CREDIT INFORMATION (76)

The overall credit of an applicant, including affiliates, must be satisfactory prior to recommending a loan approval. To determine satisfactory or unsatisfactory credit, you must have a thorough understanding of all variables that comprise overall credit history.

a. Credit Bureau Reports (CBR).

(1) General Requirement. All disaster loans must have a CBR. If none is available from an SBA contractor, we require a report from another reputable credit bureau or direct verification of credit references and other credit sources.

(2) Direct Credit Checks. In some outlying areas, credit bureaus may have only minimal (if any) information on individuals and businesses. If CBRs are not informative or available, you must perform direct credit checks with banks and other sources.

(3) Who to Check.

(a) All applicants appearing on a home loan application.

(b) All business principals.

(c) All businesses.

NOTE: We do not permit substituting credit checks on the owners of a business in lieu of checks on the business itself.

b. Credit Information From Banks or Other Lenders.

(1) Refinancing. Whenever a disaster loan involves refinancing, you must request specific credit information from the lien holder. You should initially attempt to obtain this information by telephone. If the lien holder(s) will not provide the information on the phone, you must attempt to obtain the information in writing. This does not apply to the refunding of interim loans (see paragraph 59).

(2) You must include the following paragraph in every SBA letter which requests credit information from a financial institution:

"This is to certify that the Small Business Administration has complied with the applicable provisions of the Right to Financial Privacy Act of 1978, Title XI of Public Law 95-630. Pursuant to Section 113(h)(2) of that Act, no further certification shall be required for subsequent access by the Small Business Administration to financial records of the customer."

c. Business Credit Reports. All business and EIDL applications, including affiliates, require a business credit report from Dun and Bradstreet (D&B) or a similar commercial credit reporting company with the exception of sole proprietorships.

For sole proprietorships, the CBRs of the owners are usually sufficient. Although discretion to order D&B reports may be exercised when deemed necessary, D&B reports should rarely be ordered on sole proprietorships.

d. Discussion of Credit Report Content with Applicants. You can discuss CBR items which are not of public record, provided you do so in a responsible manner. However, your discussion should only address those derogatory items and other accounts to the degree necessary to process the application. You must record all discussions in detail in the chron log.

Any consumer loan applicant (home or personal property) who asks for a copy of their credit report will receive all credit reports on them in the case file. The Privacy Act requires that Federal agencies provide requestors with their credit

reports if those reports are kept in a system of records. Any business loan applicant who asks for a copy of their credit report will be treated as a FOIA requestor, and will receive that report unless it is exempt from disclosure under FOIA.

e. Poor Credit History. You must give applicants with poor credit history every opportunity to provide explanations before you reach a conclusion about their overall credit worthiness. Generally, a history that consists of minor, isolated instances of poor credit or late payments is acceptable provided that:

(1) The applicant explains the lapse; and

(2) The applicant has other accounts with "as agreed" payment records.

(3) You cannot recommend approval if you determine that credit history is unsatisfactory.

NOTE: An applicant’s poor credit history cannot be overcome by the credit history of a guarantor.

f. Lack of Credit History. You must explore and identify the reasons for a lack of credit history when making credit judgments. You cannot simply judge applicants without credit cards, charge accounts, or other forms of electronic credit histories to have satisfactory or unsatisfactory credit. However, if an applicant can demonstrate (preferably over a minimum period of 2 years) their ability to make regular, noncredit payments (e.g., utilities, rent, insurance, medical or dental bills, etc.) in an as agreed manner, you can make a determination of satisfactory credit. You must justify these decisions in your case file.

g. Prior or Existing SBA Loan History. If the application indicates previous or existing SBA loan experience, or if you discover SBA financing through other sources such as the Agency’s records, you must determine if the performance is or was satisfactory.

(1) You do not need to call the servicing office if:

(a) The Agency’s records reflect no history of delinquency (delinquency being a payment more than 30 days past due), or returned (NSF) checks; and

(b) There have been no deferments; and

(c) The damaged or collateral property is not in an SFHA; or (d) The loan has been sold to a third party.

(2) If the loan has been sold to a third party, the Agency’s records will not reflect the loan performance after the date of sale. In these situations, you must document the following in the case file:

(a) Indicate that the loan has been sold including the date of the sale;

(b) Address the pre-sale history;

(c) Address the post-sale payment history based on CBR, 5C, or other case file information, if circumstances warrant; and

(d) Address the borrower’s conformance with any insurance or other special conditions. You should determine these conditions using available case file information.

h. Bankruptcy or Reorganization. Applicants (home or business) who have previously filed for bankruptcy, or are currently in the process of reorganization are not automatically precluded from receiving assistance. The type of bankruptcy filing, when it occurred, the details of the reorganization plan, the plan's success or failure, and subsequent disposition are just some of the factors, which bear on the overall evaluation.

(1) Chapter 7 Bankruptcy (Liquidation). We do not automatically disqualify applicants discharged in prior Chapter 7 bankruptcies. The effect on the credit decision generally depends on the circumstances. The older the discharge, the less effect it may have on the credit decision. You can recommend approval for applicants discharged in bankruptcy within the last two years if you document the following in the case file:

(a) The bankruptcy was caused by circumstances beyond the applicant's control (e.g., unemployment, prolonged illness, medical bills not covered by insurance, protracted labor strikes, disaster related, etc.) as opposed to bankruptcy caused by the applicant's actions (e.g., misconduct, avoidance of creditors, careless overextension of debt, etc.); and

(b) The applicant's credit history since the bankruptcy is satisfactory;

and

(c) The applicant has repayment ability despite the circumstances surrounding the bankruptcy.

NOTE: Use caution in cases of self-employed applicants whose bankruptcy occurred during previous self-employment, or applicants whose current employment is not stable.

(2) Chapter 13 Reorganization (Wage Earner's Plan).

(a) A Wage Earner's Plan (WEP) applies to individuals and indicates some effort to pay certain creditors. A WEP can make it possible to settle debts for only a portion of what is owed, while retaining personal assets. The maximum term permitted for a WEP is five years and once approved, the wage earner can incur additional debt only with permission from the court. Generally, the court will not approve additional credit unless the purpose is vital to the well being of the wage earner or family members.

(b) You can recommend approval if:

(i) The applicant has made all payments on the WEP in a satisfactory manner, based on direct contact with the Trustee, online contract information sources, or other sources; and

(ii) Total debt service is reasonable, and,

(iii) A written approval from Bankruptcy Trustee/Court is a stipulation of the LAA.

(3) Business Reorganization (Chapter 11). Businesses may be in one of many different stages of the Chapter 11 filing procedure. This can impact our ability to approve, or even process the application. Therefore, you must discuss these cases with counsel before you begin and follow their advice for any legal impact to the validity of the plan. You should discuss:

(a) Whether a plan was filed with the Bankruptcy Court;

(b) If the Court accepted the plan;

(c) Whether the business is following the plan;

(d) How much time remains before the business will emerge from the plan; and

(e) If the Court will consider allowing the applicant to incur additional debt outside of the plan.

i. Prior SBA Loan Discharged in Bankruptcy. Applicants who had a prior SBA loan discharged in bankruptcy are not automatically barred from receiving disaster loan assistance.

j. Delinquency on Federal Obligations. "Federal obligations" include, but are not limited to: any direct Federal loans, contracts, and/or grants; student loans; and debts owed to the IRS, etc. Generally, we will not approve loans to applicants who are delinquent on any Federal debt, or have a judgment lien against their property, unless one of the following applies.

(1) If a Federal obligation is delinquent, but no judgment lien has been filed, we can approve a loan only if the Federal agency involved provides evidence that the debt is no longer delinquent and there is reasonable assurance that the applicant will comply with the terms of the loan agreement.

(2) If a Federal obligation is delinquent and a judgment lien has been filed, we can approve a loan only under the following circumstances.

(a) When the delinquency on a debt resulting in a lien is caused by the disaster itself, we have the authority to waive the restriction. This applies whether the debt pre-existed the disaster, or was the result of the disaster. Because we do not provide funds to pay another Federal creditor, you must make workout arrangements in conjunction with any approval recommendation.

(b) A debtor who has a judgment lien and made arrangements before the disaster to satisfy the debt, and whose adherence to those arrangements before the disaster was satisfactory is eligible. We must obtain concurrence from the creditor agency that the predisaster agreement was being satisfactorily honored.

The Applications Director or higher must approve these exceptions or waivers.

k. Lawsuits. You must obtain complete details of any pending lawsuits. You must submit the information to counsel for an opinion regarding the existing or potential impact to approval.