July 13, 2016
Best Practices: What Lenders Need To Know About Lender Service Providers
by Janet M. Dery
According to 13 CFR §103.1(d)), a Lender Service Provider is “an Agent who carries out lender functions in originating, disbursing, servicing, or liquidating a specific SBA business loan or loan portfolio for compensation from the lender.” Following is some useful information about the use of a Lender Service Provider (“LSP”) that lenders should be aware of:
1. While an LSP can assist with the above referenced functions, the lender must be able to demonstrate to the SBA that it, not the LSP, has the “day-to-day responsibility for evaluating, processing, closing, disbursing, servicing, liquidating and litigating its SBA portfolio.” (SOP 50 10 5(H), Subpart B, Section IX.A.3.b))
2. There must be a written agreement between the lender and the LSP that sets forth: (i) the specific services that will be performed by the LSP; (ii) a statement that the lender has full responsibility for all loan decisions regarding SBA applications; (iii) the compensation lender will pay LSP for the services actually performed; (iv) the full term of the agreement, including any extension options; and (v) other statements required by the SBA as discussed in SOP 50 10 5(H), Subpart B, Section X.D.
3. The written agreement between the LSP and the lender must be approved by the SBA. Once prepared and negotiated between the parties, it can be submitted to LSPagreements@sba.gov for SBA approval. If any revisions are made post-SBA approval, the revised version of the agreement must be submitted to SBA for approval.
4. Although an LSP is considered an Agent (as defined by 13 CFR §130.1(a)), no SBA Form 159 is required to be completed for the compensation paid to an LSP.
5. A lender may not be reimbursed by its borrowers for compensation paid by the lender to a LSP.
6. One of the functions that may be performed by an LSP is assisting the lender to correct deficiencies identified in the loan file by the SBA. The lender may not provide the LSP with a copy of its lender performance report issued by the Office of Credit Risk Management and/or any corrective action letter received from the SBA unless the lender, the LSP, and the SBA execute the SBA’s Confidentiality Agreement. The SBA’s permission to share such documentation only lasts for 6 months.
7. LSP’s can no longer access a lender’s performance data through the PARRis tab in SBA One and such information should not be shared with the LSP (except as set forth above), as it is considered privileged and confidential information by the SBA. The lender should only share such information with those persons within the lender organization who have a legitimate need to know such information for the purpose of improving the lender’s program operations.
While the use of an LSP might be especially attractive for those lenders who would like to provide SBA loans to its customers but who do not want to incur the overhead expense to have the staff needed to close, service and liquidate such loans, lenders must be aware of the responsibilities imposed by the SBA in these transactions. If a lender does not take reasonable steps to demonstrate that it is meeting all of the SBA requirements, it may jeopardize its ability to continue to participate in the SBA loan program.
For more information on SBA requirements for Lender Service Providers, contact Janet at email@example.com.