Due Diligence, Loan Documentation and Portfolio Management: Are Your Papers in Order?
Golden, Chrit, ABA Banking Journal
Commercial lenders are feeling more squeezed than ever to increase profit margins in today's competitive business environment. By adopting industry best practices and incorporating new technologies to increase efficiency and better manage risk, lenders can improve due diligence and loan documentation, retain flexibility according to their business needs, and reduce overall costs.
Responsible risk management begins with accurate searching. Accurate searching helps lenders get the whole picture before they take the risk. Some information is good, more is better, but the due diligence process often requires a high degree of manual involvement, using a variety of different resources to obtain information.
Increasing the efficiency and integrity of a financial institution's due diligence process can be achieved by focusing on three core areas: establishing clear-cut guidelines; obtaining accurate information from trusted sources; and reducing the number of locations from which data is obtained. Some ways to protect against defaulting debtors and high-risk loans include the following:
* Establishing minimum search requirements
* Increasing the accuracy of lien searches
* Reducing the number of locations where data is obtained
* Maintaining a central database of all search activity
Loan Perfection and "Paperiess" Portfolio Management
The loan process is challenging enough without having to master and manage the myriad of UCC filing details. Lenders often wish that a "uniform" process existed, but reality says otherwise. Research shows that many lending institutions employ a manual filing process that ultimately increases transaction time, the possibility of mistakes and overall cost. The majority of filing officers agree with the statistics: UCC1s are most often rejected because of incomplete and/or incorrect information and miscalculated filing fees. And the primary reason for subsequent UCC3 filing rejections is incorrectly entered data that does not match the original filing. These rejections create a considerable increase in risk and cost. While lenders would rather focus resources on generating more loan revenue, they are forced to contend with all the requirements needed to properly perfect loans and keep them that way. …