A good secured bank loan workout, when started in advance of the banks pursuit of legal action and done well, is seamless and invisible. Only a small handful of participants are aware of it: your banker, us, perhaps some unsecured vendors, and of course, the secured and guaranteed creditors. There will be neither public recital nor publication in any way, both of which can hurt businesses in meaningful ways. There are no public filings, no public notice, no advertisements, no signs on the yard, no destruction of reputation, just goodwill and business opportunity.

However, debt workouts are not always smooth sailing. While they are most of the time, collateral damage can occur, usually when you start the workout after the bank launches its legal armada. If the workout is addressed late in the game after legal action has been precipitated by the bank, or if your bank is particularly feisty and extremely aggressive (very unusual) there could be expensive and distracting collateral damage—bodies laying on the side of the road, so to speak. Some of your customers, some employees, some vendors… It’s unlikely, but sometimes it is an unfortunate yet necessary cost of doing a workout, especially when commenced later in the proceedings.

Since our clients are small business owners in default on their loans, with reduced revenues and ever-increasing overhead, who cannot pay their loans and who wait until they are in desperate straits, under enormous pressure or deeply into default before they ask for help, the banks often have begun to take aggressive harmful liquidating steps. In this situation, the banks may be prepared to launch—or may have already launched—their scuds, sending out blanket collection letters to your customers, directing them to send payables due to you directly to the bank instead. That can be expensive and very destructive to your survival and emergence.

Or, perhaps the bank will seize collateral (e.g. trucks, equipment, assets of any sort), shutting down your operation. We can get it back and stop the procedures, however, there is a price to be paid. Collateral damages will occur beyond the immediate negotiation with the bank. Loss of customers, vendors and employees is a reality, your reputation will be damaged.

My response and context of this situation? When in a workout, while it infrequently occurs, collateral damage is sometimes a necessary part of the workout. It’s a part the small business owner must endure and attempt to control but cannot always prevent. Take the beating and work to overcome it; that is the only option. Lose a little but save the overall situation, cut off a limb to save the body, that is the context. Affordable losses are a problem that can be overcome.

Get in front of the issue, do preemptive workouts. When you understand that you will not be able to overcome the reduced revenues and be liquid enough to run your business and support the debt service, do the workout. Do it early and completely. This is the best way to prevent any collateral damage from occurring. Call Norm for a no-obligation teleconference for us to discuss your options: 413-584-2581.