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What is a distressed loan?

On Behalf of | Jan 3, 2024 | Business Litigation

If you run a business, there may be circumstances that make it impossible for you to repay a loan. These are often not within your control and can be devastating to your business.

Loan repayment

There are many reasons you may have financial difficulties. These include problems with financial planning, cash flow problems or unexpected expenses. If there is an economic downturn, that can also make it difficult to be profitable. As a result, you may not make enough money to repay the loan. Similarly, competition in the market can take customers elsewhere.

If your industry has new regulations or requires upgrades in equipment or technology, it can be hard to manage those unknown costs. Also, you may face unforeseen expenses if there is a natural disaster, a fire, or other environmental factors.

If you are unable to pay your business loan, it’s important to communicate with your lender.

Distressed loan

If your loan is in default, it is often referred to as a distressed loan. Your lender may offer options for repayment, such restructuring your loan, extending the repayment time, or settling for less than what you owe. In other situations, the lender may decide to start the foreclosure process.

A distressed loan often carries a higher risk for the lender, which can lead to a dispute. To deal with these disputes, you may want to consider further negotiations with the lender. If you are unable to resolve the dispute, you have the option to go to court.