While the financial consequences of the COVID-19 pandemic have hit consumers hard, small businesses are facing their own set of problems. If you’ve extended credit to a business that has been impacted by the pandemic, you’re well aware of what they’re going through. It’s likely your commercial debtors have contacted you regarding their ability to pay.
Why keep reporting credit?
Any concessions you make for your commercial account holders are completely up to your discretion. However, no matter what, there are several reasons you should continue to report these accounts.
According to the Small Business Financial Exchange, the non-profit trade association that aggregates credit data from more than 38 million micro and small businesses, it’s more important than ever to report commercial credit.
“We need to tell the story,” shared Elisabeth Hughes MacDonald, CEO of SBFE®, in a recent communication. “After the pandemic response, insights on the impact of COVID-19 and recovery will be critically important. Without information, those insights and trends will not be available or meaningful.”
MacDonald and the SBFE also believe that reporting accurate payment information during the crisis will aid the nation’s economic recovery. It will also provide context and details for what the debtor experienced during these highly unusual circumstances.
“With our natural disaster coding, even derogatory payment information can be provided to SBFE while still ensuring that there is clear context for the situation,” writes MacDonald. “Credit reporting agencies will know how to interpret and treat the information.”
The CARES Act and credit reporting
The economic assistance the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides to small businesses should have a positive impact on their ability to pay creditors. However, the distinct programs provided by the CARES Act for small business do change the way you report credit.
You will continue to report small business credit accounts with natural or declared disaster codes as described below. In addition, there are particular requirements for reporting those businesses participating in the CARES Act’s Paycheck Protection Program.
The following guidelines for reporting commercial accounts in accordance with the CARES Act were created and provided by the SBFE, and are shared here verbatim.
Coding for COVID-19 impacted loans
Reporting of existing accounts/borrowers which are designated by the contributor as being impacted by the COVID-19 pandemic (or other future natural/declared disasters):
Members are encouraged to continue contributing all small business credit accounts and use the following account status codes to denote an account/borrower has current impact:
020 – Business Affected by Natural/Declared Disaster
This would be the code most appropriately used at this time. It notes that a small business borrower has been affected by this crisis and/or requested relief during this crisis.
If a deferment has been approved by your institution or as a result of the Small Business Debt Relief Program, we advise including an account status code of 019 – Payment Deferred, if adding a second code is possible in your contribution file. If your institution can report only one code, SBFE suggests using code 020.
021 – Reporting Suspended Due to Natural/Declared Disaster
This would only be used in rare instances where the lender felt they could not report account information due to system or other failures at the lending institution or where the true information or status of a small business borrower cannot be represented, such as due to total loss of a business’ location during a natural disaster. If using this code, the expectation would be that payment elements would not be reported for this account. This code may also be utilized to communicate that this will be the last time this account will be reported, at least for some length of time.
If Members are unable to contribute codes 020 and 021 as part of their submission files, they can contact the SBFE Data Warehouse (dwsupport@sbfe.net) to discuss their options.
Members, when making decisions on how to report accounts, should consider the potentially negative effect of reporting derogatory information (without using a disaster code) on small business customers during this unprecedented time.
Coding for pandemic Paycheck Protection Program loans
- Account Type of 001 (Term Loan)
- Government Guarantee Flag set to ‘Y’ (Yes)
- Government Guarantee Category coded as ‘600’ (SBA PPP)
- Portion of Account Guaranteed by Government set to 100 (%)
NOTE: SBFE encourages Members to consider the impact that these types of loans will have in their risk management solutions and have discussions with their Certified Vendors to ensure these are treated as they would intend.
Changes to SBFE’s data processing in response to COVID-19
SBFE and the SBFE Data Warehouse will monitor submissions received in the upcoming months to detect unexpected changes to Member contributions. If detected, SBFE will contact those Members and determine if the changes were intended and/or if they would like to have the SBFE Data Warehouse assist them in modifying how their contributions are loaded to most accurately represent current status of accounts/borrowers.
Beginning in early May, the SBFE Data Warehouse will hold all submissions for a limited time to perform enhanced review to identify any shifts in reporting. SBFE will strive to limit delays in release of contributed data to Certified Vendors.
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