Independent Loan Review Guide

Independent Loan Reviews play an important role in a Certified Development Company’s (CDC) internal control of the 504 loan portfolio. Periodic objective independent reviews of credit risk levels and risk management processes are essential to effective portfolio management, and assist a CDC’s Board in carrying out its responsibility to monitor the CDC’s portfolio performance on a regular basis (13 CFR § 120.823(d)(7)).

SBA regulations require a CDC to have a Board-approved internal controls policy that, among other things, directs the operation of a program to review and assess the CDC’s 504 loans (13 CFR § 120.823(d)(13) and 13 CFR § 120.826(b)(3)). SOP 50 10 requires a CDC’s internal control policy to ensure satisfactory monitoring and management of the 504 loan portfolio, including but not limited to, providing for a periodic loan review function to be performed at least annually by a person that is not directly or indirectly responsible for loan making or by outside contractors.

Tab 2.F. of SBA Form 1253 (CDC Annual Report Guide) requires a CDC to include in its Annual Report an Independent Loan Review Package that contains, at a minimum, the following:

1. a copy of the engagement letter from the reviewer (if performed by an outside contractor);
2. a copy of the completed Independent Loan Review Report which follows the content and reporting guidelines set forth in this Independent Loan Review Guide and includes a description of the individuals conducting the review demonstrating their independence from the function that they are responsible to review (if conducted internally), the loan selection methodology or criteria used for the sample, and a copy of the checklist that was used in the loan review; and
3. evidence that the Board acknowledged receipt of the results of the Independent Loan Review Report and approved CDC Management’s plan to remedy the findings from the loan review.