Why Annual Financial Reporting Benefits Both Borrower and Lender
We thought it would be helpful to highlight the benefits of annual financial reporting to both borrowers and lenders. Some borrowers don’t focus on the annual financial covenant requirements of balance sheet lenders vs. the more rigorous requirements of agency or CMBS loans, which frequently have quarterly reporting requirements. All banks, credit unions, and life companies have minimum reporting requirements that typically include a year-end income and expense statement, rent roll, and annual inspection.
This annual reporting is a critical part of the servicer’s annual loan surveillance responsibility and helps the lender understand how the loan is performing relative to the original underwriting and property performance over time. Additionally, the annual inspection helps the lender understand deferred maintenance or critical life safety issues while confirming rent roll and whether the property is occupied.
So how does annual financial reporting benefit the borrower?
- Better lender response to unforeseen issues: Nobody predicted how COVID would impact property performance, but those borrowers who regularly reported were better positioned to receive a timely response from lenders – which was critically important, with lenders handling a huge volume of requests.
- Third-party inspection: Many of our borrowers own single-tenant properties maintained by the tenant or utilize third-party management companies. These borrowers benefit from having the lender inspection bring up important issues that may need to be addressed or provide information that the borrower was not aware of (for example, the property being dark).
- Lower rates and better terms: Banks, credit unions, and life companies are regulated and do need to report loan performance. Loans that have not been reported may be placed on a watch list, triggering extra reserve requirements. This increases the cost of the loan and may make the lender review their current loan program. Certainty reduces risk, so those lenders who understand how their portfolio is performing are more likely to maintain their current lending programs.
- Repeat business/loan renewal: Borrowers who report regularly typically receive favored status from their current lender. Lenders who must chase a borrower to report or whose reporting is difficult to obtain typically is a factor in how lenders view extending additional credit.
The Slatt Capital servicing team is here to help all of our borrowers report properly. We pride ourselves in excellent service and we understand some of our borrowers might need additional assistance in lender reporting.