banc-serv Newsletter: Issue 05

June 28, 2017 | By: Nick Rodgers

Lender Responsibilities

The first Quarter 2017 bsP Buzz trainings included a summary of the SOP 50 10 5 I changes. One of the topics covered was the new Affiliation rules. A summary of the new “buckets” of affiliation are:

  • Revised Affiliation rules (effective 7/27/16)

    • Affiliation based on Ownership
      • Control determined by person or entity that owns more than 50% of voting equity in the applicant business

      • If no one owns more than 50%, controls with the officers

      • When a minority owner has the ability to prevent a quorum or block an action of the Board of Directors or shareholders, they are deemed to have control

    • Affiliation Arising Under Stock Options
      • SBA considers stock options, convertible securities and agreements to merge to have a present effect on the power of control over the applicant business

    • Affiliation based on Management
      • Affiliation arises where one or more offices, directors, managing members who control the Board of Directors and/or management of one business also control the Board of Directors and/or management of one or more other businesses

      • Management agreements included in the types of manager and management subject to consideration under this regulation

    • Affiliation based on Identity of Interest
      • Affiliation may arise from two businesses owned by close family members
        • Firms with identical or substantially identical business interests
        • Family members operate businesses in the same or similar industry in the same geographic area

      • Affiliation based on Franchise/License Agreements
        • SBA limits franchise or license agreement reviews to the applicant business

The first step to determining affiliation is to assess control of the small business applicant (per each of the buckets listed). Whomever has control of the applicant business must also have control in any other businesses they own for SBA to consider the entities to be affiliated.

SBA 7(a) “Ah Ha” Moment: SBA Franchise Rules

SBA recently changed the requirements to document for SBA eligibility as it pertains to franchisees as applicants for SBA 7(a) loans. All applicants must be independently owned and operate small businesses and not dominant in their field of operation. The applicant franchisee (or licensee) must have the right to profit from its efforts and bares rs the risk of loss commensurate with ownership. Previously, the franchise agreement had to be reviewed to be sure the franchisor didn’t have too much control over the franchisee or specific documentation had to be obtained from the franchisor being listed on the franchise registry, FRANDATA. However, as of January 1, 2017, SBA allows two options to document for franchise eligibility:

  • NEW Franchise Addendum, SBA Form 2462 (Appendix 9 of the SOP 50 10 5 I

    1. Must be executed by franchisor and franchisee, or
  • SBA Negotiated Addendum in place prior to 1/1/17 for 2015 to 2016, along with Certification, Form 2463

    1. Franchisor has the option of relying on a previously approved addendum, but must certify no change since SBA approval


Inside banc-serv: Loan Referrals Through Newtracker

banc-serv Partners is rolling out a new program called “No Fee, LSP”. This is how it works.

Convergence:  Program that allows our partner, at no initial fee, to utilize internal resources within Newtek and banc-serv to pre-qualify and perform credit analysis on all of your deals, allowing you to reallocate your internal credit resources to other projects. 

  • Deals are submitted by your team via a secure platform (Newtracker) and within a few days, we turn back to you a full credit analysis and also let you know if Newtek would approve or decline the loan. 

  • Once you have reviewed the credit analysis, you have the option: 
    • To either approve the loan and utilize banc-serv LSP services to package, close, and service the loan, or

    • Decide not to close the loan on your balance sheet and allow Newtek to package and close the loan…this is where “No Fee LSP” kicks in.

No Fee LSP:  Here is how it works.

  • The bank, as normal, pays to bsP Lender Service Provider fees for any services rendered (credit analysis, packaging, closing, secondary market, and/or servicing).
  • For all loans mentioned above (via Convergence) that the bank either declines (and even loans that your BDO team uncovers, but knows that the bank has no interest in closing), Newtek will close and fund the loans that are approved.
  • banc-serv provides a credit to the bank (against outstanding LSP invoices) of all loans closed/funded through Newtek

SBA Lending in “Real Life”: SBA 7(a) PARRiS Scoring and How it Relates to the SBA Loan Review

There are different levels of loan reviews conducted by the SBA Office of Credit Risk Management (OCRM). They are:

  • Lender Profile Assessment
    • Data driven / Virtual Review

    • Diagnostic exercise performed on ALL lenders

  • Analytical Review
    • Virtual Review: SBA considers Lender’s Risk Rating and PARRiS Score

    • SBA may request additional information e.g., credit/internal control policies and audit reports

  • Targeted Review
    • Virtual Review and/or at Lender’s location (narrow in scope)

  • Full Review
    • On-site, but may include a virtual portion

    • Loan files selected randomly and/or judgmental loan file selection

    • SBA reviews loan policies and procedures

  • Delegated Authority Review
    • Lender Reviews conducted prior to delegated status expiation date

    • Performed every 2 years

  • Other Reviews
    • Lender Self-Assessments

    • Agreed Upon Procedure Reviews

The lender should have an awareness and understanding of their own SBA portfolio performance. SBA’s lender portal is a quantitative dashboard provided by SBA, in partnership with Dun & Bradstreet (D&B) to lenders. The tool’s objective is to increase transparency into OCRM’s procedures and performance metrics that are used in their procedures to monito specific lender behavior and emerging risk trends on a regular basis, as well as in their risk based reviews. The lender user will be able to download the Current Quarter Loan Data (contains loan level data) or download the LRR.xls (contains loan summary in addition to loans in previous quarters). The Small Business Risk Portfolio Solution (SBRPS) score provides a score by lender, as well as a score BY LOAN. This is a great way to dial into each loan and be prepared for a SBA Review.



The banc-serv Team

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