Neuman Anderson Managing Partner Ken Neuman is a member of the Crain’s Detroit Business Second-Stage Business blogging community and regularly contributes posts on the topic if business risks and solutions. This post originally appeared on the Crain’s Detroit Business website.
It’s every business owner’s worst nightmare–the business is not cash flowing and the bank debt is no longer serviceable based on current volumes. And to make matters worse, you, and possibly your spouse, have personally guaranteed the loan. Now what? Close the business? Bankruptcy? Don’t panic yet.
First of all, you have to remind yourself you’re not alone. The number of business loans in default are at levels not seen since “the big one”. Every business lawyer I talk to agrees that defaults and work-outs are at astronomical levels. This has a significant impact for you in a number of respects. For one thing, many of the banks’ “troubled asset” groups are overwhelmed with non-performing loans right now. Further, banks have been expending huge resources in chasing debtors and guarantors only to find that the recovery compared to the expenses incurred has not been worth the trouble.
Second, often banks are much more willing to work with borrowers to find a “solution” in order to keep the loan out of default, rather than simply call the loan. Many of my clients have had success in reducing principal payments, renegotiating interest rates and/or otherwise restructuring debt obligations that have significantly lowered total debt service, allowing the business to “stay current”.
Third, if litigation is inevitable, the Courts have become less of a rubber stamp for the banks than in the past. Issues like the bank’s duty to mitigate it’s damages, or its obligations to the borrowers as a fiduciary are much more likely to receive a fair consideration from judges than in the past.
In short, even though your business loan is “in trouble”, it does not mean the end of the road. Work with your attorney and accountant to put a plan together. Create forecasts that show how your business can reduce overhead and work its way out of its current cash flow problem. If you can demonstrate a viable plan, you may just avoid the bad dreams, and continue to sleep like a baby.
