April 11, 2018

Best Practices: Express Loan Credit Underwriting Requirements

by Janet M. Dery

Section 4 on page 180 of SOP 50 10 5(J) confirms that SBA Express lenders have authority to make credit decisions for Express loans without prior SBA review. This authority can allow the lender to process such loan applications quicker than general 7(a) loans, but also opens the lender up to a more thorough review of the lender’s credit decisions if the loan file is audited or submitted for guaranty purchase. Therefore, Express lenders must ensure that all SBA credit requirements are met.

An SBA Express lender should consider and discuss the following items in its credit file:

• What are the loan proceeds for and are such uses eligible for SBA financing?
• Is the Borrower: (i) an operating business that is not one of the ineligible types of businesses listed in Section III on pages 98-118 of the SOP, or (ii) one that qualifies as an eligible passive company under the EPC-OC Rule exception?
• Is the Borrower organized for profit?
• Is the Borrower located in the United States?
• Is the Borrower small under SBA size requirements?
• Does the Borrower have the ability to obtain some or all of the requested loan funds on reasonable terms from non-federal sources, including from the lender, without SBA assistance?
• Is there a reasonable assurance of repayment?

Of particular importance to the SBA when reviewing an Express loan file is: (i) the analysis substantiating the reason why credit is not available elsewhere on reasonable terms from non-federal sources, and (ii) the credit analysis processes and procedures of the lender in analyzing the loan request. The SBA must find that the lender’s processes and procedures are “appropriate, prudent, and generally accepted industry credit analysis processes and procedures” (Section 4.c) on page 180 of SOP 10 50 5(J)).

Business credit scoring is one of the processes that a lender may use “to assess character, reputation, and credit history of the applicant and/or repayment ability” if the lender usually uses such credit scoring for its “similarly-sized non-SBA commercial loans” (Section 4.d) on page 180). If using such a process, the lender “must validate (and document) with appropriate and accepted statistical methodologies their business credit scoring model is predictive of loan performance” (Section 4.d)iii. on page 180).

While business credit scoring is a valuable tool a lender can use to assist with its analysis, it should not be the sole basis for any Express loan credit decision. The scoring will not address all the items required by the SBA to be considered for an Express loan discussed above. Other documentation that the lender may collect and review to support its credit decision include the applicant’s organizational documents, tax returns, business plan, and any other agreements relating to the proposed use of loan proceeds. In reviewing such documentation, the lender can demonstrate compliance with SBA credit underwriting requirements.

For more information on SBA Express loans, contact Janet at or at 267-470-1189.