As we look ahead to 2025, signs point to an uptick in troubled commercial loans. After more than a decade of representing financial institutions in complex workouts, I've learned that success in these situations isn't just about enforcing rights – it's about finding balanced solutions that work for all parties.

Trust and Transparency: The Foundation for Successful Workouts

In my experience, the most successful loan workouts share a common thread: open dialogue between lenders and borrowers from the earliest signs of trouble. When both parties approach the situation with transparency and good faith, we often find solutions that avoid costly litigation and preserve business value.

For Financial Institutions: Walking the Fine Line

Banks face a delicate balance in troubled loan situations. While you have rights and remedies under your loan documents, how you exercise those rights matters tremendously. Here's what I've learned from guiding financial institutions through countless workouts:

Effective Communication is Key The most successful workouts typically start with early, honest conversations. When borrowers see their lender as a potential partner in finding solutions rather than an adversary, the likelihood of a positive outcome increases dramatically.

Understanding Your Role and Limits While banks can and should take appropriate steps to protect their interests, maintaining the appropriate role as the banker and not the person in charge of day-to-day business operations is crucial. I've seen cases where well-intentioned involvement crossed lines that exposed lenders to liability claims.

The right approach involves:

• Carefully reviewing and following loan document provisions
• Suggesting third-party advisors when appropriate
• Maintaining clear documentation of all interactions
• Avoiding actions that could be seen as exercising control over the business

For Borrowers: Proactive Partnership

If you're seeing signs of potential trouble with your commercial loans, taking early action can make the difference between a successful workout and a costly failure. Through years of working on both sides of these situations, I've observed that borrowers who take the following approach often achieve better outcomes:

Be Proactive Don't wait until you've missed payments to open dialogue with your lender. Early communication about challenges and potential solutions builds trust and expands options for resolution.

Maintain Transparency Regular, honest communication about business performance and challenges helps build the trust necessary for successful workouts. Your lender needs accurate information to work with you effectively.

The Path Forward: Building Solutions Together

Successful workouts require a delicate balance of rights, responsibilities, and practical business realities. Whether representing lenders or borrowers, I've found that focusing on these key elements helps achieve positive outcomes:

• Clear communication channels
• Realistic timelines and milestones
• Documented agreements and expectations
• Professional, respectful dialogue
• Recognition of mutual interests

When Trust Breaks Down

Unfortunately, not all workouts succeed. When trust erodes and communication fails, litigation often follows. However, even in these situations, having maintained professional documentation and appropriate boundaries throughout the process can significantly impact the outcome.

Preparing for 2025

As we approach what may be a challenging period for commercial loans, both lenders and borrowers should be assessing their positions and preparing for potential difficulties. This includes:

• Reviewing loan documentation
• Assessing early warning signs
• Understanding available options
• Building professional relationships before they're needed

Looking Ahead

While the coming years may present challenges in the commercial loan market, experience shows that prepared parties who approach difficulties with professionalism and good faith often find workable solutions. The key is starting early, maintaining appropriate boundaries, and focusing on practical outcomes.

Need guidance navigating complex loan workouts? Contact Adam Witkov to discuss how we can help protect your interests while working toward positive resolutions.