Understanding Bank Workouts- What Does This Mean for Me?

My bank recently told me they were transferring my loan account to their “Special Assets” group.  My friend told me that this means I am in “work out”, but I am not sure what that is.  I’ve never missed a loan payment, so I don’t see why this would be a problem.

The world of lending often has terminology that can seem confusing or vague.  When a lender puts a company into “Special Assets”, it means they have referred your loan to another department within the bank that handles “at risk” accounts.  “Work Out” means that the lender believes you may not be able to pay your debt, and the special assets group at the bank is tasked with keeping close tabs on your financial situation, and if needed, closing loan facilities and asking the company to find financing elsewhere.

But make no mistake, being asked to find other financing means you need to act swiftly and decisively.  You may not have received a default letter yet, but without major changes in the company’s financial path, the bank may shut off your ability to advance on lines of credit, call term loans early, and take steps to secure collateral you may have pledged.

As collection activities become more aggressive, companies are often surprised and feel that they were never warned about the bank’s changing attitude about what once seemed like a great partnership.

Sometimes, a company can make loan payments on time and still be placed into workout, and this is done because analysts at the bank perceive that the company is, or is about to be, in dire straits.

“How can I be expected to find a new lender when I have a delinquent or in-default loan with my current bank?”

This is a common question, and banks can seem unhelpful when it comes to how to find other financing.  This is a dangerous time, as it’s easy to fall into predatory lending schemes.  If a bank is getting aggressive, you may be tempted to escape the situation as fast as possible and seek refuge with these types of lenders.

Now more than ever, you need professional financial advice from someone skilled in these situations.  These professionals are called Turnaround Specialists, and their job is to turn the company around from the path the led to the declining financial situation in the first place.  They will bring a variety of resources to bear and will take immediate action.  These bank workout strategies may include:

  • Working with the bank and other creditors to slow down collection activities and provide time to find new lenders.
  • Matching the company with new lenders suitable for the company’s short and long-term goals.
  • Aggressively intervening with techniques to manage and improve cash flow.
  • Addressing problems that caused the cash flow issues or the lender to wish to exit to the loan.

Discover the CFOshare Difference

When you partner with CFOshare, you have access to a team of financial experts who become part of your organization. They don’t just crunch numbers — they are focused on strategic management and the future growth of your business. Contact CFOshare for a free consultation.

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