When a SBA Loan is in default, one of the most important steps that a SBA Lender can take to avoid a potential repair is to conduct a site visit.
Site visits must be conducted in a timely manner to meet SBA’s SOP standards for Care and Preservation of Collateral. The two primary rules for a timely site visit are as follows:
- On a payment default the site visit must be conducted within 60 days of the payment default.
- On a non-payment default, the site visit must be conducted within 15 days of the adverse event which could be the filing of a lawsuit against borrower, the borrower filing bankruptcy, or the business closed.
A SBA lender needs to do certain things to prepare for the site visit. They include a review of the loan file specifically the collateral documents such as UCC statements and searches, potential subordinations, landlord waivers, mortgages, assignments of rents, and title insurance documents. The objective is to have a clear position of the collateral that we have. It would be appropriate to conduct a new lien search at this time as well. If the collateral is on leased premises, you should contact the landlord to get access to the property and find the status of rent payments. The lender should also check to make sure taxes including property, payroll, and income have been paid. Finally, a review of the most current appraisal of the assets is in order and determination if a new appraisal is needed. If the appraisal is not current, a new appraisal of the assets should be ordered.
The goal of the site inspection should be to inspect and inventory the collateral items. This would include checking the list and reconciling it with the original collateral information as well as assessing the condition of the collateral. Digital pictures are something that helps to verify the existence of the collateral and the condition of the collateral. Another goal of the site inspection is to aid in the establishment of the potential recovery value of the collateral on the loan. Other goals of the site inspection include:
- Determining whether the property is occupied or vacant.
- Assessing if there is environmental risk.
- Gathering information for the preparation of a liquidation plan.
- Evaluating the possibility of a workout with the borrower.
- Repossessing personal collateral if appropriate.
- Developing a plan for the Care and Preservation of the collateral including securing the property and making sure that you have insurance coverage on the collateral.
- Evaluating if any repairs or cleanup are necessary on the property.
The site visit needs to be documented with a memorandum that touches base with the various goals of the site visit and the addition of digital pictures helps to complete an appropriately documented site visit.
A proper site visit can help mitigate a possible repair on a non-performing SBA loan. If you need assistance with non-performing SBA loans or need more information on how to conduct an appropriate site visit, do not hesitate to contact me at firstname.lastname@example.org.