Independent Banker - January 2019 - 21

SBA department manager of $350 million-asset First Utah
Bank in Salt Lake City.
DeHart learned this firsthand early in his career when
dealing with a restaurant loan that was in default. The borrower
had disappeared. While planning a site visit, DeHart
learned that the landlord suspected there had been drug
dealing from the restaurant.
In what sounds like a scene from Breaking Bad, the
TV series about a chemistry-teacher-turned-meth-cook,
DeHart arranged for a constable to accompany him to the
site. Upon entering, they found a basement littered with
miscellaneous drug paraphernalia. DeHart came away from
the experience convinced he needed to make site visits a priority,
a practice he has emphasized at First Utah.
If site visits are a well-recognized best practice for conventional
commercial loans, the importance is even greater
when the loan is backed with a government guarantee, such
as an SBA loan. Failure to follow reasonable lending practices
on government-guaranteed loans can bring added
regulatory scrutiny and result in a financial hit for the bank.
The SBA, depending on the loan, requires an upfront visit
or suggests that the bank dictates a site visit. However, if a
loan goes into default and the bank has not made a site visit
on or before the 59th day after payment default, the SBA
may refuse to honor part or all of the guarantee.
" If there's a problem on an SBA loan, you'd better have
your ducks in a row, " says Walt Graham, a national account
executive for Quiktrak, Inc., a site inspection services provider.
" That guarantee may go away, and your bank is on
the hook. "
Banks run the risk that an oversight on one loan may be a
red flag for auditors. " If the SBA sees you've been negligent
on one loan, they may decide to do a full audit of your portfolio, "
DeHart says. " In comparison, the cost of a site visit to
preserve your guarantee is minimal. "
No resting on laurels
Nevertheless, site visits do get overlooked. Often, Pool says,
it's just a case that a loan has been performing well and the
bank gets too comfortable.
" Banks get into trouble with not doing site visits on term
loans, " he says. " They make a 25-year loan, and 10 years
later, the borrower has never missed a payment. The bank
starts to skip going out to that location. It's not a good thing,
but it can just happen. "
DeHart has found that if bank executives don't emphasize
the importance of site visits, loan officers may slack off.
" Unfortunately, in my experience, some loan officers will fill
out a site visit report and never visit the property, " he adds.
First Utah created an in-house standardized form and
uses a mobile application created by Spectrum Field Services,
a site inspection services provider, that provides a time and
date stamp, and geotags for pictures taken inside the app.
The app also supplies a checklist for a thorough site visit.
Industry professionals agree that the frequency of site visits
depends on the loan and the industry. For most well-performing
loans, especially loans that have been on the books for
a while, an annual site visit is probably sufficient. However,
some businesses, such as convenience stores or vape shops,
" Going out to a site does
more for a banker to
understand how a business
actually works. "
-Tom Pool, Mountain West Bank
can go south quickly. For such businesses, a semi-annual or
even quarterly visit might be advisable. More frequent visits
are a good idea if payments are lagging behind schedule or if
the financial statements raise concerns.
Industry experts identify some basic categories that
should be included in a comprehensive site visit (see " Site
visit checklist " ). These include the property itself or fixtures,
furnishings and equipment (FFE) if those are part of the collateral;
signs of deferred maintenance; or signs of potential
environmental impact, like oil or gas leaks. For retail concerns,
look for well-stocked shelves and lively traffic. It may
be relevant to take note of whether the surrounding neighborhood
seems to be declining or thriving.
While the primary purpose of a site visit is to minimize
risk, it can sometimes strengthen the case for a loan. Perhaps
a business' financial statements have raised concerns,
but its payment history is good and a visit shows the site and
FFE are in good shape. That can strengthen the argument
to not downgrade the loan, which is an important consideration,
since banks have to reserve additional capital for
a downgraded loan. " A site visit can support the argument
that the loan should stay the same because it is still well collateralized, "
DeHart adds.
Opportunities for banks, too
Devin Rushton, Spectrum Field Services' vice president of
sales and marketing, says site visits can uncover opportunities
and demonstrate a bank's strengths.
" A good report allows your CCO [chief compliance officer]
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Independent Banker - January 2019

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