The OCC today issued a bulletin for community banks engaged in Small Business Administration lending activities. The bulletin addresses risks associated with SBA’s guaranteed lending programs. The OCC noted that “risk management of SBA lending should be commensurate with the nature and extent of a bank’s direct and indirect participation in SBA lending programs,” and that bank boards should have “satisfactory knowledge” and engage in oversight of SBA lending.
“Borrowers in SBA programs are generally ineligible for conventional bank loans, as they typically lack adequate credit or cash flow history or have weak collateral,” the OCC said. “Banks assume credit risk on the guaranteed and unguaranteed portions of SBA loans that they hold. For guaranteed portions, risk is assumed when the guaranty is conditional. For unguaranteed portions, the bank assumes full credit risk.”