less diligently than for their non-SBA portfolio
consistent with prudent lending standards
in accordance with Loan Program Requirements
Proprietary and Confidential. Do not Distribute without permission.

23. When is a Loan Considered in “Liquidation”?
Default on Loan / Lender Accelerates the Note
Payment Default (60 days)
Borrower closes Business
Borrower files Bankruptcy
Borrower begins Selling Collateral
Other Default Provisions in the Note
Proprietary and Confidential. Do not Distribute without permission.

24. Moving an SBA Loan from Liquidation Status (Return to Regular Servicing)
An SBA loan can be removed from Liquidation Status:
When the borrower agrees to resume regular payments pursuant to the workout agreement, bankruptcy plan, reaffirmation agreement, or any agreement that provides for resumption of regular payments.
Paid in full – When the debt is satisfied
Charged off by SBA
Proprietary and Confidential. Do not Distribute without permission.

25. Monitoring Portfolio Performance (SBA Lender Portal)
SBA provides information on your SBA loan portfolio:
Dun & Bradstreet
For general inquiries on Portal, contact: SBA OCRM
SBAOne
Proprietary and Confidential. Do not Distribute without permission.

26. SBA Lender Portal Various information provided:
Lender Risk Rating/Lender Purchase Rating
Ratios
Comparisons to Peer Group / SBA Loan Portfolio
Scorecard
SBPS Score
Loan Level Detail Data
SBPS Risk Ranges
Flags
Proprietary and Confidential. Do not Distribute without permission.

27. SBPS Ranges 5 Ranges of Risk for SBA 7(a) Higher Risk: 140 – 159
Highest Risk: – 139
Higher Risk: 140 – 159
Moderate Risk: 160 – 179
Lower Risk: 180 – 199
Lowest Risk: 200 – 300
Current Quarter vs Previous Quarters
Proprietary and Confidential. Do not Distribute without permission.

28. FLAGS Early Warning Signs: Industry / Other Concentrations
Sold on 2nd Market
Franchises
Loan Agents/Brokers
Loan Growth
Acquired Loan Growth
Loans ˃ $2 million
Early Defaults
Proprietary and Confidential. Do not Distribute without permission.

29. Strategic Banking Partners, Inc.
Contact Information:
Lisa Preston
President
The Preston Group, LLC
Mary Wamsley
Strategic Banking Partners, Inc.
Proprietary and Confidential. Do not Distribute without permission.

30. THANK YOU!
Proprietary and Confidential. Do not Distribute without permission.