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Commercial Loan Workouts: Four Ways to Solve Your Debt Problems

Commercial Loan Workouts: Four Ways to Solve Your Debt Problems

When you default on your business loan it one of the most painful experiences that a business owners can go through. Now if you have already defaulted on a commercial loan, or are about to, you have probably already suffered through months of just barely making it by until you just couldn’t afford to pay anymore.

Thankfully, there are at least four ways that you can change your situation and solve your immediate debt problems in a relatively short amount of time. The option you choose will depend on your specific situation, but all four of these strategies are great ways to stop the bleeding and get your company back on track.

Commercial Loan Workout- This option is a comprehensive solution to solving your loan problems. A commercial loan workout specialist will work with your lender to determine the best way to fix things. A commercial loan workout may include deferred payments (or adding delinquent payments to the end of the balloon payment), waiving the late fees and penalties, or make interest-only payments. A workout can include a commercial loan modification, which is more focused on restructuring the actual loan rather than just delaying payments or shifting payments around.

Commercial Loan Modification- Commercial loan modifications focus on restructuring the original terms of the loan. For example, the balloon payment may be delayed by a few years, or the interest rate may be decreased. In addition, the term period of the loan may be extended, or even the principal reduced. With both modifications and workouts, both the lender and the borrower must agree on the terms.

“Cram-down” Method- If the lender cannot agree on any of the terms presented and is completely resistant to any altering of the original loan, then it is possible that your company could be forced into bankruptcy. However, in bankruptcy court a judge has the ability to use the cram down method, which will force the lender to accept a modification to the loan in order to allow the business to afford the payments.

Short Sale or Deed-in-lieu of Foreclosure- The last way to get rid of your debt problems (specifically if a mortgage is the problem) is to either have a short sale or give the lender a deed-in-lieu of foreclosure. A short sale is when the lender allows the borrower to sell the property for less than the mortgage value, and the lender writes off the difference. A deed-in-lieu is where the property owner transfers the deed to the lender to stop the foreclosure process. However, in this case the difference between the property value and mortgage amount may not be forgiven.

Remember that a bank is typically not forced to negotiate your debt with you (except in a cram down), so be open to the different potential ways your lender offers to settle your debt. By taking advantage of one of these four ways to solve your debt problems, you can get yourself out of the debt rut and get back to running your business.


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