Answers to some of the most frequently asked questions about Borrower’s Loan Protection.
What is Borrower’s Loan Protection (BLP)?
BLP is a loan hedging solution that helps you protect your existing relationships and win new business. PCBB provides a hedge to provide your customers the long-term, fixed-rate payment structure they want, while your institution receives a floating rate loan with the borrower over the full term of the loan.
BLP allows you to defend your current loan portfolio against competition, as well as grow your loan portfolio. This swap-based hedge reduces interest rate and related credit risk and helps you generate additional fee income. BLP versus a typical interest rate swap process is simple and straightforward. It requires no regulatory capital to be held, no collateral posting and no derivative accounting.
Your borrower receives the long-term, fixed-rate loan they want on a new or existing loan. It can be applied to a variety of asset classes. Most importantly, there are no closing costs related to the BLP loan to your bank or the borrower from PCBB.
A variety of loan types qualify for BLP including:
- Commercial real estate (CRE)
- Tax-exempt and conduit financing
- SBA 504, 7a and USDA programs
- Commercial & industrial (C&I)
How Does BLP Work?
The floating rate in a BLP transaction is based on one of three primary benchmark indices:
- U.S. Effective Federal Funds Rate (Fed Funds)
- SOFR (currently only available for scenario planning purposes, but will be available in 2021 when it replaces LIBOR)
Yes, you can participate up to 75% of the hedged loan.
Yes. Through a forward rate lock, you can lock in the swap rate today for a future date that starts one week to 36 months in the future.
BLP allows you to arrange up to a 30-year amortization and include interest-only financing for all or part of the loan.
No. There are no cash collateral requirements for your institution in order to complete a BLP transaction.
No. You do not need to do any hedge accounting involving ASC 815 (FAS 133) as the hedge is on PCBB’s books.
No, there is no ISDA documentation required for the BLP hedge.
PCBB works as your behind-the-scenes partner. We do not compete with your business, as we are your partner in this endeavor. We are happy to meet with you and your borrower and help answer their questions. But you will remain the primary contact for your borrower.
Yes. BLP loans are eligible for fee income to help manage short-term earnings, and are paid at closing.
Yes. Hedges with PCBB are assumable and assignable among borrowers, loans, and properties.
Yes, a BLP loan can be prepaid in the amount of $100,000 or more at any time, subject to the yield maintenance provision.
Once all the loan documentation is provided and the PCBB Team has approved the swap contract, closing can occur within 2-3 days.