Once a loan or lease reaches the charge-off stage, many companies sell them to commercial debt buyers. It’s a cost-efficient way to handle non-performing loans and leases that also generates money to fund more lucrative activities within the business. Just make sure the buyer or broker you are considering is a reputable one.
Like every profession, commercial debt buying has its good and its bad. Most commercial debt buyers and their brokers are reputable but a few are unscrupulous, and those few can create major problems for the lenders and lessors who deal with them.
I’ve seen some brokers show around portfolios without having signed non-disclosure agreements (NDAs) with the sellers, and in those cases our company, like other reputable buyers, refused to do business with them. In a few other cases, parts of portfolios have been sold off without the sellers’ consent.
Fortunately, separating the good from the bad is easy. Use this commercial debt checklist to ensure you are dealing with reputable buyers and their brokers.
- Discuss the commercial debt buyer’s philosophy, collection process, and security procedures. Get references from similar types of sellers.
- Make sure the buyer will collect debts over time, without using the lender or lessor’s name in a sensitive way when dealing with customers.
- Ask if the buyer will resell the debt. The answer should be “no.” This means you can repurchase the loans should any issues arise post-sale.
- Insist that the buyer (and its broker, when applicable) have signed NDAs before providing them with proprietary financial information.
- When approached by a broker, verify that he/she has an established relationship with a specific buyer and has done business with them recently.
- Make sure brokers use NDAs to protect all parties’ confidential information and discuss how the broker is going to share portfolio information, who will see it, how the NPLs are going to be collected, and if they could be re-sold at any point. The answer to the last question should be “no.”
Follow these steps and you will find reputable commercial debt buyers and brokers who will turn your non-performing loans and leases into cash.