Empowering Small Business to Repay Debt
The Coming Paradigm Shift from Creditor to Debtor in Loan Repayment Solutions
Debtor-Proposed Repayment Solutions
Debtors simply cannot, or should not, rely on creditors to give them the necessary time and attention.
Frankly, debtors need to not only better understand their financial condition, how to determine and document for themselves their own ability to repay, but need to step-up, lead, and take full responsibility for their debt repayments. Lenders need to see financial documentation to support repayment on reasonable terms, and especially on a best-effort basis. A pro forma cash flow statement showing all monthly cash receipts and disbursements for the next 12 months goes a long way in showing the creditor exactly when and how much you will be paying to service your debts. Historical financial statements and tax returns will support the pro forma cash flow statement.
To start, however, know and understand the unique terminology lenders use for credit risk underwriting, their standards and guidelines. As debtors learn how and why lenders think and structure their loans, debtors will be better prepared to self-identify cash flow-based debt repayment solutions and negotiate with their creditors in good faith. As you may already know, credit is extended very quickly, in just a matter of minutes or days; the more efficiently lenders can distribute funds, the more profitable they become.
But getting the money back is another story, it takes time, and there are only so many things a lender can do to prudently work with their borrowers. If you’re not prepared with your own repayment solutions, you may quickly feel the pressure to repay on terms that are not right for you. There’s nothing quite like receiving a ‘demand letter’ for repayment in full once you’ve defaulted on your loan(s) for non-payment, etc.
Obviously, the larger the credit relationship the more attention the lender will likely give to the borrower. Material problem loans are more expensive, time consuming to manage, and may have a more noticeable effect on the bank’s performance. Some lenders may not necessarily be equipped with the expertise to manage ‘workout’ loans or even large numbers of smaller loan relationships. Some loans have been sold off to other investor groups or financial institutions, and servicing your loan may be from afar.
Debtors simply cannot, or should not, rely on creditors to give them the necessary time and attention to meet their cash flow needs during stressed economic conditions. Lenders may be inclined to consider some form of payment extension, deferral, or forbearance, but what if your situation is more unique and there’s a need to get other concessions from the lender, and multiple extensions?
While lenders can be expected to expend a reasonable amount of time to address your need for financial assistance, they can hardly be expected to give you the special attention you may actually need – especially if there are wide-spread default conditions in the economy. But being prepared to present solutions for your own repayment plans, with bona fide and well-documented solutions, will likely earn you enough time to ‘workout’ an effective repayment strategy – even if it takes considerable time. Imagine the alternative; imaging going through a self or cooperative liquidation of your assets. Remember, you are the one that signed any Promissory Note, and you have a right and a stake into how that Note will be repaid, even in times where you face the prospect of default and being unable to pay as agreed.
Understand that creditors want what’s in their best interest, but it may very well be in their best interest to modify the terms of your Note(s). You just need to be able and willing to present and recommend your repayment solutions, and stay with it until the debts are otherwise resolved. Debtors need to understand what creditors understand – how they think – about the debtor’s financial condition, and with the right tools, debtors can document and support effective modified work-out repayment solutions. Debtors need to resolve their own repayment problems, for they are responsible; they are the ones that promised to repay.