Best Practices: E-Tran – Unilateral Modifications

Effective February 1st, 2015, the Small Business Administration (the “SBA”) updated its Servicing and Liquidation Actions 7(a) Lender Matrix (the “Matrix”) to include circumstances when all 7(a) lenders would be required to notify the SBA of certain unilateral servicing and liquidation actions through E-Tran, including loans that are in “approval,” “regular servicing,” or “liquidation” status. The Matrix is a tool created by the SBA to help guide 7(a) lenders in servicing and liquidating their loans and provides a lender with a summary of requirements that are defined in the SBA Standard Operating Procedure (the “SOP”).

Since 2015, the SBA has modified the Matrix three times, with the latest version effective July 20, 2016, and references a total of 16 unilateral actions that 7(a) lenders can process without formal SBA approval for non-delegated authority loans. These modifications do not require SBA approval and can be completed via E-Tran.

The complete list of unilateral modifications includes:

1. Canceling the SBA guaranty prior to submitting a guaranty purchase package request;
2. Extending the maturity date (prior to stated maturity expiring) for loans in regular servicing. Note: If the loan was sold in the secondary market, prior written consent from investor and/or fiscal transfer agent is required for any action that alters the original loan repayment terms before the lender approves the action and notifies the SBA of the action using E-Tran;
3. Changing the loan from revolving to non-revolving;
4. Changing the borrower’s name or address;
5. Assumption of the loan without release of an original obligor;
6. Adding a guarantor to the loan;
7. Classifying the loan in liquidation status;
8. Changing the interest rate prior to the first disbursement;
9. Extending the final disbursement date up to 48 months from SBA approval;
10. Changing the name and title of the individual signing the SBA Loan Authorization (the “Authorization”) on behalf of the lender;
11. Changing the year end statement to lender within _____ (not to exceed 120 days) of the fiscal year end;
12. Waiving the performance bond. The SBA has granted a blanket waiver on the requirement of a performance bond when a third party in the business of construction management services controls the disbursement of the loan proceeds;
13. Changing the monthly payment amount. The Authorization states the lender must amortize at least annually;
14. Changing the interest adjustment period;
15. Changing the first interest adjustment period from the date of the note to the date of initial disbursement; and
16. Establishing the payment due date.

In all circumstances, 7(a) lenders must document the business reason and justification for their decisions and retain these and other supporting documents in the loan file for future SBA review to determine if the actions taken were prudent, commercially reasonable (consistent with generally accepted commercial lending practices), and complied with applicable Loan Program Requirements (as defined in 13 CFR §120.10).

7(a) lenders should make it a priority to stay up-to-date on E-Tran requirements and use the platform whenever possible to complete unilateral actions. For more information regarding unilateral modifications on SBA loans, please contact Kristen at (407) 618-0698 or at kdickey@starfieldsmith.com.