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SBA 7(a) Repair or Denial of the Guaranty – Failure to Document Disbursements

Posted by Prudent Lenders in Blog, SBA 7(a) Lessons Learned – SBA Question? - Ask the Experts with No Comments

A full or partial denial of liability may be justified if the Agency suffers a material loss on the loan due to the Lender’s failure to ensure that the loan proceeds were used in accordance with the Loan Authorization as required by the version of SOP 50 10 in effect at the time the loan was approved. The Agency often argues that, if key assets were to be purchased with loan proceeds and the lender is unable to verify that such assets were purchased, a full denial of the guaranty is warranted. In most cases, however, a repair representing the SBA’s portion of the undocumented disbursements is warranted. If certain assets to be acquired with loan proceeds have a likelihood of depreciating over time, a discount factor may be applied to the repair amount.

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