Finding 969258 (2023-001)

2023-001 – MISSING REQUIRED LANGUAGE IN LOAN AGREEMENT Condition: The Organization provided loans to microborrowers while excluding language required by the SBA in the loan agreement. This was noted on 5 of 19 tested microloan agreements. Criteria: The SBA requires the loan agreements to include language that protects the SBA’s interests. The SBA requires the following statement in each microloan agreement, “This note has been pledged to the U.S. Small Business Administration (SBA) as collateral. Further assignment cannot be made without prior written consent of the SBA.” Cause: The Organization had a breakdown in internal controls and did not use the appropriate document that includes the required statement. This was noted on 5 microloan agreements. Effect: As a result of excluding the required statement in the loan agreements the Organization was non-compliant with one of the required SBA Standard Operating Procedures. Recommendation: We recommend the Organization ensures that processes are in place to review loan agreements prior to issuing the loans to ensure all compliance requirements are met. Response: The Loan Officer, along with the preparer of the loan documents, if different, will verify the document has appropriate SBA verbiage and is compliant before issuing closing documents. Both should be knowledgeable about the rules and regulations associated with the process and double check one another.