Part I of our series on how to handle the SBA portfolio during a merger – discussed what you need to do before the merger: assessing the other bank’s SBA department’s strengths and weaknesses as part of overall due diligence.
(You can find that article here.)
In this article, we consider the merger process itself, again as it relates to SBA lending. As we commented in that previous article, bank merger teams often overlook the SBA portfolio– it is, admittedly, usually a small portion of the bank’s overall assets – but neglecting it can invite trouble.
So What Should You Be Prepared for as the Merger Closes?
Change is challenging for people, especially change that creates uncertainty about job security. We’ve sometimes seen how overlooking those challenges can impact the smooth transition of the SBA portfolio. Our expertise lies in the realm of SBA, so we’ll leave it at this: don’t forget to care for your people in this process – and the other bank’s people as well.
That Said, Here are Some of the Practicalities of Merging SBA Departments.
Ensure your institution has the required 750 Agreement and Supplemental Agreements necessary to acquire another Bank’s SBA portfolio.
Notify the SBA of the intended merger! And do this sooner rather than later. Yes, that’s an obvious step, but it’s crucial as SBA’s prior written approval is required. Refer to SOP 50 56 for further guidance on when and how to obtain SBA approval. Without SBA’s approval the guaranties on these loans will not transfer to the acquiring lender.
While you’re at it, make sure that SBA knows the specific date on which the conversion will be complete, so loans are not transferred to the acquiring bank on SBA’s records too soon…or too late. Getting the dates wrong impacts access to these loans in ETran and your ability to properly report them on the next 1502 report.
If you’re lucky, you and the bank you’re acquiring will have similar systems in place, both technical and in terms of process and procedure. But there will inevitably be differences, and you need to ensure that all records are transferred cleanly and without error to safeguard continuity and the SBA Guaranty, now and over time.
If, on the other hand, you’ll be merging two very different systems, there are bound to be bumps along the way. Be sure to have a hardcopy printout of each SBA loan that will be transferred to a new system as a result of the merger. That way, when the conversion is complete, you’ll have a source document to review and ensure everything converted accurately.
As for those processes and procedures: review the other bank’s process documentation and determine what’s different, and what training needs to be done to bring everyone up to speed. You may discover that some of their procedures make more sense – go ahead and adopt them; it will be a morale boost for their team. Remember, too, that mistakes will probably happen because of differences in approach; now is your opportunity to minimize mistakes as much as possible.
And then there is loan structure. Some lenders get pretty creative with loan structure. You’ll want to understand everything about how each loan has been boarded onto the core system and verify that the core system structure matches the loan documents. Does the acquiring bank’s core system include a loan product that matches those from the acquired bank? Does a new loan product need to be created? And can the acquiring Lender’s system handle the structure?
Obtain and review the bank’s SBA loan trial balance, history of late payments, deferments, modifications, and so on, to ensure the loan system is up to date.
Obtain a list of SBA loans from the bank being acquired and then compare and confirm with SBA that these loans are all still active in SBA’s portfolio. Can SBA supply a list of the Lender’s portfolio in ETran that includes loans repurchased but not yet charged off?
Update all records, documents, payment schedules, loan terms, etc., with the acquiring bank’s name, branding, and contact information. This isn’t limited to SBA; there are other regulators that need to be involved, and each has its own set of requirements.
As we said in the previous article – it’s a lot, and we’ve only touched on the high points.
In completing the merger, you need dedicated SBA resources on the merger team, with experienced people from both banks, including your SBA Portfolio Manager, and SBA Loan Administration Manager or equivalents.
The team should spend a good chunk of time just planning out what needs to be done. There’s always a sense of urgency around this phase of a merger, when everything is in flux and how to do basic, habitual tasks isn’t completely clear. But up-front time spent planning will be time saved in the long run.
Which, of course, is where we, as experienced SBA consultants can help. This is probably the first merger you’ve had to work through, whereas we, as Lender consultants, have assisted with multiple mergers over our years of experience.
So give us a call at 877-576-0819, or drop us a line through our contact form. We can provide SBA lender training to bring your SBA team together, and we can help with ensuring SBA compliance during the merger process. Whatever your SBA needs are – we’re here to support you.
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