SBA Asks for Feedback on 7(a) Exam, Review Fees, NAFCU Estimates Nearly 119 Credit Unions Could be Impacted

WASHINGTON — The Small Business Administration is asking for comment on a proposal that would assess fees to cover the costs of exams, reviews and other lender oversight activities associated with the agency’s 7(a) loan program.

Under the proposal, lenders would pay the actual costs to SBA of the on-site examinations and reviews and would be allocated off-site review/monitoring costs based on each lender’s proportionate share of loan dollars in the SBA portfolio. The proposed methodology implements a provision of the recently enacted SBA reauthorization for 2007. The annual cost of SBA’s Loan and Lender Monitoring System reviews under the agency’s current contract is about $82 per $1 million in outstanding guarantees. SBA proposes to use this ratio in calculating the lender’s fee for off-site monitoring/reviews. Under the current formula, approximately 3,400 lenders that have less than $1 million in outstanding SBA loan guarantees would pay an average annual fee of less than $25 for off-site reviews; 1,100 lenders between $1 million and $4 million would pay $82 to $327; 300 lenders between $4 million and $10 million would pay $330 to $816; and the remaining 380 lenders with outstanding SBA loan guarantees of greater than $10 million would pay a median of $1,848 per year. NAFCU estimates some 119 federally-insured CUs would be affected by SBA’s proposal. As of this March, these CUs have provided 2,644 loans through SBA totaling $263,149,164. All SBA lenders receive a quarterly off-site review, which is conducted using the agency’s L/LMS. This L/LMS review is the primary method of monitoring all of SBA’s approximately 5,200 lenders. Examination and review costs primarily consist of contractor charges for assistance with on-site examinations, on-site reviews, and off-site reviews/monitoring activities. SBA’s contractors for on-site exams and reviews bill SBA separately for each examination/review as it is conducted. The contractor supporting off-site reviews/monitoring generally bills SBA on a quarterly basis to cover its contract price. Under the proposed rule, SBA’s cost of off-site review/monitoring, primarily the L/LMS contract cost, would be recovered through fees charged to all lenders. The cost would be allocated according to each lender’s respective outstanding SBA guaranteed dollars relative to the total guaranteed dollars SBA has outstanding in its 7(a) loan portfolio. Both lenders’ outstanding SBA guarantees and the total guaranteed SBA dollars would be calculated using Sept. 30 portfolio figures, the agency said. Guaranteed dollars outstanding includes guarantees of both loans held by the lender and loans sold into the secondary market, securitized, or for which a lender has sold a participation interest. It also includes loans that have been purchased by SBA, but have not yet been charged off. SBA said it may waive or provide an exemption for the fees due from very small volume lenders when the administrative costs of collecting the fee from a lender are greater than the amount of the fee itself, for instance, “when it is not cost effective to collect such fees,” the agency said, adding it is in the process of determining this dollar amount. SBA is also in the process of estimating the total amount of fees in case it determines to implement the waiver or exemption and criteria lenders would need to qualify. Should the agency decide to grant fee waivers or exemptions, such action will not affect the fee charged to other lenders, and any shortfall will be made up with SBA’s available appropriations, SBA said. While SBA does not currently charge lenders for such costs as the salaries and travel expenses of SBA employees and equipment expenses that are related to carrying out lender oversight activities, the agency said should it assess a fee for these expenses in the future, each lender’s fee would be calculated by multiplying the total annual cost of SBA’s oversight operational expenses by the lender’s dollar share of the total outstanding SBA guarantees.