A woman I used to work with had a sign on her desk that read "If
you think nobody cares about you, try missing a loan payment." While meant to be humorous, that little anecdote
says a lot about how lenders choose to service their loan portfolio. More and more, SBA borrowers are coming to us
after their lender turned them down for a loan modification.
The reason for the denial? They haven't missed a
Let's look at this from the lenders perspective:
If a borrower is current on their loan, then it must stand to
reason that the borrower has the money to make their loan payment. If they have the money to make their payment,
then they clearly don't have the need for a loan modification or deferment.
In today's weak economy, lenders are overwhelmed with loan
modification and deferment requests. Due to so many applications flooding the banks, the only logical thing to do
is to "take care of" the most urgent requests. In other words, banks are going to put their effort into saving
businesses that are on the verge of collapse, with the first symptom of collapse being missed loan
Unfortunately, the result of the thinking described above means
that borrowers who are current on their loan, borrowers who have sacrificed by cutting costs, employees, and even
their own salaries, are getting doors slammed in their face in favor of borrowers who simply give up and stop
So what's the solution? Short of actually skipping payments (which
is some cases really is the only way to get the banks attention), the best way to demonstrate the need for a
modification is through cash flow analysis. In a nutshell, your cash flows need to demonstrate that the business
operations are not generating sufficient cash flow to service the debt based on the existing terms. Just because
you are making payments does NOT always mean that the business is generating sufficient cash flow, and that point
needs to be driven home to your banker. (Note: if you are not comfortable crunching your own cash flow numbers,
this is something that Distressed Loan Advisors specializes in).