Working with Lenders During Economic Uncertainty: What to Request and What to Expect

On April 1, bills were due for millions of American businesses. From rent and mortgages to equipment loans and the light bill, what’s the best way to handle these invoices?

It is tough to choose between who to pay and who not to pay. But as we as attorneys lead our clients, we should raise to the forefront this goal: Surviving. Businesses are loath to lay off employees because they know those people and their bills. But on the other hand, if the business goes under, those people will not have jobs for long anyway, and, in many cases, if the small business sinks, the principles of that business will also personally sink.

Some types of commercial lenders are pretty readily offering reduced payments during the shutdown. Those payments may be 50% of the regular payments for two months. Two months is a logical period of time now, as the indicators from federal and state governments are that this shutdown is expected to last for up to two more months.

If you are a business, you should consider taking whatever measures within your immediate control to lower your monthly bills. That is key right now. Then request that your lenders and landlord offer a reduced payment for two months. Ask what programs they are offering and what reductions are available. When you ask, demonstrate to the lender and landlord what other cost-cutting measures you are taking. Some lenders may decline the reduction no matter what. But many lenders recognize if you are cutting costs across the board and trying to survive and will offer that reduced payment. In contrast, if you ask your lender to bear your whole burden by giving you a deferment, and meanwhile fail to cut any other substantial costs, that may hurt your application for a reduced payment.

If you are a lender, your main objective, like other companies, is to survive. And you may have lenders of your own. However, you need your borrower base to survive in order that they can ultimately catch up and repay your loans.  For this reason, “contact payments” are a balance of those objectives. You want to collect payments – in part just to keep your borrowers in the habit of remitting payments, which is highly important – and you also want to strategically give reductions in payments to those borrowers who seem to need reduced payments to survive. Reduced payments for a short period are far better than a full payment for one month followed by default. Be keen in your requirements for borrowers who apply for reduced payments. Review their bank statements to get a sense of their financial reality. Your application for reduced payments should also ask questions about what other costs they have cut and other measures. If you serve a particular industry, search for and offer tips in emails to borrowers about how their industry can offer an online form of their business, etc.

More than anything, whether you are a lender or a business of another type, make sure the senior leaders and brightest minds in your company are involved in developing the processes for evaluating and granting vs. declining applicants. This is not a time to hand-off decisions to lower level employees, because these strategic moves will determine for many companies whether they can weather this storm successfully or fold.

 

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