The New 7(a) Lender Matrix -- When Must Lenders Contact The SBA?
By Kimberly A. Rayer2
On October 20, 2009 the SBA published its most recent Servicing and Liquidation Actions 7(a) Lender Matrix (version 3), which provides guidelines for all lenders to determine whether they can take unilateral action with or without notice or pre-approval by the SBA pursuant to SBA Regulation 13 CFR Part 120.536 effective April 12, 2007.
The Matrix is broken down into four sections: (i) Approved Loans Prior to Initial Disbursement, (ii) Action after Initial Disbursement - Loans in Servicing or Liquidation Status, (iii) Liquidation Actions and (iv) Litigation Actions.
Under the Matrix, prior to initial disbursement, all lenders must seek pre-approval from the SBA for increases/decreases in the loan amount or guaranty percentage. All lenders must notify the SBA of (i) changes in the initial disbursement date, (ii) changes in maturity date, (iii) a change in the borrower's EIN or SSN, address or legal/trade name of business or (iv) the cancelation of a 7(a) loan.
There are two prominent changes with respect to loans prior to initial disbursement in the new Matrix version 3 compared to Matrix version 2, which was published in May, 2009. The first change is that lenders are not permitted to change a loan's initial interest rate on a variable interest rate loan once a loan application is received by the SBA until the first change period after initial disbursement. In the prior Matrix version 2, changes to the interest rate were permitted prior to disbursement with notice to the SBA. However, in footnote 1 of the new Matrix, the SBA explains that the SOP 50 10(5) does not permit a lender to alter the initial interest rate of a variable interest rate loan, "between the time an application is received and the first calendar day of the first adjustment period after initial disbursement." The footnote goes on to describe under what terms a lender may change the interest rate after the initial change period in accordance with the SOP 50 10(5).
The second significant change in the new Matrix is that, "other changes to the loan authorization" for loans approved by the Standard 7(a) Loan Guaranty Processing Center require pre-approval by the SBA. This change is significant since under the prior version of the Matrix, GP and CLP lenders were not even required to notify the SBA of "other changes to the loan authorization." However, its important to note that under both the old and new versions of the Matrix, SBA approval or notification is still not required for "other changes to the loan authorization" made by any lender after initial disbursement of the loan. It will be interesting to see if the next version of the Matrix addresses this issue with respect to Standard 7(a) lenders.
For lender actions after initial disbursement of the loan, the new Matrix makes a few clarifications. It makes clear that lender compromises on principal balance of loans requires SBA pre-approval, but not compromises on outstanding interest. It has also removed reference to "principal" when referring to the requirement that a lender obtain SBA pre-approval for increases in the loan amount and notification to the SBA of decreases in the loan amount.
Lenders should consult the Matrix to see whether an E-Tran, SBA Form 2237 or SBA 327 Action Letter is the appropriate format for contacting the SBA. For loans approved by the Standard 7(a) Loan Guaranty Processing Center, any change request or notification made within 10 days of approval of the loan should be directed to the Standard 7(a) Loan Guaranty Processing Center. However, any change requests or notifications made 10 days after approval of the loan should be directed to the SBA Commercial Loan Servicing Center in either Little Rock, AK or Fresno, CA. PLP lenders should always contact the appropriate SBA Commercial Loan Servicing Center.
The SBA Form 2237 and any SBA 327 Action Letter can be submitted by e-mail, fax or in certain circumstances E-Tran to the appropriate Center. For SBA notice only actions, lenders should not expect a response from the SBA other than confirmation of its receipt of the notification. However, for SBA pre-approval actions, lenders should allow at least 10 days for a SBA response. Disbursing loan proceeds before an affirmative approval by the SBA may result in a denial of the SBA Guaranty.
The Servicing and Liquidation Actions 7(a) Lender Matrix is located here. For more information contact the author at krayer@starfieldsmith.com or 215-542-7070.
2 Kimberly A. Rayer, Esquire focuses her practice in the areas of commercial lending, commercial contracts, real estate and corporate law. She is employed at Starfield & Smith, PC, located at 501 Office Center Drive, Suite 350, Fort Washington, PA. She may be reached at krayer@starfieldsmith.com or 215-542-7070.
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