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January 14, 2015

Best Practices: Contemplating the Submission of a 10 Tab Guaranty Purchase Request to SBA

by Starfield & Smith

A lender expects the SBA to honor its guaranty of the lender’s loan. For this expectation to be realized, it is critical that the lender submit to the SBA a 10 Tab guaranty purchase request package that both demonstrates the lender’s compliance with SBA rules, regulations and requirements, and addresses each of the requirements of the guaranty purchase package itself.

The 10 Tab is the lender’s opportunity to tell the story of its loan, and to present the loan in the best possible light, while also presenting the facts honestly to the SBA in a manner that preserves program integrity. The lender can best accomplish this by delivering to the SBA a 10 Tab that is complete and consistent.

  • Be Complete

The tabs of the 10 Tab include a combination of narrative explanation and requirements with which the lender must comply. Each tab lays out a roadmap for the items required by the SBA. Therefore, when preparing a guaranty purchase package, the lender can identify the issues it must address by carefully reading each Tab, making note of all requirements that the Tab calls for, and addressing each one.  For example, Tab 8 (which applies whenever a loan is secured by personal property collateral) requires the lender to include pre-closing and post-default lists of personal property, and a reconciliation of those lists. Many lenders incorrectly indicate that this tab does not apply, and do not provide the required documents. However, compliance with the requirements by providing the required lists and reconciliation allows the SBA to understand the lender’s actual or likely recovery, and can reduce the likelihood of repairs to the guaranty. Indicating that the documentation is not required when collateral includes personal property may lead the SBA to assume that the collateral was not safeguarded. This may lead to a recommendation for a repair.

SOP 50 57, at Page 149, recommends that “[i]f a required document is missing, include a written explanation for the omission in the Purchase Package.”  The SOP goes on to provide that “[i]f there was a Material Loss on the loan due to Lender error, include an acknowledgment of the error, an estimate of the amount needed to fully compensate SBA for the loss, and the justification for the estimate.” Thus, if the loan file is missing required documentation, lenders should explain the omission and why no repair or denial is warranted (or quantify the proposed repair, if merited). This is a matter of program integrity.  Accordingly, by addressing each issue, either with the required documentation or a memo, the lender can reduce the likelihood of a repair or denial of the guaranty.

  • Be Consistent

When preparing each Tab, keep in mind the information that is included in the other tabs. It’s easy to lose track of the specifics of the 10 Tab when it is compiled over time. However, the SBA will review the entire 10 Tab at once, and will note inconsistencies and discrepancies. For example, if the subject loan has a companion loan, as disclosed in Tab 2, and the loans share collateral, be sure to address how the proceeds from liquidation were applied to each loan in Tab 9.  If evidence of equity injection and its source is required to be included in Tab 7, be sure that the equity injection requirements were satisfied by funds that were injected but not reimbursed with loan proceeds, as documented in Tab 5.  The loan transcript requires the lender to provide the default date, as does Tab 7; the default date should be the same on both tabs. The use of proceeds reflected in Tab 5 should be consistent with the use of proceeds set forth in the Loan Authorization included with Tab 2. A review of the entire 10 Tab (including a re-reading of the credit memo) will help to identify inconsistencies or discrepancies in the file.

By providing a complete and consistent 10 Tab submission, the lender can increase the likelihood that its guaranty will be honored.

For more information regarding guaranty purchase issues, please contact Amy at abrownstein@starfieldsmith.com or at 267-470-1187.