Cannot Make Payments on
a Bank Loan
What to do when you're in a cash crunch and cannot make
payments on a bank loan?
Question: We're in our second year of a loan for our camera
shop, and we're now having trouble making payments. How should
we deal with our bank?
Answer: Focus on why your cash flow is down from last year.
Create a plan to correct the problem; detailed cash-flow projections
will but time. Develop a strong case explaining that immediate
re-payment will mean losses for the bank.
Fight the urge to hide - it's better to take the initiative and
contact the bank. Your best outcome is a loan you can handle. The
bank's best outcome is to collect more in the future rather than
liquidate your loan right now.
You'll want to meet with your attorney to review your options,
including bankruptcy. Don't bring your attorney to initial meetings
with the bank - that's an invitation to fight - but never sign
anything before your attorney has reviewed it. Get copies of
everything. Don't tell the bank you're considering bankruptcy, or
they'll see red.
The banker won't help you design your business turnaround. He or she
will hold back, respond to your ideas and ask questions. Remember:
Nothing makes the bank shut down faster than a loss of confidence in
the borrower. Be open and honest; giving inaccurate financial
statements is fraud, and it'll cost you protection under bankruptcy
laws.
The bank's approach depends on how the loan officer sees the
situation. Is the problem your lack of management ability, problems
impacting your entire industry or better-than-expected growth? Do
you have a good plan, or are you blindly hoping for a lucky
development?
The bank could lower the interest rate, extend the time to pay or
even lend you more money. In return for loan restructuring, expect
to sign an agreement allowing the peaceful enforcement of collateral
agreements, should your turnaround fail. Be certain you can keep
these promises and live with the results.
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