How to Defer Payments and Interest to give your Borrowers some Breathing Room Because of the COVID 19 Pandemic

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Q: How can I provide my borrowers a temporary payment and interest break in Margill Loan Manager?

A: With normal loans, those with regular payments, at regular intervals, and no regular fees or taxes (the case with leases), this can easily be done in Margill and in bulk. So you need not do this individually, loan by loan unless you are dealing with irregular scenarios where these would have to be done partially in bulk and on an individual basis in many instances.

In the latest version 5.1 (released March 20 or 23, 2020) we created a tool to specifically allow the interest rate to be changed to 0.00% or reduced by x% for a determined period of time.

NOTE: If you do not wish to give borrowers a break with the interest rate, skip step 1. The interest rate will remain unchanged and accrued interest will be compounded if you are charging Compound interest. If you are using Simple interest you can also capitalize that interest with the right mouse click on the last line with payment of 0.00 :

Steps:

  1. Change interest rate to 0.00% (or other rate)
  2.  In the “Post Payment” tool, export the payments to be “cancelled” (deferred)
  3. Post payments to 0.00 (or other amount) in the “Post Payment” tool
  4. Add new (deferred) payments at end of loan


1. Change interest rate to 0.00% (or other rate)

Let’s do an example:

Normal payment schedule before the 0.00% interest for 3 months:

We wish to stop charging interest for the months of April, May and June for the loans highlighted in blue below.

In the Main Margill window, select (highlight) the desired loans. This shortcut must then be used: “Ctrl Alt Shift i”. This window will appear with a new option “Add End date of rate change”. In normal situations this is kind of difficult to understand since a little illogical… We will probably delete this option in version 5.2…

Enter as such:

You will be prompted to do a backup – PLEASE do this just in case you enter the wrong dates – you don’t want to have to change back your interest rate loan by loan!

In the example, notice two new lines with Rate change. So rate of 0% as of 04-01-2020 and back to 7.98% on 07-01-2020 (we temporarily displayed the “Start Date” column which is normally hidden):


2. In the Post Payment tool, export the payments to be cancelled 

We first wish to find all payments to be deferred. Go to Tools > Post Payments (a very powerful tool!), check the box called “Use date interval” and enter the proper dates to find all such payments. Press on Refresh.

These are all the payments we wish to defer (so a total amount of 26,149.20 in this scenario -“Interval” amount):

Right click in the window and “Export to Excel” – save the file which we will be using in step 4 to re-import the deferred payments.


3. Post payments to 0.00 (or other amount) in the “Post Payment” tool

Stay in the “Post Payment” tool with the current list of payments. Right click with the mouse and choose this option:

You also could have clicked the “Select All” button and the option to change the Line statuses would have been there as with the right mouse click.

Notice the special Line status that was created: “Deferred Pmt (0.00)”. This would have been created previously through Tools > Settings > System Settings (Administrators) > Line Payment statuses (this is a “No payment” type Line status that must be = 0.00):

No Automatic fees will apply to this Line status – contrary to the usual “Unpaid Pmt” Line status if such a fees rule had been activated.

NOTE: If you are monitoring the Outstanding amounts, you should change the “Expect. Pmt” column amounts to 0.00 for each payment, otherwise these amounts will become outstanding. A slight pain to do one by one if you have hundreds or thousands of loans! As of version 5.2 you can specify that the “Expected Pmt” for specific Line statuses must = 0.00. This will save a huge amount of time since the “Expect. Pmt” will automatically become 0.00 (go to Tools > Settings > Line payment statuses > check the “Expected Pmt = 0” column for the “Deferred Pmt (0.00)” (or named as you wish) Line status).

If you do not do this in version 5.2, then double click in each cell and delete:

 

Now press on “Apply”. The window will become blank after the payment processing stating the number of Records updated. They are now managed and payments 0.00. In our example, notice now an ending balance because of the three deferred payments:


4. Add new (deferred) payments at end of loan

Adding the deferred payments at the end of the loan is the more arduous step because of the date issues.

To import the payments back into Margill, we will be using the “Post Payment” tool once again but with the “Bulk Payment Import” option that allows us to import new payments via an Excel sheet.

All we need to import the deferred payments back to each loan individually are 3 columns (and other optional ones):

  • Column A – the Record identifier
  • Column B – the date of the deferred payment
  • Column C – the amount of the deferred payment

We will now modify our Excel sheet. We can delete most columns and keep the three important ones even if the Payment dates are the payment dates of the original payments to be deferred. Notice a column to the far right called “Last Payment > 0,00” – keep this column in order to know the very last line of the schedule (with a payment greater than 0.00) as a reference to add the next payment date (I moved and changed to red since will be temporary):

In our sample loan 10035, the last payment would have been on 05-07-2021 so I added my first deferred payment one month after and added another month for each of the next two payments. Someone who’s good in Excel can probably create some way to get the dates in there quicker by using the EDATE function (see how to months below) or, for weekly payments by adding 7, 14, 21 days to the Last payment date.

To see the payment frequency (although one can tell by the original payment date sequence) I showed the Period of payments in my Main Margill window.

 

==================================================================

Using the EDATE function in Excel

If you have a relatively large number of payments to add at the end of each of the loans,
it is really worth using the EDATE function which allows you to quickly add
one or more months at the end of the payment schedule

Loan 101 below ends on 12-22-2021. We must therefore add a month after this date, hence the formula:
=EDATE(B2; 1) where B2 is the cell and 1 is + 1 month

Then we must add 2 months for the second to last payment
=EDATE(B3; 2) 2 being + 2 months

Finally add 3 months for the new last payment
=EDATE(B4; 3) 3 being + 3 months

Column F is not relevant – only used to show the number of months that need to be added

The formulas can then be copied for each of the “trios”. BE CAREFUL to always have
1, 2, 3 and not 5, 6, 7, 8, etc. in the subsequent formulas for adding months.

Once the 3 new dates are all calculated, simply copy
the “Formula” column and “Paste Special” > “Values” to column B

==================================================================

My Excel file is now clean and ready for import. Notice I added a Comment in column E and column F should be taken out.

I also purposely made an error in Record 106 – entered 2020 instead of 2022… There’s also a date error in Record 10028.

Now go to Tools > Post Payment tool > Bulk Payment Import > Import New Payments. Select the Excel file in the “File to import” section.  Use this button .

You will see a list of all the new deferred payments and dates.

Notice Record 106 shows as an error since these are “Due payments” in the past and before “Paid payments” which is not allowed. Record 10028 date should also be fixed.

Fixes done in Excel sheet. Re-import. Notice the total amount desired (26,149.20) is re-imported. Press on “Insert lines”.

If all good, we get this message:

Let’s look at our sample loan with lines 27-29 now added. Notice a difference of 0.71 (the balance). This is probably due to the interest rate change at the start and end of month as opposed to the exact payment date on the 7th. You could adjust the last payment but no big deal (check then uncheck Balance = 0.00)

So there you have it. You gave your clients a break…. Many may need it because of the pandemic.

Please stay safe!

Marc Gelinas, CEO

NOTES:

As of version 5.2 Column fees (such as monthly fees or taxes) can also be re-imported with the bulk payment import via Excel but as amounts only (not as formulas). These can be entered in columns S, T, U and V.

The impact of coronavirus on borrowers and lenders

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As companies worldwide continue to assess and react to the outbreak of COVID-19, the consequences of the virus are increasingly having an impact on businesses on a global scale. An interesting article to read here.

Margill Installation – Network Drive not Displayed – Windows 10

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You are installing a Margill product and do not see your mapped network drive on Windows 10. Here is how to solve this in many cases anyways…

This is not as difficult as it seems…

Turn on SMB Direct from the Windows Features and edit the registry key called EnableLinkedConnections.

  1. Click the Start button, click Control Panel, click Programs, and then click Turn Windows features on or off.
  2. Select the check box next to the SMB Direct feature to turn it on.
User-added image

To configure the EnableLinkedConnections registry value:

  1. Click Start, type regedit in the Start programs and files box, and then press ENTER.
  2. Locate and then right-click the registry subkey HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\Policies\System.
  3. Point to New, and then click DWORD Value.
  4. Type EnableLinkedConnections, and then press ENTER.
  5. Right-click EnableLinkedConnections, and then click Modify.
  6. In the Value data box, type 1, and then click OK.
  7. Exit Registry Editor, and then restart the computer.

What is #1 Loan Servicing Software in the World?

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Very interesting question, but is there an answer?

Being number 1, being the Top is the ultimate goal for many… The ultimate achievement… The Gold medal!

We hear this in political speeches: we are the BEST, we are the GREATEST, never in the history have we been SO GREAT…

Vying to be Number 1 is also true for loan solution providers.

I thought I would write this article since I came across, simply by surfing the web and checking out other loan tech companies’ websites, that at least three companies have the #1 lending technology. Congratulations to all of you!

# 1 is taken three times so I guess this means Margill Loan Manager is the BEST, the GREATEST #2 software solution out there?

There are many good, even great loan software out there and many not-so-good ones that say they can do just about everything… but none can really. In the end, when you are looking for loan servicing software, what’s important, is that the solution fits your own special needs and that customer support is there for you.

PS: No hard feelings #1s…

Marc Gelinas, CEO
Margill Solutions

Your Credit Score May Soon Change. Here’s Why.

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Your credit score — that all-important passport within the financial world — may be about to change. And it won’t necessarily be because of anything you did or didn’t do.  Read this article by Tara Siegel Bernard in the New York Times.

Calculating Interest Distribution to Investors in Complex Participation/Syndicated Loans, Pools or Funds

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Maximizing Investor Returns / Reducing Risk through Participation/Syndicated Loans

Investors are constantly looking for new ways to maximize their returns. Investing in higher risk private loans is a method to generate 10 to 20% + annual returns. Of course, one of the objectives is to reduce risk and this can be achieved when multiple investors participate in a loan.

In higher-value commercial loans, bridge loans, loans for entrepreneurs (for starting or expanding a business) and short-term tax credit loans, many investors can participate or pool their investments to finance larger projects. Funds based on industry or loan product or investor pools are often created to reduce the risk of each investor while offering maximum flexibility.

Some loan funds and loan pools allow the investor to invest into or divest from a fund/pool/loan before the loan comes to maturity. An investor can decide for example to invest in a loan when the real-estate project reaches a specific milestone or divest when he/she feels there is a better opportunity elsewhere (usually divest to another fund within the same finance company as opposed to a complete withdrawal).

Again, to minimize risk and reduce cost to the borrower, in some loans, notably, construction loans, principal is extended progressively to the borrower only as required and contingent on achieving project milestones. These new principal advances are financed by existing or new investors that can join a loan or fund. This obviously adds to the complexity of calculating the distribution of income to investors.

Revenue models for the investor vary greatly: some Fund Administrators will pay the investor no matter if the borrower pays or does not pay the accrued interest every month (revenue based on accrued interest) and others will only pay the revenue portion to the investors if the borrower pays at least the accrued interest (revenue based on cash received). Whether based on accrued interest or cash paid, the revenue must be redistributed to each investor on a pro-rated basis of his investment amount and participation time (number of days or months of participation).

The Impossible Job of Interest Distribution to Investors

With this flexibility though, comes a major headache for Fund Administrators who must manage the revenue (interest revenue) for each investor based on the amount invested and on the time period this investor was involved in the loan.

Not many software tools can deal with such complexity, and although spreadsheets can be created to solve part of the problem, the time required to compute accrued or paid interest and investor distribution can take days, not to mention the great chance of error.

Calculating the interest in participation or syndicated loans is one piece of the equation, preparing statements is the next phase, a long and arduous process without the proper tools.

Investor management software to the rescue!

Yes there are solutions out there! Margill Loan Manager, a world-class software product, sold in over 40 countries, offers a highly sophisticated Investor module specifically created to manage irregular investments, divestments, payments and of course calculate revenue distribution by investor.

Let’s do a example and throw in a few curve balls…

Borrower ABC Inc. is given a credit facility of 1,250,000 (could be $, £, €, no matter) at a rate of 12% annually for 12 months. Investors in the participation/syndicated loan receive this return too.

  • If investors were to receive a lower return than the rate charged to the borrower, then this lower rate would be entered or, when reporting, a special custom report or statement could be created to factor in the spread or revenue for the Fund Administrator.

We will be using Compound interest, compounded monthly (we could have used Simple interest or compounding at another frequency (annually, semi-annually or other). We will also be using the banking method called the Effective rate method. Day count will be the most precise: Actual/Actual – could have been Actual/365, 30/360 or Actual/360.

ABC must pay accrued interest every month.

  • First draw of 300,000 on Feb 2, 2019
  • 5 investors wish to finance this first draw:
  • Fund A: 90,000
  • Fund B: 75,000
  • Fund C: 55,000
  • Fund D: 40,000
  • Fund E: 40,000

Initial loan advance of 300,000:

First interest payment on March 1, 12019. Total accrued interest is 2892.34. The accrued interest and individual investor portion is automatically calculated. We allocate to All Funds (investors in this case). Interest is prorated to each investor.

These interest payments can also be mass posted through the Post payment tool (see below).

Special event:

  • Fund C: Withdraws 25,000, April 12
  • Fund A: Replaces Fund C for 25,000, same day

Reallocation from Fund C to Fund A:

May 1 and June 1 interest payments are posted with the Post payment tool. This tool can post interest payments for a single or hundreds of loans, in seconds.

We can see how the 3003.24 interest payment was applied. Reports can show full portfolio totals for each investor/fund:

The Borrower makes a second draw (the operation is not shown in the images below since method was explained in example above…):

  • Second draw of 250,000 on June 17, 2019
  • Fund E: 100,000
  • Fund F: 100,000
  • Fund G: 50,000
  • Fund C: Complete divestment (30,000) July 2
  • Fund E: Replaces Fund C, same date

Borrower inherits from a rich uncle and pays back 65,250 on July 25. Outstanding interest is first paid back, and the balance pays the principal. The payment could also have gone 100% to principal with the “Principal Only” option.

On the lower part of the window, one sees the distribution by fund. Notice Fund C had a 0.00 principal balance but a 10.02 interest balance that will get paid off with the 65k payment.

Finally, rich uncle did not leave enough to ABC so there’s a need for more money (operations for adding draws an interest payments are not shown since we are now experts at adding these):

  • Third Draw of 600,000 on October 3, 2019
  • Fund A: 200,000
  • Fund E: 150,000
  • Fund H: 175,000
  • Fund I: 75,000

For the November 1 payment that was supposed to pay the accrued interest (10,506.48) ABC can only pay 1000 (see bottom portion).

The December 1 interest payment would then be much higher to pay the outstanding and current interest for a total interest payment of 20,479.77.

Construction is now complete and on Jan 18, 2020 ABC decides to pay back only 250,000. Fund Administrator decides that Fund A should get paid back first.

Outstanding interest (1653.76) is first paid to Fund A exclusively:

The remaining payment balance, 248,346.24 is then paid to principal to Fund A exclusively (use the “Principal Only” option):

And finally, the full loan is paid off on February 14, 2020. All interest is paid to the investors as well as the principal bringing the loan balance from 844,402.41 to 0.00 with the Payoff button:

Final schedule:

Multiple other options are available in the module such as:

  • Non-cash principal and interest Adjustments
  • Non-cash partial or complete P&I Transfers OUT of old loan and IN to new loan
  • Bad debt

A loan can include dozens of investors and a portfolio hundreds of investors.

The reporting module allows the production of reports at any date and for any time period for all investors/funds:

  • All transaction types (principal advances, cash payments, reallocations, transfers, adjustments, bad debt)
  • Principal balances
  • Interest accrued
  • Custom-built statements

The reports are produced as spreadsheets (Excel) or PDF.

Note: This module cannot include fees. It is meant to calculate the return to each investor. A second loan type for the borrower interactions, could include extra fees (origination, points, automatic penalties, etc.).

Changes in Winter 2022: Variable interest rates can now be added in the module (fixed rates previously).

For more information on this very special module, please contact Margill Customer support: [email protected] or call at 450-621-8283.

Notes on Line statuses used in module:

Line status (original name) Fund module recommended name (or purpose)
Add. Princ. 2 Additional Principal
Paid Pmt 2 Payment or Payoff
Principal Paid Reallocation Pmt, Principal Paid, Principal Adjustment Reduce
Add. Princ. 3 Reallocation Principal
Add. Princ. 4 Transfer in Principal
Paid Pmt 5 Transfer Out
Paid Pmt 4 Bad dept
Interest Charged Transfer In interest
Interest Paid Interest Adjustment Reduce
Interest Charged 2 Interest Adjustment Add
Add. Princ. 5 Principal Adjustment Add
Information no Impact Information Line
Rate Change Rate Change

Margill Loan Manager 5.1 soon to be released – Release Notes available

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Margill Loan Manager 5.1 will be released later in January or early February. Consult the Release Notes.

Margill Loan Manager – Ageing report – with refinanced loans

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Q: If a loan was refinanced and the payments revised based on the refinanced balance, can the loan account still be in arrears?  Doesn’t the refinancing and revised payments take into consideration any prior arrears? 

A: Arrears are always a little tricky with refinanced outstanding amounts since a human must take a decision as to whether the new payments to be added are simply extra payments or are to compensate for the unpaid payments in the past. The examples will help…

A most important column in the schedule is the “Expected Pmt” column. This column indicates how much was expected for this line and subtracts the actual payment amount from this amount to generate the Outstanding amount.

  • On 07-06-2018 I was expecting 439.58 and got a 439.58 payment so Outstanding = 0.00.
  • On 10-06-2018 I was expecting 439.58 and got 0.00 so Outstanding = 439.58 and so forth

If an extra payment (unexpected in the normal scheme of things) is made, then the Expected Pmt should be 0.00 and the Outstanding is thus reduced.

If a loan is refinanced, you must make sure that as of this moment, your Outstanding amount gets progressively reduced to 0.00 and you do this with the Expected Pmt column in which you would put the Expected Pmt to 0.00 for the new payments that are added or changed to give 0.

In the above example, the loan is refinanced with lower payment amounts since the 439 was too high for the borrower – 6 payments were added and these now become 175.20 to reach 0.00. One could argue that these payments are extra and thus the Expec. Pmt should be 0.00 for each, so we manually change the Expect. Pmt to 0.00.

NOTE: In order to be allowed, to change the Expected Pmt amount, this must be allowed by the Margill Administrator in Settings:

As these new payment become paid over time, the Outstanding amount gets reduced…

If on the other hand, a second amount (new Advance) was lent to the borrower and extra payments were added, then I would not change my Expected Pmts to 0.00 since these new payments become part of the normal payments, in the normal scheme of things. So Outstanding is quite subject to interpretation…

I actually cheated below by entering 3 of the 12 new payments with Expected Pmt of 0.00 to bring my Outstanding back to 0.00. Outstanding must be 0.00 or greater, never less than 0.00 even if one could argue the borrower overpaid.

Automatic Margill Loan Manager emails – Gmail managed emails (G Suite / formerly Google Apps) are blocked

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Q: I have set up automatic emails in Margill Loan Manager. We use G Suite for these but when I test the email connection if get a message saying the Google blocked the app since it is a less secure app. What can be done?

A: We see this once in a while when using GSuite.

Margill has no control over this since Margill simply sends a request to the Gmail (or other) SMTP server and this server checks your User name and Password and accepts to send the email or not. Pretty straightforward stuff, no big technology behind this…

However, GSuite or other mail providers may not accept the communication since it is sent by a software that they do not recognize and may give you a message such as:

You will thus have to allow your email account to communicate with Margill. Log into the G Suite Admin Console (https://gsuite.google.com). You must be the G Suite administrator. Go into security settings and click “Allow users to manage their own access to less secure apps”. Then go into your own Gmail settings and turn on the “Allow access to less secure apps (not recommended)”. Google will tell you a number of times that this is unsafe.

This should now allow the communication.

Setting up and Servicing Agricultural (Farm) Loans Efficiently

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Setting up and Servicing Cash-flow adapted Agricultural (Farm) Loans Efficiently

Most farmers have special needs when it comes to their loans to buy land, equipment and other farm assets because of their seasonal cash-flow and income spikes. Therefore, agricultural loan products shouldn’t be set up like conventional personal or business loans or mortgages with regular fixed payments, but rather adapted to each farmer’s particular revenue and expenditure rhythms.

A crop farmer most often has greatest cash needs in late Winter (next season purchases), Spring and Summer and greatest cash income in Fall at harvest. Livestock farmers on the other hand, can usually generate steadier expense and income streams.

Depending on crop type and location of the farm (colder countries versus subtropical or tropical countries), there may be two or more harvest seasons. Harvests can be considered Good or Poor, adding yet another cash-flow need to be considered when setting up a loan payment plan.

Lines of credit offer much flexibility of course to the farmer, allowing to borrow and refund as needed.  When lines of credit are not available, for capital purchases for example, amortizing loans become the best option. Calculating a comprehensive, cash-flow adapted payment plan for the farmer can become so difficult with conventional calculation tools or spreadsheets, that small agricultural lenders simply cannot easily cater to their clients’ particular needs.

Margill Loan Manager makes lenders’ tasks so much easier with a what-you-see-is-what-you-get approach to creating the payment/amortization schedule based on an predicted cash flow.

We’ve also included an example of a short-term, bridge loans we often see in AG loans.

Example 1: Interest-only during low season with principal and interest during the harvest months

Step 1: Create loan with normal amortization

Let’s say this for only 24 months (could be years, no matter)…

Press on “Compute’ to create this normal P&I schedule which you can now adapt line by line or in bulk.

Step 2: Highlight the interest-only months (lines) and right click:

Step 3: Highlight the principal and interest (P&I) months to fully amortize (0.00 balance).

Get the proposed payment plan in seconds – notice below that the payments for the interest-only months (lines 14 to 20) have been recalculated automatically since lines 9-13 pay off principal thus reducing the accrued interest (this automatic re-computation is called a Line Behavior – a pretty sophisticated feature).

Notice the payment amount for line 1 (479.88) is higher since payment was over 1 month after the origination date (what is called a long period).

Example 2: Higher set payments during the high cash-flow months and normal amortization during the slow months

Once the preliminary schedule is calculated:

Highlight high revenue months, right click – let’s say the farmer can pay 4000 per month during these 5 months of the year. Margill will ask you to enter the payment amount for the selected lines.

Now select the remaining P&I lines and compute the payment to produce a 0.00 balance:

The resulting payment plan:

Example 3: Over time payments were made, missed and late, fees were automatically added and so another 6 payments are added to the loan as well as a new 20,000 loan approved on April 12, 2021

We first inserted a new line  – line 19 below – with the right mouse click or the  button in which we entered the 20,000 loan (called an “Add. Principal (Loan)” type transaction).  Then we added the 6 extra payments at the end of the schedule:

The payments after the 20,000 loan are then re-amortized (could have been special  lump sum payments in there too):

Below is the schedule containing the past payments and the future expected payments to fully amortize the loan that now stretches on to May 2022:

 

Example 4: Bridge loan to help farmers who are expecting to receive a state or federal grant. The grant only comes in (paid by the government) after the project is completed. Interest can be charged normally or a simple Fee charged since interest may be too low for 2-3 month loans.

In this example, we have a 10,000 loan for approximately 3 months (we estimate payment on August 1 – date can change later on):

The preliminary result after Compute:

I then must add my Fee (200) – I can add either a fee or consider this fee to be interest. You have both options in Margill with Line statuses.

Press on  to insert a line (or right click with the mouse):

Fees could be paid up front:

Or paid at the time of full repayment on August 12 for example (for accounting purposes, Fees must be paid separately from the principal so they are properly accounted for):

Some would like to consider the 200 as  interest so we use a Line status called “Interest Charged” and this shows in the Accrued Interest column:

We can split the payment in two or could have one payment of 10,200, no matter (either way, payment will automatically post 200 to interest first and 10,000 to principal):

or

As a agricultural lender you run into other scenarios? Please let us know and we’ll add to this blog! Write to [email protected] or call at 1-877-683-1815 or 001-450-621-8283 and talk to Marc.