During these uncertain times, managing your financial situation can be difficult. However, it is important that you take every step possible to lessen the burden. One of these critical steps is talking with your banker. If you have not done so already, talk with your banker immediately. Although it may not be the easiest conversation to have, putting it off will only make things more difficult for you in the long run.
Before meeting with your banker, be sure that you are prepared to have the discussion. Know what impact the CARES Act has had on your business, attempt to predict how COVID-19 will impact your cash flow moving forward, and be able to describe what problems you are having and your plan to address them. Showing your banker you have a handle on your business and the problems facing it will make them more likely to accommodate your needs. Remember, everyone is dealing with this pandemic, so your banker does not want to lose a customer if they do not have to. Be completely truthful and forthcoming. Lies and half-truths will only hurt you in the end. Be prepared to ask questions: what emergency measures is your bank taking to help businesses/individuals negatively impacted by COVID-19? Is your bank willing to reduce or suspend principal payments on loans or require interest-only payments? Is your bank willing to help you restructure your loan or consolidate loans?
Almost all the bankers we have spoken with are offering reduced or suspended principal payments on loans and allowing for interest-only payments. Some bankers are granting relief of both principal and interest payments. This can all be accomplished through a simple amendment of your loan document without the need for a forbearance agreement, which only comes into play if there is a default. After starting a dialog with your banker, you can then negotiate these amendments based on your individual situation and needs. Again, if your banker feels like you have been forthcoming and have a good handle on your financial situation, they will be more likely to accommodate you by amending your loan agreement to offer temporary short-term relief.
One short-term solution that you should consider for your business is entering into a forbearance agreement. A forbearance agreement allows you to either stop making payments or to lower you payments to an amount you can afford for a short period of time. This is a short-term solution that may only last for about six months, but that may be all the time you need to overcome COVID’s impact on your business. For a longer-term solution, ask you lender about loan modification or restructuring. As you prepare yourself to discuss a forbearance agreement with your lender, be aware that you will still be required to repay the amount that was reduced or suspended either as a lump sum or by increasing your normal monthly payments. It is important to have a plan for how you will repay the amount after your forbearance period ends.