Defaulting on any loan puts a massive risk on your business. Unfortunately, the consequences can be much swifter and more unfavorable when you have a UCC lien. Upon default, your creditor can demand immediate payment of the balance or repossess the assets specified in the lien.
This is why acting promptly is of utmost importance. If you are starting to fall back on payments or anticipating to do so, negotiating with your creditor can delay the potential consequences.
However, not all creditors will be open to such discussions. Here are some strategies that can help negotiations be more successful.
Communicate early and honestly
Do not wait until you miss a payment to reach out to your creditor. If you foresee difficulties, notify them immediately. However, prepare your financial statements, cash flow projections and preliminary plan before you make contact.
While transparency is important, focus on presenting solutions rather than just explaining problems. This will help establish good faith and show the creditor that you have a solid strategy to catch up. In turn, they might be more amenable to alternative solutions.
Create a negotiation strategy
Creditors might not accept a simple repayment plan that, in the end, will not benefit them. You may have to offer something in return, such as:
- Additional collateral: If you have unencumbered assets, offering these as additional security might make your creditor more flexible.
- Partial payments: Consider proposing an increased payment schedule for a short period.
- Interest-only payments: Suggest making interest-only payments for a set period to give your business time to recover.
If your creditor agrees to your proposal, alternative solutions may become feasible. These might include:
- Loan modification: Extending the loan term, reducing the interest rate or changing the payment structure.
- Forbearance agreement: The creditor may agree to not exercise their rights for a certain period, giving you time to recover financially.
- Collateral substitution: This includes replacing the current collateral with other assets of equal or greater value, which could help free up critical assets for business operations.
A UCC lien can be devastating for your business once it becomes enforceable. However, negotiating with creditors can help eliminate—or at least delay—the biggest risks.
It is crucial to go into this type of negotiation prepared, and that may include having legal counsel by your side. An attorney can help you understand your rights and explore strategies that best suit your specific situation.