presented by: ethan w. smith, esq. how to protect your sba guaranty wpasgl march, 2014 © 2014,...

Presented by:Ethan W. Smith, Esq.

HOW TO PROTECT YOUR SBA GUARANTY

WPASGL

March, 2014

© 2014, Starfield & Smith, P.C., All Rights Reserved

2

Agenda:EligibilityPLP AbuseConflict of InterestFinancialsEnvironmentalUse of ProceedsRefinanceCollateralUnderwriting


3

Guiding Principle


4

Eligibility Affiliation

Loan Structuring to exceed program maximums Lender failure to perform sufficiently detailed affiliation

analysis FULL DENIAL

Ineligible Business Loan to purchase CRE and convert use to Brazilian

Restaurant Existing use at time of closing – ineligible Lender failure to monitor UOP and change of use FULL DENIAL


5

Eligibility 912/1919 Issues:

Principal answers “No” to questions 7, 8 & 9 on 912 Form

Principal convicted of 2 misdemeanors (sexual assault) in 1993 and had felony arrest (battery) in 2002 (charges dropped)

Lender performs criminal background search prior to closing – no records found

Lender discovers misrepresentation on subsequent conventional loan application


6

PLP ABUSELender refinance its own debt

$350k interim loan for equipment purchase SOP does not allow PLP processing to refi same

lender debt, unless an interim loan approved within 90 days of PLP #

Delay caused by fire Lender obtains PLP 10 mos.

after interim loan approval and closing

$350k REPAIR


7

Conflict of InterestBank officer part owner of CRE developerBank approves loans to CRE purchasersPotential conflict of interest not disclosed

to SBAFULL DENIAL


8

Financials Early Default/Problem Loan Lender unable to produce 4506 Transcripts Logic conundrum – difficult to prove a negative Often lenders underwrite Change of Ownership as

startup when seller refuses to provide financials – beware!

“Materiality” standard is not always followed

FULL DENIAL


9

EnvironmentalGas station loanEnvironmental consultant recommends

additional testingLender does not require additional testingContamination at default

Lender cannot prove CRE was “clean” at closing

REPAIR – cost of cleanup


10

Use of ProceedsLender has burden to prove proper UOPLender does not reallocate proceeds in LAProceeds designated for one purpose used

for another purpose (i.e.: inventory $ used for working capital; renovation $ used for debt refi., etc.)

REPAIR i/a/o improperly disbursed proceeds


11

RefinanceLender refinances several debts of

Borrower Ineligible purpose – 1 debt refinanced financed

the buy-in of 1 principal“Creeping control” – ineligible

Ineligible debt – same debt was also owed to SBIC

REPAIR i/a/o line item allocated to refinance the ineligible debt


12

CollateralWrong lien position is #1 reason for

repairs!


13

InsuranceLife – loan to sole proprietor

Failure to obtain life insurance Borrower dies REPAIR i/a/o loan balance less collateral

recoveryCasualty – Acord Certificate

Failure to get copy of binder Insurance company contests claim for

coverage after fire destroys business REPAIR i/a/o difference between replacement

cost and litigation settlement amount


14

Recommendations/Best PracticesBegin with the end in mindSubmit “close calls” for GP processingUse 10 Tabs as post-closing audit checklistIndependent loan level risk based reviewsConstant improvement in front-end

practicesAvoid GIGO


16

Thanks!Ethan W. Smith, Esq. [email protected]

1300 Virginia DriveSuite 325Ft. Washington, PA 19034P: 215-542-7070F: 215-534-9023

1101 North Lake Destiny Road, Suite 105Maitland, FL 32751P: (407) 667-8811F: (407) 667-0020

www.starfieldsmith.com


mailto:[email protected]

http://www.starfieldsmith.com/

presented by: ethan w. smith, esq. how to protect your sba guaranty wpasgl march, 2014 © 2014,...

Documents

starfield smith

rights reserved slide

lender debt

refinance lender

use of proceeds lender

default lender

ineligible lender failure

plp abuse lender