October 6, 2020

DebtX Insights: 3 Best Practices to Resolve Distressed Small Business Banking Loans

As we approach the end of the Deferral Periods, many banks are concerned about the volume of Business Banking credits being transferred into Special Assets.  The following 3 best practices can help you drive the best outcomes:


1. Focus on critical workouts to minimize time and expense, while maximizing recoveries

Banks are rightfully concerned about the sheer volume of loans being transferred into Special Assets, and whether they have the resources to handle them.  They recognize that the time and effort to handle small credits can be the same as large credits.

As workout officers have said, “It takes me as much time to work out a $100,000 credit as it does a $2,000,000 credit.”

Many banks are addressing the incoming flow based on a “time and expense” versus a likely recovery approach.


2. Benchmark recovery rates and performance

Real marketplace transactions can give you a sense as to what to expect in current market conditions – here are numbers from a recent portfolio sale we executed:  A mixed bank portfolio secured by commercial properties (56%), single family (16%), land (9%), and vehicles (7%). Unsecured credits represented 12% and about 30% percent of the portfolio was non-performing.

After four weeks in market, the loan portfolio received 12 firm, binding offers.  High bid equaled 125% of seller’s reserve price.  Seller received full proceeds, and sale closed in one week.

3. Get a no obligation quote on what to expect in a competitive bid offering

Recent strong demand by the buy side for Business Banking loans has resulted in elevated investor participation and hence elevated level of bids. Get a real-time view of the current competitive pricing.

If you are interested in a no-cost, no obligation evaluation of your small business portfolio, please Contact Us.