10 Steps to Take When Your Loan Is In or Near Default

With the economy in its current state, funding can be hard to come by. For those who were able to obtain credit, the issue of not defaulting on their loan has become a large concern.

Business owners continue to work on their business strategy and business improvement and some are faced with what to do if their loan is in or near default. As posted by Scott Smith, on The Alliance of Chief Executives, here are 10 things you should do if you fear you may default on your loan:

"1. Read Your Loan Documents. Loan documents are written by and for lenders. They are exceedingly lender friendly, spelling out in great detail the various rights and remedies available to lenders. Except for one or two sections of a loan agreement specifying the amount and manner in which loan proceeds are disbursed, loan agreements are almost entirely for the benefit of lenders. Many borrowers accept this reality as a fate accompli, and do not even bother to read their loan documents in any detail, concluding that the documents are full of legalese or boilerplate that they can do nothing about. This is wrong and likely to lead to trouble with your lender.

Even in a market where credit is tighter than ever, and negotiation of terms is likely to be kept to a minimum, the prudent borrower reads loan documents from cover to cover. Perhaps even more important, the prudent borrower periodically re-visits his or her loan documents to ensure continued compliance. How can you know if you have or are approaching a problem with your lender if you don't even know what your loan documents require? All of the advice that follows is prefaced on borrowers reading and understanding the loan documents they have executed. If you don't do this, it is a fate accompli: you are in trouble!

2. Pay Attention to What Constitutes an Event of Default, Even If One Has Not Occurred. In this market, there is no such thing as a "technical default." Any and all defaults are likely to have grave consequences. Of course monetary defaults are at the top of the list, and you need to remain absolutely aware of your payment obligations and payment terms. If you have not done so already, you should consider direct payment options, which often provide for a reduced interest rate or other benefits and allow you to avoid slip ups as far as late or missed payments. Also pay close attention to your reporting requirements. You should map out for an entire year exactly what information you are required to provide to your lender and when. Your CFO or controller should obviously be included in this process, as well as outside accountants and auditors so everyone is in the know as far as your obligations."

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Creativity--Take Breaks to Recharge Your Mind

If you find yourself at a standstill in coming up with creative ideas, you can often inspire your creativity by allowing your mind to relax. Give yourself permission to stop thinking about the problem.

For example, when working on a cross-word puzzle, most people will start with the easy words first and then move on to the more difficult ones. When they reach a point when they’re stumped, put the puzzle away and go on to something else, such as reading a book. If you go back to the puzzle later, you’re more likely to be able to identify all the words that eluded you hours earlier.

How can you get around this brick in the wall? Don’t force a solution. Put the problem aside for a while and turn to a simpler task.

When trying to creatively develop strategies for personal or business plans, put work aside and focus on a different project. Most times you’ll come up with ideas for the plans, ideas for business process improvement, etc., even though you were not thinking about them. You can then return to the problem with renewed “freshness”, because you allow your subconscious mind the time it needed to work.

When your conscious mind is busy with something that doesn’t require deep concentration (like watching a movie), the subconscious mind is free to solve problems. While the conscious mind is busy, the creative juices flow and ideas seem to come out of nowhere.

Be open to new perspectives. Attend lectures or go to places where you will be associating with non-work-related people who embrace a different way of thinking than you. Gaining a new “slant” can often be the key to coming up with a new idea or solving a problem and help lead you to business success.

Make an Effort to Protect Your Company and Your Brand

With the strong presence of online marketing, and now the uprising of social media, it is very important to protect your company’s online reputation as well your brand. Rumors, complaints and bad experiences can lead to a decrease in sales. For the larger companies this may not have much of an effect on their overall profitability, but for a small business, a decrease in sales can make a huge difference.

As discussed on smallbiztrends.com, learn 4 ways to help protect your brand and your company from catching a bad rap on the Internet.

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Create a Planning Team for Decision-Making

In a small or medium-sized business, it’s common to be the only one making decisions about every aspect of your company—thus the saying, “it’s lonely at the top.” No matter how large or small your business is, being the sole decision-maker for the company can be difficult and may impede your business success. It can become challenging for one person to constantly think of better ways to improve the business or make sure he or she has the most innovative ideas. Having the contributions of a planning team will provide additional business ideas, help your company grow and become more successful.

Planning teams are comprised of your company’s top executives from each of your functional departments. The goal of the planning team is to have candid discussion on all business planning and action items essential for business improvement, allowing your company to move forward—from resources to operations to company strategy.

Once you decide to implement a planning team, it is imperative to have established guidelines before the first meeting and to continue to follow these guidelines at each meeting. Reviewing them before meetings will help keep your planning team focused on the group goals.

Here are a few simple guidelines to keep in mind when forming your planning team.

• Stay focused on the main issues
• Avoid solving/micro-managing
• Avoid interruption
• Inform the employees who are not on the planning team about plans and progress
• Never cancel your planning team meetings
• Schedule planning team meetings based on personal and business visions (if you’re looking for fast growth, you may want to schedule meeting once a week or once a month, but be sure to have at least one meeting scheduled each quarter)
• Occasionally invite other project managers to the meetings to update the planning team on various projects, as necessary

To ensure each planning team meeting is productive and time-efficient, revisit the rules and guidelines often. Also, spend time with individual planning team members to make sure they understand the value of a planning team and how their individual contributions help to foster a positive planning team experience. When done right, a planning team can be inspiring and liberating.

Which Path Are You Choosing?

The recent economic downturn has resulted in business owners refocusing on their business strategy and making changes in their organizations to cut costs, operate more efficiently and increase sales.

As a business owner, are you viewing the recession as a crisis or are you embracing the opportunities you can leverage and make your organization stronger as a result of the difficult times? Ray Brun, TAB business coach, discusses this topic and the possibilities companies can leverage to come out on top:

"John Milton, British poet, said, "The mind is its own place, and in itself can make heaven of Hell, and hell of Heaven."

Caught in the aftermath of financial insanity, I am hearing more and more TAB members, other business owners and friends who are being forced to deal with messes left by others; people who thought they could get something for nothing. What truth did those people miss? The Law of Service and Reward — a universal, provable truth. We cannot rewind life, nor control what people in high places do in their attempts to make things better. The only options we have are our reactions to the insanities that have already occurred.

Napoleon Hill, author of the classic Think and Grow Rich, said, "The key to your success is in finding needs and filling them." This is not just a great slogan for a cement truck. With firms failing, markets crashing and millions of people scared and hurting, there are more needs now than I have ever seen in my nearly half century of observing the business world. That is why at our TAB meetings we are regularly asking the question: "Crisis or Opportunity?" At TAB, we are not whining, we are talking about leveraging on possibilities."

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Taking Advantage of Tough Economic Times

As a business owner, you’ve probably re-evaluated your business strategy, cut costs wherever possible and brainstormed ways to increase sales in order to weather the economic storm. However, the tough economy also brings certain advantages that can prepare you for business success once the storm has subsided.

Harvard Business recently published a blog on how you can spin the crisis to your advantage and utilize opportunities to change the organization:

“Howard Stringer knows a thing or two about crises. As a young man, he found himself serving in the U.S. Army in Vietnam and he wasn't even a U.S. citizen. He had been drafted while working for CBS News in New York. So today's global downturn, while not as personally perilous as combat, presents Stringer, now Sir Howard and serving as CEO of Sony, with another crisis. As quoted in The Economist, Stringer said, "When this crisis came along, for me it was a godsend, because I could reorganize the company without having to battle the forces of the status quo." Time will tell if Stringer can effect positive and sustainable changes Sony needs.
Crises provoke disruption. Savvy executives can use them to their advantage to effect change within the organization. The challenge is to frame the crisis as an opportunity, not simply for the executive but for the organization as a whole. In fact, with the organization in flux now is the time for those in the middle, or even on the front lines, to rise up and prove their mettle. Crises such as ours, as my friend Stew Friedman has written, can be opportunities to make good things happen. Framing the crisis is essential.

Focus on the organization. A proposition of leadership is "what does the organization need me to do?" The answer to that question will help a leader focus resources on improvements that need doing as well as dropping things that do not need doing. One benefit is to stop feeding the monster, that is, stop doing things that serve process but not people. Drop the "cover your behind" projects that "make work" rather than make progress.

Focus on customer. Those in the middle have long positioned change initiatives through the voices of their customers. Now is a perfect time to make the changes to products and processes that customers have been asking for. They too may have some time to consult with you; their businesses are impacted too. So use the down time wisely.”

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Company Course Change Doesn’t Happen On Its Own

The global economic crisis has many business owners fearful of becoming collateral damage. Your Company Vision and Plans may no longer be realistic because of economic factors beyond your control, but this doesn’t have to mean failure. TAB uses Strategic Business Leadership® (SBL), a process that calls for your company to “Turn the Wheel”, typically performed once a year. But right now, it may not be enough to do it annually. Strategic and tactical refocus on your Company Vision, SWOT Statements that identify the strengths, weakness, opportunities and threats of your company, as well as your Company Plans, will allow you to make course changes that get you through the tough times and help you achieve business success.

A Company Vision is long term, but economic challenges may warrant redefining what’s realistically attainable in the long-term. It is common during economically challenging times to identify significant changes in your SWOT Statements. If you never put your SWOT Statements in writing, this is the time to do it. Your Plans will likely have to be revised based upon what is identified by your SWOT Statements. Panic and knee jerk reactions spell disaster; put it in writing and know what you’re up against and what you’ve got to fight back with.

Of course, a revised Company Vision Statement means revised Company Plans and you want to focus on creating plans around Critical Success Factors that will help you in the short-term with business improvement when you are facing economic challenges. Use your Competitive Edge Strengths for support and turn the economic threat into an opportunity for a new definition of success. The economy is an obvious threat that is not within your control. But, you can control how your company responds to it.

For some, course changes will include what costs to cut and what deals to offer. Get creative, such as offering a discount to first-time buyers or, if yours is a technology company, offer customers extra features for free rather than slashing prices.
Remember, it’s a mistake to cut back sales efforts during a recession. And, don’t try to copy someone else’s business model—you don’t know what part of that model created the success. If it were that easy to replicate a winning model, Starbucks never would have stayed on top of the game for so long.

Before making course changes, consider the following:

• What is the evidence urging the change?
• What are the intended results and measures?
• What challenges can I anticipate?
• What have I learned from similar course changes?
• What will affect the greatest change?

Company survival and success during tough times may require radical course changes, but more often, a single or less radical adjustment to your business model can make a world of difference.