Policy on Collateral Loan Security for Small Business Loans Issued
by the Putnam Redevelopment Agency
Objective:
To secure the repayment of small business loans in default through
personal guarantees and the pledge of accessible collateral sufficient
to recover loan value.
Policy Requirements:
1. Pledge of Collateral: The Putnam Redevelopment Agency
shall use its best efforts to cover loan value with a combination
of accessible project collateral and non-project secondary collateral
and require such documentation prior to the approval of any small
business loan.
2. Value of Collateral: The Putnam Redevelopment Agency
shall require verifiable documentation of the value of all proposed
collateral. Asset value shall be calculated based upon up to 75-80%
of the appraised value of real estate, up to 90-95% of the documented
acquisition cost of equipment, if new, or 70-75% if used and appraised
at values corresponding with their remaining life expectancy; or
good and sufficient value reasonably expected to be recovered upon
auction or forced sale given the age, condition and market for such
assets.
3. Lien Positions: Agency loans shall be secured by a lien
position on project collateral acquired with loan proceeds; such
liens shall be at the highest level of priority which can be established
within the borrower's ability to raise debt and equity capital for
the project. The Putnam Redevelopment Agency may subordinate its
security interest up to a third lien position on project collateral
to commercial lenders providing project funding, provided that security
interests in secondary non-project collateral have been established
to recover loan value.
4. Recording of Security Interests: The Putnam Redevelopment
Agency shall require the recording of security interests in all
collateral offered to secure the loan, including deeds and UCC Statements.
In those instances where there is insufficient fixed asset project
collateral to secure the loan, the Putnam Redevelopment Agency shall
require the recording of security interests in secondary non-project
collateral available to cover the value of the loan, including other
business assets of the borrower, inventory, receivables, patents
and copyrights, leasehold improvements, assignment of leases &
life insurance, corporate guarantees, investment instruments, and
real estate.
5. Personal Guarantees: The Putnam Redevelopment Agency
shall require the unconditional personal guarantee of all shareholders
with an interest of 20% or more in a corporate borrower, the personal
guarantees of all members of an LLC borrower, or the personal guarantees
of all owners of the company. Personal guarantees may be required
to be further secured with appropriate assets of the individual
guarantors.
6. Execution of Documents: The Director of the Putnam Redevelopment
Agency is authorized to approve and execute all documents necessary
to discharge this policy, including all Security Agreements and
other instruments required to secure the Agency's interests. A vote
of the Putnam Redevelopment Agency board shall be required to approve
(a) any Security Agreement which departs from or is inconsistent
with this policy, and (b) any Subordination Agreement requested
after the issuance of a loan.
7. Provision of Information: Loan applicants shall be required
to provide sufficient information at the time of application to
allow the Agency to evaluate proposed collateral and confirm legal
title, including the following:
For all loans: name and address of all collateral lienholders,
current lien balance and monthly payment on all liens, rate of
interest and maturity date on all liens, amount and maturity date
of any balloon payments due on any liens, year acquired, original
cost, current market value (the Putnam Redevelopment Agency may
require an independent appraisal verifying such value).
For all loans exceeding $35,000: Letter from the borrower's
attorney certifying as to the status of title of any proposed
collateral and as to status and standing of the borrower.
For real estate: address, photograph(s) of property, description
of present condition, description of any improvements to be made
with loan proceeds or otherwise planned by the property owner(s),
copy of deed(s), full title search on real property to be acquired
with loan proceeds and on any real property to be used as collateral
in the case of loans exceeding $35,000, or a title up-date from
current owner's date of acquisition for any real property to be
used as collateral in the case of loans at or below $35,000.
For personal property, including equipment: manufacturer
or make, model, year of manufacture, serial number or other identifying
information, description of present condition, and copies of any
UCC Statement filed or recorded in any jurisdiction with respect
to proposed collateral.
Reporting: Borrowers shall be required to file with the
Putnam Redevelopment Agency (a) upon the anniversary of the loan
closing, an annual update report on the status of pledged collateral,
and (b) a letter notification of any change in the condition of
or availability of any pledged collateral within 30 days of such
change, including the filing or recording of any UCC Statement.
Failure of the Borrower to provide such information shall constitute
a condition of loan default which may be declared by the Agency
if the Borrower has not cured the condition within 30 days there
from.
8. Fair Lending: In its evaluation of proposed collateral,
the Putnam Redevelopment Agency shall apply the same review standards
for all applicants and shall not discriminate against or treat loan
applicants differently based upon the applicant's race or color,
religion, national origin, sex, marital or familial status, age,
handicap, public assistance status or the good faith exercise of
any rights under the Consumer Credit Protection Act, nor the neighborhood
characteristics or location of any proposed real property collateral.
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