Starting a business takes a huge amount of courage, determination, and risk. Studies have shown that most business fail within their first few years of existence. Still, thousands of Americans continue to pursue the dream of owning their own business year after year, despite the risks. When financial trouble presents itself, the business owner has two options, sink or swim. They may decide to call it quits and close up shop, or they may decide to stick it out and fight to keep their doors open. Only the latter has the best chance at not becoming another failed business statistic.
Many financial troubles revolve around an inability to pay off certain debts, especially debts tied to business essential collateral. In some cases, the only collateral a business will have is the very building the business is conducted in. Facing foreclosure on a commercial loan is a scary place to be, but a commercial loan modification offers a way out.
Commercial loan lenders often prefer to modify a loan rather than foreclose, not out of sympathy for the borrower, but simply as a matter of dollars and cents. It is cheaper for commercial loan lenders to modify a loan than it is to foreclose on the loan. When a commercial loan is foreclosed on, the borrower is kicked out of the property and the lender becomes responsible for listing the property, showing the property, maintaining the property, selling the property, paying taxes on the property if necessary, etc. When a loan is modified, however, the lender continues to collect monthly payments from the borrower and the borrower remains responsible for the above mentioned tasks.
Requesting a loan modification from a commercial loan lender is a process that will vary slightly from lender to lender. In most cases, an application will have to be requested, filled out, and accompanied by a hardship letter and various documents that illustrate the business owner’s financial status. The application and supporting documents will be reviewed, most likely by a loss mitigation representative for the lender, and a determination will be made as to whether or not the loan should be modified, and if so, to what degree.
There are several ways to modify a loan, from adjusting the interest rate to forgiving past late fees. Some lenders will even combine methods in an effort to lower monthly payments. In most cases, borrowers represented by an attorney will get the best deals from their lenders, since attorneys are simply far better at negotiating with lenders than borrowers. Not only are attorneys more experienced, they are also not emotionally involved with the loan, allowing them to fight harder against the lender and not accept the first offer that gets put on the table.
Requesting a modification from a commercial loan lender is a great way to attempt to avoid foreclosure and hopefully stay in business. Any business owners debating on whether or not they should pursue a loan modification should stop debating, hire a lawyer, and just do it. If the business owner has come to a point where they have to consider a loan modification, then they are probably at a point where foreclosure is looming in the distance. The best thing a business owner can do to fight foreclosure is act quickly and tackle the problem head on, instead of trying to wait it out or ignore it. Procrastinating is the worst thing a business owner trying to stay in business can do.