Loan Workouts Part 2 – How and What Can be Accomplished

In our previous installment on loan workouts, we discussed being proactive in approaching a lender when a commercial loan is in trouble. Today, Attorney, Matthew Kirkpatrick walks us through the process of how a commercial loan default (a trouble asset) is handled with the bank. There are a many different ways loans can be negotiated and each negotiation requires a careful understanding of the property, the loan and owner.

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

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Loan Workouts Part 2 – how and what can be accomplished
By: Matthew J. Kirkpatrick, Esq.

Last time (in Part 1), we discussed why borrows need to start discussions with their lenders to avoid running into problems with their loans. Business operations are difficult enough without having to worry about lenders undertaking enforcement actions. Our firm can help.

The first thing we will do is to review your loan documents to assess the scope of the problem. There are several issues that could cause the lender to start enforcement proceedings such as missed payments, the maturity of the loan, or a default of debt service coverage ratios resulting from decreased income, just to name a few.

Then we reach out to your lender to have a phone call and determine what is most concerning to your individual banker. Sometimes just having an attorney on the line can convey to the lender that the borrower is taking the problems seriously and are committed to resolving the problems. Because we are familiar with working with lenders, we can speak their language and zero in on what the lender needs in order to evaluate the situation.

The next step is to gather the borrower’s financial documents and review them to ensure they accurately and cleanly reflect the information the lender will require. In this process we are often looking at leases, rent rolls, payment history, profit and loss statements, balance sheets, tax returns and analyzing the net operating income of the property. Ultimately, we are looking at the numbers to accurately show the lender, in a format that they are used to seeing, what the current issues are with the property. We are at the same showing the lender how a potential proposal make work for resolving a loan issue.

After all of the information that has been requested by the lender has been presented, we will often have follow-up phone calls with the lender to see what options are available. Sometimes when a loan has matured, the lender will simply allow continued payments, such as interest only, and extend the stated maturity date. We have also seen temporary payment deferrals which allow the borrower to stop making payments and add them on to the end of the loan. Some lenders feel that they are adequately compensated by a permanent or temporary increase in the applicable interest rates. Other times, lenders will waive their ability to demand increased default interest after a default. In some circumstances we have even seen lenders forgive payments or reduce the principal balance of the loan. Each is a case by case analysis dependent on the financial viability of the property and potential for long term success.

After a deal has been agreed upon it takes some additional time to memorialize that agreement in a writing through a modification agreement, forbearance agreement, or a discounted payoff agreement. Small issues typically come up in formalizing the details although the heavily lifting is typically getting a lender to agree to the major business terms of the deal discussed above. After the agreement has been memorialized and executed, we are available to help in case things do not go according to the plan.

The critical part in working out a commercial loan is to be proactive. Recognize the problem, plan for a resolution and work effectively and efficiently with the lender before the lender loses faith in the financial viability of the loan.

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.