Secured Bank Loan Workouts.
You have a standard secured bank loan. You are either in default or gagging on your debt service payments, trying to keep up. Your revenue is down and expenses are up, your cash flow is inadequate to cover all your commitments. You’re unable to make it work and heading towards default one way or another.
Your bank is probably doing everything it can to avoid the write-off, or taking in more collateral property, not wanting to foreclose and liquidate by auction, and then they must recognize the loss… and the costs. They would, by far, prefer a loan modification so you can stay in compliance and they don’t have to pursue foreclosure and liquidation by auction with its inherent risks and costs. (I actually had a bank accept $100 per month on a $1.6 million loan; the note was then in compliance.)
The problem is that while a modification may result in an improved cash flow, in the end, the borrower still owes $1.6 million for a business with revenues decreased by over 50%. It does not work, there is no point, so why bother? It is like a bandage on a broken bone; it will serve no long-term purpose. Modification is not the cure or the answer. Eventually, the bank will require full debt service, and then you are once again doomed.
The only answer is debt forgiveness from a bona fide workout, not a modification. You must lose the debt or there is no point going on and that is the only truth there is. You must figure out how to convince the bank to support a workout with debt forgiveness as opposed to a modification. Fortunately, we know exactly how to do this without alienating the bank.
There is no question that secured bank loans in default can be very successfully worked out. The largest barrier is a bank that prefers to modify loans and to work with the borrower, but, if the loan remains the same it will not work out. It can’t—the end is inevitable.
Lose the debt and live to play another day.
Call us for help. Norm will arrange a no-obligation teleconference for us to discuss your options: 413-584-2581.
