Servicing SBA Loans: You Gotta Play Dominoes

by Joanna Bruno

You know about playing dominoes: Stack ’em vertically close together. Knock one over. Then they all fall into place: The Domino Effect.

Just as with dominoes, one service action in a commercial loan doesn’t really equal a single action. It can – and usually does – trigger a whole spectrum of necessary actions.

Let’s take the business change of address as an example. As consultants, we’ve seen situations where lenders have simply entered a borrower address change into their system — and stopped there. Yet this change is more than just a new location. And it triggers more than a single action. There’s a domino effect.

Here are some of the other immediate actions you’d need to take:

• Report the change to the SBA. Fax, ETran or email SBA Form 2237 to the servicing center.
• Pull the Flood Certification on the new location.
• Get evidence of insurance reflecting the new location.
• Perform a site inspection.
• Do a collateral review.
• Conduct an environmental review if necessary.

To underscore the importance of doing your due diligence: If the borrower’s insurance hasn’t been updated to reflect a new address in a flood zone, any flood damage won’t be covered. What’s more, the lack of flood insurance could lead to a denial or repair to the guaranty.

Here are a couple more examples and the actions you’d need to take:

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