We’re long past our 2020 business plans now. These are strange times for business owners and operators, and if you’re finding yourself in a situation that you wouldn’t have imagined possible six months ago, you’re not the only one. A common issue we’re seeing a lot of people facing right now is the threat of foreclosure. Even with PPP loans and small business assistance, it’s sometimes just not enough to cover both salaries and rent.
If your business is on the edge of foreclosure—don’t panic. Here are a few steps that you can take to stave off or avoid foreclosure on your business property:
Request a Loan Modification
In a loan or mortgage modification, you’ll work with the lender to adjust the terms of the initial loan agreement. In this case, you have the opportunity to adjust to terms that are more favorable in your current situation, like lower interest rates, capitalizing overdue amounts, or extending the repayment term. This can go a long way towards improving your financial situation.
Arrange a Forbearance Plan
Under a forbearance plan, you’ll get a set amount of time where you can make no payments. During this time, you can take the opportunity to pivot your business model, seek out new opportunities, or work to open your doors again. While you’ll still owe the full amount of the loan, a short break in payments may be all you need to get back on your feet. In times like these, many lenders may be quite willing to work with you, considering the extenuating circumstances.
Seek Out Alternative Financing
While at this point, you may have already searched high and low for financing options, but it never hurts to continue exploring your options. Equity or collateral loans, selling business equipment, or even taking on a short-term partner are all ways you can add to your cash on hand. In a pinch, it’s even possible to dip into personal retirement plan savings.
Consider a “Deed-in-Lieu”
In this arrangement, a creditor will take the deed of the property back instead of going through the foreclosure process. In this case, the borrower relinquishes the deed voluntarily, and the lender does not typically seek a deficiency judgment. This can reduce the total amount owed by the borrower and saves you the time and expense of going through foreclosure.
In a short sale, the business owner also gives up the property, without going through foreclosure. The property is sold as quickly as possible, usually for less than the amount owed on the loan, and the lender accepts the proceeds of the sale as payment in full for the loan. Beware: The lender might still be able to obtain a deficiency judgment in a case like this, at which point you will still owe the difference between the sale price and the initial debt.
Even as some Texas businesses look to reopen, many businesses statewide have experienced significant lasting damage due to COVID-19. RRS has been here before, and we’re prepared to help you and your business navigate these treacherous waters. Our Distressed Commercial Real Estate practice works to help our clients wherever they are, and deal with matters involving debt restructuring, foreclosure, bankruptcy, and more.