Can I Work Out Just One Loan And Not The Others?

I am frequently queried by small business owners, “I want to work out this specific loan but not these others. Can I do this?” The answer is a guarded “yes”.

However, what is the point of working out one loan but not another? The objective is to reestablish a new opportunity by stripping off the debt from the business and then reducing the personal guaranties. Given that the strategies do not discriminate between one debt or another but rather deal with all your debt as a whole, why would anyone chose to exclude one loan?

For some reason, small business owners believe it is in their best interest to pay a particular loan, despite the strategy being to clear all debt off the business. The only possible explanation for wanting to violate the strategy is an emotional one. There are no possible business reasons. Since the strategy provides for total debt removal, bypassing one loan is inconsistent with the strategy and serves no viable purpose. It is not in the best interest of the business, although the business owner may believe otherwise.

Accepting debt with no new benefits, for no good business reason, serves no purpose other than to somehow make the owner feel good, probably satisfying a misguided need to honor his word or complete his commitment despite the fact that the strategies utilized eliminate that objective. The fact is, a business that requires any sort of workout cannot fulfill this mission.

Let me remind you of the context we hold. Your business is insolvent, unable to meet its obligations and is subject to foreclosure and liquidation. The business is an entity that stands on its own feet; it exists in its own merit, it is the borrower, while the owner is typically the guarantor. These are two different roles. Why would the owner ever come to a conclusion in a workout scenario that the business would be better served by holding onto one debt but not another? I can see no logic. There is no logic, there are only personal and emotional issues the guarantors are bringing to the situation like personal relationships with the banker and not wanting to disappoint them. It is difficult to even verbalize the reasons to keep one loan over another in a workout. There are none.

What could make one loan more viable than another? Nothing. It is the responsibility of the owner to provide the business with leadership and direction and accepting one loan over anther in a workout does not fulfill these objectives. The purpose of a workout is to give the business a second chance and an opportunity to succeed. Removing the debt is the tactic.

Keeping one loan is in direct opposition to the intent and purpose of a workout. Think twice before you decide to do this.