A bulletin for banks and examiners that conveys sound risk management principles related to engagement with Small Business Administration (SBA) guaranteed lending programs was issued Thursday by the Office of the Comptroller of the Currency (OCC).
“Banks involved in SBA lending should engage in safe and sound banking practices. Safe and sound banking practices include having a sound risk management system consisting of appropriate policies, processes, personnel, and control systems to identify, measure, monitor, and control the associated risks,” according to the principles document included with OCC Bulletin 2021-34. “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. The board should have satisfactory knowledge of and engage in sound oversight of SBA lending.”
The OCC noted that banks are most actively involved in the SBA’s 7(a) loan program, which guarantees a portion of a loan made by a bank; and the certified development company (CDC)/504 loan program, which improves a bank’s senior secured lender position through subordinated permanent or takeout financing by a CDC. It said banks are important lenders for SBA programs and that the agency “encourages and supports banks’ lending to small businesses, which play a vital part in the economy and the communities they serve.”
Covered in the document are background information on the SBA programs; risks associated with SBA lending activities; and SBA lending risk management principles. The document addresses credit risk, operational and compliance risks, liquidity and price risks, and strategic risk; risk management principles strategic planning; policies and processes; risk rating of SBA loans; credit loss allowance; concentration risk management; stress testing; regulatory reporting; capital considerations; and accounting for SBA loans sales and assets.