In the wake of an expected wave of defaults by U.S business borrowers, the nation’s lenders are best advised to apply risk management practices to set the stage for long-term growth when issuing new loans and participating in federal lending programs. That’s according to Wolters Kluwer Lien Solutions, writing in a new Thought Leadership article. 

“Ultimately, the COVID-19 pandemic is an opportunity for lenders to differentiate themselves from the pack, ” notes Raja Sengupta, Executive Vice President and General Manager for Wolters Kluwer Lien Solutions and co-author of the article which has been published by The Financial Times’ Banker magazine. “The health of the borrower base, critical flaws in existing infrastructure and the ability to maintain compliance have been exposed, yet with careful planning, weaknesses can be shored up and the stage can be set for long-term growth with access to guaranteed loans and potentially weaker competition. Careful balancing of short-term survival and a long-term outlook could prove to be a windfall in the years ahead.”

Setting the stage for long-term growth should be top of mind for every lender, given the ongoing COVID-19 pandemic, Wolters Kluwer notes. Those lenders who successfully balance surviving the next three to six months with making the right longer-term decisions for their shareholders, employees and customers will be well-positioned to benefit from the subsequent recovery and growth phases, which could last several years.

Lenders should be encouraged to work with their borrowers as this provides a critical opportunity to reduce risk on existing loans by way of increasing underlying collateral, ultimately strengthening customer relationships. “Customers remember businesses that helped them in times of need,” Sengupta adds.

Wolters Kluwer Lien Solutions, part of the Wolters Kluwer’s Governance, Risk & Compliance division, is a technology and service provider of comprehensive lien management, debtor due diligence, monitoring, and risk management solutions to financial professionals. Its iLien suite of products addresses solutions for asset-backed loans, real-estate, and vehicle title processing and management to help simplify complexity in lien lifecycle management, resulting in more confident lending decisions.

In early July the company launched its iLien for Main Street solution – a technology solution devoted to helping U.S. lenders optimize their due diligence and lien management efforts when securing loans for small and medium-sized businesses under the “Main Street” lending program. Main Street lending is part of the U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

As previously reported, The Main Street Lending Program helps small and medium-sized businesses adversely impacted by the COVID-19 crisis via the issuance of special loans to help maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic. The $600 billion Program offers five-year loans, ranging from $250,000 to $300 million, with floating rates and deferred principal and interest payments to assist businesses facing temporary cash flow interruptions.

Lenders participating in the Program are expected to follow their current practices and procedures, including those relating to due diligence and perfecting liens on collateral security (if any). Where a lender would normally require a loan to be secured, it must take all necessary steps to ensure that its lien on such collateral is perfected and complies with the security and priority requirements set forth in the Program. iLien for Main Street reduces the manual burden of ensuring compliance and supports management of the lien throughout a Program loan’s lifecycle.

"We are uniquely positioned to offer lenders a secure, compliant and holistic way to help manage their Main Street Lending Program loans within one system through our iLien management technology that supports the Program," said Sengupta in a press statement. "Our technology fundamentally improves lenders’ ability to holistically view their lien portfolios, including Program loans, in a way that helps mitigate risk and improves the quality and efficiency of their operations. Having one place to manage liens is particularly crucial for audit and traceability, given the government’s involvement in the Program."

Notably, iLien for Main Street is customizable and includes several critical functionalities, including eFile. “Lenders can, for example, create special Program search packages for their employees to use to help ensure consistency and simplify the due diligence process,” the company added in its statement. “Search packages can include due diligence grade searches, which help verify a borrower’s Certificate of Good Standing, featuring a UCC lien search to help lenders understand other rights to the collateral. This is in addition to federal and state tax lien, litigation and bankruptcy search capabilities to understand other liens on the debtor.”