Business Leaders Should Immediately Request the Deferral of Loan Principal Payments

Posted March 25, 2020

• Over the next 12 weeks, cash and liquidity will be paramount issues for businesses. Will the enterprise have the cash to continue to operate, assuming very few receipts are collected?
• The immediate challenges do not necessarily have any bearing on the long-term viability of the business, yet they could critically impact many businesses;
• Among other things, business leaders should immediately consider approaching lenders to request a short-term deferral of principal payments;
• If done successfully, with the correct approach, necessary liquidity will remain with the business to support the activities of the business during this period of high stress;
• Principal payments on debt obligations are typically scheduled and required contractually. Failure to make principal payments in accordance with the terms creates a default under all promissory notes and gives lenders ability to exercise remedies;
• Lenders are required to exercise care and discipline in managing their loan assets, no matter the circumstance;
• Business leaders should prepare appropriate materials for lenders, in conjunction with their request, which:
  • Demonstrate that the business has taken appropriate steps to adjust the business profile to best manage through the period;
  • Develop and codify a series of phased expense action plans to adjust to different cash flow scenarios;
  • Describe how the business may recover given different timing of the resumption of normal business activity; and
  • Request specific deferment of principal payments required over the next 90-180 days
• Lenders will be swamped with requests and portfolio management issues. Clear and professional presentations will allow for speedy consideration of the request; and,
• Lenders will need to ensure that any revision to a loan agreement is documented appropriately.

Corporate Fuel is uniquely qualified to assist business leaders in these critical activities. Our team has the resources and experience to quickly assist with restructuring and contingency plans and creating the lender materials. We have unique credibility with New York bankers, having completed dozens and dozens of restructuring projects for the benefit of the bankers and their institutions. Here are some of the banks that Corporate Fuel has worked with in its restructuring activities:

Engage with us to see how we can be helpful. Contact our team.