On September 18, 2019, the United States Office of Inspector General completed an audit of the SBA . One of the recommendations of that report was that additional steps be implemented “to prevent ineligible individuals or entities from participating in small business programs.” Entities suspended, debarred, declared ineligible, or otherwise excluded from participating in government programs are maintained in the System for Award Management (“SAM”). As a result, SBA plans to “update the [SOP] to include a requirement for lending partners to review SAM for applicants’ and borrowers’ eligibility and maintain documentation in the loan file to support their review.” SBA intends to complete final action on this recommendation by January 31, 2020.

This news is particularly important for SBA lenders, as the SBA puts the onus on lenders to ensure that applicants and borrowers are eligible to do business with SBA. As set forth in SOP 50 10 5(K) :

Lenders are responsible for consulting with System for Awards
Management’s (SAM) Excluded Parties List System (EPLS)
or any successor system to determine if an employee or an
Agent has been debarred, suspended or otherwise excluded
by SBA or another Federal agency.

Significantly, the requirement to search SAM and EPLS applies both to applicants and to the employees of the lenders. To that end, lenders should verify the eligibility of both customers who seek SBA loans and employees who work on the transactions.

Currently, the SOP does not offer any real guidance on how to document searches of SAM or EPLS. SBA will be addressing the concerns raised by the Office of the Inspector General by requiring lenders to “maintain documentation in the loan file to support their review” in the new SOP. What is less clear, however, is whether the SBA’s new SOP will deal with how often the searches should be conducted.

As a practical matter, lenders should already be documenting their SAM and EPLS searches. Otherwise, a lender is unable to show compliance with the requirement that the searches be conducted. Failure to do so may result in denial of the SBA guaranty were losses occur on loans made to ineligible entities or worked on by ineligible employees.

Accordingly, lenders should document the date, time, and scope of SAM and EPLS searches for both employees and customers. Searches of SAM and EPLS should be done before the loan is approved. One way to document the searches is to either print or screen capture search results. Lenders should also keep a log of searches in each loan file. New searches should be done at least quarterly to ensure that the information is current and correct.

As the situation develops, Jellum Law remains dedicated to ensuring our clients have the most up-to-date information regarding SAM and EPLS documentation requirements. If you have questions regarding the Office of Inspector General report, please feel free to contact Your Legal Department ® at Questions@JellumLaw.com.