More industrial loan modifications may be seen in the coming months after US banking regulators issued a statement encouraging banks to sit down with the industrial borrowers to discover ways to restructure the loan. This could be good news for many companies in the brink of disaster with regards to their mortgage loans.
Many companies have been severely affected by the economic slow down and have reduced their operations in the effort to remain viable. However, industrial buildings, such as manufacturing plants, office buildings and warehouses, are not that easy to trim down. Many of these companies are now in possession of industrial buildings that are too large for their current level of operations. As such, their current cash flow levels are not designed for the mortgage payments of such buildings.
However, a foreclosure may finally shut down the companies’ operations. On the other hand, the banks will come into possession of industrial buildings that are very difficult to sell because of the financial crisis. Thus, a foreclosure would be detrimental to both lender and borrower.
A possible solution to the dilemma are industrial loan modifications that will let the companies continue to operate while the banks will receive adjusted monthly payments. Depending on the agreement reached, the loan restructuring may be temporary or permanent. What is important is that both the lender and borrower may continue to operate viably as opposed to the situation where a foreclosure process is undertaken. And when the economy recovers, both banks and companies will be in a better position to take advantage of it.
