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Must Know Steps To Take If Your Demand Loan Has Been Called By The Bank
When a business demand loan has been called by the bank there has never been more of a time when a ' perfect ' solution is needed, in a timely manner. That ' forbearance letter ' is a call to action like no other. You need the help and ability to restore your company to a more financially healthy state.
What then are the steps required to ensure survival in the demand loans and callable loan scenario when your company has entered into a forbearance agreement. The definition of that is when the lender, typically a bank, but not always, allows your business to amend the original payments and covenants. Your goal: avoiding receivership/bankruptcy and litigation, and guide your business into a more healthy state with the right traditional or alternative lender.
The Bank Wants You To Sign a Forbearance Agreement? How Does A Forbearance Agreement Work?
The key to the meaning of a forbearance agreement in Canada is the lender's agreement with your company to a specific date. That allows your firm, the borrower, to focus on a refinancing plan.
We've got some solutions, and refinancing commercial loans might not be as difficult as you think.
Not all business owners or their financial mgrs will always understand why a bank has called their commercial loans - why would they forsake interest income and put your company in a very difficult position. In many cases your firm might have even not missed a payment!
Difference Between Loan Modification & Forbearance
Timing is everything if your firm has been placed in, or notified under a ' special loans' scenario. An agreed upon new repayment schedule must be considered, and companies should note that typically higher fees and miscellaneous charges such as appraisals may also be requested by the bank/lender.
Every business and industry typically have different issues around what caused the loan to be called. More sophisticated lenders such as banks and mortgage companies may have concerns around the ratios and covenants your firm originally agreed to. They might also have a concern around the position of other lenders your firm may have entered into for additional financing.
One of the most severe scenarios under a callable loan scenario is when monies are owed to the Canada Revenue Agency under payroll taxes or HST. Is there any good news?! Borrowers will be glad to know that under many refinancing arrangements the' deemed trust ' position of the government can be paid out under new financing arrangements, typically via an alternative finance lender.
That challenge, unfortunately, comes with short time frames and the pressures on the business can be intense as the company's future is in doubt.
On its part the bank has rules around the timelines on called loans and their ability to ensure their capital and liquidity. So they are always looking at their commercial loans to determine in their minds what might be signs of financial distress. In other words, they are monitoring what might be potential ' bad debts.' By ' calling loans ' banks are in effect increasing their liquidity.
Initial steps in refinancing your business will revolve around ensuring banks are behaving properly, perhaps negotiating new deadlines, or negotiating settlement proposals. These actions are often best served when you are working with a trusted, credible, and experienced Canadian business financing advisor with a track record of success.
In many cases, ratios and covenants can be renegotiated, and some firms may on their own be able to bring in new capital. Don't forget that callable loans are a costly process for the bank also, so a mutual solution is often very desirable. Business owners are well cautioned to ensure they understand the ' call provision' in their loan documents. Bank doc's can always be a bit overwhelming.
Developing a professional reputation with the workout mgr at your bank in this time period is critical. They are experienced in dealing with challenging credit situations, from simple to complex.
So what about the 'real world ' solutions to refinancing your business in a special loan scenario.
Basic Solutions To Refinancing Your Company
A typical refinancing of your business under forbearance/demand loan scenarios will involve a new operating line of credit, typically asset based and focused on current and long term assets as your total borrowing base. At 7 Park Avenue Financial we work with businesses to ensure a new and solid business plan and cash flow projection is put in place.
Where necessary a reappraisal of critical assets will also suggest possibilities for new financing, for example a sale-leaseback.
Unfortunately in some situations staff reductions and sales of assets may also have to be considered by the owners.
Asset-based lending solutions are often the best way to solve the challenge of new financing options when a demand loan has been called.
Solutions depend on the loan amount and can include:
Asset based non bank business credit lines
A/R Financing
Sale Leasebacks
Cash flow loans
Asset sales
Inventory Financing
Term Loan / Loans
When considering refinancing strategies most experts recommend external expertise that allows you to receive and view the right recommendation around a new lender/ lenders.
Seek out and speak to business finance experts with specialized knowledge in business downsizing/refinancing and recapitalization under a forbearance plan.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Click Here For 7 PARK AVENUE FINANCIAL website !
7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
Business financing for Canadian firms , specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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