Tip of the Week
Loan Payment Deferrals – Is it an effective tool?
You may remember, that a few weeks ago (March 12), we announced to our readers that John Cumbey has joined us as an associate to sbaAccess to assist clients with SBA guaranty purchase recovery services. He spent the first 20 years of his career as a front-line lender primarily lending to small businesses in southern California. He left banking for 12 years, during which time he was controller for two different small businesses (and got to see the world from the “other side”). In late 2000, he joined U.S. Bank as manager of the Special Assets department for their SBA division until he recently retired. He quickly became known as the “go to” person for workout and liquidation of SBA loans (7(a), Express, 504) because of his exposure to our industry as a NAGGL instructor for their servicing and liquidation course. He is definitely one of the best in what he does and we are thrilled to be able to share his expertise with our clients. Here follows his first “tip” for our readers, with many more to come :
In this current economic environment, many lenders are being deluged with requests from borrowers for payment deferrals. There are a few primary things to keep in mind when addressing these requests:
1. A deferral should be used to address a well defined short term problem with a well defined near term resolution.
2. It is advisable to re-amortize payments following a deferral so as to retire the loan within the original maturity.
3. If the guaranteed interest in a loan is sold, the deferral is governed by the terms of the
Form 1086. If the loan is not sold, the deferral terms revert back to what is in the Form 750.
4. For loans that are not sold, PLP and Express lenders may have additional options, which most likely fall within their delegated authority (but may require notification to SBA) – refer to SBA procedural notice 5000-917 effective 4/15/04. If in doubt, inquire with the CLSC (servicing center), but don’t ask them to approve an action unless they indicate it is not covered under delegated authority.
5. There are often regulatory issues that seem to run counter to SBA’s desire for lenders to assist borrowers. Lenders must evaluate the pros and cons on both sides in determining what their policies will be.
When loans go beyond what can be successfully addressed and resolved with a payment deferral, many times they move into intensive servicing, workout and sometimes liquidation. While SBA encourages lenders to work with borrowers when problems arise, lenders must keep in mind that their primary responsibility is to act in a manner that protects the interests of SBA and the lender.
When determining what different servicing actions are the most effective in certain scenarios, you may want to consult with us through a lender “lifeline” for ongoing technical assistance. Or, if you have a project type situation (group of loan files needing intensive servicing or, even possible guaranty purchase recovery), please give us a call so we can assist you with the best cost proposal customized to your budget and approach.
Take the Right Approach.
John Cumbey
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