Bank regulators in the US have declared that it could be beneficial both both bank and borrower to sit down and come up with a loan workout deal. The regulators recognize that the current decline in the financial condition of the borrower does not mean that the company or individual has lost the desire to repay the loan. If an appropriate commercial loan modification agreement is arrived at, the borrower may still have the capability to repay the loan.
What this means is that the financial regulators are encouraging banks to be more receptive when they are approached by the borrowers for a commercial loan modification. The regulators have also considered the possibility that the current market value of the properties may be lower than the outstanding loan balance. This situation could be prevalent in view of the emerging crisis in the commercial real estate industry where interested buyers of commercial properties are virtually absent.
A commercial loan review will be conducted by the lender to assess the capability of the borrower to repay the loan using modified loan terms. This will be based on market conditions, the prospects of support from guarantors, the cash flow of the business, and the payment record.
On the other hand, a commercial loan review may also be performed by a loss mitigation professional for the borrower. The focus of this review would be the details of the loan agreement and whether laws or regulations that protect borrower’s rights have been transgressed in the provision and servicing of the loan.
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