Loan Workouts Part 1 – Why and When to Start Working with Your Lender

Its been nearly seven weeks since the State of California has been put on a statewide shelter in place order. During this time many businesses have struggled to make ends meet and many landlords are facing questions related to their own commercial loans. Today, Attorney, Matthew Kirkpatrick begins to address issues related to commercial loan workouts.

As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing managing shareholder Keith Dunnagan at

Also, remember that we do legal presentations for business and community organizations. If your group would like to schedule a presentation, please contact me to setup a date and time.

Loan Workouts Part 1 –
Why and When to Start Working with Your Lender
By: Matthew J. Kirkpatrick, Esq.

COVID-19 has impacted the country and the entire world in an astonishingly short period of time. Businesses of all kinds have had their operations curtailed due to shelter in place orders. However, even as those restrictions are loosened business may be slow respond as customers may be cautious about re-entering the consumer marketplace, supply chains have been disrupted, and employees may be concerned about infections. Commercial and residential landlords are also facing difficult times as tenants are failing to pay rent and evictions have been halted. This has created a situation where our commercial borrower clients have suddenly found themselves in a position with reduced or no income and an inability to pay their loans as they come due. However, a lack of income does not relieve the obligation to make those loan payments. Failing to make loan payments will result in a default of loan agreements, promissory notes, deeds of trust, and personal guaranties. In some circumstances, the reduced income could result in a default even if timely payments are being made under a debt service coverage ratio covenant (a requirement that the borrower’s income is a specified multiple of their loan payments). This puts businesses, real estate, and livelihoods at stake.

While lenders may not take action if a payment or two is missed, the default and eventual enforcement proceedings through litigation, receivers, or nonjudicial foreclosure will eventually happen. Additionally, although the shelter in place orders as well as reduced court operations have limited the remedies available to lenders, these restrictions will eventually be lifted. If borrowers wait to act until lenders reach out to them, it is going to be far more difficult to rectify the situation. Therefore, it is essential for borrowers to create a plan to catch up on missed payments or come to an agreement with lenders for a longer-term solution.

Now is the time to start working on these plans. Borrowers that are proactive in working with lenders tend to be in a far better position to successfully negotiate a resolution. Lenders appreciate having the certainty of a plan to ensure their eventual payment as lenders are generally not in the business or property management. Conversely, silence on the part of a borrower creates uncertainty and an unwillingness by lenders to accommodate what might otherwise be reasonable business solutions.

If your business is experiencing a downturn and your ability to pay your loans is in question, our firm can help you identify options and create an action plan to make it through the pandemic. Being proactive rather than reactive is appreciated by lenders and leads to a better discussion.

Our next post will tell you how we do that and what can be reasonably expected from lenders.

The information contained in this article is for informational purposes only and not to be construed as legal advice. If you have questions, you should seek competent legal representation to assist you.


The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in probate, business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.