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The Commercial Loan Servicing Centers are responsible for the oversight on any new 503/504 liquidation cases. As part of the oversight responsibilities the Centers will work closely with the Certified Development Companies (CDC) to ensure that the Agency interests are fully protected. Your assistance with these cases is vital. The following initial actions are required to prepare for a potential workout and/or liquidation:

  1. Determine if a workout is possible. The first level of workout is determining if a deferment, assumption or change in third party lender terms will help resolve the situation. The next level requires purchase of the debenture to give the CDC greater flexibility.
  2. Get current financial statements for the business and guarantors. If the emphasis is initially on a workout if feasible, the borrower would be more cooperative in making current financial information available.
  3. Make a site visit. This should be integrated into the first effort to achieve a workout. Identify all significant collateral, and document its location and condition. Check inventory operating levels. If the business is closed, has the building been leased to another party or listed for sale.
  4. Contact the third party lender and determine the status of the lender’s loan. Obtaining the cooperation of the project lender is an integral part of a workout attempt.
  5. Recommendation for debenture purchase. If it is obvious that a workout will not work or whenever external factors warrant liquidation (bankruptcy/foreclosure, etc.) the CDC should recommend debenture purchase. Purchase is required before any liquidation actions can be taken.
  6. Determine if the borrower and guarantors will be cooperative. As soon as it is obvious that liquidation may be needed, the borrower’s level of cooperation may decrease.
  7. Order a lien search. For equipment and real estate, determine all liens on the property. Determine if real estate and other taxes are current.
  8. Order an appraisal for major collateral items. This expense will be covered by SBA as part of the liquidation.
  9. Determine if litigation is anticipated. Have your attorney review the facts and discuss the matter with SBA’s local District Counsel.

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