As economic conditions fluctuate, many businesses find themselves struggling to meet the terms of their commercial loans. For companies facing temporary financial challenges, a commercial loan forbearance agreement can offer a valuable reprieve. But what exactly does a forbearance agreement entail, and how can it help your business? This article will explore how forbearance works, its advantages and limitations, and how a skilled business attorney can help you negotiate favorable terms. For tailored legal guidance on forbearance agreements, Shapero Law Firm is here to support businesses across California, including Los Angeles.
A commercial loan forbearance agreement is a temporary arrangement between a lender and borrower that allows the individual to reduce or pause loan payments. This offers short-term relief for businesses facing financial hardship, helping them avoid default while stabilizing cash flow. Forbearance doesn’t cancel the debt; it simply delays payments, which may increase the loan’s long-term cost. Typically, the borrower agrees to resume total payments later and may face additional terms, like higher interest.
A mortgage forbearance agreement for commercial properties typically starts with a discussion between the borrower and lender. Individuals facing financial hardship may need to provide documentation, such as cash flow statements, to show why they’re unable to meet payments. If terms are agreed upon, the lender may allow reduced or suspended payments for a limited period. These missed payments are often added to the loan balance, spreading them out over future costs, which increases the overall amount due but offers the borrower short-term relief.
A forbearance agreement offers short-term payment relief, while a loan modification permanently changes loan terms, such as the interest rate, loan term, or principal balance, to make payments more manageable. For temporary setbacks, forbearance may be ideal; for long-term issues, a loan modification might be a better fit. Each option has pros and cons, so consulting an attorney can help identify the best solution for your business.
Eligibility for a forbearance agreement generally depends on the specifics of the loan and the lender’s policies. Borrowers experiencing a temporary financial setback—such as seasonal cash flow challenges, revenue downturns, or unforeseen expenses—may be eligible for forbearance.
Lenders will typically assess factors like the borrower’s payment history, financial health, and the nature of their hardship before granting a forbearance. For instance, if your Los Angeles-based business has maintained a strong payment record but is facing short-term challenges due to market fluctuations, this kind of agreement could be a viable option.
Negotiating a forbearance agreement involves more than just asking for a payment delay. Borrowers should come prepared with a clear explanation of their financial hardship and proposed terms that will help them regain stability. Working with a legal expert during this process is beneficial, as they can advocate for favorable terms and navigate complex legal language.
In many forbearance agreements, the lender might offer concessions to support the borrower’s recovery. These concessions could include:
While forbearance provides relief to borrowers, lenders may also require concessions to protect their interests, such as:
Due to the complex legal and financial implications of forbearance agreements, it’s wise to consult a business attorney, as they can help you assess the short- and long-term impacts, understand your obligations, and negotiate terms that align with your financial goals. For businesses in Los Angeles, forbearance can be a useful tool, but every situation is unique—professional guidance is essential.
At Shapero Law Firm, we help businesses facing financial challenges secure favorable forbearance agreements. Our experienced Los Angeles commercial real estate attorneys work with companies across California, providing personalized, strategic support. If your business is considering forbearance, contact us at 415-906-6134 to discuss your options.
With over a decade of litigation experience, Attorney Sarah Shapero, founder of Shapero Law Firm, has secured seven-figure jury trial wins and saved countless homes from foreclosure. A Super Lawyer and Lawyer of Distinction, she brings expertise in foreclosure, employment, and bankruptcy law, practicing in California and federal courts.
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This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. This page was approved by Founding Partner, Sarah Shapero who has more than 10 years of legal experience as a real estate attorney.
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