Top Reasons for Repair & Denial

1. Lien and Collateral Issues that Result in Missed Recoveries (Generally a Repair)

   • Failure to obtain required lien position

   • Failure to properly perfect security interest

   • Failure to fully collateralize loan at origination when additional collateral was available

2. Unauthorized Use of Proceeds

   • Proceeds disbursed for purpose(s) inconsistent with the loan authorization or subsequent modifications without a business justification. (Could be a Denial if early default and improper use of proceeds caused the failure of the business)

   • Same lender Non-SBA loan paid with PLP loan proceeds (preference)

3. Liquidation Deficiencies (Generally a Repair unless harm is the full value of the outstanding balance)

   • Failure to conduct Site Visit which resulted in missed recoveries

   • Improper safeguarding or disposition of collateral which resulted in missed recoveries

   • Misapplication of recoveries to lender’s loan when SBA-guaranteed loan has lien priority

4. Undocumented Servicing Actions (Generally a Repair)

   • Liens not properly renewed during servicing on worthwhile collateral

   • Release or subordination of collateral without documented business justification

   • Allowing hazard insurance to lapse on major collateral and collateral was subsequently destroyed

   • Failure to maintain life insurance on principal and principal subsequently dies

5. Early Defaults (Denial if determined to be reason for business failure)

   • Missing or unsupported verification of required equity injection (includes verification of source in some cases)

   • Missing or unsupported documentation of verification of borrower financial information with IRS when financial information was relied on in lender’s credit analysis

6. SBA Loan Eligibility (Denial)

   • Ineligible franchise

   • Ineligible loan purpose

   • Ineligible loan recipient (loan to an associate of lender)