-------------- ----------- ---------------------------- ---------------- ----------------
  **TO:**        ALL                                      **CONTROL NO.:** 5000-866
                 EMPLOYEES                                                 

  **SUBJECT**:               1502 Reporting System        **EFFECTIVE:**   4/28/2003
                             Modification to Ensure                        
                             Disbursement Compliance for                   
                             7(a) Loans                                    
  -------------- ----------- ---------------------------- ---------------- ----------------

The purpose of this Notice is to provide guidance for modifications that
will be made to the 1502 reporting system on May 1, 2003, to ensure
disbursement compliance.

**[Overview:]{.underline}**

All 7(a) "term" loans must be fully disbursed within the timeframe
specified in the Loan Authorization (in the absence of any \"adverse
conditions\") or within the approved extension period. All disbursement
transactions are reported using the 1502 Guaranty Loan Reporting system
and the PMGI system. New edits have been established in the two systems
to help to prevent erroneous disbursement transactions. Any outstanding
balances will automatically be cancelled after notification to the
lender and the office servicing the loan. Specific time lines are
provided as part of this Notice.

Initially, in order to clear out undisbursed balances that are 59 months
or older, a one time process has been established. With this process,
all undisbursed balances for "term" loans that are 59 months or older
will be cancelled automatically with a single 30 day notification to the
lender. (Attachment 4)

Loans having the revolving line-of-credit feature will be addressed at a
later date.

**[Specific Modifications for 7(a) "Term" Loans:]{.underline}**

If the lender reports (via 1502), a disbursement transaction that was
made on a loan 2 years or more after the date of approval, an edit
(reject code 35) will prevent the system from reflecting the reported
disbursement. These disbursements will require review by the SBA field
office administering the loan to determine if the lender received prior
approval for the extension or if a request for extension is needed. For
the purpose of extending the disbursement periods (initial and final),
the LAUD13 screen has been expanded to include a new data field element
for extension up to and including 48 months . The new data field is
"357" and is titled "Gty Disbursement Extension Date." For extensions
exceeding 48 months but not exceeding 59 months, the 48 month
cancellation date may be delayed by inputting data field "352" and "B1"
into the LAUD13 screen. Once the extension authority has been received
from HQ and input into the loan record, all future 1502 disbursement
transactions will bypass edit 35 until the disbursement date has
expired. When an extension request is denied, the outstanding balance
must be cancelled via the LAB000 system. All 1502 disbursements which
are edited with code 35 and have received approval for a disbursement
extension must be input into the PMGU06 system by the next day with a
supporting comment in DLCS.

On an ongoing basis, undisbursed balances will be cancelled 48 months
from the original date of approval unless an extension for disbursement
has been approved. However any undisbursed balance remaining 59 months
from the original date of approval will be automatically cancelled with
notification to the lender.

**[Notification to Lenders:]{.underline}**

Undisbursed dollars will be automatically cancelled in accordance with
the "schedule" established by this Notice **(**Attachment 1), and the
Denver Finance Center (DFC) will automatically generate the messages
(Attachments 2, 3 & 4). DFC will make a reasonable effort to mail the
initial message to the lender approximately 3 months prior to taking
action on remaining undisbursed funds.

The message will inform the lender of the undisbursed dollar amount and
will provide a date on which the dollars will be automatically cancelled
if an extension has not been approved and if the extension date has not
been entered into the new data field discussed in the previous section
of this notice. After the 3‑month message has expired, DFC will make a
reasonable effort to mail a second message on the day the automatic
cancellation is processed. (Attachments 2 & 3 provide the exact
messages).

Each message and action will be automatically posted to DLCS and to
PMQD26. Any SBA staff that contacts a lender must report the outcome of
that conversation in the DLCS. The report should include date and time
of contact, name and title of the lending official and a summary of the
lender's statement regarding the outstanding undisbursed dollars and
disbursement schedule.

**[Field Office Responsibilities:]{.underline}**

On a monthly basis, the field offices will need to review the new
Desktop Application called the "Cancellation of Undisbursed Balance" to
determine if any undisbursed balances are subject to automatic
cancellation. When DFC mails the lender a message, the loan will be
updated in the Desktop Application detailing the action taken based on
the message generated. The loan number, lender's name, projected
cancellation, and actual cancellation date will be displayed. The
Desktop Application will be updated daily. This system may be accessed
under a new menu screen titled "Gty Loan Portal" where the existing
"Gty Termination-Unpaid Fee" application is also located.

If a lender reports disbursement activity (via 1502) after the 48 month
automatic cancellation has occurred but before the 59^th^ month, reject
code 36 will appear. Reject code 37 will appear, if the lender reports
disbursement activity after 59 months or more has passed. In both cases,
field office personnel will need to make the necessary correction in the
PMGU06 screen, which may be accessed directly or indirectly through the
PMGI18 screen

If the field makes a correction in PMGU06 that reduces the disbursed
loan amount creating an undisbursed balance, the system will
automatically cancel the undisbursed balance the same day without
notification to the lender.

Lenders with questions should contact the SBA office administering their
loan. Field staff with questions regarding the use of this systems and
the Desktop Application should contact Michael Avant at

\(202\) 205-6372. SBA supervisors with questions regarding policy issues
should contact Juliane Talley at (202) 205-7006.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

James E. Rivera Thomas A. Dumaresq

Associate Administrator Chief Financial Officer

for Financial Assistance

**ATTACHMENT 1**

**Lender Notification Message Schedule**

**Based on Loan Approval Date**

**[Basic Term Loans Only (Attachments 2 ,3 & 4)]{.underline}:**

46-Month Message -- will be mailed providing initial notification that
outstanding undisbursed dollars will be automatically cancelled if SBA
has not approved an extension request.

48-Month Message -- will be mailed to report the automatic cancellation
of all outstanding undisbursed dollars.

57-Month Message -- will be mailed providing notice that the outstanding
balance will be cancelled automatically and further extensions will not
be permitted.

59-Month Message -- will be mailed to report the automatic cancellation
of all outstanding undisbursed dollars.

One Time 30 Day Cancellation Message - FY1997 and Prior Undisbursed 7(a)
Term Loan Balances.

**ATTACHMENT 2**

**Term Loans -- (46 month Message -- First Business Day):**

Bank & Loan #:

Business Name:

The SBA approved a \_\_\_\_\_percent guaranty on a \$\_\_\_\_\_ 7(a)
term loan on [(date)]{.underline} . As of the date of this message,
\$\_\_\_\_\_ remain undisbursed for this loan.

You are reminded, in accordance with Agency policy, the lender must
prudently disburse all loan proceeds within 24 months from the date of
approval, unless SBA has approved an extension of the disbursement
period.

If an SBA extension has not been approved and there are undisbursed
dollars on [(date)]{.underline}\_, the remaining dollars will be
automatically cancelled.

Questions regarding this notice should be addressed to the SBA office at

[(Phone #)]{.underline}\_.

**Term Loan -- (48 month Message -- Last Business Day):**

Bank & Loan #:

Business Name:

The undisbursed amount of \$\_\_\_\_\_\_\_\_\_\_ was cancelled on
[(date)]{.underline}, for this 7(a) term loan. This action was taken as
a result of our previous notification that required all remaining loan
dollars to be fully disbursed as of this date, unless an SBA extension
was approved.

If the undisbursed dollars were cancelled in error, you may contact the
SBA office at [(Phone #)]{.underline} .

**ATTACHMENT 3**

**Term Loan -- (57 month Message -- First Business Day)**

Bank & Loan #:

Business Name:

As a result of an SBA approved disbursement extension for this 7(a) term
loan, the outstanding undisbursed dollars were not cancelled on the 48
month notification. However, as of the date of this message,
\$\_\_\_\_\_\_\_\_\_\_\_ remain undisbursed and will be cancelled on
[(date)]{.underline} , with no additional extensions available.

If your records reflect a fully disbursed loan or you have questions
regarding this notice, you should contact the SBA office at [(Phone
#)]{.underline} .

**Term Loan -- (59 month Message -- Last Business Day)**

Bank & Loan #:

Business Name:

The undisbursed amount of \$\_\_\_\_\_\_\_\_\_ was cancelled on
[(date)]{.underline} , for this 7(a) term loan. This action was taken as
a result of our previous notification that required all remaining loan
dollars to be fully disbursed as of this date.

If the undisbursed dollars were cancelled in error, you may contact the
SBA office at [(Phone #)]{.underline} .

**ATTACHMENT 4**

**One Time 30 Day Cancellation Message**

Our records reflect an undisbursed loan balance of
\$\_\_\_\_\_\_\_\_\_\_\_. This balance has been outstanding for at least
59 months, which is past the permitted time for disbursements to be made
on this loan. As a result, we plan to cancel this undisbursed amount
within 30 days.

If your records are not in agreement with ours, please contact the SBA
office at

[(Phone #)]{.underline}.