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Coming Out of COVID: What Can Businesses Expect From Their Lenders?

It is no secret that many companies in Alberta are in financial distress due to COVID-19. While lenders have generally cooperated during this period, business owners are now, with good reason, anxiously dreading the "call from the bank." 

However, that call does not have to mean the end of the business. Steps can be taken, and discussions can take place with your lender to save your business. Here are eight things to keep in mind when dealing with the bank:

  1. Ask - Is the business worth saving? The very first question you should ask yourself is whether your business remains viable under any circumstances. As discussed below, working through an insolvency process takes time, energy and money. However, at the end of the day, it is all worth it if you believe your business is worth saving. This question must be answered at the outset, with honest self-reflection. Even if the answer is no, you should still consult an expert about developing an exit strategy.
  2. Remember that you are dealing with Special Loans. Banks have departments specifically tasked with dealing with companies in financial distress, so you may not be dealing with your regular account manager. These departments have various formal titles but are commonly referred to as "Special Loans." Remember that the Special Loans officer has no history with the loan, no attachment to your business, and simply wants to achieve a positive result for the bank. Special Loans officers are experienced with distressed accounts, used to dealing with lawyers and other insolvency professionals and primarily interested in resolving the account as quickly as possible. Despite how it may sometimes seem, Special Loans officers also have no particular animosity towards your business – they deal in practical solutions. Typically, they are willing to work with you if you are upfront with them and diligent in your recovery process. They must have confidence in you and your efforts.
  3. Approach Special Loans as early as possible. If possible, do not wait for Special Loans to contact you. Approach your regular loan officer and advise them that you are encountering financial difficulties - the earlier the approach, the more solutions and options available to you. In addition, delaying your contact with the bank when there are obvious problems can sometimes imply to the bank that you have been hiding your problems. As mentioned above, Special Loans appreciates clients who are forthright. If they lack trust in management, it is challenging to complete a financial restructuring.  
  4. Identify the specific problem. Special Loans will want to know why the loan is in distress. There could be many possible reasons which may be intertwined, such as general economic conditions, unexpected events such as loss of a significant client or supply, and obviously the recent COVID-19 pandemic. Be prepared to tell your story. Your insolvency lawyer can assist you with your presentation.
  5. Show that you have been working on the problem. If there have been steps you have already taken to address your financial distress, do not hesitate to advise the bank of this fact. You may have already reduced staffing and other costs, sold some non-core assets, or engaged in refinancing efforts. Retaining the assistance of insolvency professionals also shows the bank that you are serious about resolving your issues.  
  6. Have a plan. It is always helpful to approach the bank with at least the outline of a restructuring plan. The plan doesn't need to be fully developed, but you should present it if there is an outline. There are many options for a financial restructuring, including: 
    1. A forbearance agreement with the bank, which will give you time to get back on your feet; 
    2. An informal restructuring through the sale of assets or divisions of the company and cost reductions; or 
    3. Court-assisted restructurings, such as Companies' Creditors Arrangement Act or bankruptcy proposal proceedings. 

Within these options there are many combinations, and your insolvency professional can advise you on the pros and cons of each one. The bank will appreciate the demonstration of a plan from the outset.

  1. Use insolvency professionals. Insolvency professionals are lawyers, Chartered Accountant firms and financial advisors who have experience in restructuring, receivership and bankruptcy. Special Loans officers know these professionals well, having dealt with them on countless matters, and know they are experienced, trustworthy, and will provide reasonable and sound advice. While every insolvency has different nuances, in general, your insolvency professional has seen this situation before and can help you work out a plan to extricate the company from its difficulties. Going it alone should not be an option at this stage.  
  2. Be prepared to work. Financial restructuring is not easy. It requires focus, energy and resources, including the cost of retaining insolvency professionals, which is why the first question of "is the business worth saving" is so important. If the business is worth saving, the time, energy and expense are worth it. You owe it to yourself, your employees and other stakeholders to consider all options carefully before making such a decision.

At Field Law, we are more than ready to assist you in your efforts to deal with financial distress. We have lawyers at every level of experience and cost and are prepared to work out a plan that will be effective within your budget.  Please contact Doug Nishimura or any member of our Collections, Bankruptcy + Insolvency team.