Keeping Your Finger on the Pulse: LRM’s First Five Steps When a Loan Shows Stress

In today’s world of SBA intensive servicing, staying proactive is everything. For lenders, knowing how to navigate a stressed or defaulted loan under the SBA new SOP isn’t just about compliance—it’s about protecting your portfolio and maximizing recovery.

That’s why effective SBA training for lenders focuses on one key principle:

Keep your finger on the portfolio’s pulse.

As your SBA portfolio matures, cracks will inevitably appear—and sometimes, multiple loans will stress or default at the same time.

The key? Don’t panic. Instead, rely on a structured process so your team can respond quickly, confidently, and in full compliance.

We’re often asked:

“Where do we even start when a loan starts to stress or default?”

It’s not always simple. Every loan has its own quirks, and borrowers don’t always communicate early. Before you know it, you’re chasing updates while trying to maintain SBA compliance.

That’s where structure saves the day.

At LRM, we follow Five First Steps whenever a loan shows signs of stress or default.

1. Conduct a Site Visit

This is your first—and often most critical—step.

The rules under the SBA new SOP 50 57 4 haven’t changed much. Lenders must still perform a site visit:

• Within 15 calendar days of an adverse event (e.g., business closure, death, bankruptcy), or

• Within 60 calendar days of an uncured payment default.

These visits are not just a formality—they form the backbone of your liquidation, litigation, and workout efforts.

Your Site Visit Report should document:

• The condition and recoverable value of collateral

• Any environmental or occupancy concerns

• Whether a workout is feasible and the borrower is cooperative

• Steps taken to preserve or liquidate collateral

If collateral is on leased property, confirm rent status with the landlord. For real property, check for tax liens or tenants.

Engage professionals such as auctioneers or appraisers when appropriate, and document every action—including photos, inventories, and communication logs.

2. Review the File

Before considering any workout or modification, conduct a comprehensive file review.

The SBA requires borrowers to correct deficiencies in good faith before any modification is approved.

This may include:

• Updated financials

• Corrected insurance endorsements

• Missing or unsigned documentation

A complete and compliant file not only ensures proper servicing but also strengthens any future guaranty purchase request.

3. Run Updated Searches

Time to “pull those searches!”

Review:

• UCC filings and lien positions

• Property tax records for delinquencies

• Credit reports for new obligations

These searches help identify red flags and determine your ability to proceed with a modification or liquidation. They’re also essential to confirm lien priority and recoverable collateral value.

4. Assess Borrower Viability

Next, assess whether the borrower can realistically turn things around.

Ask:

• Do they have the skills, leadership, and resources to recover?

• Are their projections and plans reasonable?

• Does their plan align with current market conditions?

If yes, you may have an opportunity for a workout or modification. If not, begin shaping your liquidation strategy based on the data gathered in the earlier steps.

5. Track and Meet All Deadlines

Finally, build a compliance timeline for every loan.

Each SBA milestone—site visits, notices, approvals, and liquidations—has strict deadlines. Missing them can delay or even jeopardize your guaranty recovery.

Your procedures should make deadlines visible, actionable, and trackable across your entire servicing team.

Final Thoughts

SBA intensive servicing isn’t about reacting; it’s about preparing.The more proactive and process-driven your team becomes, the better you’ll handle stress events and protect both your borrowers and your guaranty.

With the SBA new SOP 50 57 4 emphasizing documentation, transparency, and timeliness, lenders who build clear procedures will thrive under scrutiny.

If this sounds like a lot—don’t worry. That’s exactly why SBA training for lenders exists: to help teams turn complex requirements into consistent, confident action.

When your next loan shows stress, remember: Structure beats panic, every time. Follow these Five First Steps, document thoroughly, and keep your SBA servicing strong.