Robert S. Bernstein, Esquire
I. PREPARING FOR THE DOWNTURN
- It is important that the company resist the temptation to cut corners on documentation. Documentation is most important when the deal goes bad.
- Although it is always good to get detailed, accurate and extensive credit information before and during a transaction, it will be especially important to maintain or improve the information when the downturn comes.
- Since perfection is necessary with leases intended as security, diligence in filing in proper locations is important. We should verify filings and get the customer to cooperate in correcting errors before there is a problem.
- In short, do all of the right things, expecting it might go bad.
II. WHAT DO WE DO WHEN THE DOWNTURN COMES?
- Although everyone (including you) may have confidence that the customer can work out of its problems, don’t assume it will succeed. Be careful of letting the customer stretch further and further behind. Watch policies closely on default and enforcement timing.
- Many lenders and lessors have regular visits to view the equipment or other collateral and verify its existence and condition. At first sign of trouble, make sure to check on collateral and determine what other creditors are doing with (to) customer. If the avalanche is starting, make sure you are way ahead or out of the way.
- When times get tough, there may be opportunities to restructure deals to allow recovery of more money, rather than more property. Look to other collateral to secure a revised payment schedule.
- Even though most lessors and lenders and other creditors think of collection agencies and lawyers as the last resort, forward thinkers make sure they have solid relationships with agencies and lawyers in place so they can move quickly when there is a problem.