When Payments Will Be Late, Re-negotiate

The economic downturn has made paying down debt more difficult for many financially strapped landscape contractors. However, as contractors juggle budgets and expenses, failing to discuss potential financial shortfalls with lenders and defaulting on loans, such as commercial mortgages, could prove to be a fatal error.
 
Instead, if a landscape contractor can prove to his lender that an economic scenario – such as the loss of a major client or a hardship such as sustained drought – has adversely impacted business conditions, it is then possible to re-negotiate many lending arrangements, says real estate attorney Ed Mermelstein, founder of New York-based Edward A. Mermelstein & Associates.
 
“It’s very important to do things in a timely manner and avoid a position where you’ve defaulted, the foreclosure proceedings have started and you have yet to talk to anyone about your situation,” Mermelstein says.
 
First and foremost, maintain a relationship with your bank and your lending officer, who will have influence on whether to re-negotiate your loan, Mermelstein says. “If you don’t know your lender, then you’re wasting your time and risk losing credibility for a future relationship with that lender,” he says.
 
Secondly, Mermelstein advises presenting the loan officer with concrete documentation on your landscape company’s position prior to the current economic scenario, where you are now and why it would be extremely difficult to get back to that previous position before a possible default. “If one of your major accounts goes out of business, then yes, it’s a reason to present to the bank because it’s something that you’ll be able to quantify,” Mermelstein says. “You need to show that you’ve lost a major source of income. If it’s something you can put down on paper, then you have a valid argument that you can present to the bank.”
 
Finally, lay out a timeframe for when you will no longer be able to make payments. Depending on where you are in the process, you may have more leverage to go to the lender, show good faith and negotiate from that position rather than from the point where you no longer can make payments and now you want to figure something out. “If it’s a situation you caused yourself, then your banker won’t be sympathetic,” Mermelstein says. “But, if it’s a situation that is market driven and you’re doing every thing you’re supposed to be doing to make your business profitable, then there has to be some sort of mechanism where your lender can help you stay in business. Most lenders do not want to own the real estate you’re occupying. They want you to stay current on your payments.”
 
To survive this economic crisis, business owners need take the necessary steps to preserve their credit ratings. This is done by maintaining a relationship with lenders so that if economic circumstances threaten default, then business owners have options to maintain their operations successfully.
 
“Depending on how you approach your lender you may be in a very good position to never show any of the credit companies that you’ve had any sort of financial difficulties,” Mermelstein says. “These days your credit history is one of the few things that will either move you forward in business or hold you back.”