Successfully pushed a defaulted loan into workout

It doesn’t seem to make much sense that forcing a recently defaulted loan into workout, where asset liquidation and cessation of business occur, would be considered a good thing.  However, when cash reserves have run dry and receivables are not strong enough to support overhead and the secured note payments, it’s time for a workout, whether you just entered defualt or have been there for months

Postponing the inevitable always ends the same way… The small business owner doesn’t take a paycheck for many weeks, they drain their remaining personal assets including the equity in their real estate and protected accounts such as 401Ks and IRAs, tries to take on additional debt in order to service current debt, shuffles accounts receivable, etc… and in the end where do they end up? Workout… but now they have much less to work with when it comes time to settle their personal guaranty…. They have effectively shot themselves in the foot just before a marathon

Recently I was working with a client who just missed their first payment on an SBA guaranteed note… Cash was low, really low, as in almost completely gone, AR was bleak and unreliable, basic overhead and payroll were a major concern.  However my clients knee-jerk reaction was to liquidate his IRA and fight on until next month, even though his own projections showed revenues declining further in the next 30 days… My response was “No, it’s time to pull the plug”

My client was not so much worried about entering workout and liquidation, as his own projections showed that this was reality in the very near future.  His concern was that the bank would not work with him yet because he had just missed his first payment and that it was his obligation to wait until the bank called him and forced him into workout…. a common misconception

I called the banker and let him know the situation.  I politely asked for the loan to be placed with a workout/asset recovery officer from the bank.  Within an hour I was contacted by such a representative, who after hearing the facts and seeing the numbers, thanked me for calling.  He agreed that delaying would only cause further damage to both my client and the financial standing of the business.   When I went on to tell him that we had found a buyer who was interested in buying the assets of the business and that the bank would not have to pay legal fees and go through the foreclosure and auction process, I believe he almost fell out of his chair… it was the best news he had heard all day…

In a matter of a couple of hours we had successfully entered workout and agreed to go through a private sale which will preserve the business, along with creating rapport with the banker that will undoubtedly help us during the offer in compromise proposal

End result:  we minimize losses, save the business opportunity, avoid foreclosure and auction, work with the bank, and now my client has enough resources left to navigate through a successful offer in compromise..

More success tories to come concerning this account… Stay tuned