What is the SBA Prudent Liquidation Deadline?
Established by the SBA, the prudent liquidation deadline is the date by which lenders must liquidate and conduct debt collection on all defaulted SBA 7(a) loans in their portfolio.
When is the Deadline?
December 1, 2017If you have an SBA 7(a) that defaulted prior to December 1, 2015, it must be liquidated by December 1, 2017.
What are the Risks of Missing the Deadline?
Failure to comply with this deadline may mean that the SBA won’t honor the purchase guaranty. You could also risk the suspension of your SBA Preferred Lenders Program (PLP) license.
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What’s Involved in Meeting the Deadline?
Meeting the SBA lender liquidation deadlines involves more than debt collection.
Lenders must liquidate and conduct debt collection for its 7(a) loans in the same diligent manner as they do for their non-SBA portfolio. You must do so in accordance with SBA loan program requirements and SBA-approved liquidation or litigation plans. The loan must be fully resolved and a “wrap-up” report and guaranty request package (10 TAB) submitted to the SBA.
The 10 TAB file is the bank’s opportunity to show that the loan was originated, closed, serviced, and liquidated in accordance with SBA requirements and with prudent commercial lending practices.
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Avoiding Common Pitfalls
Mastering the liquidation process to protect your SBA guaranties and your PLP license requires the adoption of best practices to meet and beat the SBA lender liquidation deadlines.
Failing to complete SBA loan closing paperwork (charge-off, wrap-up reports and the 10 TAB) correctly or on-time. SBA rules and requirements for preparing reports are exacting, complex, and time-consuming.
Take time to get to know the rules and requirements in-depth. Use this knowledge to determine whether you have the know-how and staff in-house to complete them successfully.
Potential discrepancies in records. Differences between your records of un-resolved loans and the SBA’s records may delay your ability to meet the deadline.
This is important if you acquired loan portfolios from other entities. Don’t just rely on the SBA status report; lenders must track loans through a tickler system as they are purchased.
Failing to secure an extension. Extensions to the deadline may be granted, but it’s a time-consuming and detailed process. If the extension is declined, your ability to meet the deadline may be in jeopardy.
As you’re working through the process, create a timeline with milestones. If you think you may need an extension, take action ASAP to ensure you can complete the process, and if declined, you can still take steps to meet the original deadline.
Lack of proactive planning. Failing to plan up front for the requirements of the process can mean failure to meet the deadline with all required pieces in place.
Develop an action plan and timeline for resolving every loan. This will show management and the SBA your ability to show progress before the December deadline.