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When may a lender offer a loan workout arrangement?

A business owner may experience cash flow issues when recovering from an unforeseen event. Before you contact a borrower to discuss a loan workout, consider giving your lender agreement a careful review. Your loan documents generally determine whether their terms allow a revision.

As noted on the ABA Banking Journal’s website, you could use the internet to learn more about your borrower’s current circumstances. Social media profiles, for example, may offer insights into borrowers’ sentiments. You may also discover how their businesses operate or if they appear to have overextended themselves.

Preparing for a workout agreement reports that workouts may offer a remedy for a loan that has reached a nonperforming phase. Instead of waiting for borrowers to default or “walk away” from their obligations, lenders could discuss revising their loan agreements.

By changing a borrower’s payment schedule or a loan’s maturity date, lenders may help the loan become a performing asset again. Offering to change interest rates or update the assets used as collateral could bring about a recovery without a need to foreclose. Based on a borrower’s financial circumstances, a loan workout agreement could get the arrangement back to profitability.

Obtaining the necessary approvals from other creditors

Loan workouts may offer a solution when a note consists of one creditor. If a loan consists of multiple lenders or a syndication, you may need to obtain their approval, as noted by Another lender may have a right to discuss conditions of a loan modification with you before you present your offer to a borrower.

Contract terms may provide creditors with options to avoid a default by allowing their borrowers to revise a loan’s terms. When faced with unexpected circumstances, borrowers may accept a loan workout agreement to protect their assets.

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