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Commercial Loan Workouts: How to Guarantee Your Workout is a Success

Commercial Loan Workouts: How to Guarantee Your Workout is a Success

Commercial loan workouts are never fun—you usually have to be in dire financial trouble before a bank will work with you to correct the problem. Unfortunately, the current economic situation means that many companies will have to undergo a commercial loan workout of modification (especially commercial property companies due to falling property values). However, you can still guarantee that your loan workout will be successful be following these five steps.

  1. Collect all of the relevant documents- Your bank (or other lender) will need access to all of your important documents. If you run a property management company, they will want to see your rent roll and leases, expenses, etc. Regardless of the company you run, you will most likely need to show all of your debts and mortgages.
  2. Create a financial summary of your company- Try to translate your company’s financial performance into just a few pages of numbers. Keep in mind what your lender will want to know about your company. This will typically include your cash flows, the current value of your assets, and other financial metrics. This step allows your lender and the loan workout specialist to easily see how your business performs and what it is worth, and will speed the workout along.
  3. Submit your paperwork- After gathering all of this data, you will need to submit the information to your lender, who should forward the packet along to your workout specialist. Do not simply assume that the paperwork ended up in the right location, especially if you had to mail documents. Confirm the delivery and you could save weeks wondering how your package disappeared.
  4. Loan Negotiation- This process is mostly hands-off for the business owner, and is typically focused on the lender and workout specialist negotiating the workout. The negotiation process may take a few months since the workout specialist will propose a solution and the lender can reject the solution and counter-offer. This is your time to wait.
  5. Review and accept the proposed workout- Once the workout specialist and lender have agreed on a workout solution, you will be presented with the terms, which typically include a variety of options such as lowering the loan interest rate, reducing the principal, etc. When you sign off on the new terms, the negotiation process is over. Congratulations!

Remember that the entire process is not over as soon as the workout is official. While you definitely have gotten a financial boost from loosening some of the terms of your loan, you will still need to manage your business carefully so that you do not violate the terms of the new loan.


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