My Bank Put Me in Forbearance — What Does That Mean?

My Bank Put Me in ForbearanceIf you suddenly find yourself unable to make your monthly payments (in full, on time, or at all), your bank may choose to offer you a Forbearance Agreement in lieu of foreclosing on your business and its assets.

In this contract, your bank agrees to delay their right to foreclose on your business and its assets — for a short period of time — to give you a chance:

  • to catch up on your delinquent loan payments,
  • to fix any loan terms you’ve violated, or
  • to find a new lender to refinance your existing debt.

Forbearance can help you avoid serious delinquency and default when faced with temporary financial difficulties. Many banks are willing to help you through a tough time, but — either by their choice or because of the federal regulators that oversee them — it will only be a temporary solution, and action needs to be taken on your part to get such assistance.

If you qualify (a bank does not have to offer a Forbearance Agreement), the bank will accept your negotiated forbearance amount each month, and you will be responsible for all covenants (terms) of the agreement. You’ll also need to supply proper documentation of your financial hardship.

It’s important for you to understand that a Forbearance Agreement is only a short-term solution. Forbearance agreements typically span only 3–6 months, the details of which are negotiated depending on your specific situation.

By the end of your agreement, your financial situation should have improved, and you’re required to repay the total past-due amount that was suspended during your forbearance period. (In some cases, you may be able to negotiate with your bank to forgive some or all of the unpaid amount.) After you’re caught up, you go back to making your original loan payments.

PLEASE NOTE: If you default on the repayment plan specified by your Forbearance Agreement, the bank can rightfully foreclose on your business and its assets.

While a Forbearance Agreement may assist your business in the short term, it signals a serious financial challenge that the business needs to address. The majority of businesses that are in forbearance fall under the “special assets” department of the bank. This department is charged with moving these financial relationships “out” of the bank. Your best move during a forbearance period is to find a new lender for your borrowing needs.

If you’re currently in a Forbearance Agreement with your lender, contact our Financial Advisors today at 262-456-7613. We can review your situation and help you navigate your way to a new business lender.

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