Servicing Update: SOP 50 55, Chapter 6 & Chapter 8 Overview. Salon B Monday, October 20, :30 pm 3:30 pm

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1 Servicing Update: SOP 50 55, Chapter 6 & Chapter 8 Overview Salon B Monday, October 20, :30 pm 3:30 pm

2 Thank you to our Alliance Partners TRAI N I N G & E D U C AT I O N

3 Speakers Shirley Walls, Supervisory Loan Specialist for Servicing U.S. Small Business Administration Catherine Riddle, Chief Financial Officer CDC Small Business Finance Moderator: Sandy Mortan, First Vice President New Jersey Business Finance Corporation TRAI N I N G & E D U C AT I O N

4 Joel Tittel Johnnie Green Dustin Allen Beverly Newborn Velma Hardin 504 Servicing Hot Topics

5 504 Servicing - Hot Topics CDC Responsibility and Authority Know your Role! Know your authority for servicing actions PCLP/ ACLs and Non- PCLP CDCs (unilateral) Seasoned Loan submittals Guarantor Servicing Actions Subordination Request Appraisals release of collateral or cash out subordinations

6 Hot Topic Collateral Release Each CDC is responsible for servicing all of the 504 loans in its portfolio that are classified in regular servicing status. Full or partial release of the security interest or lien on specific loan collateral. CDC must make a credit decision regarding the impact of the release on the interest of the borrower, lender and SBA Primary consideration is repayment ability from profits or cash flow. Generally - maintain collateral coverage

7 Hot Topic Collateral Substitutions Requirement for substitution of project collateral Collateral must be similar in nature (e.g., real property for real property) The substitution must be needed to support the business operations of the OC There should be sufficient equity in the collateral to adequately secure the SBA loan after the proposed substitution Financial statements should reflect the borrower has the ability to pay all of its obligations that will be outstanding after the substitution

8 Hot Topic Collateral Subordinations Requirements for Subordinations (No Cash Out) All CDCs have delegated authority to approve No Cash Out Subordinations as long as it adheres to policy: The refinance is on more favorable terms for the borrower There is no increase in the principal balance of the loan other than for reasonable and customary closing costs No prepayment penalties allowed (copy of payoff letter from TPL) The subordination will not otherwise adversely affect the priority of the lien securing the SBA loan

9 Hot Topic Collateral Subordination Requirements for Subordinations (Cash Out) New loan funds must be eligible for SBA 504 financing Improvements to project property Purchase fixed asset equipment necessary for the operation of the small business concern Loan has paid as agreed Reasonable closing costs can be added (No prepayment penalties) Action does not adversely affect the priority of the CDC/SBA lien Term of the new loan equals or exceeds the term of the original third party loan

10 Hot Topic Release of Guarantor Release Guidelines: Full information as to the terms and conditions of the proposed transaction Demonstrate minimal risk to the Agency Status of loan: Current No unjustified delinquencies No unpaid taxes Financial analysis Remaining obligor(s) must equal or be better than the obligor(s) being released

11 Hot Topic Loan Assumption Assumption Guidelines Take over the Borrower s legal obligations and benefits under the Loan Documents Should be the primary owner of the business Must have the ability to repay the loan No collateral should be released No subordination unless funds will be used to make improvements to the collateral Original obligors will not be released without SBA s prior written approval

12 Hot Topic - Deferments A deferment is a temporary solution to a temporary problem. All CDCs may defer up to 6 months under unilateral authority Only PCLP designated CDCs may approve deferments up to a year under unilateral authority. However, the deferments must be granted in increments of up to a maximum of 6 months per deferment Catch up plan no greater than 10 years Status of TPL and Real Estate Taxes (delinquencies must be addressed) All CDCs must justify the basis for the deferments in their loan file

13 Hot Topic Insurance Checks Endorsement of checks: All CDCs may endorse insurance checks in an amount of $100,000 or less on behalf of SBA under their delegated unilateral authority as long as the funds are used to repair/replace collateral or pay down TPL Checks over $100,000, only PCLP designated CDCs may endorse insurance checks on behalf of SBA When CDCs are utilizing their delegated authority, they must document their file accordingly to ensure the proceeds are used toward repairing/replacing SBA collateral or principal pay down of TPL

14 Most Common 504 Servicing Issues Including prepayment penalty on subordinations Prepayment penalty will have to pay this out of pocket or be submit to HQ as an exception to policy, if justified. CDCs submitting request which they have declined Request do not include required documents (payoff letter from TPL, appraisals if applicable, credit memo)

15 Resources 504 Loan Authorization SBA Servicing and Liquidation SOP SBA Loan Processing SOP 50 10, in effect when loan was approved 13 CFR Parts and CDC Action Matrix

16 Little Rock Servicing Contact Information Fax: Shirley Walls Supervisory Loan Specialist Ext. 308 Dustin Allen Loan Servicing Assistant Ext. 226 Johnnie Green Loan Specialist Ext. 233 Velma Hardin Loan Specialist Ext. 270 Beverly Newborn Loan Servicing Assistant Ext. 305 Joel Tittel Loan Specialist Ext. 282

17 General Information-Links When submitting a request, make sure you receive a response that we have your action!!! Useful Links: SC (General Directory) Electronic Loan Files: We store all files and s s: Want to know more about SBA's Center in Little Rock? Come see us at... aprograms/elending/clc/index.ht ml Please direct ALL servicing inquiries and actions to LRSC.Servicing@sba.gov

18 What s Up Next 3:45 pm: Liquidation: Protective Bids, REO Management & Offers in Compromise Salon A 3:45 pm: Servicing Update: SOP 50 55, Chapter 6 & Chapter 8 Overview Salon B TRAI N I N G & E D U C AT I O N