IFS Articles and Industry Resources

In response to lender liability claims and disagreements between borrowers, lenders and regulators, Mike Ryan, President and CEO of Innovative Financing Solutions, seized on an opportunity. As a former Executive Vice President and Chief Lending Officer, Ryan decided to use his 33 years of experience to help financial institutions and business borrowers dealing with challenging commercial lending, legal and regulatory issues, as well as law firms handling banking and lending related issues. As a result, Ryan and a team of banking and finance executives possessing over a century of combined lending and banking expertise, formed the nationwide consulting firm, Commercial Credit Consulting Group, LLC (CCG). The CCG team offers a variety of consulting and advisory services including, but not limited to: lender liability, bankruptcies and fraud, loan forbearance and loan workouts, banking regulations and compliance, negligence/gross negligence issues, credit policy and loan administration, credit support, loan workout and collections, insider dealings and conflicts, and loan documentation review. The primary focus of CCG is to provide litigation support and expert services to law firms in banking and lending related matters. “Going forward, we see certain weaknesses within the commercial lending sector that include aggressive lending, uncertain economic conditions, and continued strict regulatory oversight and compliance requirements contributing to disagreements between borrowers, lenders and regulators. As a result of CCG’s combined knowledge and expertise, we are well-positioned to provide expert witness consulting and testimony, forensic document review, analysis and opinion and mediation services,” said Ryan. CCG’s President and CEO Mike Ryan is also President and CEO of Innovative Financing Solutions (IFS), a consulting firm serving financial institutions and business borrowers primarily located within the northeastern to southeastern U.S. IFS was recently recognized as one of the Top 100 fastest-growing, privately-held organizations by the Entrepreneurs’ Forum of Greater Philadelphia and a Philadelphia100 Award [...]

Lenders should always make a good faith effort to help delinquent Small Business Administration (SBA) 7(a) borrowers bring their loan current by considering potential workout strategies. However, in some cases a workout strategy may not be feasible and the immediate next step is liquidation. It is incumbent upon lenders to prepare for liquidation as proactively as possible, understand when it is appropriate to classify a loan in liquidation, and understand the necessary steps to develop and pursue a liquidation plan. Doing so will protect the interests of the lender and the SBA, potentially increase recoveries, and limit the possibility of a repair or denial during a guaranty purchase. Prepare Yourself The first course of action when a borrower is demonstrating signs of distress – such as as failure to provide financial statements, past due taxes, or increased frequency and duration of slow payments – is to obtain sufficient information to make prudent decisions. While the following list is not all encompassing, it highlights key considerations while you prepare for workout and/or liquidation: Review the loan file for deficiencies which could possibly be cured while the borrower may be cooperative Determine if the collateral and lien priority required per the Loan Authorization were properly perfected Obtain current searches – judgment, UCC, title, etc. Contact the landlord to determine if rent is past due (as applicable) Evaluate the status of tax payments Determine if senior lienholders are current and verify senior lienholder balances Order real or personal property appraisals to determine recoverable value (as needed) Obtain a signed 4506T and run tax transcripts if borrower financial statements cannot be obtained. If issues are uncovered during this process, try to address them with the borrower during a site visit or leading up to a site visit. Conduct a Site Visit The SBA requires [...]

The Small Business Administration (SBA) Guaranty Purchase process was developed by the SBA to evidence a participating lender has originated, closed, serviced, and liquidated a loan in accordance with SBA requirements and prudent lending practices before honoring the guaranty. The components of the 10 Tab Package should be understood by all levels of a lender’s SBA loan department as virtually all phases of the process are subject to scrutiny during a guaranty purchase. To follow is an outline of common questions raised by lenders in Innovative Financing Solutions’ network regarding this process. What must be included within the 10 Tab Guaranty Purchase Package? The following list is an outline of the 10 Tab components. The full package can be downloaded on the SBA’s website with detailed descriptions of the requirements for each component. Demand Letter Loan Authorization & Modifications Eligibility Information Legal Documentation Disbursement Documentation Transcript of Account Early Default (Origination information if loan defaults within 18 months of initial disbursement) Reconciliation of Business Personal Property Collateral Collateral Disposition General miscellaneous information including environmental documentation, care and preservation of collateral, SBA Form 159. The SBA has an expedited guaranty purchase process for loans of $350,000 or less which is an abbreviated version of the above. When should I assemble the 10 Tab Guaranty Purchase Package? Lenders should begin assembling the 10 Tab as early as possible in the loan process. We recommend lenders integrate 10 Tab components within their checklists, filing system, and pre-closing/post-closing audit processes. This will ensure documentation required through origination, loan closing, and disbursement are adequately documented while a borrower is cooperative. If this process is followed, the balance of the documentation requirements consist of servicing and liquidation related documents only – limiting the need to backtrack and locate documents that should have been obtained earlier in [...]

Small and mid-sized businesses often struggle to find financing sources for a myriad of borrowing needs including the financing of machinery and equipment (M&E) to modernize or expand their business. These businesses operate in numerous capital-intensive industries including (but not limited to) manufacturing, construction, transportation, and distribution. And it’s not only capital-intensive businesses that need equipment – the services sector is in constant need of technology and other less durable equipment. For many of these businesses, the ability to acquire and finance equipment can determine their ability to successfully compete in today’s economy. Most often, companies seek financing for M&E from traditional lending sources such as community or regional banks or credit unions; and in some cases they can also attain financing from the equipment manufacturer, distributor or reseller via a vendor finance program – offering both loans and leases as financing options. But what happens when your prospective borrower does not qualify for conventional financing or financing from any of these sources – including your own lender? What are your options as a lender to provide financing to borrowers with “storied credits” seeking financing for machinery and equipment? For many established businesses that do not qualify for conventional financing such as startups or in situations where there is a collateral shortfall, the solution can be a loan backed by the Small Business Administration (SBA) – which offers excellent programs for machinery and equipment acquisitions. This solution allows lenders of all sizes to keep these “storied loans” in their portfolio as earning assets – avoiding an otherwise lost opportunity for portfolio growth. The lender also retains control over the underwriting and funding of the transaction. The SBA’s involvement includes reviewing the loan application submitted by the lender to ensure the loan request meets the SBA’s eligibility and credit standards, and [...]

Innovative Financing Solutions (IFS) is proud to announce the launch of our fully redesigned website, www.innovativefinancingsolutions.net. This new website has been redesigned with our clients in mind – providing simple navigation, streamlined menus and useful information about our many products and services. We encourage you to visit and explore our website to learn more about our highly qualified team, company history and IFS’ full suite of services offered to both Lenders and Business Borrowers. A new feature of the new IFS website is the Articles/Resources link – providing access to articles authored by the IFS team – covering current lending topics, useful industry insights as well as Lender and Borrower educational articles. Visitors may register for the IFS Viewpoints newsletter, by clicking here. We look forward to staying connected with our clients and prospects and encourage your feedback!

As community and regional banks continually strive to expand their lending capabilities, it has become increasingly important to understand the many guaranteed loan programs offered by the federal government. Understanding the scope of these programs can significantly impact a bank’s ability to expand beyond its traditional “footprint,” while adhering to strict bank underwriting and regulatory requirements. An often missed expansion opportunity for many banks is lending in rural areas – an area of lending the U.S. government has been supporting with government-guaranteed loan programs since the Depression. The United States Department of Agriculture (USDA) provides loan guarantee programs designed specifically to facilitate loans to credit-worthy rural businesses through its Rural Development Business and Industry (B&I) Guaranteed Loan Program. This program guarantees loans made by B&I program eligible lenders with the goal of creating economic prosperity for Americans living in rural areas. While both SBA 7(a) and B&I loan programs provide loan guarantees, the programs operate independently. To qualify for the B&I program, borrowers must be located in areas other than a city or town that has a population of greater than 50,000 residents and the urbanized area contiguous and adjacent to such a city or town. Similar to SBA 7(a) and other loan programs, lenders originate B&I loans to businesses and consult on these loan opportunities with each individual state’s USDA Rural Development (RD) state office. RD has an extensive network of state and area offices that work closely with lenders in processing and servicing B&I loans – enabling lenders and borrowers to work with a loan specialist in their state throughout the entire loan process. Program eligible lenders are responsible for the preparation of the loan application, ensuring credit quality of the borrower via comprehensive credit underwriting, creating the required loan documentation, distribution of loan funds, and loan [...]

One of the critical requirements the lender should follow relative to the proper closing of a Small Business Administration (SBA) loan, is ensuring the use of proceeds are properly documented in accordance with the lender’s credit approval and the SBA Loan Authorization (Authorization). Documentation supporting the use of proceeds is highly scrutinized during an SBA audit, and errors are one of the most common reasons for a “repair” during a guaranty purchase – which is closely reviewed in connection with early defaults. Taking measures to properly document the use of proceeds can minimize costly loan guarantee repairs or even full denial of the SBA guarantee. Lenders must disburse loan proceeds in accordance with the Loan Authorization. However, the SBA does permit the lender to disburse loan proceeds to the borrower as working capital even when the specific loan proceeds are not detailed within the Authorization as long as the amount does not exceed 10% of the specific purpose, or $10,000 (whichever is less). If there is a required or requested change to the approved use of proceeds, the lender must submit a modification request to 7aLoanMod@sba.gov for approval by the SBA with detailed reasons for the proposed changes. Both the lender and borrower must complete and sign SBA Form 1050 at the time of the first disbursement. It is the lender’s responsibility to document the first and all subsequent disbursements by attaching the required documentation to the original SBA Form 1050 and the lender must maintain the documentation in the loan file – following procedures described in SOP 50 10. From this documentation, the SBA must be able to determine sufficient detail to support the following: The recipient of each disbursement; The date and amount of each disbursement; and The purpose of each disbursement. The following documentation is acceptable to verify disbursements [...]

One of the most important requirements of SBA lending relates to the lender’s monthly reporting requirements utilizing SBA Form 1502, Guaranty Loan Status & Lender Remittance Form. This form includes loan status information for all SBA guaranteed loans, regardless of whether the borrower made a payment in the current month. Lenders must submit these completed forms to the SBA’s 7(a) Fiscal and Transfer Agent, Colson Services Corp. (Colson). The due date for transmitting loan account updates and payments to Colson is the third calendar day of each month, or the next business day thereafter if the third calendar day of the month is not a business day, plus a two-business day grace period. SBA Form 1502 reports highly detailed information about each SBA loan including installment due dates, the amount disbursed during the current period, the amount undisbursed on the total loan, interest rate, guaranteed portion interest payments, guaranteed portion principal payments, interest paid to and from dates, ongoing SBA guarantee fees due, principal and interest participation remittances to investors who purchase the guaranteed portion of the loan, prepayment/payoff information, and liquidation status information. The importance of properly completing this form cannot be understated. To follow are the most common, but avoidable errors lenders make when completing this form and tips for accurately completing Form 1502 monthly. Failure to report approved loans which are undispersed. Lenders often overlook including undisbursed loans within the 1502 report. To avoid an error from Colson, the lender must simply report a status code “9” associated with all fully undisbursed loans in the Form until the loan is closed and disbursed. Failure to accurately report payment or disbursement activity during the month. ALL payment and disbursement activity during the month must be reported on Form 1502; however lenders often prepare this form early and neglect [...]

Many community banks have seen their deal pipelines grow over the past several years as the effects of the recession and lending meltdown have faded. Today, new financing opportunities are abundant, and many lenders need to do little more than answer the phone to find a business owner in need of financing. Nevertheless, it is very important to plan beyond the present surge in loan demand and continually focus on building and maintaining a database of prospective business customers. Most commercial lenders rely on networking sources and centers of influence for new business referrals with no complementary strategy implemented to generate new customer relationships when market demand softens, or the referral flow dampens. One alternative to finding new business outside of networking and utilizing referrals is the implementation of a Lead Generation Program designed to target business owners within a lender’s targeted geographical markets that meet specific criteria based on well-defined metrics such as revenue size, SIC or NAICS codes and industry focus (such as manufacturers, distributors, service companies, professional services and specialty industries – including hotels/motels, self-storage, healthcare). This targeted approach to new business development enables banks to reach hundreds or even thousands of quality prospects and build a valuable prospect database over time. By outsourcing to a qualified lead generation company (service provider), banks can cost-effectively reach new prospects when a full calling campaign is conducted with the goal of setting new in-person appointments with borrower decision makers. When using these service providers, all of the prospect’s data is captured, managed and maintained by the service provider, and the program information and metrics gathered are property of the bank – available on demand. Program costs vary depending on the size of the universe of prospects and the term of the Lead Generation Program. A typical 200-hour pilot program [...]

Changes in the SBA’s SOP – An Expert’s Guide Though the Maze (Part 2) Having identified and examined changes to the Small Business Administration (SBA) Standard Operating Procedures (SOP) in Part 1 of this article series (published in December 2017), Part 2 will explore additional changes Innovative Financing Solutions believes both lenders and borrowers should understand when utilizing an SBA loan for their new and continuing financing requirements. This article highlights additional important revisions in the new 410-page SOP 50 10 5(J) document (in addition to the changes outlined in Part 1), covering: Change of Ownership Credit Underwriting Standards Franchise Affiliation Change of Ownership Under the SOP, applicant(s) and co-applicants may use loan proceeds for a change of ownership, whether the change of ownership is accomplished through a stock purchase (including a stock redemption) or an asset purchase, under specific circumstances as outlined in the SOP. Additionally, an SBA-guaranteed loan cannot be made solely to an individual – the small business must be either the borrower or a co-borrower. An important change to the SOP is that if the borrower will be acquiring the small business’s real estate in a separate transaction with a non-SBA guaranteed loan, the SBA loan must receive a shared lien position (pari passu) on the real estate with the non-SBA guaranteed loan (this provision does not apply if the business real estate is being financed as part of a 504 project). Also noteworthy is that the seller may not remain as an officer, director, stockholder or key employee of the sold business. However, if a short transitional period is needed, the small business may contract with the seller as a consultant for a period not to exceed 12 months including any extensions. When the purchaser is an ESOP or equivalent trust and is acquiring a controlling interest (51 percent [...]