How does a lender verify my SBA equity injection?
Short answer
For cash, the lender needs a check or wire with proof it was processed. It also needs at least 30 days of statements showing the funds, plus proof of deposit or use. Source: SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.3.f.
For a cash injection, the lender verifies three things: the transfer, the source account and the deposit or use of the funds. It must do this before disbursing any loan proceeds and keep the evidence in its file. SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.3.f, sets the proof:
- A copy of a check or wire, with evidence the funds moved into the borrower's account or escrow
- The most recent statements, covering at least 30 days, from the account the funds came from
- A borrower account statement showing the deposit, or a settlement statement or HUD-1 showing the use of the cash
What is not enough
A promissory note, gift letter or financial statement is not sufficient without that corroborating evidence.
Other equity types
- Prepaid expenses. The lender needs paid invoices, canceled checks or bank statements (Sec. B, Ch. 1, Para. C.2.b).
- Borrowed funds. The lender must address repayment terms and any standby or subordination terms (Para. D.3.f).
- Assets above Net Book Value. An independent appraisal or valuation is required (Sec. B, Ch. 1, Para. C.2.b).
SBA Express and Export Express
These loans are excepted from the verification rule. If the lender verifies equity on similar non-SBA loans, it must verify it here too.
Why lenders hold firm
The lender's guaranty is at stake. Failure to verify equity may warrant a repair or a partial or full denial. The lender must also submit this documentation with any purchase request.
The SOP names a 30-day statement minimum and no longer look-back period. Lenders can ask for more, so ask what yours wants.
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