The work of running a loan after it closes: collecting payments, releasing draws, tracking the borrower's reporting and collateral, and handling changes or a default.
Closing is the start of a loan, not the end. Someone has to collect payments, release construction draws, collect annual financial statements, track property taxes and coverage on the collateral, and decide what happens when a borrower asks for a change or misses a payment. That work is servicing, and the party doing it is the servicer.
A bank that keeps its loans usually services them itself, so the person who made the loan can still be reached. When a loan or a share of it is sold, servicing may stay with the seller or move to the buyer or a hired firm.
SBA writes servicing into its rules. Lenders and development companies must service 7(a) and 504 loans no less diligently than their other loans and in a commercially reasonable manner. Some actions need SBA’s prior written consent, including raising the principal above the amount SBA authorized, compromising the principal balance, and transferring, selling or pledging more than 90 percent of a loan. A lender that sells part of a 7(a) loan to another lender normally keeps the note and keeps servicing it.
Before closing, ask who will service the loan and who can agree to changes.
How it shows up in the data here
The servicer of a loan is not a field on this site. The public files name the institution that holds a balance (Call Reports) or that made a loan (HMDA, SBA), not who collects the payments. For SBA loans the lender of record usually services the loan it made, so the lender pages reached from SBA 7(a) lenders are the place to start.
Go further
- SBA 7(a) lenders: Lenders that made 7(a) loans, by state.
- Methodology: What each public file does and does not record.
- SBA Preferred Lenders Program and Express: how they differ: Some SBA lenders decide a loan on their own authority and some send it to SBA first. The difference changes who reads your file and who carries the risk.
- How to read SBA 7(a) and 504 loan data: The SBA publishes the 7(a) and 504 loans it guarantees, lender by lender, every quarter. It is the best public record of who lends to small businesses, and it is easy to misread.
- Loan participations, explained: A participation lets one lender make a loan that is too large for it to hold alone. The borrower signs with one lender. Behind that lender, others own pieces of the loan and share its risk.
Related terms
- Loan sale: A lender's transfer of all or part of a loan to another party, so that the buyer, not the lender that made the loan, holds that share of it.
- Portfolio lender: A portfolio lender is a lender that keeps the loans it makes on its own books instead of selling them to an investor.
- Originating lender: The lender the borrower first contracts with, which then sells participations in the loan to other lenders and stays in the loan itself.
- Loan participation: A loan in which other lenders buy shares from the lender that made it, under a written agreement that keeps the first lender in the loan for its whole life.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.