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Meramec Regional Planning Commission & Meramec Regional Development Corporation
- 1. Your local small business financing resource for rural Missouri Meramec Regional Planning Commission & Meramec Regional Development Corporation—not for profit lending arm
- 2. Introduction: Formed as a 501(c)3 in 1994 SBA authorized CDC 25 Member Board Operate the following loan programs: SBA 504 & 7(a) packaging EDA RLF USDA IRP Microenterprise Grow Missouri USDA B&I packaging
- 3. Introduction Continued: Portfolio size by program: SBA 504—31 loans $7.6 million EDA RLF—13 loans $734k USDA IRP—8 loans $409k Microenterprise—6 loans $119k Grow Missouri—2 loans $116k 60 loans/total portfolio $8.9 million Administration budget $151k
- 4. Collections Process: Written notice Contact borrower Contact participating bank Site visit Request financials
- 5. Collections Process continued: Financial Analysis Cash flow AR & inventory Operating expenses COGS ST Liabilities LT Debt Owner’s equity
- 6. Collections Process continued: Late fee assessment Demand letter Catch-up Deferment Wage garnishment Collection costs added to loan
- 7. Loans in Default: Assess & collect collateral Negotiate for sales proceeds Negotiate for better collateral position Address bankruptcy filing Allowance for doubtful collections
- 8. Lessons Learned: Perform upfront due diligence Loan classification rating Regularly assess the loan risk Monitor changes in future repayment ability Early detection of problems Loss provision
- 9. Lessons Learned continued: Loan Autopsy—post mortem review Evaluate loan within 90 days of write-off Identify signals for future loss prevention: Incomplete or late financials, tax returns, etc. Economic conditions—borrower & local market Poor/Low credit scores & negative info reported
- 10. Lessons Learned continued: Identify signals for future loss prevention (cont.) Taxes not paid Exceptions to credit policy Collateral perfection Accounts Receivable/Inventory Bank /Loan Documentation Past dues Overdrafts Appraisal reviews Environmental Issues
- 11. Obstacles & Challenges: Partnering bank non-responsive Borrowers non-responsive Poor communication Unable to workout options for recovery No indication borrower is in trouble Bankruptcy—an easy out Borrowers lack of financial management skills Lack of financial analysis
- 12. Plan for Success: Foster relationship with bank & borrower Get involved early and stay involved Put in place a risk rating system Retain a qualified attorney
- 13. Plan for Success Continued: Open communication Try to be helpful Early detection of problems Financial analysis Restitution options
- 14. Successful Collection Stories: Wage garnishment Co-guarantor negotiation Collateral sales proceeds Improve collateral position
- 15. Questions? Meramec Regional Planning Commission Linda Loughridge, Fiscal Officer #4 Industrial Drive, St. James, MO 65559 PHONE: (573) 265-2993 extension 106 EMAIL: LLoughridge@MeramecRegion.org VISIT US ON FACEBOOK: https://www.facebook.com/meramecregion Thank you!
Editor's Notes
- MRDC was created to encourage growth of local economies by partnering with area lenders to provide innovative financing utilizing the various small business loan programs offered to the region. The various types of loan programs include: SBA 504 RLF IRP Microenterprise Grow MO SBA 7(a) loan packaging services USDA Business & Industry loan packaging services Formed as a 501(c)3 in April 1994 and became an SBA Certified Development Company following formation. 25 member board of directors—3 members per each of the 8 RPC county and 1 MRPC at-large member.
- MRDC was created to encourage growth of local economies by partnering with area lenders to provide innovative financing utilizing the various small business loan programs offered to the region. The various types of loan programs include: SBA 504 RLF IRP Microenterprise Grow MO SBA 7(a) loan packaging services USDA Business & Industry loan packaging services Formed as a 501(c)3 in April 1994 and became an SBA Certified Development Company following formation. 25 member board of directors—3 members per each of the 8 RPC county and 1 MRPC at-large member.
- A borrower who is delinquent or is showing a pattern of late payments is contacted by a written notice after 10 days and by phone 30 days after the payment due date. The participating bank is also contacted to determine if there are any known problems or reasons for the delinquencies. Staff will determine if it is necessary to conduct a site visit to the business and inspect the collateral, request the borrower to submit additional statements or speak to the board concerning the delinquency. Staff will continue to monitor as necessary.
- It will be at the board’s discretion to approve when late fees should be assessed. Typically waived for the first 30 days and depending on the situation may be waived altogether. Late fees will be assessed and applied to a delinquent loan after 30 business days past the due date with a minimum charge of $25 and a maximum charge of 5% of the loan payment amount, whichever is greater. The loan officer may grant a waive of the first assessed late payment fee. However, if there are additional delinquent activities by the borrower, the borrower must submit in writing or present to the MRDC board a request for an exemption of late payment fees. MRPC’s retained attorney will be contacted to send a demand letter to the customer after 90 days. If borrower does not respond by the date to arrange for payment or discuss other options, the attorney will be contacted to start the garnishment of wages process. Only start up projects may be granted up to one year deferment of principle. Three or six month deferment options may be recommended to assist in the business’ cash flow. All deferments must be approved by the board. All reasonable collection costs will be added to the total principal owed.
- The key is to have a good working relationship with the participating bank and act fast. Hopefully, you have done everything within your power to secure adequate collateral—even personal residence if necessary. Be familiar with the project…did the participating bank have a guarantee from SBA 7(a)? If so, don’t be afraid to negotiate for a greater portion of the proceeds from the sale of the assets. If the proceeds from the sale of assets decreases the participating bank’s funded portion of the project, negotiate a better collateral position. Engage your retained attorney early in the process of delinquent and/or defaulted loans. Timeliness of sending the demand letter, filing a petition for wage garnishment or filing a bankruptcy proof of claim can make a difference in recovery of assets and restitution. When all resources have been exhausted, account for the loan write off. Allowance for doubtful collections will be made for those accounts where payment is not expected to be received after reasonable pursuit of collections has been attempted. This doesn’t mean you have to give official debt forgiveness. Maintain records of all unpaid/written off loan receivables and should the customer request service in the future all unpaid debt will be required upfront or if take advantage of any opportunity to collect through a future wage garnishment should the borrower obtain gainful employment.
- Create a loan classification system. For example, Risk rating 1 to 5 where 1-2 is no adverse classification 1-pass no indication of deficiencies, 2-special mention or put on a “watch list” (current financial condition, while functionally adequate, may be deficient in a number of categories exclusive to cash flow to secure debt), 3-5 is adversely classified 3-substandard, 4-doubtful, 5-loss Monitor the changes closely, engage your board members, partnering banks, borrowers, etc. to assess and work on turning the ship around. This may require working one on one with borrower to determine what is causing the cash flow issues—need to increase price in product or service?, etc.
- Post mortem review will provide an opportunity for hindsight analysis by dissecting each problem loan that ends negatively typically write-off.
- Post mortem review will provide an opportunity for hindsight analysis by dissecting each problem loan that ends negatively typically write-off.