Commercial Loan Workout – Modifications During Hard Times

CARLSBAD, Calif., Nov. 12, 2021 /PRNewswire/ —┬áMany commercial property owners are in danger of defaulting their loans because of the current public health and economic crisis.

A solution to avoid such a disaster is to execute a successful commercial loan workout.

The rationale behind the different approaches to a loan workout is complex and depends on many factors. Some include the type of lender, their policies, real estate type, and location.

However complex a situation, a baseline process exists, and your goal should be to build confidence in your lender to minimize losses.

  1. Prepare a detailed, comprehensive plan and explain how you will gain back an acceptable improved performance level. Clearly outline all challenges in detail with solutions to each.

  2. Produce a well-documented and supported pro forma financial statement that supports how you’re going to increase asset performance. Include accurate and realistic assumed projections and how it helps loan repayment. Your lender lives, eats, and breaths financials every day. Avoid overly optimistic assumptions that may cause your lender to lose confidence in your ability and knowledge.

  3. Prepare communications with your lender/servicer by understanding their role in the process and their potential actions. These actions could include recourse, foreclosure, enforcement of loan guarantees, or remargin due to a drop in collateral value. You will sign a pre-workout or pre-negotiation agreement. Become an expert in understanding your loan documents, as they will likely be part of discussions. Some items to become familiar with before approaching your lender:

    • Reserve deposit obligations
    • Reserve funds and operating expenses
    • Waiving operating covenants
    • Lease amendments in response to COVID-19
    • Stimulus programs such as the Payment Protection Program

  4. Prepare the lender proposal by integrating details of your business plan and pro forma into a summary that outlines your plan to recover the property. The proposal will include any lender requests you will need to execute your proposed plan successfully. Some submissions might consist of an interest rate reduction or loan extension. One solution you could bring to the table is an injection of capital to improve health and safety requirements that may help increase business performance. Applicable items to consider in your proposal:

    • New cash from borrower
    • A "protective advance" from lender (rare)
    • Prove your current in taxes, insurance, and other applicable items that may support lender payment relief
    • Payment forbearance and interest rate relief usually comes with a "lockbox" implementation as those commonly found in commercial mortgage-backed securities (CMBS)
    • Concessions. Try to keep these limited
    • Increased and measurable borrower commitment that supports your loan extension request
    • Work within your loan documents covenants and conditions. Failure to do so can trigger additional defaults or liabilities.

Remember that there is no silver bullet to a successful commercial loan workout. There are many variables to consider, and the points listed above are some primary considerations.

Communicate early, be transparent, be humble, and build trust, knowing the partnership between your lender and your business has mutual interests.

About Mortgage Rail
Mortgage Rail is a new content partner with Mission Pacific Mortgage that focuses on Commercial Real Estate Loan Workouts and Commercial Mortgage-Backed Securities (CMBS) restructuring to extend their residential and home loan portfolio. If you’d like more information on the commercial loan workout process specific to your situation, don’t hesitate to get in touch with us at or 877-754-0873

Media Contact: Marcos Aparicio; Media Bison LLC; 805-435-0104;

SOURCE Mortgage Rail