Page 15 - 1Q 2017 Reporter

Community Banks

and the SBA 7(a):

Three Questions to ask

Judith Third-Party Servicers

Robbins

Summary: With growth of the flagship loan to the SBA after a certain percentage or
program, community banks are turning to third- dollar amount.
party servicers. Here are three key questions to ask
before you do.
2. Experience prior to becoming a third-party
The flagship lending program of the U.S. Small processor: Does the servicer know the
Business Administration, the SBA 7(a) program, has banking industry inside and out? Has it
advantages for both lenders and small business worked as a commercial lender using the
owners. For lenders, the program provides a SBA program? Does the servicer have
guarantee on business loans that can help the bank SBA certifications and/or belong to SBA-
safely grow its commercial lending portfolio. For recognized organizations such as NAGGL
small businesses, the guarantee helps them obtain (National Association of Government
loans on better terms than a traditional commercial Guaranteed Lenders)?
loan — with more flexibility in structure, which in turn
helps the entity’s cash flow.
3. References of other community banks who
Often lacking SBA experts on staff, many
have worked with the servicer. Contact all
community banks turn to third-party packaging
references, and ask whether the servicer is
agents who work directly with the borrower to
knowledgeable about the SBA, responsive
manage loan-related paperwork and streamline
to correspondence from the bank and
the application and approval process. Working with
borrower, and whether the bank would hire
third-party servicers also allows banks to be more
the company again.
flexible in their loan structures, which can help boost
CRA numbers.
In many cases, working with a third-party
But, as the SBA 7(a) program grows and the
servicer can be an efficient and cost-effective route
number of third-party vendors also grows, it’s critical
for community banks. But due diligence during
for you as a lender to fully vet any servicer you’re
selection is a must to ensure the SBA 7(a) program
considering for SBA 7(a) processing. Servicers
not only helps your customers grow their businesses
have been under increasing scrutiny by the SBA’s
but also helps your institution grow its portfolio of
Office of Credit Risk Management, and any loan
sound loans.
that’s not closed exactly to the program’s policies
and procedures can have serious ramifications for
lenders, including loss of your SBA guaranty.
Contact:
Before engaging with any third-party servicer, be
sure to ask about:
Judith.Robbins@ PlanteMoran.com

1. Fee structure, including setup fees, when 616.643.4166
fees are payable, and whether fees charged
by the third-party servicer need be reported

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First Quarter 2017 IllInoIs RepoRteR