A forbearance agreement with your SBA lender can provide you with the time you need to get your business back on track. Read on to learn more about forbearance agreements.
How Does a Forbearance Agreement Work?
As of October, the SBA has stopped paying for your SBA business loan. Nevertheless, due to the Covid crisis your business remains mired with lower revenue. In fact, you have now defaulted on your SBA loan with the lender. How do you proceed with your business?
What is a forbearance agreement?
Frequently, a forbearance agreement with the SBA lender can strike a temporary arrangement under which the existing default continues to exist, however, the lender forbears from taking any legal action. As such, the lender will not file suit or foreclose on business collateral. The forbearance period allows you to continue operations and possibly negotiate a workout of the loan or allow you to arrange for a buy out of the loan.
How Long Does a Forbearance Period Last?
The length of a forbearance period will vary. Largely, the amount of time depends the parties needs. Moreover, an agreement does not have to be an all or nothing affair. For example, an SBA lender may wish to pursue certain collateral while postponing pursuit of other items. In any event, forbearance agreements exist as temporary agreements.
What are Common Terms of a Forbearance Agreement?
Typically, the SBA lender will require a good deal of acknowledgements and representations confirming the loan. For instance, relevant topics include the loan balance, the validity of liens, and the non-existence of waivers. Moreover, the agreement will describe the conditions and the time period for which an SBA lender agrees to forbear on its rights.
What Will an Agreement Cost?
Usually, a forbearance agreement includes a good-faith down payment at the time of execution. Additionally, other conditions may include:
- An agreement to make scheduled additional payments
- Modification of scheduled payments for a period of time
- Pledging of additional collateral
- Execution of additional guaranties
- Reaffirmation of existing personal guaranties
Don't Try to Negotiate a Forbearance Agreement Alone
In conclusion, a forbearance agreement can provide benefits to both a lender and you in time of financial stress. This period provides you with an opportunity to show the SBA lender your business remains viable and deserves the investment of the lender. Further, the agreement relieves the parties of the anxiety and urgency which surround the initial stages of any problem loan.
However, you should have experienced counsel on your side. Contact Protect Law Group today for a free initial consultation.