Contingency planning (?always have a Plan B?) is likely to help commercial property owners and small businesses avoid complex problems. But when it comes to working capital loans and commercial financing, commercial finance strategies often fail to include adequate attention to contingency plans and what can go wrong.
An entertaining movie which is probably one of the most effective depictions of contingency planning is ?Rare Birds?. William Hurt is the star of this movie which includes several timely variations of the warning, ?Always have a Plan B?. The movie will provide an enlightening perspective for any business owner who doubts the importance of contingency plans.
The usefulness of a Plan B mentality is likely to be beneficial to many aspects of running a successful business. For business owners impacted by commercial financing such as working capital financing and business mortgages, contingency plans are often overlooked.
Unfortunately many commercial borrowers probably (wrongly) assume that there are not realistic alternatives to the commercial real estate loan they need. In such a case, it might not make sense for a business owner to pursue contingency financing plans. If you have seen the recommended movie, it will become second nature to realize at times like this that businesses should ?Always have a Plan B? regardless of whether it seems to be a waste of time or not.
In this regard, Plan B contingency commercial financing should be viewed as insurance to protect a business owner in the event that something goes wrong with their working capital management. Two examples are provided below.
First, many local and regional banks are pulling the plug on business financing and business debt refinancing. When they do so, very little advance notice has been provided in most instances. A Plan B should be developed for the contingency that alternative business loan arrangements could be needed if a business has commercial loans or commercial mortgages with a regional or local lender.
Second, many banks have added recall provisions that permit them to review loans periodically. Using the recall terms, lenders can eliminate marginal loans while they continue business financing for others. Within a limited period of time, the borrower will be required to refinance or payoff the entire loan if the lender exercises their recall provision. An especially disturbing aspect of these terms is that even though they might have been making payments on time, the borrower effectively loses all control. If recall terms are included, a suggested solution for avoiding this possibility is to review current business loans and explore Plan B refinancing options.
Here is a closing thought for the numerous possibilities where contingency planning might be appropriate for commercial real estate financing and working capital financing. ?Always have a Plan B?.
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