Tips On Managing A Business Loan Workout

These days it seems to happen more often than anyone expects. A bank makes a loan to a borrower to open, operate or expand a business, then the business falls on hard times, and the borrower becomes unable to make its payments to the bank. The bank then transfers the loan to "special assets" and looks for a solution -- the banking industry calls that solution a "workout strategy."

Here are a few tips I give my bank clients in those situations. Some of them may also be helpful to borrowers.

• All parties need to communicate clearly, directly, and decisively. Being vague breeds confusion. Being clear about expectations, requirements, and proposed solutions is critical.
• Keep emotions out of the process. Problems in business and with a loan can be emotionally and psychologically painful for the borrower. Unemployment, judgments, bankruptcy and the loss of one's home or business are real possibilities. Neither party can avoid the pain nor pretend it's not