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While I don’t think about this often, the fact is that many consumer finance company lenders and credit sellers are themselves commercial borrowers. Even our largest companies borrow money from banks and other commercial lenders for capital needs as well as basic operations. So, what? Why raise this matter in a Back to Basics blog?

Well, many if not all companies are feeling the financial pressures of the COVID-19 pandemic and the stay-at-home quarantine orders. Business is suffering.  And, many have reached out to their landlords and their lenders to discuss options, including forbearance and deferral of payments. But, be careful and smart about what you ask for.

Commercial loan agreements are replete with default provisions.  Often, such provisions include defaulting in other financial obligations or even admitting the inability to pay debts in the ordinary course of business. So, if you reach out to creditors, vendors, or landlords to ask for relief from payment, be mindful not to state that you are unable to pay your obligations in the ordinary course of business, even in light of COVID-19.  And, even if you are fortunate to borrow on a non-recourse basis, non-recourse carveouts often revert to full recourse for admitting in writing the inability of the borrower to pay its debts as they become due.

While most lenders and vendors are being exceedingly helpful and cooperative in the initial weeks of the pandemic, such attitude may not prevail if the pandemic rages on.

Practice Pointer:  Review your commercial loan agreement to determine whether there is default language relating to one’s declaration of inability to pay obligations as they arise.

Please Note: This is the one hundred fifth blog in a series of Back-to-Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.