Recently I contributed a guest blog for Lend Academy about strategies online small business lenders are using to manage non-performing loans (NPLs). The article discussed the pros and cons of two common strategies: working NPLs in-house indefinitely or turning them over to collection agencies at some point. I called both strategies outdated for newer business models.
It’s true but perhaps a bit harsh. Some companies are simply unfamiliar with a better option, which is managing NPLs in-house until charge-off, then selling them to a reputable commercial debt buyer.
Commercial debt buying is an accepted practice in financial services that is starting to catch on in online lending, too. A leading online small business lender is using it, for example, to earn cash on NPLs that can be poured back into generating revenue-producing loans.
One question I’m often asked is, how does a lender maintain control over accounts and preserve relationships with customers when selling their NPLs to a commercial debt buyer? That’s a fair question. After all, the lender hopes the customer’s finances will turn around someday so they can do business together again.
The answer is to talk to commercial debt buyers before giving them your business, and get their assurances in writing. Reputable buyers will focus on collecting the debts over time, without using the lender’s name and in a sensitive manner. They also won’t resell the debt. That way, a seller can always repurchase the loan from the buyer should any issues arise post-sale.
Learn more about Recovering Non-Performing Loans: Better Options.