NAGGL’s Annual Conference just wrapped up. Virtual didn’t matter. While we missed the personal networking, everyone was as involved and as full of questions as NAGGL’s in-person conferences have always been. Maybe more so. Not every question was answered, but we came out feeling a bit more settled about the future of SBA and SBA Lending,
A few highlights.
SBA SOP 50 57 3, the SBA Servicing & Liquidation SOP has been completed. SBA targets this month for release and January 1, 2021 for the effective date. Watch for the Notice!
CARES Act Reminder: Portions of the Act increasing SBA Express loans from $350M to $1 million will revert back to the $350,000 cap in January 2021.
OIG reports a 275% increase in open cases due to EIDL and PPP Loans. Report any suspected fraud under these programs.
Prudent Lending. As always, prudent lending was the talk of the conference in many sessions ranging from Monitoring Your Portfolio to Underwriting New 7(a) loans. Here are recommended things to consider when addressing servicing requests to your exiting 7(a) loans or underwriting new ones:
- What industry is your borrower in? How was that industry affected by the COVID-19 shutdowns and phased reopens?
- What affect does reopening have on the borrower’s expenses? e.g., additional PPE, cleaning services, etc.
- The challenge for national lenders is knowing the various state and local COVID-19 requirements for your borrowers and how they impact loan requests.
- Is using 2019 as a historical benchmark accurate to the business now? Consider using projections with assumptions or a comparison interim, e.g., 8/31/2019 vs. 8/31/2020.
- Did the borrower receive PPP, EIDL or any other emergency funding? What are the terms and how would repayment affect cash flow?
- Have any existing creditors offered emergency assistance, e.g., deferrals of payments or rents, forbearance or workout agreements, longer terms.
The bottom line is that prudent lending requires that we underwrite to the current circumstances with less focus on historical numbers for cash flow. We recommend developing a COVID-19 Questionnaire for all servicing and new loan requests. You can build this using the questions from SBA Procedural Notice 5000-20042 and add others you feel should be addressed.
Reopening and revitalizing our communities and our economy will be an enormous task. We’re confident that our lending community is more than up to it. You have the skills and the knowledge to ensure that this that is done in a manner that is safe financially for all concerned.
At JRB, we’re proud to be part of the process in helping you navigate what sometimes could be choppy waters. Contact JRB.