| |
|
Tip of the Week
Putting the “service” back into SBA Loan Servicing
Tips for lenders regarding opportunities and responsibilities in this phase of the loan cycle
What's the first thing that comes to mind when you hear the word "servicing" in the context of SBA lending (or any commercial lending for that matter)?
Perhaps your answers are on the following short list:
-
Revenue stream (servicing income)
-
Loan payment processing and associated general ledger accounting tasks
-
Requesting annual financial statements from borrowers
These answers are accurate but they only tell part of the story of servicing, don’t they? We tend to think of servicing in a broader context, involving everything post closing/final disbursement to final payoff. And instead of thinking of it strictly as lender tasks that either have to be done or should be done to stay prudent , why not also think about your borrower and how you can genuinely be of service throughout the life of the loan. Some lenders do this very well simply by staying in close touch with their borrowers, being approachable, and offering help from time to time. Others frankly do not, they “book em and forget em”. This is not only dangerous (imprudent), it’s rude and it represents poor customer service.
When we work with clients on helping them improve their process, the issue of loan servicing often arises as an opportunity area to focus on and improve. Here are tips for uncovering opportunities and clarifying responsibilities in this phase of the loan cycle.
Routine Servicing - Provides a real service to the client (opportunity)
-
Lender contact Is available to respond to questions/needs
-
Conduit for more business, both from that borrower and possiblywarm referrals (when was the last time you asked for a referral from your current borrowers?)
-
Responds to routine requests like substitution of collateral suchas sale or refinance of real estate – is this a burden or an opportunity?
Routine Servicing - Informs and protects Lender /SBA (responsibility)
-
Provides follow up after final disbursement (of any lagging items)
-
Through systematic and routine monitoring
-
Provides early warning for potential troubles
-
Safeguards the guaranty no matter what…
-
Accurate and timely 1502 reporting
Mediocre to poor SBA lender servicing approach (followers)
-
Close the loan and forget it
-
Annual form letter to request updated F/S, but little to no follow up or analysis after that
-
First sign of trouble, then send a nasty pay up note or call
“Top Shelf” SBA lender servicing approach – (leaders)
-
Clear handoff at closing – who, what, when – ideally a personal introduction to the servicing officer (s)
-
Orientation to the servicing approach (what to expect / when and why)
-
How to connect with your new contact (we hear horror stories about borrowers getting caught in voice mail jail in the “servicing” department)
-
Follow up for lagging closing documents
-
Fulfill routine servicing actions with grace and ease
-
Obtain and analyze annual financial statements
-
Manage routine site visits (on guard for material and adverse changes in borrower’s condition)
Routine Servicing the “SBA Way”
- Lender Unilateral Authority (with authority, comes “responsibility”) – remember PLP lenders service their entire portfolio with PLP authority (regardless of how the loan was originated)
- PLP lenders only obtain SBA written approval for certain actions (lender preference, reinstatement of loan or guaranty, transfer to another lender, loan increase, change in guaranty %, taking title in SBA’s name, taking environmentally contaminated property) – remember to use Form 2237
-
PLP lenders should notify SBA when there will be a change to SBA’s database information e.g., maturity extensions, name change, change in tax ID#, change in interest rate, cancellation of loan, decrease in loan, extend disbursement period, termination of guaranty.
- The Lender Portal report:
- Provides a rating of 1-5 based on currency rates (1 is low risk, 5 is high risk), guaranty purchase rates, loan volume (and more)
- Is a significant determinant on the frequency and intensity of SBA oversight including on site lender reviews
- Bank should observe rating trends and address negative trends
Intensive Servicing the “SBA Way” (trying to “save” the business)
Put the service back in servicing, but then compare and contrast opportunities with responsibilities (things you get from it potentially when done right versus things you have to do to be prudent and beyond reproach). There is a way to do the required actions (be prudent), but while doing them, you could expand your business in a positive way.
Putting the right policy and procedures in place to identify roles and responsibilities (and training/coaching those roles) is one of our specialities. Call on us to assist with building a solid foundation to support not only routine servicing (where the opportunity lies), but also intensive servicing to keep the loans paying even in these times of economic stress.
Take the right approach
Karen McHugh and Brian Burke
|
|
|
