Assessing the Risk of Modifying a Commercial Loan

 Posted on September 26, 2019 in Loan Modification

Lending to a commercial borrower has the potential to be more lucrative to a creditor than lending to a consumer borrower. The average consumer borrower will take out one major loan during their lifetime – a home mortgage. A successful business may continue to take out loans as it expands its operations, creating a long-term business relationship with the lender. There are risks when lending to a commercial borrower if the business struggles. Creditors know they must evaluate the likelihood that a business will be able to repay them before entering a loan agreement. They may need to adjust their evaluation if the commercial debtor falls behind on its loan payments.

Creditor Options

When a commercial debtor misses a payment, the one thing you cannot afford to do as a creditor is to ignore it. You should respond to the first missed payment by contacting the debtor to determine the reason for the missed payment. If the missed payments continue for several months, you have a difficult decision to make. You can:

• Use debt collection practices;
• File a lawsuit for lack of payment;
• Foreclose on a property related to the loan;
• Restructure the loan agreement to make repayment manageable; or
• Offer forbearance to give the debtor time to avoid foreclosure.

Risk Evaluation

There can be benefits for both sides when modifying your loan agreement with a commercial debtor, even if you are losing some money on the original agreement. If the business is able to rebound and repay you, they may reward your assistance by continuing to borrow from you in the future. There is also the risk that modifying the loan will not prevent the business from defaulting on the loan, costing you more than if you had sought full repayment earlier. Identifying the differences between a good and bad risk depends on the circumstances, such as:

• The reason that the business’s revenue has been low;
• Whether the future market for the business looks favorable; and
• Whether any adjustments to the business plan could improve their outlook.

A business is a bad risk if there is no demand for its product or it has not demonstrated the ability to effectively implement its business plan.

Contact a Chicago Debt Collection Lawyer

Taking debt collection action against a commercial debtor may end your relationship with that business but is often a necessary step when the debtor is either unable or unwilling to repay the loan on its own. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can help you successfully retrieve the debt from a commercial loan. Schedule a consultation by calling 312-704-0771.

Source:

https://www.investopedia.com/terms/c/commercial-loan.asp