COVID-19 Lender Resources: Loan Modifications

COVID-19’s impact continues to be widely felt. For the SBA lending industry, this is particularly important because Section 1112 of the CARES ACT—which permitted the SBA to make up to six months of payments for SBA borrowers—closes at the end of September. In October, payments will resume as normal for most clients in your portfolio. Some businesses will be ready to make their monthly payment. Others will not.

What are the options for businesses that won’t be ready? Barring any additional relief packages from Washington, the answer is a loan modification. Our team at Prudent Lenders is anticipating a wave of forthcoming modification requests. Our team has a plan that will allow us to be proactive and to stay ahead of the wave of requests. Please carefully read and consider the following notes and instructions.

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Roles and Responsibilities

As we gear up to help small businesses together, it’s relevant to highlight our various roles and responsibilities. We have a common saying at Prudent Lenders: You as a lender, are our client. We exist to help you serve your clients—small business owners.

Your role as a lender is to work with your borrowers to understand their unique situation and identify their unique needs, if any.

Our role at Prudent Lenders is to work with you (lenders) to ensure what you seek to do and accomplish on behalf of your client is SBA compliant. We may need to obtain approvals from SBA and secondary market investors to achieve this.

How to Request a Loan Deferral

Prudent Lenders is working with lenders to provide payment assistance or deferrals to their clients, as requested. This assistance can modify a business’s monthly payment to help them through this moment of economic crisis. Please use this digital form to expedite deferral requests. Calls are always welcome, though we ask clients recognize the high volume of client communications we’re receiving at this time.

Prudent Lenders is not advertising deferments and we don’t believe lenders should advertise them either. It is, however, our sincere desire to work with you and your clients to defer payments and make loan modifications, as appropriate, while keeping your loan in compliance with SBA policies.

You can also identify shuttered businesses and those that will not be eligible for a modification by completing the deferral request below.

What Information is Required for a Deferral Request?

The required information listed below is standard for most loan deferral requests. We encourage you to click on the digital referral request form to see the requested information and/or complete the request. The form collects the following information:

Borrower name (legal name and dba, if applicable)
Contact information (Owner(s) name, email address and phone number)
SBA loan number
Type of business
Has the borrower contacted other creditors/debtors for payment relief? If yes, detail outcome.
Summary of impact on business due to COVID-19
Has the business obtained a PPP Loan? If so, from whom and how much?
Has the Borrower obtained an EIDL Loan? EIDL Advance? If so, how much?
Length of deferment requested (in months).

These questions, and more, are also included in a survey we’ve developed that will help you determine your clients’ needs (more on this below).

Best Practices for Loan Deferral Modifications

Proactively reach out to your clients: Don’t wait for a business owner to call you, call them first! To this end, we’ve created an on-demand video on this topic and a sample business survey, which will prove invaluable if and when you need to populate a modification request on their behalf.
Develop a complete understanding: When speaking with a client, obtain a sound understanding of their business by digging deeply but appropriately into their current situation. The sample survey can serve as baseline questions. The SBA will want to tie current business performance to the current economic situation. You’ll be a step ahead by collecting specific information from your borrowers upfront.
Find the right terms: It’s worth repeating that we strongly encourage lenders to speak openly and candidly with business owners and to identify the appropriate length of a deferral. It’s crucial to land on terms the client can afford.
Perform a site visit: You may consider visiting business owners depending on individual situations and limitations. If you perform a site visit, document it with pictures and notes (this sample site visit form can serve as a guide). For closed businesses, or those in the process of closing, a site visit will be required by you or a third party. In such cases, let us know in the loan deferral request form that we discuss above. We’ll begin working on a liquidation plan in place of a modification for closed or closing businesses.
Reminder: Sending monthly payment reports to the team at Prudent Lenders ensures our team has accurate and current loan balances to streamline modifications.
ShareFile: Please use ShareFile to provide the information we require to complete the loan modification. If you need an update on ShareFile, please review this video.

Frequently Asked Questions

How can lenders request a deferral for their borrowers?

We have created an online form where lenders can request a loan deferral on behalf of their borrowers (please use this same form to identify shuttered businesses).

What is the process for requesting payment assistance?

Justin Nadeau and our loan modifications team will handle all requests. The online form – to be completed by lenders – will be directed to Justin and his team.
You should expect an email confirming receipt within one business day of submitting the form.
As previously noted, to tee the deferral up for success please prepare possible modification terms with your borrower. Determine what they can afford and the necessary length of the requested deferral.
When we receive and review the required information, the Prudent Lenders team will prepare a memo to document the approval of the “Note Modification.” Lenders will coordinate signatures to fully execute the document.
We will notify and/or request approval from the SBA and/or secondary market investors, as needed.

What are the typical timelines?

If a servicing action (e.g. loan modification) is unilateral, documents for signature will be distributed within two business days of the approved memo.
Requests for payment assistance, which are considered non-unilateral, will be sent to the SBA and/or investor within four business days of receiving all required documentation.
If the action requires SBA and/or investor approval, the SBA can take up to 15 business days (may take longer with high volume due to COVID-19) and the Investor can take up to 30 days to approve.

Can I extend the loan maturity?
Per SBA policy, you can extend the maturity of a loan for up to 10 years from the original maturity date. The benefit of extending the loan maturity is a reduction in monthly payments.

How long can I defer a payment?
The length of time that a payment can be deferred depends on whether the loan has been sold. If the loan has been sold, you, as the lender, have a one-time, unilateral authority to defer the loan for 90 days (principal or principal and interest). Any alternate deferral arrangement—including maturity date extensions—requires investor approval. If the loan has not been sold, you may defer payments for up to six months under your unilateral authority. Any additional length of time requires SBA approval.

Can I add the deferred payments to the end of a loan?
No, per the SBA you cannot add deferred payments to the end of the loan as there cannot be a balloon payment at the end of the term.

As a lender, what do I do when asked to provide a note modification?
First, develop a sound understanding of the borrower’s circumstances. Second, use the payment assistance request as an opportunity to bring loan files current. For example, if a business has not provided tax returns for the most recent filing period, outstanding items should be requested at the time of a loan modification. Prudent Lenders provides a list of outstanding items on every loan file to your organization each month. We strongly encourage you to request any missing information as part of your consideration for payment assistance. However, deferrals will not be held up if a client fails to provide outstanding documents in their loan file.

What status code do I use on SBA 1502 when a loan is deferred?
Status code 4