The Main Street Lending Program (MSLP) is available until September 30, 2020, for businesses impacted by the COVID-19 pandemic. The Federal Reserve program is designed to help businesses with their capital needs to weather the challenges posed by the pandemic recovery. Due diligence and public records filings play an essential role as businesses take on additional debt through government programs during economic difficulties.
How can lenders best comply with the program’s due diligence requirements guidelines?
Under the Federal Reserve Bank (Fed) guidelines, the lenders are expected to follow standard underwriting procedures to approve Main Street loans, including performing acceptable due diligence — which may include searching for UCC liens, federal and state tax liens, litigation records, and bankruptcies.
Also under the program’s guidance, lenders should perform filings for all secured loans, and may be required to show lien position when the Fed takes partial ownership of the loan. Hence, it is important to have visibility of all outstanding liens against the borrower to fully measure their creditworthiness.
Filing and lien management requirements for lenders
Program guidance requires a lien filing to be made in the appropriate jurisdiction for secured loans, and the lender may be required to show its lien position when the Fed takes partial ownership of the loan. Conducting a search-to-reflect after the filing can show this information. Further, maintaining perfection of the lien remains the lenders responsibility. Monitoring the lien as well as the borrower’s financial health, ensuring continuation of a lien prior to expiration and the ability to automate these activities are part of a strong lien management protocol.
Lenders can be prepared for potential government audits
Lenders should be prepared for an audit or inquiry by the government because the program is government-sponsored. They should follow standard underwriting and due diligence practices to show compliance to the MSLP guidelines. It will be important that lenders are able to flag or segregate Main Street Lending Program loans for visibility and reporting purposes, easing their ability to respond to auditor and bank examiner requests to see search and lien information.
Because of this, as well as any trigger events like payment delays or bankruptcy, lenders need full traceability of actions. Implementing the right lien management program can help them meet the requirements of MSLP and future lending opportunities.
If you are a lender involved with the Main Street Lending Program, we can help you manage the requirements and provide superior service to your customers. Learn more about iLien for Main Street or call us at (800) 833-5778.