Delinquent Loans: Eight Potential Problems
Our last article discussed Post-Purchase Packages – the documentation required from Lenders by SBA for loans sold on the secondary market that have gone into default and were purchased under SBA’s guaranty. You can read that article here.
Obviously, not every Lender sells every SBA loan on the secondary market – so what do you need to attend to when you have loans in, or nearing, default and requiring liquidation?
As with everything, SBA has a timeline for the liquidation process, which means staying on top of these situations is essential. They detail their requirements on their website here, in a fairly readable and clear format – and since, as we know, SBA often issues updates to their requirements, we recommend you go to that link for the most up-to-date information.
Even with that information readily available, this is where checklists and written procedures are important to ensure you complete the required tasks within the required timeline – because there are significant risks of not managing these troubled loans with care. Here are the eight problems we see most often.
It should be no surprise that if you miss SBA’s requirements – including timeliness – they’ll deny payment of the guaranty.
SBA pays up to 120 days’ interest – but no more. Another reason to be quick and thorough in handling these loans.
Liquidation of business assets
If you fail to protect and liquidate assets in a timely fashion, you risk losses leading to repairs.
Opportunities for workouts or modifications
When you’re on top of your Borrowers’ situations, you’ll be quick to notice when someone is running into trouble. This means you’ll have time to help them get back on their feet with a workout or modification – or, at least, work with them through an orderly (versus last-minute) liquidation.
When you miss deadlines, you run the risk of not being able to liquidate due to legal filings – and you might lose your lien position.
More legal issues
If you perform legal actions that are non-judicial, or if they exceed $10,000 and you’ve not received SBA approval … yes, you’ll lose the chance to recoup those costs.
SBA ongoing guaranty fees
Until SBA repurchases the loan – or the loan is paid off – you’ll probably have to continue paying the ongoing guaranty fees.
If failing to meet liquidation requirements and timelines is a repeating problem for you, yes, you’ll risk your reputation with SBA. And that’s never a good thing for your SBA lending program.
Let us help!
We have extensive experience in helping clients with loans in default or liquidation – and as Rebecca posted recently on LinkedIn, we are definitely SBA geeks and love helping clients piece together the forensics of troubled loans. Give us a call at 877.576.0819, or email us through our contact form, to find out how we can help.