While the COVID-19 pandemic continues to heavily affect our economies, many businesses are encountering liquidity and solvency challenges with which they have little or no experience. During this uncertain time, here are five strategies that can help when approaching your lender to maintain support.
1. Be proactive: Don’t wait to have discussions with your lender about the challenges your business is facing.
Being proactive means demonstrating anticipatory, change-oriented and self-initiated behaviour. Lenders appreciate receiving early warning of challenges faced by their borrowers. Identifying potential problems and discussing them with your lender at an early date increases the options available to address those problems. In addition, when business borrowers take a proactive approach to identifying problems, it creates lender confidence and builds trust and borrower credibility. Business borrowers who approach lenders to discuss challenges at an early date have more meaningful input into the agenda for discussing solutions.
2. Be candid: Share details openly with your lender about the challenges your business is facing.
Do not conceal from your lender, downplay or minimize the problems your business is facing. Lenders appreciate candour from their borrowers. Offer your lender an on-site tour of your business. Offer to provide full access to financial statements. Lenders typically take “bad news” from their borrowers better than they take “surprises.” If possible, present both problems and potential solutions to your lender.
3. Be responsive: Establish and maintain communication with your lender.
Lenders place a great deal of value on open communication with their borrowers. A common cause of lenders moving files from “monitoring mode” to “enforcement mode” is the borrower “going dark” or ceasing communication with the lender. Business borrowers should strive to keep appointments with their lenders and to respond promptly when a lender requests follow-up communications. Lenders have greater confidence in borrowers whom they know how to contact. Do not hesitate to provide your lender with your email, cell phone and other contact phone numbers.
4. Be reliable: Honour commitments you make to your lender.
The importance of honouring commitments that you make to your lenders cannot be overstated. Business borrowers should resist making unrealistic commitments to their lenders and should strive to only make promises to lenders that they can keep. If you anticipate being unable to honour a commitment to your lender, notify the lender as soon as possible. Further, own up to the situation and accept responsibility for failure to honour the commitment.
5. Lean on respected financial and legal advisers.
Business borrowers who hire recognized and respected financial advisers and insolvency and restructuring counsel bring added credibility to discussions with their lenders. Rather than antagonizing or spooking lenders, the involvement of trusted advisers and insolvency counsel as professional advisers to a business borrower builds lender comfort. Lenders understand that credible professionals associate themselves with credible borrowers.
Watch our webinar, “Restructuring Options For Businesses Facing Liquidity and Solvency Issues,” to learn more.
The MLT Aikins insolvency & restructuring group comprises 18 lawyers practicing in six offices across all four western Canadian provinces. Our insolvency and restructuring experience helps our clients preserve value, capture business opportunities and resolve disputes across various sectors of the western Canadian economy.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.