Critical questions for assessing and monitoring problem loans

The volume of problem loans is expected to increase in the coming weeks. Asking and answering the right questions can help you assess your capabilities and start mitigating potential losses.

After you’ve identified problem loans, the next phase is comprehensive assessment and monitoring. Answer the questions below to help you evaluate problem loans and to start working with borrowers to find solutions.

Loan documentation review

Do you have the resources needed to review loan documentation and identify defaults, detect documentation deficiencies, and draft notification of default to borrowers?
Do you have a repository to store relevant documentation in a central location?

Borrower conversations

Are you touching base regularly with your borrowers to understand their challenges and plans?
Are you capturing the information from those conversations to protect your organization against potential claims of misrepresentation and misconduct?

Site visits

Are you inspecting places of business, corporate headquarters, or other facilities to gather additional qualitative information on performance and collateral?
Can you easily capture and organize the information you get from these site visits?

Financial condition assessment

Are you requiring additional financial items from borrowers, such as cash flow schedules, go-forward operating plans, and liquidity verification?
Do you understand how PPP loans are accounted for in financial statements?

Collateral valuation

Are you performing a comprehensive inventory of borrower collateral – inventory, accounts receivable, equipment, real estate, and other assets?
Do you have internal procedures and third-party sources available to inform collateral valuations?

Security perfection assessment

Do you have the resources and procedures needed to verify that the security interest in collateral is perfected?
Are you refreshing your searches to potentially identify additional liens on collateral?

Loan modification tracking

Are you tracking key data such as volume of deferrals in anticipation of likely regulatory requests?
Is your tracking informing analysis of your CECL model?

Pre-workout agreement

Do you have a pre-workout agreement drafted?
Are all problem loan borrowers signing the pre-workout agreement prior to communication to limit your liability?

Technology capabilities

Do you have a solution to manage problem loan officers’ workflows?
Does your solution facilitate consistent application of key accounting classifications and estimates?
Have you established robust borrower-level watched asset reporting and aggregate management reporting?

Missed our webinar, “Identify and Address Problem Loans with Technology and Foresight”? Watch the recording

Prepare for the coming wave of problem loans.

Protect your borrowers, your business, and your books with our technology solution.

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We can help you manage your problem loans.

Dave Keever

Principal, Financial Services Consulting

+1 317 706 2669

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