Citizen Potawatomi
Community Development Corporation
Commercial Lending Program
Loan Policy
Amended: May 10, 2017
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TABLE OF CONTENTS
I. Purpose of this Policy
II. Mission and Purpose of Financing
III. Eligibility
A. Ineligible Businesses
B. Eligibility Requirements
C. No Discrimination
D. Insider Loans
E. Conflict of Interest
IV. Loan Products
V. Portfolio Diversification
A. Startups
B. Single Borrower Limit
C. Enrollment
VI. Loan Staff and Loan Committees
A. Loan Staff
B. Loan Committee
VII. Loan Underwriting
A. Application Package
B. Initial Screening
C. Due Diligence
D. Credit Memo
E. Loan Rating
VIII. Loan Approval
A. Staff Recommendation
B. Lending Authority
i. Matrix
ii. Amounts Requiring Board Approval
C. Approval
IX. Loan Closing
A. Executed Commitment Letter
B. Loan Documentation
C. Disbursement
X. Maintenance of Loss Reserve
XI. Loan Monitoring
A. Documents and Files
B. Receipt of Loan Payments
C. Periodic Disclosure from Borrowers
D. Monitoring Responsibility
E. Maintenance of Reports
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XII. Portfolio Management
A. Portfolio Status Reporting
B. Assessment of Sufficiency of Loan Loss Reserve
C. Loan Fund Equity
D. Loan Fund Investment Guidelines
E. Asset-Liability Matching
XIII. Delinquency
A. 5 Days Late
B. 15 Days Late
C. 30 Days Late
D. 45 Days Late
E. 60 Days Late
F. 90 Days Late
G. 120 Days Late
XIV. Loan Foreclosure
XV. Loan Write-offs
Exhibit A: Application Form
Exhibit B: Loan Rating System
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I. Purpose of this policy
The policies and procedures outlined in this document provide a framework within which the Citizen
Potawatomi Community Development Corporation – Commercial Lending Program (“the Loan Fund”) will
operate its business loan fund.
This manual is meant to be a working document and a set of guidelines to be used by staff and other
participants in the Loan Fund. These policies and procedures should be flexible enough to enable the
loan program to be responsive to market demands and are designed to be amended from time to time
with Board Approval.
The laws of the Citizen Potawatomi Nation will govern the construction and enforcement of all loan
agreements. The Citizen Potawatomi Nation Tribal Court will resolve disputes arising out of loan
agreements.
II. Mission and Purpose of Financing
The Loan Fund’s mission is to provide access to capital through loan fund support and business
development services to members of the Citizen Potawatomi Nation and other Native Americans designed
to expand the capacity of small businesses and aspiring entrepreneurs.
The Loan Fund’s Investment Area is the entire United States.
The Loan Fund’s Target Market is
a) enrolled members of the Citizen Potawatomi tribe who own businesses located in the Investment
Area,
b) Native Americans who own businesses located in the State of Oklahoma,
c) Native American-controlled non-profit organizations or other Native American Tribes located in
the State of Oklahoma.
d) Enterprises of the Citizen Potawatomi Nation, or other sovereign tribal entities.
The Loan Fund seeks loans to businesses that:
a) Create jobs for low to moderate income Native Americans that pay a competitive living wage,
and/or
b) Create jobs with opportunities for Native Americans to advance themselves, including job training
and developmental opportunities, and/or
c) Help new and existing businesses that strengthen low income Native American communities.
III. Eligibility
A. Ineligible Businesses The purpose of the business financed by the Loan Fund loan must be
legal.
The Loan Fund does not provide financing to businesses whose primary
activity is the sale or production of violent or unsafe products or services.
The Loan Fund does not provide financing to businesses engaged in any
of the following activities:
a. speculative enterprises
b. pyramid or networking schemes
c. fraternal organizations
d. pornography.
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B. Eligibility Requirements
Commercial Loans
Borrower
Members of the Target Market who own businesses or who control non-profit organizations.
Geographical
Location
United States of America
Loan Size
$500 to $12,500,000*
Use of Proceeds
a) Working capital including costs directly related to researching the industry, obtaining
licenses, procuring equipment and/or space directly related to establishing a product and
market,
b) Acquisition of real estate, plant and machinery necessary for growth or maintenance of
business,
c) Refinancing of existing indebtedness with terms substantially less favorable
d) Acquisition of a business
Equity
Business owners may be required to have invested equity in the form of cash or other assets
(obtained from personal or family savings) of at least 5% of the total business capitalization.
Collateral
Loan Fund will require liens (2
nd
and senior) on business and/or personal assets to secure the
loan. Loans must not exceed 100% of collateral value, after discounts for asset age and
marketability.
Guarantees
Individuals owning 20% of more interest in an applicant business must personally guarantee
the loan. Spouses of owners and key staff members must guarantee loans to businesses in
which they have an ownership interest or are clearly active in the business. The Loan Fund
may accept guarantees from third parties.
No Existing Loan
Fund Debt
Applicants who have defaulted on previous loans in full from the Loan Fund will not be eligible
for further loans.
Business
Training
All Loan Fund Applicants may be required to complete business development training
sponsored by the CPCDC prior to funding.
Business Plan
All applicants must have a business plan detailing how the business will operate and perform
during the loan term and how loan payments will be made.
* Loans above $300,000 to be reviewed and considered on a case by case basis. Approval made by
majority of the full Board of Directors.
C. No Discrimination
Loan Fund shall comply with all federal, State and local law, policy, orders, rules and regulations which
prohibit unlawful discrimination because of actual or perceived race, creed, color, religion, national origin,
ancestry, or citizenship status, age, disability or handicap, gender, marital status, veteran status, or any
other characteristic protected by applicable federal, State or local laws.
D. Loans to Insiders
Although the CDC is not bound by or regulated under the same strict federal statutes that govern
supervised lenders (banks and Savings and Loans), such statutes may serve as the basis for defining
“insider loans.”
Therefore, the following definitions, instructions and guidelines shall be hereafter recognized as the
established disclosure parameters for any loan defined as an “Insider Loan,” as it relates to the CDC.
(I.) “Insiders” are defined as executive officers, directors, appointed officers and their related
interests, and Tribal Enterprises as follows:
1) Elected or appointed tribal officials of the Citizen Potawatomi Nation.
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2) Executive officers are defined as the executive director and the officers (if any) appointed by
the executive director or the Board of Directors of the CDC.
3) Directors shall be defined as any person or entity who serves as an elected or appointed
member of the Board of Directors, of the CDC.
4) Related interests shall be defined as immediate family; defined as husband, wife, daughter,
son, mother, father, brother, sister, father-in-law, mother-in-law, son-in-law, daughter-in-
law, sister-in-law, and brother-in-law or any entity described above.
5) Tribal Enterprises shall be defined as any business, service or department owned and/or
operated by any segment, branch or unit of the Citizen Potawatomi Nation.
(II.) Insider loans, when made, will be made on substantially the same terms and conditions,
including rate or collateral, as those prevailing at the time for any other customer. Therefore, any
loans made to insiders shall not contain favorable rates, will not involve more than a normal degree
of risk, and will not contain other favorable features.
(III.) General Guidelines Covering Loans Made to Insiders
1) Credit applications and accompanying Credit Memos for insider loan requests, will be
submitted and reviewed by the Loan Committee. If said request is approved by the
Committee, then it will be submitted to entire Board, for full disclosure and final approval or
denial. The vote of the Board shall be final.
2) Submissions to members may be in person, or by electronic means.
3) Each Board member shall be expected to cast his or her vote on said submission, within
three (3) business days of receipt thereof.
4) Full Board approval, consisting of a simple majority, is required for all extensions of credit to
insiders.
5) Declined submissions shall be treated as would any other declined loan, with proper, written
notice being sent to the applicant from the CDC loan officer.
6) Approved loans will be processed in accordance with regularly accepted CDC operating
procedures.
7) Aggregate loans to any insider, which total more than the CDC’s established lending limit,
must be approved by a vote of the full Board of Directors.
8) Loans to insiders shall be supported by detailed current financial statements and, as
applicable, appraisals from approved sources.
9) Loans made to executive officers and directors shall have a demand feature.
10) Any director or officer with a family or financial interest in any credit application or credit
memo from any insider shall abstain from voting on such application or memo.
11) Loan pricing, including origination fees and interest rate, shall maintain conformance with
generally practiced policies and procedures of the CDC, to fully comply with existing risk
analysis and reserve requirements.
E. Conflicts of Interest
I. A conflict of Interest may be defined as any director having a business or financial
relationship with any person for whom a loan request is or shall be considered.
II. In all such events, that Director shall make such relationship known to the Board, and shall
abstain from voting on all such loans.
III. In the event any Director shall have a relationship as described above, wherein the loan
being considered will not be presented to the full Board, that Director shall be obligated to
inform the Executive Director of the relationship of the reporting Board Member, to the
requesting Borrower. The Loan Committee, if it approves the loan, will send it on to the full
board for final approval.
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IV. Loan Products
Commercial Loans
WSJ Prime + 2 to 16%, accrued daily and payable per payment terms.
The Loan Committee may adjust the interest rate from time to time at Loan
Committee meetings based on the following:
a) local bank financing rates,
b) risk of loan repayment,
c) the cost of Loan Fund funding,
d) revenue requirements of Loan Fund’s operating budget
e) Staff time required to originate and monitor the loan.
Not to exceed [80]% of the remaining useful life of the collateral.
Wherever possible, loans amortize “mortgage style” with level payments of
principal and interest. Balloon payments are offered when the likelihood of the
borrower obtaining “take-out” financing is high, based on conservative business
assumptions. Loan Fund may offer a grace period of up to 6 months after
closing during which no payments will be due. Staff shall have the option to
incorporate other types of loan terms as appropriate for individual loan
structure.
An amount up to 2% of the loan amount but not less than $250, payable by
borrower at closing. The fee may be included in the loan amount.
The Borrower is responsible for the costs of legal, recording, filing, appraisal
and other third party fees associated with loan processing and collateral
perfection.
5% of amounts past due for each increment of 30 days late.
$25 fee for any returned check; $25 Deferral/Extension Fee
Other Products
Other loan products may from time to time be developed and added to these Loan Policies following
approval of the Board of Directors.
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V. Portfolio Diversification
Startups Loan Fund limits the dollar amount of loans to start-up businesses to
50% of its total loans outstanding. Startups are defined as businesses
with less than two full year of operating history.
Single Borrower Limit a) Loan Fund limits the size of loan(s) to a single borrower or project
to 20% of its loan capital (the total of Loan Fund’s funding borrowed
from third parties plus net assets dedicated or restricted for lending),
but not to exceed $300,000 (or currently established limit) without the
approval of the Loan Committee and the full Board of Directors.
b) The 20% single borrower limit may be exceeded if it is for a project
to a sovereign nation and the CPCDC has excess cash on hand,
according to its liquidity requirements.
c) The 20% single borrower limit provision shall not apply to certain
special program loans, and in the event such loans are requested,
each request shall be approved or declined on a case by case basis by
the Board of Directors.
VI. Loan Staff and Loan Committee
1. Loan Staff
Loan Fund’s Loan Staff is comprised of Loan Officers and a Portfolio Manager.
The Loan Staff is responsible for implementing the lending components of the mission outlined in Loan
Fund’s statement of purpose, articles of incorporation, and by-laws. Specific responsibilities include:
analyzing and recommending loans to the loan committee and the Board of Directors, executing loans,
monitoring portfolio risk, collecting repayments and managing defaults and foreclosures. All of the Loan
Staff’s tasks are to be carried out in accordance with this Loan Policy and at the direction of the Board of
Directors.
No member of the Loan Fund’s staff may recommend or participate in the approval or collections of any
loan to a related party.
B. Loan Committee
The Loan Committee (“LC”) is a standing committee that reports to the Board of Directors that meets
when necessary to provide oversight to the Loan Staff and to carry out responsibilities as outlined below
and in the Articles of Incorporation. Actions of the Loan Committee are reported at the Board’s regular
meetings.
Composition
The LC is comprised of no fewer than four members and no more than seven members.
Members are nominated and approved by the Board of Directors. Members are professionals who, as a
group, have the following qualifications:
1. have experience in small business lending to low-income communities in the Investment Area,
2. represent the Target Market as a small business owner or director of a nonprofit organization,
3. have legal, accounting, industry or other requisite expertise,
4. have loan portfolio operation and/or management experience, preferably in a community
development environment,
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5. sit on Loan Fund’s Board of Directors
6. Executive Director
These members have a diversified skill set and knowledge base that can actively contribute to loan
approval, fund management and portfolio management decisions.
Regulations
1. LC member terms are [2] years. LC members may serve maximum of [two] consecutive terms.
Terms and limits may be extended at the discretion of the Board of Directors.
2. The LC will meet as called by the Board Chairman or as part of a Board of Directors meeting.
3. Minutes will be kept in a corporate record book at Loan Fund’s office or in conjunction with
normal Board minutes and made available for public inspection.
Voting
1. A quorum exists when three members are present.
2. LC loan and portfolio decisions are made by simple majority.
3. LC decisions to remove a member require 2/3 majority. Reasons for removal include, but are not
limited to, a) activity that is deemed to be against the interest of the organization, b) disclosure
of confidential Loan Fund information, c) absence without excuse for two consecutive meetings,
or d) absence from 50% or more of the LC meetings during any calendar year.
4. LC members may not vote or attempt to influence the votes of others on loans to related
(financially or otherwise) parties.
5. LC members may not vote or attempt to influence the votes of others on loans where there may
exist an actual or potential conflict of interest.
6. Presentation and voting may be in person, or by electronic means.
7. Members located 50 or more miles from the meeting location may attend by conference call.
8. Loans may be cast in person or by written or electronic means.
Responsibilities
1. Critically assess and analyze credit memos.
2. Approve or deny loans recommended by the Staff.
3. Approve loan rating assignments.
4. Review portfolio risk and sufficiency of loan loss reserve.
5. Review delinquent loan status and approve foreclosure and collection actions.
4. Execute other special projects assigned by Board of Directors.
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VII. Loan Underwriting
A. Initial Screening
Loan Assistant will:
1. screen potential applicants to confirm that they meet the eligibility requirements in
III A and B,
2. give them a copy of the Application attached as Exhibit A,
3. describe the third party technical assistance available to new business owners.
The Loan Officer will answer any questions about the Application and may refer the applicant to training
or provide one-on-one technical assistance directly, where appropriate.
B. Application Review
Upon receipt of a reasonably complete application, the Loan Officer confirms the following:
1. The loan requested is consistent with:
a) the loan product(s) offered
b) Eligibility Requirements, and
c) Portfolio Diversification restrictions.
2. Funding is available for the proposed loan.
3. Borrower does not need further business training prior to due diligence,
4. All necessary documentation has been submitted by the applicant.
Incomplete applications are returned to the applicant with a message indicating information required for
the Loan Fund’s review of the application.
C. Due Diligence
The Loan Officer conducts a complete and thorough due diligence of the proposed loan including
reviewing cash flow projections (including the assumptions underlying the projections) and the business
plan received from the applicant, researching the industry, making a site visit, researching the borrower’s
credit rating and structuring the loan payment schedule to comply with the borrower’s needs. Refer to
Underwriting Guidelines for the analysis customarily used by the Loan Fund.
The due diligence process is finalized when the Loan Rating is assigned (VII E and Exhibit B below). Only
ratings of A, B or C are acceptable for new loans.
If the due diligence results are not acceptable, the Loan Officer will notify the applicant in a letter
containing the reason for the denial and possible changes that could make the loan acceptable upon re-
application. In this case, the Application Fee will not be refunded but can be applied to one future re-
application, if such re-application occurs within six months of the date of the letter.
After six months from the application date, should the applicant not reapply, the Loan Officer will send all
original documents (other than the application) and other information received in connection with the
application.
D. Credit Memorandum
If the due diligence results are acceptable, the Loan Officer prepares a Credit Memo based on the
template attached as Exhibit C. The Credit Memo should contain a summarized analysis of all relevant
risks ascertained by the Loan Officer during the due diligence process and explain the proposed Loan
Rating assignment. The Credit Memo also includes a list of conditions that would need to be satisfied
prior to closing.
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E. Loan Rating
Based on the Loan Rating System detailed in Exhibit B, the Loan Officer recommends a Loan Rating that
reflects the risk of the loan in comparison to the loans in the existing portfolio. The Loan Rating is the
basis for the loan loss reserve (“LLR”) amount associated with the loan upon closing. After closing, the
loan rating is updated to reflect the results of monitoring efforts (Section XI below).
VIII. Loan Approval
A. Staff Recommendation
Based on the contents of the Credit Memo, including the loan rating recommendation, the Loan Officer
may recommend a loan for approval. The Loan Officer recommends loans by submitting a draft Credit
Memo to the Portfolio Manager for review and comment. Loan Officer and Portfolio Manager may work
together to make changes to the structure of the loan, the risk profile of the loan and/or the Credit
Memo. Following finalization of the Credit Memo, the Portfolio Manager signs the signature page of the
Credit Memo.
The Loan Officer and/or the Portfolio Manager present the loan opportunity to the Executive Director who
signs the Credit Memo if he/she agrees with the recommendation. The Executive Director may require
changes to the loan or Credit Memo. The Loan Officer schedules the loan for review at the next meeting
of the Loan Committee and distributes the Credit Memo to committee members at least four days before
the meeting.
B. Lending Authority
Loan Description
Approval Required
a) loan approvals
b) changes to Loan Ratings
occurring after closing
1. Executive Director and Portfolio
Manager, and
2. Loan Committee
Loans that are:
a) materially not in compliance
with Loan Policies, or
b) loan foreclosures and
collateral repossessions, or
c) Any loans designated “Insider
Loans” as set forth in Section III
of the Policies & Procedures, and
ANY loan wherein the principal
balance exceeds the established
limit (currently $300,000.)
1. Executive Director and Portfolio
Manager, and
2. Loan Committee, and
3. Board of Directors.
Loan restructurings (any changes
to a loan involving an extension
of term or lowering of payments)
First and second restructuring:
1. Executive Director and Portfolio
Manager
Subsequent restructurings:
1. Executive Director and
Portfolio Manager, and
2. Loan Committee
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C. Approval
Any approving party may decline a loan for the following reasons:
- if the loan does not fit within Loan Fund’s mission
- the risk of repayment is unacceptable
- the loan would cause diversification of the outstanding loan portfolio to be outside the
guidelines
- insufficient information
- the loan is materially out of compliance with this Loan Policy
- funding for the loan is not available.
Following loan approval, each approving party signs the signature page attached to the Credit Memo,
making note of any additional terms or conditions imposed by the approving body (the “Loan Approval”).
For the Loan Committee, the Committee Chair signs the Credit Memo. Dissenting committee members
are free to note any issues they may have had with the loan on the signature page.
IX. Loan Closing
A. Executed Commitment Letter
The Loan Fund uses a commitment letter to summarize the terms and conditions of the Loan Approval for
the borrower. The Commitment Letter is a legal agreement between the Applicant and the Loan Fund
and obligates Loan Fund to disburse the loan should the Applicant satisfy its obligations, including pre-
closing conditions, outlined therein.
After obtaining a Loan Approval, the Loan Officer will draft a Commitment Letter, based on templates
drafted by legal counsel and maintained by the Loan Fund that reflects the terms and conditions
contained in the Loan Approval. Loan Officer will then submit the Commitment Letter for approval by the
Portfolio Manager, and then by the Applicant.
The Commitment Letter is the basis for discussions and negotiations with the applicant. Changes that
would cause the terms of the Commitment Letter to materially deviate from those of the Loan Approval
must be approved by the required approving parties. The approval for the deviation is noted on or
attached to the signature page of the Credit Memo.
The Executive Director or Assistant Director shall countersign the Commitment Letter on behalf of Loan
Fund. The signatory confirms that the terms and conditions of the Commitment Letter and Loan
Approval are consistent in all material respects. In the interest of maintaining a check and balance
system, in no event should the person who prepares the Commitment Letter also be the sole person who
signs the Commitment Letter on behalf of Loan Fund.
The Applicant and any guarantors sign the Commitment Letter on behalf of the Applicant.
B. Loan Documentation
After the Commitment Letter is signed, and any deviations from the Loan Approval are approved by the
required parties, the Loan Officer will prepare draft loan documents based on templates drafted by legal
counsel and maintained by Loan Fund that reflect the terms and conditions contained in the Commitment
Letter as well as other terms that are customary for lending in the geographical area.
The Executive Director has authority to sign the loan documents for which Loan Approvals have been
obtained on behalf of Loan Fund. The signatory confirms that the terms and conditions outlined in the
loan documents and Loan Approval are consistent in all material respects.
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The Loan Officer works with the Applicant to schedule a Closing Date by which all conditions to closing
will have been satisfied.
C. Disbursement
The Loan Officer postpones the closing date if pre-closing conditions do not look as if they will be
satisfied prior to the closing date.
At least 5 business days prior to the closing, the Loan Officer submits to the CPCDC Accountant a written
request for the disbursement amount together with the loan loss reserve to be posted for the loan. The
Portfolio Manager and Executive Director sign the request after confirming individually that the loan
disbursement is in accordance with a Loan Approval. A copy of the Loan Approval (the Credit Memo and
signature sheet), along with any subsequent changes to the Approval, should be attached to the
disbursement request.
The CPCDC Accountant prepares a check for the disbursement amount in time for the scheduled closing.
On the closing date, Borrower and Loan Officer or Portfolio Manager meet and discuss the
documentation, sign the documents and the Loan Officer gives the Borrower the disbursement check(s).
Should the applicant plan to bring legal counsel to the closing, Loan Officer will arrange to be represented
by the Loan Fund’s legal counsel.
On the closing date, the CPCDC Accountant posts the loan loss reserve amount indicated on the written
disbursement request.
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X. Maintenance of Loan Loss Reserves
The Loan Fund will maintain an accounting reserve for loan losses in accordance with FASB standards
and the chart below. The loan loss reserve (“LLR”) on the Loan Fund’s balance sheet is a contra account
to the Loans Outstanding asset. The LLR will equal or exceed the aggregate of the loan loss reserves
assigned to each loan. Loan loss reserves are a function of the Loan Rating which is approved by the
Board and modified from time to time as a result of staff’s monitoring efforts. The LLR requirement may
be waived or reduced, if the Board of Directors deems fit, such as when a tribal, federal or cash
guarantee or insurance is associated with a particular loan. If a 90% Federal Insurance or Guarantee is
in place, and is expected to be honored, the board may opt to carry up to 10% LLR.
Any increase to the contra-asset account is accompanied with a Loan Loss Expense (or Provision for Loan
Losses) entry on the income statement.
Loan Loss Reserves for loans rated a “D” shall be supported by appropriate analysis of all considerations
at the time such reserves are established.
Loan Rating
Loan Loss Reserve
A+
0%
A
5%
B
10%
C
15%
D
16-100%
XI. Loan Monitoring
A. Documents and Files
For each loan closed, the originating Loan Officer maintains a file containing the following information:
The Loan File:
1. Research and analysis upon which Credit Memo was based
2. Original copy of Loan Approval including the Credit Memo
3. Executed Commitment Letter and Loan Documentation.
4. Any amendments or other legal agreements between Loan Fund and the
Borrower
The Post Closing File:
1. Milestone schedules and dates of compliance
2. Periodic disclosures from Borrower
3. Annual tax returns
4. Log of discussions between Loan Fund and Borrower, including site visit
notes.
The original loan files are maintained in the Loan Fund office in a fire-safe cabinet.
B. Receipt of Loan Payments
The Portfolio Manager is responsible for producing the aging report, recording payments in the loan
software and confirming whether all payments have been received.
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All payments received from borrowers are applied first to satisfy any outstanding Late Fees, second to
accrued interest, and finally to reduce loan principal.
If late fees are not collected with payment the Portfolio Manager has the authority to adjust the aging
of the loan in the Downhome Loan Software System as to not reflect the customer as delinquent.
C. Periodic Disclosure from Borrowers
The Portfolio Manager is responsible for confirming receipt of periodic disclosures (milestone schedules,
financial statements, new product updates, and confirmation of insurance) required under the Loan
Agreement. If disclosures are not received when due, the Loan Officer will contact the Borrower to
discuss better performance of disclosure obligations.
The Loan Officer or Portfolio Manager reviews all disclosures from Borrowers to determine whether the
condition of the borrower has improved or deteriorated since the Loan Rating was last reviewed.
D. Monitoring Responsibility
The Portfolio Manager is responsible for ensuring that Loan Ratings are updated to reflect the current risk
profile of each loan in the portfolio as a result of changes in the market prospects and financial health of
the Borrower, payment status or environmental changes that could materially impact the Borrower’s
ability to meet payment obligations under the Loan Agreement.
The Portfolio Manager may report delinquent payments to a credit bureau on a monthly basis.
The Loan Officer or Portfolio Manager reviews the status of each Borrower in accordance with the
following schedule but in any event, at least annually at the Borrower’s fiscal year end following the
receipt of annual financials and report any changes in the risk profile of the loan to the Board.
Loan Rating
Monitoring Frequency
A
Annually, at Borrower’s fiscal
year-end.
B
Semi-annually
C
Quarterly
D
Monthly or more frequently
Only loans with a rating of A through C may be approved.
E. Maintenance of Reports
At all times, the Portfolio Manager will maintain a list of the loans outstanding showing the original
amount of the loan, the disbursement date, the interest rate, the outstanding balance of the loan, any
disbursements to be made in the future under the existing Loan Documents, the maturity date, the
delinquency status, the Loan Rating, and the Loan Loss Reserve (in % and dollar amount) (the “Loan
Report”). The Loan Report also shows other amounts that are due from borrowers including late and/or
return check fees.
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XII. Portfolio Management
The Portfolio Manager, with the Executive Director’s oversight, is responsible for tracking and reporting to
the Board and Loan Committee the performance of the portfolio in accordance with these policies.
A. Portfolio Status Reporting
At each Board and Loan Committee meeting, the Portfolio Manager presents:
1. The Loan Report (defined in Section XI)
2. The Portfolio Report
A report showing the total loans outstanding, current commitments, unused capital, total loan
loss reserve, YTD loan income and fees, diversification of the portfolio and the portion of the
outstanding principal that is 60 – 89 days late, 90+ days late and loans in foreclosure.
At each Board and Loan Committee meeting, the Executive Director presents the Capitalization Report
outlining the amount available for lending, including contributions to the investment fund(s) received
since the last the quarter, plans for capitalization to be obtained over the next twelve months, total loans
outstanding, Loan Fund Equity and deployment ratio (the “Capitalization Report”).
B. Assessment of Sufficiency of Loan Loss Reserve in light of Portfolio Risk
Monthly, the Portfolio Manager determines the necessary change, if any, to the Loan Rating and Loan
Loss Reserve to reflect the borrowers delinquency status.
Payment Status
Loan Downgrade
Loan Rating Recovery
90 days delinquent
Reduce Loan Rating by one category
90 days of on-time payments
120 days delinquent
Reduce Loan Rating by two categories
120 days of on-time payments
180 days delinquent
Reduce Loan Rating by three categories
180 days of on-time payments
From time to time, following periodic monitoring of a loan, the Portfolio Manager and Executive Director
may recommend for Loan Committee approval, a change in a Loan Rating, up or down, to reflect a
decline or improvement in a borrower’s business prospects or other condition which would jeopardize
repayment.
The CPCDC Accountant will post changes in the loan loss reserve as directed by the Portfolio Manager,
accompanied by the appropriate loan loss expense.
C. Loan Fund Equity
Loan Fund maintains a net asset balance in the loan fund of at least 20% of the sum of all borrowed
funds plus net assets dedicated or restricted to lending.
D. Loan Fund Investment Guidelines
The Portfolio Manager, with the Executive Director’s oversight, will deposit undisbursed loan funds in a
FDIC-insured institution, in an interest-bearing bank account(s) located at the First National Bank & Trust
Company of Shawnee. When allowable the Portfolio Manager will seek the highest interest bearing bank
accounts available while preserving sufficient liquidity to meet funding requirements over the next twelve
months (refer to Asset-Liability matching below).
E. Asset – Liability Matching
The Portfolio Manager will confirm Loan Fund’s ability to make scheduled repayments by grouping loans
outstanding and investments by maturity and providing for a reserve fund to meet payment obligations
assuming at least a six month delay in receipt of payments from borrowers.
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F. Non-Accrual Policy
A loan will be placed on nonaccrual if principal or interest has been in default for 90 days or more, unless
the loan is well secured and in the process of collection. A loan may be restored to accrual status when
two consecutive and timely payments under modified loan terms are received. The consecutive
payments may include repayment performance prior to the restructuring.
XIII. Delinquency
The Portfolio Manager will maintain a log of all verbal and written communication about past due
payments.
A. 5 Days Late
In the event that loan payments are more than five days late, the Loan Officer will call the Borrower to
ascertain why the payment is late and to obtain a commitment for a payment date.
B. 15 Days Late
In the event that loan payments are more than fifteen days late, the Loan Officer will call to obtain a
commitment for payment and mail a written notice of the delinquent payment to the borrower.
C. 30 Days Late
In the event that loan payments are more than 30 days late, the Portfolio Manager will call to obtain a
commitment for payment and mail a written notice of the delinquent payment to the borrower.
At this point, the Portfolio Manager will review the file to confirm that collateral and other security
documentation is in place and in order and that all insurances required by borrower are in place so as to
protect Loan Fund’s foreclosure and other rights.
Portfolio Manager will update the Delinquency Report to reflect that the loan payment is more than 30
days past due.
D. 45 Days Late
By the 45th day of a late payment, the Portfolio Manager or Loan Officer will make a site visit. The goal
of this meeting will be to develop an agreed upon payment plan to bring the borrower current.
E. 60 Days Late
Loan Officer will call the Borrower. Portfolio Manager will update the Delinquency Report to reflect that
the loan payment is more than 60 days past due.
F. 90 Days Late
If the payment has not been received by the 90th day, the Portfolio Manager updates the Delinquency
Report, drops the Loan Rating by one rating category and reports to the CPCDC Accountant so that
he/she can adjust the loan loss reserve accordingly.
At the next Board meeting, the Portfolio Manager makes a full report detailing the nature of the problem
and recommending actions including:
a) informing any additional sureties to the loan of the situation;
b) inspection the Borrower’s operations, including their books;
c) sending notice of default
d) sending a technical assistance provider visit to the borrower to work on the problems identified
by the borrower and/or the lender;
e) in cases where Staff can demonstrate it is reasonably likely that Borrower can repay the loan in
the future, restructuring the loan
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f) sending the borrower a collection letter from Loan Fund’s legal counsel and waiting for an
additional period without action.
G. 120 Days Late
If the payment has not been received by the 120th day, the Portfolio Manager updates the Delinquency
Report, drops the Loan Rating by another rating category and reports to the CPCDC Accountant so that
he/she can adjust the loan loss reserve accordingly.
At the next Board meeting, the Portfolio Manager will present a detailed account of the borrower's
operational information and a review of the collateral. The Board will again examine the situation and
develop a strategy for further action including:
a) a loan restructuring
b) a strategy to liquidate the collateral
c) a notice of default and the intention to foreclose
d) a further forbearance of action based upon certainty of repayment and confidence of operations
e) sending the loan to the collection agency.
XIV. Loan Foreclosure
In most instances, a foreclosure on collateral will be viewed as the last option. There are, however,
instances when foreclosure is the only remedy to a deteriorating situation. Foreclosure may only take
place with concurrence of the Board of Directors prior to initiation of foreclosure proceedings by the staff.
All foreclosure proceedings and actions should be done in such a way as to provide maximum protection
of the Loan Fund’s capital and for the interest of affected parties, including customers and employees of
the Borrower.
Loan Fund uses collateral liquidations to cover the cost of the outstanding loan principal, any accrued
interest owed to the lenders, and the transaction costs of liquidation (i.e. legal, marketing, staff time).
XV. Write-Offs
Upon the conclusion of collection efforts, Loan Fund will write off the uncollected principal from the loss
reserve account. The loan loss reserve may then have to be adjusted so that it equals the aggregate of
the LLRs assigned to each loan remaining in the portfolio.
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EXHIBITS
Exhibit A. Application Form
See attached
Exhibit B.
1. Summary of Loan Rating System
Loan
Rating
Total Points
Loan
Loss
Reserve
Acceptable for
Approval?
Monitoring Frequency
Lo
High
A
23
31
5%
Yes
Annually, at Borrower’s
fiscal year-end.
B
19
22
10%
Yes
Semi-annually
C
15
18
15%
Yes
Quarterly
D
5
14
16-100%
No -
reserved for
deterioration after
closing.
Monthly or more
frequently
20
Exhibit B. Loan Rating System (Continued)
2. Loan Rating Categories
Applicant: _________________________________ Date: __________
Loan Risk Criteria
Lo
Hi
Points
1
FICO Score
If loan to
Sole Prop or
Guaranteed
by an
Individual
Average FICO Scores from Equifax,
Transunion and Experian no more
than 60 days from loan approval.
For co-Borrowers, use average of
FICO Scores for each Borrower.
700
+
5
650
699
4
600
649
3
500
599
2
0
499
1
2
Collateral
Loan to collateral value, after
discounts for liquidity, excluding
collateral pledged to senior parties.
110
+
6
100
109.5
4
90
99.99
2
0
89.9
0
3
Equity
Percent of business capital invested
by applicant (from own savings -
excludes gifts)
20.0%
+
5
5.0%
19.9%
3
1.5
4.9%
1
4
Character
Applicant's qualification to run
business, community business
reputation, criminal or other public
history, financial and business
literacy
Strong
5
Medium
3
Weak
1
5
Business
History
Years of operating history of business
> 24 months
5
12 - 23 months
3
0 - 11 months
1
6
Personal/
Business
Debt
Service
Coverage
Monthly income divided by fixed
monthly expenses (including
proposed loan payments)
2
+
5
1.5
1.99
3
0
1.5
1
TOTAL
Loan Rating