On April 7, 2014,  the SBA published Information Notice 500-1311 regarding new guidance for when a Lender can recover expenses on a liquidated SBA 7(a) Loan.  This new Notice requires Lenders to be more organized and diligent when attempting to recover expenses and limits the number of opportunities Lenders have to make such requests.

Once a loan has gone into liquidation status and the Lender has exhausted all other reasonable recovery options, it prepares to submit its Guaranty purchase request.  From the time the loan first shows signs of becoming troubled, the Lender will begin to incur expenses in trying to collect monies owed on the Note, preserving or disposing of its collateral, or otherwise trying to enforce the loan documents.  To the extent such expenses are deemed reasonable, many of them can be recouped by the Lender if it meets the guidelines for Recoverable Expenses listed at Page 141 of SOP 50 57.

Previously, Lenders could submit requests for reimbursement at 3 different stages:

1. Submission of Loan Guaranty Purchase Request
2. When Recoverable Expenses Total $5,000 or More per Loan
3. Submission of the Wrap-Up Report

The new guidance set forth in the Notice now only affords the Lender two opportunities  to recover these expenses, or else the right to recover from the SBA will be forfeited.  Lenders will no longer be allowed to submit requests of greater than $5,000 whenever they wish.  In the SBA Information Notice, the SBA states that the goal of this change is to streamline the process in order to provide higher quality service and quicker turnaround times.  If Lenders are constantly sending in requests piecemeal, the process will be delayed, and there is a greater chance of requests being missed.

Lenders should be aware that if they want to be reimbursed for these expenses, they should make sure all of their expenses that can be recovered are included in either the Lender's initial Guaranty Purchase Package or its final Wrap-up Report/Charge off Tabs.

The Information Notice states that this change was made to speed up the response time for the requests.  Another means of expediting the process is for Lenders to use the preferred format for CPC expense recoveries listed by the SBA in the Notice.  Lenders should use the tab system recommended by the SBA loan center they are submitting the request to in order to better organize their submissions.

Note to Lenders: The Information Notice states "Lenders that have already submitted Recoverable Expense requests on loans that are not ready for Wrap-up will not have to resubmit their requests with the Wrap-up Report, unless the information previously submitted was incomplete."  

Additionally, if there are multiple loans to the same Borrower, and the expense incurred is related to collateral, the expense and recovery "must be allocated to the loans according to the priority of the lien securing each loan."