Diligent SBA portfolio management is critical to ensuring that the SBA guarantee remains in place for the duration of a loan. Lenders that fail to utilize a consistent approach in monitoring borrowers run the risk of facing complicated issues that put the guarantee in jeopardy. By adhering to the three below guidelines and taking advantage of the available resources, lenders can effectively avoid these unwanted scenarios and safeguard their guarantees.
1. Protect Your Collateral
Immediately after closing, it is prudent to follow-up in order to collect the collateral documentation that is only available after closing, such as final title policies and recorded mortgages. Additionally, depending on the collateral pool, borrowers often want to sell certain portions of existing collateral (common examples include a vehicle or home). As a rule of thumb, anytime collateral is sold, it is highly recommended either to apply the proceeds from the sale of the collateral to the principal balance of the loan, or to replace with new collateral that is equal to or greater than the value of the collateral sold.
2. Document Servicing Actions
The SOP 50 57 – 7(a) Loan Servicing and Liquidation and 7(a) Lender Matrix are key resources to reference whenever servicing actions arise. Certain actions may require approval from the SBA, notice to the SBA, an update E-Tran and/ or a memo to file. Collecting proper documentation, obtaining approval when required and documenting the file in accordance with the SOP 50 57 will go a long way towards ensuring that the guarantee remains intact.
3. Sound Loan Monitoring
Ongoing portfolio monitoring activities include following up to ensure insurance and financials are kept current, and investigating UCC alerts, including name changes, entity status changes or the addition of subsequent liens.
UCC alerts must result in a “portfolio touch”, even if the loan is current, to make sure the business is still operating smoothly – just because a borrower is current with monthly P&I payments doesn’t mean the business is healthy. It is especially important to keep a close eye on accounts that go 15 days past due. Follow-ups on these past due accounts often allow a lender to uncover unknown problems with the business and can result in payment modifications that are beneficial to the borrower.
Small Business Predictive Score
Another tool to assist lenders in managing their SBA and USDA portfolio is the Small Business Predictive Score (SBPS) scoring system that is available to all SBA participants through the SBA Lender Portal. The SBPS is a credit score used by the SBA to predict the likelihood of loan default. Loans that are in the higher range of scores are considered less likely to default than loans with lower scores. There are five risk ranges (highest, high, medium, low and lowest) for each loan scored on a quarterly basis. Among other features, lenders can access an overall score, comparisons for numerous metrics among peer group averages and quarterly details for loans gravitating toward higher-risk scores.
Conclusion
Protecting a loan’s SBA guarantee doesn’t end once a deal is authorized and funded. By maintaining a disciplined approach to SBA portfolio management and consistently communicating with borrowers, lenders are more likely to uncover problems that need to be addressed. Unfortunately, borrowers may not always be proactive in communicating issues so it’s important to have other means of gaining information that could prompt appropriate servicing actions.
About Windsor Advantage, LLC
Windsor Advantage provides banks and credit unions with a comprehensive outsourced SBA 7(a) and USDA lending platform.
Since 2010, Windsor has processed more than $1.7 billion in government guaranteed loans and currently services a portfolio in excess of $1.0 billion (as of December 31, 2017) for more than 75 lenders nationwide. With over 150 years of collective government guaranteed lending experience, cutting-edge technology and rigid controls, Windsor Advantage is uniquely qualified to assist clients with implementing a thoughtful and profitable lending initiative.
Windsor Advantage has a team of 30 professionals with offices in Chicago, Illinois; Indianapolis, Indiana and Charleston, South Carolina. For more information, please contact (312) 248-8530.
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About the Author: Since joining Windsor in November of 2013, Jared Lemmermen has held a variety of roles within the Portfolio Management function. Prior to Windsor, Jared worked as a public accountant after graduating from Michigan State with a degree in accounting. He can be reached at 312-465-7847.