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The Bank Workout Group is a department in a commercial bank that handles what is known as the bank’s special assets. Banks send their troubled commercial loans to this department to handle the negotiation and management of the bank’s forbearance agreements.
Loans are recorded on the bank’s balance sheet as an ‘Asset’ which is the opposite way in which a business records a loan. Accordingly, loans that fall out of compliance with bank loan covenants defined in their loan agreements are called ‘special assets’.
Loan Forbearance Agreement
Many business owners unknowingly think that when their loans are sent to the bank’s workout group, that the bank desires to work things out with the business owner. Typically, this is not the case.
Instead, the intention of the bank is to work the customer’s loan out of the bank’s loan portfolio.
The bank accomplishes this by imposing specific goals that the business owner must meet within a specific time frame. While the business owner works to achieve meeting the defined goals, the bank will forbear calling the commercial loan or foreclosing.
The forbearance period is finite. If the business owner is not able to meet the terms of the forbearance agreement within a defined period of time, the bank will impose its remedies against the business.
What recourse does a not-for-profit organization have if they have been placed in the Special Asset Group due to small losses after financials were reviewed. We have no lates or missed payments, we have a very short option. 90-120 days to fine alternate lender. What can we do? No forbearance offered, but have requested an evaluation at our expense and only waived if new lender is obtained. No new written agreements offered. Everything email and verbal. Your response appreciated.
We recently paid off our Loan with the “Special Assets Dept.” but did not go thru
an Escrow Co. We just received a payoff quote from the bank. The fee they have
on the quote that we are questioning is an Appraisal fee they did in 2016 for
$2500.00. We did receive a copy of the appraisal then, with a letter saying “In accordance with Federal Statues we are required to provide you a copy of the appraisal on property held as collateral.” There is no mention of cost on our part or an Invoice stating we were being billed. Do we have any recourse to fight this
fee or are we stuck again? The person I have been dealing with has been extremely difficult to work with.
Hi Patricia – without seeing the loan documents, I can’t say for sure, but in most cases the loan documents will stipulate that the borrower will be responsible for the costs of collections, which an appraisal could be considered part of if your loan was in the Special Assets group. It may also be outlined in the documents that an appraisal is required every year, or something to that effect.
You can certainly ask them to waive that fee, but if they have no real incentive to do so, it’s hard to say what the chances of success are.
If they say no, and you feel they are charging for something not provided for in the documents, you could always challenge it with an attorney, but you’d have to make a calculated decision since hiring an attorney is going to cost you as well.
My advice would be to contact the workout officer, and tell him that if he waives, the appraisal cost, you’ll make the payment within 2 business days. The prospect of getting it paid off quickly might motivate him to waive it.
Best of luck with it!
What happen when my loan goes to workout Dept and I m not behind in any loans but my bank account is negative lately
Hi Sal – The workout department gets involved when the bank has concerns about your ability to repay your loan. If your bank account is overdrawn, that’s a sign that there may be a problem with your business.
If you are assigned to the workout department, they will likely want to know why the account is overdrawn, and if the reason for the overdrawn status is going to continue. They may also ask you for current financial statements to evaluate the health of your business.
The important thing to remember here is that you should be responsive to their communications. Avoiding them will only increase their concerns, and potentially give them reason to take more aggressive action.
I dont have a business loan but recieved a call this morning and it said Workout Department on caller ID. Why would they call me??
Hi Billy,
If you don’t have a loan with a bank, I don’t think you have anything to worry about.
While banks have the right to call a borrower at their home, especially if they are not making their loan payments, they would also send letters to the business and its owner.
Hope that helps a bit…
When a bank assigns a workout to take place, who is allowed to attend on the side of the business? Can others attend who do or know the daily accounting such as a manager or CFO if the communication was sent regarding the workout to the attorney?
Hi Becky,
As the business owner, you are able to ask anyone you’d like to assist you with your representation when meeting with a Bank’s workout group employees.
My experience tells me that if the bank’s attorney is attending the meeting, the bank’s attorney will want your company’s attorney to be present.
Normally the bank representatives from the workout group handle the meetings with the business owner and any representatives they bring along. Then what’s agreed upon is turned over to the bank’s attorney for drafting into written agreements.
Hope this helps a bit Becky… All the best…
Not sure if you can answer this question but do you know if banks would be looking for residential appraisers in these loan workout departments. And, what department I could contact.
Hi Linda,
It’s my understanding that Bank Workout Groups handle commercial loans, not consumer loans. There may be an equivalent group that handles residential loans. I’m sorry I am not familiar with the name of that group or department.
I can no longer afford the very expensive car payments I have, and told Ally Bank that $400 was my max I can afford monthly. The car was already 2 yrs old and used when I purchased it in 2022. The customer service agent said to call their Workout Dept. What exactly does this mean, and will it hurt my already struggling credit score?
Hi Cindy,
I am sorry you are in this situation.
Banks have a workout department where they address loans with its customers who are not being paid according to the loan agreement you signed.
If you’re not paying what you agreed to in the loan agreement, your loan is in default status and the bank workout department handles such situations.
If your loan is in default, it’s very likely the bank has already reported the late or missing payments to the credit bureaus, which will hurt your personal credit FICO score.
The bank’s workout department may agree to lower your payments and extend the term. That would be a loan modification and whether the bank reports it to the credit bureaus is up to the bank.
I hope this helps!
I buy inventories
can you direct me as to the best avenue to locate business and or individuals who may need my services.
Good morning Howard,
You may want to consider joining a professional organization that caters to the parties involved with asset-based lending.
I’ve had trouble getting a clear understanding about the situation I am dealing with and appreciate the opportunity to ask a question.
Today I received a letter from my bank telling me my business loan is now being handled by the Special Assets Department. I’ve been told by my banker the bank is drafting a loan forbearance agreement for me to sign. He said it would have a fee of $2,500.
What’s going on and do I really have to pay them $2500.?
Thanks for your help!
Hi Carl,
We welcome your question…
I am sorry you’re facing this situation and hope to provide you with some clarity and direction.
Most likely you’ve recently provided your financial statements to your bank and have broken one (or more) of the loan covenants embedded in your commercial loan agreement. When the bank receives your financial statements, they turn it over to a department to verify your business is in compliance with all of the promises you made when you signed your loan documents. If this department determines you haven’t met all of the requirements, the bank has the right to impose the remedies defined in your loan agreement as a default.
One of the remedies for a loan default may be to call your loan or line of credit for payment in full. Banks don’t normally enforce their remedies without giving a business and its owner an opportunity to get back into compliance with their loan covenants. In simple words, the bank will typically give you another chance and they do so through a loan forbearance agreement.
The loan forbearance agreement will specify exactly what they bank wants the business and its owner to do and by when.
Some banks use their internal or inside legal team to prepare their forbearance agreements. Other banks outsource the legal work to a law firm. Either way, the bank will ask the borrower to pay for the legal work necessary to provide the forbearance agreement.
I recommend assuming a cooperative attitude with your lender and its bank work out group. Having said that, I also recommend that you negotiate the loan forbearance agreement fee.
I truly hope this sheds some light on your situation Carl.
All the best…