Get Ready for Loan Enforcement

In the wake of the COVID-19 pandemic, numerous companies have faced unprecedented challenges. While initial leniency from lenders provided a buffer, the landscape is shifting, and borrowers must proactively engage with lenders to secure forbearance or loan modifications. This article outlines crucial steps for borrowers to prepare and present a compelling case for relief, emphasizing transparency, strategic planning, and proactive measures.

1. Up-to-Date Books and Records:

- Keeping books and records current is foundational. Lenders rely on accurate and up-to-date information to make informed decisions.

- Transparency is key, and providing a comprehensive view of financial health through updated records sets the stage for constructive negotiations.

2. Realistic Financial Projections:

- Lenders require realistic financial projections that bridge pre-pandemic expectations with actual pandemic-era results and current projections.

- Highlighting changes in key line items and demonstrating a clear understanding of the evolving financial landscape instills confidence in lenders.

3. Understanding the Pandemic's Impact:

- Identifying factors beyond the borrower's control during the pandemic is crucial. Whether it's a decline in sales, supply chain disruptions, or labor shortages, a detailed analysis is essential.

- Acknowledging pre-existing issues and articulating plans hampered by the pandemic showcases a proactive approach.

4. Adjusting Operating Results:

- Utilizing historical data and percentages to adjust operating results provides a "but for the pandemic" perspective, reinforcing the business's intrinsic value.

- Aligning with pre-pandemic performance helps convey the potential for a return to stable operations.

5. Assumption Transparency:

- Clearly articulating and justifying assumptions made in projections is paramount. Lenders scrutinize these assumptions against industry standards and peer benchmarks.

- Citing sources such as industry journals or prior operating results enhances credibility and aligns expectations.

6. Self-Help Measures:

- Lenders favor borrowers who have taken proactive measures to mitigate challenges. This includes expense reductions, employee headcount adjustments, and negotiations with lessors and landlords.

- Demonstrating exhaustive efforts to help oneself strengthens the case for lender forbearance.

7. Collateral Evaluation:

- A comprehensive understanding of the collateral's value is essential. This involves assessing liquidation value, market conditions, environmental considerations, and potential consumer repercussions.

- Providing insights into administrative costs and the feasibility of selling collateral in place streamlines lender decision-making.

8. Principals' Commitment:

- Lenders appreciate when principals exhibit commitment. Salary and perquisite reductions, recouping dividends, and additional financial injections by equity holders all contribute to enhanced credibility.

- Principals putting more of their own money into the business signals a shared commitment to its success.

9. Thoughtfulness and Honesty:

- Open and honest communication is paramount. Borrowers should approach negotiations with thoughtfulness, proposing solutions rather than solely disclosing problems.

- A proactive and collaborative approach fosters a more positive and constructive negotiation environment.

Conclusion:

In navigating the evolving financial landscape, borrowers must approach lenders with a well-prepared and transparent case. Thoroughly analyzing their own business, understanding lender expectations, and proposing viable solutions will facilitate smoother negotiations, ultimately leading to a faster and more favorable outcome for all parties involved.