Over the years, one of the most searched-for topics at www.vitalfs.com has been the reporting of SBA loans to the credit bureaus.
In recent months, the interest around this topic has grown even more significantly, with so many small businesses receiving economic support through the SBA during the coronavirus pandemic, utilizing programs such as the Paycheck Protection Program (PPP), Economic Injury Disaster Loans, and traditional 7(a) loans.
If you are a lender or business borrower looking for information, here are some important details to be aware of.
Reporting SBA loans to credit reporting agencies is included in SBA guidelines.
According to SBA Standard Operating Procedure 50 57 (SOP 50 57), in accordance with the Debt Collection Improvement Act of 1996, lenders are required to report information to the appropriate credit reporting agencies whenever they extend credit via an SBA loan. They should also routinely report information concerning servicing, liquidation, and charge-off activities throughout the life-cycle of the loan.
This is reported by the lender to commercial credit reporting agencies, not personal credit reporting agencies. Even though a borrower must personally guarantee the loan, it is not reflected on a personal credit report.
At the time of writing, it is currently unclear what the responsibilities are for reporting PPP loans.
What are lenders required to report?
The lender must report borrowers of SBA-guaranteed loans to commercial credit reporting agencies. The lender is not required to report on the guarantors of the SBA loans.
The lender is to report the name, address and TIN of the borrower; the amount, status and history of the debt; as well as the agency or program under which the debt arose.
Reporting the transactional history of SBA loans to the commercial credit reporting agencies gives other creditors notice of debts owed by a small business. It allows other lending institutions and firms to know a business’s total existing debt. Additionally, the SBA has noted that credit-conscious business owners are more likely to pay on their accounts if they know their payment history will be reported to credit agencies.
Where does the lender report?
The lender is to submit the report to at least one commercial credit bureau reporting agency. These agencies are abundant and each institution may have preferred reporting resources.
VITAL recommends the following three agencies, as they are respected within the industry and provide thorough, accurate, and timely documentation.
- Dun and Bradstreet (D&B)
- Equifax Small Business Enterprise
- Experian SmartBusinessReports™
When does the lender report?
Lenders are to report when an SBA loan is disbursed and quarterly thereafter. Reporting is required for the entire life-cycle of the loan through charge-off activities.
An important final note …. Ultimately, SBA loan reporting to credit bureaus is not a universal or consistent practice.
Because it is not required by regulators that banks report other non-SBA commercial credit to credit reporting agencies, many community lending institutions do not have a mechanism in place to report commercial loans, including SBA loans. Since it’s not a required or common practice, many lenders are unaware that SBA rules call for it. (On the other hand, consumer credit reporting is required and reported regularly).
The primary consequence of this for a lender would occur if audited by the SBA. Not reporting SBA loans will be recorded as a “finding” of the audit, which is essentially citing an infraction. Though this typically would not pose a risk to the guarantee, if you are a lender that has not been reporting your SBA loans to credit bureaus, you should start now.
All lenders that work with VITAL are notified of SBA reporting requirements.
Again, as noted previously, reporting requirements for PPP loans is still unknown and may be subject to change in the future.
If you are a lender looking for more information about reporting information to credit bureau agencies, the following resources shared by the SBA may help.
Credit Reporting References
- Debt Collection Improvement Act of 1996
- Federal Claims Collection Standards (FCCS), 31 C.F.R. 900-904
- OMB Circular A-129
- Treasury’s Managing Federal Receivables (MFR)
- Guide to the Federal Credit Bureau Program (GFCBP)
- 31 U.S.C. 3711(e)(4)
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