Managing your loans through times of trouble
Economic downturn. Changes to interest rates. You know what’s coming, right?
An increase in troubled loans. Which means an increase in workouts and liquidations.
Not fun, for anyone involved – you as the Lender, or your unhappy, struggling Borrowers. And the emotional impact of financial stress makes it that much more challenging for all concerned.
The anxiety the Borrower and its Principals are experiencing is often deflected upon – or should we say, inflicted upon? – you, the Lender. It’s not fair – you didn’t create the economic issues, after all – but it’s an understandable reaction from Borrowers who never expected to run into problems.
And if you don’t have a dedicated collections or special assets department with SBA experience, or these Workout and Liquidation events have (up till now) happened infrequently, you may really be feeling the strain.
Let’s look at five tips to help you manage the process.
If you’ve followed our work at all, you know how much we love checklists and procedures. And having a checklist and procedure to guide your staff through the Workout phase of troubled debt will save you time and prevent errors. It should include everything the bank needs to analyze the situation, plus all items in the SOP 50 57 required by SBA.
A common problem we see: files that have slipped out of compliance with SBA. So, now is definitely the time to review and make sure you have all the documents you need to move to Guaranty Purchase – and that those documents are both current and fully compliant.
Now is also the time to meet with the Borrower at their business location – and sooner rather than later. SBA requires a Site Visit, and by scheduling ahead of time, you can prep the client for what you’ll need (such as tax returns, current financials, and so on). Finally, by meeting at their location and on their turf, you help them feel your interest in and concern for them, thereby reducing tension and defensiveness.
When you leave the meeting, be sure everyone has a clear understanding of expectations – the Borrower’s and your own responsibilities as the Lender. And follow up with an email documenting those mutual expectations as soon as you’re back at your desk. This could include a timeline of information you need for your analysis, and / or a presentation of options available to the Borrower.
SBA requires Workouts to be supported with a thorough, prudent analysis. You’re not looking for a quick band-aid fix, but a long-term plan for achieving full loan repayment. And in those cases where a Workout isn’t an option, your analysis will support the choice between legal action or abandonment of the collateral, as required by SBA.
Clear heads, calm voices, and understanding lead to results that benefit everyone.
And sometimes you’ll need to take a firm stance. Too often, we see Lenders unsure where to start or overwhelmed by volume, and then no action is taken. As the saying goes, no decision is in fact a decision, and that path benefits no one.
Remember, too, that you can file a complaint or start a foreclosure without having to follow through. Sometimes that action alone will get your Borrower to the table to begin the Workout discussion.
Want some help getting through the SBA Workout and Liquidation process? We engage with your loan officers or collections staff to provide the tools and skills they need to bring about the best resolution possible. Reach out for a Free Consultation today!