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Just in Case
I hope your Second Quarter is going went well. We have been
very busy.
For the
second year in a row Rob has been selected by
Super Lawyer Magazine as one of Pennsylvania's
top attorneys. Over the last two years, Rob has received this honor in the
areas of Business Bankruptcy, Business Litigation
and Business/Corporate.
Super
Lawyers identifies the top 5% of attorneys in each state, as chosen by
their peers and through the independent research of Law & Politics.
Although we keep the names of our client's confidential, we are
pleased to provide descriptions of two clients each month that we are
working with and how we are assisting them.
- Retail/Wholesale
Company-Assisted client in creating a bankruptcy remote special
purpose entity, which enabled the client to restructure its debts and
continue as an operating business.
- Manufacturing-Assisted
client on issues relating to infringement of intellectual property
rights.
Over the last month, managing partner, Robert Bovarnick spoke
to the following groups:
- Eastern District of
Pennsylvania Bankruptcy Conference on "Litigation Do's and
Don'ts"
- Institute of Managerial
Accountants on "20 Lethal Legal Small
Business Land Mines to Avoid"
Rob is scheduled to be interviewed on the Executive Leaders
radio show on WWDB on Friday, June 8, 2007.
WHEN IS THE BEST TIME TO RENEGOTIATE A LOAN?
There is no single correct answer to this question. There are
at least two ways to look at the issue. Some people believe it is better to
be proactive and speak to your lender as early as possible. Others believe
it is better to wait until the lender is desperate.
I
happen to be a big believer in the proactive approach for a number of
reasons. It is important to understand that a loan does not stay with a
single person. When you obtain money from a bank, the loan stays with the
loan officer so long as it is "performing" (you are paying). When
the loan becomes "non-performing" many banks will transfer the
loan to a different department, called the "work out department,"
"special procedures"-or something like that.
Times
have changed. In the 1980s and early 1990s, lenders were quick to foreclose
on non-performing loans. In part as a result of multi-million-dollar
verdicts against them for "lender liability," lenders are much
more inclined to work with borrowers to see that loans are repaid. For businesses
with only temporary or relatively minor financial problems, a loan
"workout" or debt restructure is an appealing option. The key is
to negotiate the most favorable new terms without compromising your legal
rights.
Before
you go to your lender, have a game plan. You need to be armed with why you
are either having trouble making payments or will be having trouble in the
future. Next, you have to have to be able to advise your lender how much
you will be able to pay and how you came up with than amount. This includes
knowing whether you are looking to reduce the interest, reduce the monthly
payments, increase the term, or a combination of all of the above.
Another
reason why I do not believe in waiting is the impression it gives to the
lender. It makes the lender believe you do not have control over the
finances of the business. By contacting the lender early, you show you are
aware of your business's financial troubles and have devised a program that
will improve the financial picture and keep the loan performing. It is
always helpful to have a game plan as to how your business will become more
successful, whether that is reducing expenses, eliminating replacing
certain key employees, or whatever it is for your business.
Spend
the time to prepare a professional looking presentation. Prepare cash flow
projections over the succeeding three to six months and a business plan to
show how the business will be able to meet its financial obligations.
While
"lender liability" is a phrase that can send chills down the spine
of the lender, I do not believe in using the threat of a lender liability
lawsuit to negotiate better terms. Lender liability means, in the simplest
of terms, that a lender must treat its borrowers fairly. If lender
liability exists, that is one thing. If you think there may be lender
liability on the part of your lender, go and speak with an attorney. If you
throw the prospect of a lawsuit around, all you will do is agitate the
lender.
Understand
that the lender may request that, in return for restructuring the loan, you
may be asked to give up something. You may be asked to waive any lender
liability claim. If so, before you agree, you will need to determine
whether you have a real claim. You will need to speak with an attorney
familiar with this area of law to help make this decision.
If the
original loan was not guaranteed, the lender may ask for a personal
guarantee. If this happens, it is almost a certainty that both you and your
spouse will be asked to sign the guaranty. I always advise against this,
unless there is no option. It is important to try to keep your risk to the
interest in your business and not involve you personal assets, such as your
home. Whatever the request, it is important that you think about what has
been requested and think about the consequences.
2007.
This publication is intended as a general guide only. This Client Alert does not
constitute legal advice of Bovarnick and Associates, a Pennsylvania
Professional Corporation, or any member of the firm with respect to the
subject matter hereof. The information presented and opinions expressed in
this Client Alert are intended for general guidance only. They are not
intended as recommendations for specific situations. As always, readers
should consult a qualified attorney for specific legal guidance.
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