A successful workout begins with thorough pre-negotiation preparation. You need to identify problems within your business that may have caused the financial problems and develop solutions to those problems prior to approaching the lender. If the issues are complex or the negotiations are anticipated to be difficult, competent legal counsel is required at this stage.

Present to the lender reliable, professionally-produced analyses and projections that will convince it that you have fully analyzed the financial situation and have addressed any underlying problems that are negatively affecting the performance of the business. The documents should include short-term (three-to-six months) cash flow projections, financial trends and a workable business plan under the proposed new loan terms enabling the business to meet its financial obligations. New management methods or marketing efforts designed to increase operational efficiency or increase sales should also be included.

Enlist the help of your auditor or accountant to prepare the financial documents needed for the workout package. Loan consultants, many of whom are retired senior bank loan officers who know what lenders are looking for in workout plans, can also help put together the proposal. Make the request for a workout session only when a comprehensive business valuation has been performed.

Be prepared to respond to whatever loan revisions the lender may suggest. Lenders know borrowers are usually in a vulnerable position during workouts. Because of this, the lender may try to extract unwarranted concessions. A lender, for example, may insist that any new loan documents include an arbitration clause that waives your right to a jury trial.

Another commonly sought concession is a release by the borrower of any lender liability or other claims against the lender. If the lender asks for a release or a waiver of important rights, you must consider the consequences of the decision (i.e., whether to accept new loan terms offered by the bank but forfeit the right to sue for an existing lender liability claim, or forego negotiations and begin legal action against the bank). This decision may depend on your prior review of the strength of the lender liability claim versus the likelihood of turning your business around under the terms offered. Don't be overly optimistic about the future. Anticipate difficult times and give yourself plenty of time to meet the new terms if you choose to give up your legal claims.

In loan workouts, almost everything is negotiable: loan length, interest rates, payment schedules and technical loan covenants (i.e., debt to equity ratios). Each loan workout is different. You may need an entire set of new loan documents or, if the changes are minor, amendments to existing loan agreements will do. You should be prepared to pay renewal or rollover fees to the lender for changes in the loan terms. Some lenders require borrowers to pay any lender's attorney's fees incurred in the workout.

The written documents of a workout can be just as comprehensive as the original loan documents. It is imperative that all oral promises or commitments made during the workout are documented in writing in the loan papers. Without written documentation, those oral promises may be worthless when you later try to hold the lender to them.

Fuller Jenkins attorneys can help you structure a workout which will make winners out of both lender and borrower.