Financial institutions now have greater ability to accommodate and provide support to borrowers affected by COVID-19, thanks to an Interagency Statement released Sunday evening, March 22, 2020. This guidance gives financial institutions a clearer view of how to help borrowers, as many consider short-term loan modification programs to support members and customers in this time of distress. Professional services firm RKL LLP explains the impact on lenders and borrowers.
Impact on Lenders
This Interagency Statement addresses the accounting rules related to loan modifications for all financial institutions regardless of asset size. Previously, if a bank or credit union modified a loan, it triggered potential outcomes and generated questions during an audit related to classification as a troubled debt restricting (TDR). Now, those rules are relaxed, so long as the borrower was in good standing and did not need this type of assistance before the COVID-19 crisis started.
Impact on Borrowers
One lasting impact of the 2008 financial crisis is a subtle hesitancy on the part of businesses to reach out to their financial institutions when they need help. Business owners and executives need to know that with this Interagency Statement, banking regulators have proactively addressed concerns that may have complicated things in the past. Now is the time to remain in close contact with your bank or credit union and express any liquidity challenges that may arise during these tough times.
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