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Thread: Revolving loan funds and loan underwriting

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    moderator in moderation Suburb Repairman's avatar
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    Revolving loan funds and loan underwriting

    Our City has a Revolving Loan Fund that has been dormant for about five years. Apparently it slipped under the radar. We have rediscovered it and want to use it for downtown business rehabilitation loans. Our problem is that no one in the office has extensive experience with loan underwriting--the closest we come is examining viability/feasibility for projects requesting incentives. Can anyone offer suggestions on training or other resources to get us up to speed on the loan underwriting process for a government loan program?

    "Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country."

    - Herman Göring at the Nuremburg trials (thoughts on democracy)

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    Cyburbian Mud Princess's avatar
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    Is it a CDBG-funded loan program? I know a consultant who is an expert in loan underwriting for the CDBG program... and there are probably resources also available through HUD for this sort of thing.

    Another possible route is the Economic Development Credit Analysis course available through the IEDC in partnership with the National Development Council. The course is offered periodically in different locations; the next one is in March in Albany, NY. See:

    http://www.iedconline.org/?p=Training_Credit_NY
    Last edited by Mud Princess; 28 Feb 2007 at 9:22 AM. Reason: Additional information

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    Cyburbian Brocktoon's avatar
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    Have you thought about setting up an underwriting committee made up of loan officers and underwriters from local banks and credit unions? Since its been dorminant for the past several years I am guessing you are not expecting to see a flood of applications so a review committee might be the best way to handle it.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

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    moderator in moderation Suburb Repairman's avatar
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    Quote Originally posted by Brocktoon View post
    Have you thought about setting up an underwriting committee made up of loan officers and underwriters from local banks and credit unions? Since its been dorminant for the past several years I am guessing you are not expecting to see a flood of applications so a review committee might be the best way to handle it.
    Apparently the problem with the RLF was we had some pretty stupid requirements that discouraged a lot of use--why would anyone take a loan set at prime+4 with all of our strings (just one of the weird things)? We are revising several parts of the RLF program and dropping the rate to prime-4, not to drop below 3%. We are expected greater interest once we re-launch it (we are already getting calls). I like the idea of creating an underwriting committee from area banks; my only concern is that their bank may be concerned that they are missing out on a loan opportunity. But that did make me think of a non-profit in the city that has done underwriting for one of their programs.

    The RLF is not HUD money, but comes instead from a state agency (and is not a HUD subrecipient program). However, the underwriting process needed is probably similar to a CDBG-funded RLF.

    "Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country."

    - Herman Göring at the Nuremburg trials (thoughts on democracy)

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    Cyburbian Mud Princess's avatar
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    Quote Originally posted by Suburb Repairman View post
    I like the idea of creating an underwriting committee from area banks; my only concern is that their bank may be concerned that they are missing out on a loan opportunity.
    Well, the idea behind the RLF should be to address gaps in financing. Businesses typically apply because they aren't eligible for a traditional bank loan (e.g., limited collateral and/or equity). Your underwriting standards will likely be different than what a bank requires.

    On the other hand, keep in mind that having bank lenders involved on your committee may provide an opportunity for them to develop their customer base and serve your loan recipients in the future... and banks may be willing to provide a limited amount of financial assistance at competitive rates.

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    Cyburbian Brocktoon's avatar
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    Quote Originally posted by Mud Princess View post
    Well, the idea behind the RLF should be to address gaps in financing. Businesses typically apply because they aren't eligible for a traditional bank loan (e.g., limited collateral and/or equity). Your underwriting standards will likely be different than what a bank requires.

    On the other hand, keep in mind that having bank lenders involved on your committee may provide an opportunity for them to develop their customer base and serve your loan recipients in the future... and banks may be willing to provide a limited amount of financial assistance at competitive rates.
    What she said...

    I bet that the banks would jump at the opportunity to sit on the committee. I have seen RLF that have a requirement that they must be rejected by a bank before they can apply with the RLF. This prevents the RLF from "crowding out" the banks in the area.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

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