Managing Tracking Items in Today’s Environment
The world is changing quickly around us and will continue to do so in the months ahead. In the financial world, this means more concessions will be made, and requirements will be temporarily relaxed to keep us all marching on. Amid the challenges we’re all facing, it can be easy to let less-pressing needs fall to the wayside, however, it is important to be thinking about your commercial real estate (CRE) portfolio and the risks it may face in the months ahead.
During the economic crisis of 2007, I worked in loan operations for a commercial bank with a large CRE portfolio. Through a lot of hard work and sharp eyes, we were able to help many of our small business customers get back on their feet, stay open, and grow in the years after. Just like the economic crisis, eventually, the dust will settle again. There are many ways that banks and credit unions can be monitoring potential risks now to prevent fallout and assist in keeping these businesses afloat. Below are a few key areas for your financial institution to be monitoring during this time.
Normally, this time of year everyone is cranking out requests to collect annual financial statements, however, deadlines have been extended by the government until July. Have your tracking items been advanced to match? This is a simple way to cross some t’s, dot some i’s and keep reporting up to date while preventing incorrect penalties to your customers. It goes hand in hand with covenant requirements.
Real Estate Taxes.
It is also important to keep an eye on real estate taxes. Real estate collateral was hit hard in my home state of Florida during the economic crisis. Sure, you may be setting up options for payment extensions, but if your customer is not paying their real estate taxes, it will put your collateral at risk. Currently, there are no extension or deferment options in consideration for small businesses as part of the relief effort.
Are your UCC filings up to date? Monitoring and maintaining your lien position now could prevent issues on a current loan as your businesses try to stay afloat, whether through disaster relief or other available loan options. Insurance, rent rolls, title recordings, post-closing exceptions, and more. All of these (and more) may need to be considered for possible extension, if for no other reason than people are unable to complete the work needed to provide right now.
Loan and Line Renewals.
Lastly, are any concessions being made for upcoming loan and line renewals? What about construction in progress? Construction in certain areas has come to a halt to allow for social distancing and stay-at-home requirements. Getting on top of extensions and modifications now could help your team focus on the problems at hand and allow for time to see exactly how your business customers will be affected.
It is important to note that none of the above will be a one-time update/adjustment. The need to be flexible with requirements will likely need to happen several times at a minimum in the coming months and likely the next few years to allow small businesses to get back on their feet and keep your financial institution strong enough to assist.
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Posted on Friday, April 10, 2020 at 9:45 AM
by Lorraine Montuori