Our goal is to save homes from foreclosure
At Consumer Assistance Law, we represent clients with foreclosure defense... Read More>>
Defending the Foreclosure
You should have an attorney no matter what technique you are using so that you can have quality... Read More>>
Thorough Review of a Homeowner's Loan Documents
Attorneys may also be able to challenge the right of a... Read More>>
Law Suit Against Lender
Finally, there are thousands of state and federal rules that a lender must abide by as they lend money... Read More>>
Roll the clock back to the spring of 2007. You are running a successful business, but you need more working capital to expand, so you go to your local banker. The bank agrees with your forecast of healthy growth and gives you a $1 million revolving line of credit with a three-year maturity. The bank also asks for your personal guaranty, which you are told is just standard practice and nothing to worry about. The line of credit is secured by all assets of the company. Your business grows and prospers.Now fast forward to September 2008. Lots of bad stuff happens that month. Lehman Brothers files for bankruptcy. Insurance giant AIG sees its stock value plunge almost to zero. The economy in general begins a downward spiral. Your business does not go into a tailspin, but the numbers trend down for the next several months.
Fortunately, your business made it through, and it now looks like you might have turned a corner—numbers were up last month for the first time in almost a year. Unfortunately, the loan matures in a few months and there’s a balloon payment that will be difficult to make. And there’s that personal guaranty that has you a little worried in the back of your mind.
What do you do?
Keep the Bank in the Loop
Banks hate surprises, especially when the surprise is that a borrower may not be able to make the next loan payment. Open and prompt communication with your bank builds trust and credibility. When the time comes for your lender to decide whether or not to cut you some slack, that trust and credibility will almost literally be the equivalent of “money in the bank.”
Don’t wait until your company is in desperate straits (e.g., How are we going to make payroll tomorrow?) to let the bank know about problems. Approaching the bank early on not only builds trust and credibility, it gives the bank the flexibility to make concessions that might not be possible down the road. Poor communication is the enemy. It creates mistrust, raises suspicions and pushes the bank to assume the worst and take drastic actions that may be irreversible and ultimately not in the company’s or the bank’s best interest. Keep the bank in the loop.
Understand What the Bank Wants
Ultimately, to negotiate successfully with a lender to modify a loan, a borrower needs to understand how banks see the world. Typically, banks have the following three goals when dealing with loan issues:
The bank will measure any proposal to modify loan terms against these three goals.
Take Responsibility for the Problem—and the Solution
Simply blaming the “bad economy” for your loan problems and throwing up your hands is guaranteed to get your banker worried. To negotiate with the bank from a position of strength and enhance your credibility, it’s essential that you identify the problem, take responsibility for it and propose a reasonable solution. This will immediately impress the bank, and it will be much more willing to make concessions on the loan.
Restructuring a Loan – What Are the Options?
Here are some of the most common ways to restructure a loan, starting with the most preferred and going to least preferred, from the bank’s point of view:
If you have built your bank relationship on transparency and credibility, your bank will often consider one or more of these options to give your company breathing space.
– See more at: http://www.stoel.com/debt-restructuring-how-to-negotiate-with-your-bank#sthash.GA2sWedj.dpuf