SBA SOP 50 10 8.1, A.Ch4.D.6 — Lender Service Provider Agreements

6. Lender Service Provider Agreements 13 CFR § 103.1(d) A 7(a) Lender may contract with a third party LSP to assist the 7(a) Lender with one or more lender functions. The LSP must perform these services under a written LSP Agreement between the 7(a) Lender and the LSP that must be submitted to SBA for review. a. A 7(a) Lender must have a continuing ability to evaluate, process, close, service, liquidate and litigate small business loans (13 CFR § 120.410). b. The 7(a) Lender itself, not the LSP, bears full responsibility for all aspects of its SBA Loan operation and must be able to demonstrate that it exercises day-to-day responsibility for evaluating, processing, closing, disbursing, servicing, liquidating, and litigating its SBA portfolio. c. An LSP may only receive compensation from the 7(a) Lender for services provided under an SBA-reviewed LSP Agreement. Such charges must not be passed on to the Applicant or paid out of the SBA-guaranteed loan proceeds. d. Services performed by the LSP for the 7(a) Lender in accordance with the LSP Agreement are not reported on SBA Form 159. (13 CFR § 103.5(c)). e. The following are examples of when SBA considers an Agent to meet the definition of an LSP:

i. An individual or entity engaged by a 7(a) Lender to provide services for the purposes of obtaining Federal financial assistance that include interaction with the Applicant either in-person or through the use of technology, to request or obtain financial information that will be provided to the 7(a) Lender or SBA. This includes Agents who: a) Perform any pre-qualification review based on SBA’s Loan Program Requirements or the 7(a) Lender’s internal policies prior to submitting the Applicant’s information to the 7(a) Lender; or b) Provide to the 7(a) Lender an underwritten application, whether through the use of technology or otherwise.

ii. Entities providing technology services to a 7(a) Lender that include underwriting. f. SBA will investigate any complaint by an Applicant, 7(a) Lender or any other participant in an SBA program concerning the activity, services completed, or fees charged by any LSP. g. An LSP Agreement may not grant the LSP power of attorney to act on behalf of the 7(a) Lender. h. If the 7(a) Lender engages an LSP to handle its SBA Borrower payments: i. The funds must be held in an account in the 7(a) Lender’s name, not the name of the LSP; however, consistent with the LSP Agreement, the LSP may be permitted limited access to the account in order to process Borrower payments; ii. For those loans where the guaranteed portion has been sold on the Secondary Market, the account also must be properly titled in accordance with SBA Form 1086, “Secondary Participation Guaranty Agreement.”

iii. The LSP may not commingle any funds from multiple lenders; there must be separate accounts for each of its lender clients.

iv. The LSP may not net its fee out of any Borrower payments or other funds collected on the 7(a) Lender’s behalf. i. All participating 7(a) Lenders must submit each LSP agreement to the LGPC for review at LSPagreements@sba.gov. If there are any changes to an LSP agreement after review by SBA, the 7(a) Lender must submit the revised agreement to SBA for review. SBA reserves the right to audit compliance with any SBA-reviewed LSP agreement. j. Upon the termination or cancellation of any LSP Agreement, a copy of the notification of termination must be sent to LSPagreements@sba.gov. The notification must include the date of termination and the 7(a) Lender’s SBA Location ID. k. SBA does not provide a form of LSP Agreement but expects 7(a) Lenders and LSPs to negotiate the terms of the contract to meet the needs of the 7(a) Lender. Each agreement must include the following: i. Identification of both parties including full legal name, trade name or dba, address, and contact person’s name, address, phone number, email address, and the 7(a) Lender’s Location ID Number. ii. Services: The contract must specifically identify the services that will be performed by the LSP. iii. 7(a) Lender’s responsibility: There must be a statement that the 7(a) Lender bears full responsibility for all aspects of its 7(a) loan operation, including, but not limited to, approvals, closings, disbursements, servicing actions and due diligence. The LSP only provides assistance to the 7(a) Lender. If an LSP is authorized to access SBA’s Capital Access Financial System (CAFS), including the SBA Loan System, on behalf of a 7(a) Lender, the 7(a) Lender acknowledges it is responsible for all entries and certifications made into CAFS by the LSP. iv. If the 7(a) Lender plans to engage an LSP to handle its SBA Borrower payments, the LSP Agreement must describe the specific parameters governing the LSP’s access to the funds;

v. Compensation: The compensation must be specifically explained as to what will be charged for each type of service and must state that the fees are for services actually performed. a) Fees related to assisting the 7(a) Lender with packaging, processing, or underwriting cannot be contingent on whether the loan is approved or closed. b) The contract must state that all compensation paid to the LSP will be paid by the 7(a) Lender and that the 7(a) Lender and the LSP are prohibited from charging the Applicant for the same services. c) The 7(a) Lender and the LSP cannot share in any Secondary Market premium. d) The billing for loan packaging or for other loan processing services must identify the Applicant’s name.

vi. Term: The full term of the contract including renewal options must be stated in order for SBA to determine if it is reasonable. In addition, the contract must clearly identify terms and conditions satisfactory to SBA that permit either party to terminate the contract prior to its expiration date on a reasonable basis (usually 60 days or sooner for cause).

vii. The contract also must include the following statements or disclosures: a) The LSP will not assume a portion of the risk of the un-guaranteed portion of any loan. b) Disclosure by the LSP of any affiliations with other financial institutions, commercial lenders, CDCs, CUSOs, other LSPs, or loan brokers. c) Disclosures of any prior or existing relationship other than the contractual one created by the agreement, or a statement that no such relationship exists. d) The agreement is subject to all applicable laws, regulations, and policies including all SBA Loan Program Requirements. e) In the event this Lender Service Provider Agreement conflicts with any other contract or agreement between the parties, now or in the future, this Lender Service Provider Agreement will control with respect to the 7(a) Lender’s SBA Loan portfolio. viii. 7(a) Lenders are responsible for the actions of their LSPs and must ensure that they comply with all applicable laws and regulations governing confidentiality. 7(a) Lenders should consult with their Counsel on appropriate language to be included in their LSP Agreements. ix. The contract must not evidence any actual or apparent conflict of interest or self-dealing on the part of any of the 7(a) Lender’s officers, management, or staff.