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Commercial Loan Workouts: 10 Points to Developing A Loan Workout Strategy

TIP: When doing a workout, develop a strategy for collecting the loan. Are the prospects of collection improved if the debtor continues to operate? Or, do you minimize the risk of collection by liquidating the debtor?

These ten points should be considered as you develop your workout strategy:

1. Cash is king. Pay attention to the cash flow of the business.

2. Size up the borrowers. Meet with the borrowers. What are their strengths and weaknesses? Are they honest? Do they need assistance? A financial advisor or turnaround consultant? Insolvency counsel?

3. Evaluate the downside risk. Do the borrowers have a gripe against the Bank? Are they right? Do you need a prenegotiation agreement?

4. Size up the collateral and unencumbered assets. Walk the property. Inspect the tangible assets. Review the appraisals. Do UCC searches. Audit the A/Rs, the invoices, the checking accounts and inventory. Is the amount of collateral sufficient? Can you get more collateral?

5. Stabilize the situation. Is there an immediate crisis that demands your attention?

6. Put yourself in the place of the loan underwriter. What was the support for this loan at the time it was made? Talk to the line unit who made and administered the loan.

7. Understand the borrowers’ business. What did the business look like when the loan was made? Was it healthy then? What has changed?

8. Review the loan documentation. Is the loan properly documented? Are there errors that need correcting? Has the situation changed so that the documents need to be amended?

9. Act now to improve chances of collection. Are there steps that can be taken now to increase the value of the collateral? Does it pay to establish intermediate steps for the borrower to accomplish?

10. Identify all sources of repayment. Recognize that there may be multiple sources of repayment.

This is Dick Rogan, bank lawyer and author of, signing off for now. Join us again soon to check out what’s new in the World of Workouts.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.


Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.