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Understanding Commercial Loan Workouts

When businesses default on their loans, both lenders and business owners lose. In this tough economic climate, it is easy for businesses to get behind. However, when creditors work with borrowers, rather than “throwing out the baby with the bath water,” mutually beneficial solutions can be found. Commercial loan workouts protect mortgage holders’ investments while relieving pressure on businesses, allowing them to avoid bankruptcy and get their back payments back on track.

The loan workout process starts with a thorough analysis of a business’ debts and assets. Researching the current market value of the property is also important. The results of the examination determine the best type of workout and provide the lender with assurances that the business can meet the restructured loan obligations.

A commercial loan workout package can include one or more of the following components:

  • Composition. The lender agrees that partial payment fulfills all debt obligations.
  • Extension. The business owner is given a longer period of time to pay off the debt.
  • Forbearance. The lender agrees to postpone payments for a temporary period of time.
  • Loan modification. The lender reduces the interest on the loan or makes other changes.
  • Purchase price reduction. If the property is worth less than the original purchase price, the lender reduces the total due.
  • Surrender of collateral. A surrender of same collateral or land, under negotiated terms, can provide benefit for the lender and borrower.

Delinquent payments can be added to the end of balloon payments, or late fees and penalties can be waived.

When the workout package is completed and submitted to the lender, a period of negotiation ensues. After the lender approves the package, the new loan is signed by both parties.

Developing a successful commercial loan workout package is complex. Do-it-yourself commercial loan workouts can meet countless roadblocks. Consider consulting the knowledgeable and experienced business law attorneys at the Hess & Jendro Law Office, P.A. for package development – and enforcement.