As your partner in SBA lending, Prudent Lenders stands ready to help you navigate every step of the SBA loan process. That includes helping you prepare for an SBA audit when one inevitably arises.
At Prudent Lenders, we’ve successfully navigated dozens of audits. We work alongside our clients to streamline a cumbersome process into a more manageable one. In this article, our team of SBA experts shares key takeaways from recent audits. Being aware of these items as you pilot the SBA loan process will make an audit easier, saving you time and resources.
SBA audits: An overview
To ensure all U.S. Small Business Administration (SBA) loans in a lender’s portfolio are originated, closed, serviced and liquidated in accordance to the SBA Standard Operating Procedure (SOP), the SBA conducts periodic audits. During an audit, SBA auditors review the loan’s program eligibility; ensures the loan is closed in a way that secures collateral and abides by closing requirements; and determines the loan will continue to be serviced per program guidelines to retain collateral.
The SBA audit process is intensive. But when you partner with Prudent Lenders, you rest assured knowing your SBA loans are up-to-date and accurate from the start, the most important factors in a smooth SBA audit process.
Key audit takeaways
#1: Ensure lender fees are aligned with SBA guidelines and expectations
When your institution charges fees to small business clients who are funded by SBA-backed loans, said fees must be reasonable and customary for the services received. Services must be backed by documentation and fees must be consistent with those charged to conventional (or non-SBA) commercial loan customers.
#2: Charges for legal services are allowed, but must be reasonable and billed hourly
Your institution can request reimbursement from the loan applicant for direct costs (and reasonable overhead allowance) of legal services provided by your institution’s in-house counsel, so long as: Charges are made in connection with an SBA-guaranteed loan, and the amount doesn’t exceed the amount an outside counsel would reasonably charge for the same services rendered. All charges are to be accrued and billed on an hourly basis and documented accordingly.
#3: Forms and signatures must follow requirements and remain on file
Several SBA forms are required to remain on file with loan portfolios, including:
- SBA Form 159: The borrower must be the last person to date and sign the SBA Form 159
- SBA Form 1050: The loan disbursement must be signed by the lender and the borrower
#4: Post-closing searches must be completed
Post-closing searches for both real estate and personal property must be completed to ensure your institution is in the right lien position.
#5: “No credit elsewhere” isn’t a sufficient response for the “credit elsewhere” test
The SBA requires that institutions are loan-specific when claiming no credit is available to a loan applicant. Lenders need to explain why the applicant can’t get credit elsewhere without undue challenges or hardship. Reasoning must be client-specific and substantiated. Similarly, all documentation must be well maintained in the borrower’s file.
Prudent Lenders is here to help
Prudent Lenders ensures you and your team are prepared to wisely navigate the SBA loan process, including audits. Contact us today to learn more, get answers to your questions, and discover the many ways we can help build your small business lending portfolio with SBA loan programs.