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Automating Monthly Accounting for Pooled SBA Loans

Alternative Investment Solutions
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Business Challenge

Our client invests in instruments that qualify for positive consideration under the Community Reinvestment Act (CRA). Their primary goal is to promote permanent job creation, retention, and improvement for professionals employed by small businesses in low or moderate-income areas. At its peak, the Fund held more than 750 secondary market small business loans, each of which needed to be accounted for individually to highlight investments eligible to receive CRA credits. Although our client came to us with the understanding that their procedures would be completely manual due to the loans’ open-ended accruals, we saw an opportunity to create efficiencies.

Our Solution

We dedicated a primary administrator to work closely with our client and internal resources to provide our client with a streamlined and more accurate approach to their fund accounting processes. Our primary administrator coordinated the creation of custom schedules and procedures to track our client’s investments and then developed an automated fund accounting model to eliminate manual processes.

Since the SBA loans were pooled to settle with the Depository Trust Company, we assigned each a CUSIP for a single line item. This ensured the principal and interest income could be easily recorded using Bloomberg factors. The loans were then split into par pools and interest only pools. In order to allow easy distinction between the par and interest-only portions of monthly payments, a separate U.S. Bancorp Fund Services custody account was established.

In addition to the existing master loan schedule, we customized two supplemental schedules, a par pool schedule and an interest-only schedule. The master loan schedule provided easy access to total accruals, income receipt, and outstanding balances, while the supplemental schedules provided detail of the individual loan holdings. The schedules were designed with check figures to flag any discrepancies or variances, so that the amounts reflected the most accurate information. The schedules tie easily to system-generated reports, so any auditor requests could be clearly and efficiently addressed.

The Result

By customizing schedules and procedures and automating manual processes, we were able to expedite our client’s valuation process by 50 percent and provide our client with their quarterly “Partner’s Preferred Return” approximately 10 days earlier.

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