5 FIRST STEPS WHEN DEALING WITH A STRESSED PORTFOLIO
One of the top priorities in an SBA Department is keeping your fingers on the portfolio’s pulse.
As a portfolio ages, it will inevitably develop cracks. There may even be multiple loans that stress or default at the same time. The key to handling these situations is, first, don’t panic! More importantly, have an established process and procedure for your team to address each loan.
We are often asked, “Where do we start?”
It’s not always a simple answer, because each loan has its own personality and the Borrowers don’t always keep you in the loop - and then you find yourself scrambling to catch up to stay in compliance.
That said here are LRM’s Five First Steps when a loan shows stress or default.
1 - Site Visit
The SBA requires that Lenders perform a site visit within 15 days of an Adverse Event (business closure, death, etc.), or within 60 days of payment default. These visits are key to your liquidation and litigation efforts. They are your opportunity to assess the status of your collateral, determine if it is at risk and requires quick action, or meet with the Borrower to collect updated financials and began the workout/modification process.
2 - File Review
Now is the time to review your file to ensure you have all those I’s dotted and T’s crossed. In any workout, the SBA requires that the Borrower correct deficiencies in good faith before a modification should be considered. This can be anything from bringing in current financials, correcting errors in insurance endorsements, or signing a missed document.
3 - Searches
Pull those searches! Property Taxes, UCCs, and credit reports (oh my!). What red flags are showing? How do those impact your ability to proceed with a modification? 4 - Borrower Viability
Is your Borrower capable of turning things around? Do they have the tools and skills necessary to make changes to the business model or adjust staffing to bring the business back on track? Is their plan reasonable, and can it be supported by reasonable projections and assumptions? If the answer is yes, then you’re looking at an opportunity for a workout or modification.
5 - Deadlines!
Finally, and most importantly, your procedures need to include any and all SBA deadlines so your staff can stay in compliance on items as they’re addressed, approvals are received, and notices are given.
Overwhelmed yet? There are a lot of details, and if you haven’t got processes in place already, it’s really easy to be swamped by it all.
We can assist with setting up those processes and procedures and performing file reviews. And we’re always glad to provide guidance on a stress-reduction plan!
Click here to schedule a call.