SBA Credit Underwriting Questions During the Pandemic
GABB Affiliate Board Representative Kim Eells, Senior Vice President of SBA Business Development at Georgia Primary Bank, says the SBA requires answers to these ten questions on every loan. These are critical when a business owner wants to sell their business.
SBA Guidance on additional Credit Underwriting Questions for loan customers during the pandemic:
- Does the Applicant and/or Seller of a business have a PPP or EIDL loan? If so, what is the loan’s status?
- How has the business and its industry been impacted by the Covid-19 emergency? Have business revenue and staffing levels been impacted? What is the plan to return to normal operations? does the business have a contingency plan for revenues and operations for a minimum of the next 18 months?
- How have any restrictions such as “stay-at-home orders,” social distancing, travel, traffic flow, and trade limitations impacted the applicant’s cost projections, clientele or access to supplies, inventory and/or equipment?
- What are the other impacts to the business’ operational cost(s) such as providing protective gear, cleaning materials and essential costs to ensure the safety of customers and employees?
- Is the historical financial information reliable based on current market conditions? Consider using month to month financial proforma with break-even analysis based on current market conditions (i.e. unemployment rates, decreased household disposable income).
- How concentrated or diversified is the customer base? How reliant is the applicant on sales to or receivables from customers in those concentrations?
- How concentrated or diversified is the applicant’s vendor/supplier pool, and which, if any, vendors or suppliers have decreased ability to support the business?
- What impact have current market conditions had on collateral adequacy, i.e value of property, equipment, etc.?
- For Change of Ownership loans, given current market conditions, does the applicant have adequate industry experience to operate the business?
- For any loans where 50% or more of the loan proceeds will be used for working capital, the Lender should specifically address in its credit memorandum why this level of working capital is necessary and appropriate for the subject business in light of the COVID-19 emergency.
Note: All 7(a) Lenders should review the business valuation to ensure that it addresses the economic impact of the COVID-19 emergency, including such factors as whether the business provides essential or nonessential services, has been subject to closures or occupancy restrictions, and has incurred any additional debt as a result of the COVID-19 emergency. If the valuation does not satisfactorily address the impact of the COVID-19 emergency, the 7(a) Lender should consider requesting an updated business valuation.