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January 25, 2017

Best Practices : Why Lenders Should Consider Buying Back SBA Loans From The Secondary Market

by Lyndsay E. Rowland

For those lenders who sell a portion of their SBA guaranteed loans on the secondary market, they may choose to repurchase the loans or require the SBA to purchase.  In the later case, the lenders benefit by not needing to extend cash immediately.  However, for the reasons set forth, we recommend that, when feasible, lenders should buy back the loans instead.

While each lender will need to make this decision on a case by case basis, there are advantages if the lender is able to purchase the loan back from the secondary market rather than having the SBA do so.  The first advantage is that lenders will have adequate time to review the loan file to ensure all items are in order and, if not, to attempt to address any outstanding issue before having to submit the guaranty purchase tabs.  If the SBA purchases the loan back directly from the secondary market, a lender only has 45 days to assemble the guaranty purchase tabs, which must be genuine, accurate and complete.

The second advantage for the lender is having time to liquidate the collateral on terms favorable to the lender’s schedule.  A purchase of the loan back from the secondary market allows the lender to review the loan and determine the best course of action for handling a liquidation.  Since the National Guaranty Purchase Center prefers to receive a complete 10 tab submission along with the lenders’ CPC expenses and final wrap up report, you will be enhancing your prospects of receiving a full recovery from the Agency.

If your institution is trying to determine whether to purchase a delinquent loan back from the secondary market or to allow the SBA to do so, feel free to contact us and we can discuss your options.  For more information about guaranty purchase, contact Lyndsay at 267-470-1154 or at lrowland@starfieldsmith.com.