Approaching a funder before you miss a payment

Call while the payments are still clearing. Not because it is virtuous, but because a performing account and a delinquent account are routed to different people with different authority and different objectives, and you want the first one.

The two departments

An account that is current sits with servicing or portfolio management. Their job includes keeping the account performing, and a modification that keeps money coming in is a normal outcome for them.

An account in arrears moves to collections or recovery. Their objective function is different: maximise recovery on an impaired account. They can still agree to a restructure, but the terms change, the tone changes, and the price rises. In many organisations the file is also flagged in a way that follows it.

The transfer point is usually defined in your agreement — a number of missed payments, or the cure period expiring. Find that number before you call, because it is your deadline.

What has to be true before you pick up the phone

Three things, and none of them are optional.

Sizing the gap

• Gap: $15,169 − $11,200 = $3,969 a month
• Coverage ratio: 11,200 ÷ 15,169 = 0.74
• Relief needed as a share of debt service: 3,969 ÷ 15,169 = 26.2%

That last figure is the one to carry into the call. You are not asking for help; you are asking for a 26% reduction in remittance for a defined period. It is a specific, checkable request, and it is small enough to sound achievable.

If the same arithmetic produces a required reduction of 70%, you have learned something important before the call: a modification will not fix this, and the conversation you need is a different one.

The package to bring

Funders in this market decide quickly and on thin information, but they will not decide on nothing.

• Three to six months of bank statements, complete, all accounts.
• A debt schedule listing every obligation, the balance, the payment, the frequency and the maturity. Include the positions you would rather not mention; they are on the statements anyway.
• A thirteen-week cash flow forecast, week by week, showing the trough and the recovery.
• The specific ask, in one sentence with numbers and dates.
• The evidence for the recovery. A signed contract, a seasonal pattern visible in last year's statements, a lease that ends, a hire that finishes training. Something external.
• What you are putting in. A partial payment now, an owner contribution, a deferred distribution, additional collateral. A request with nothing on your side of it is weaker than one with a small amount on it.

The call itself

Open with the number, not the story. "Our remittance is $700 a day. Through the end of February our cash supports about $425. I am asking for a 90-day reduction and I have the forecast and statements ready to send."

Then answer the four questions they will ask, and have the answers written down: what caused it, why it ends, what else you owe, and what you are contributing.

Do not volunteer an intention to miss a payment. Saying "we will not be able to pay next week" can amount to an anticipatory statement that some agreements treat as an event in itself. Describe the constraint and the request, not the threat.

Do not agree to anything on the call that you have not modelled. "Send me the proposed terms in writing and I will confirm within 24 hours" is a complete and reasonable answer.

What a yes usually looks like

A loan modification or a forbearance letter, with some or all of: a reduced payment for a defined period, a fee, an acknowledgement of the outstanding balance, a reaffirmation of the personal guarantee, and a release of claims against the funder. The release is standard and it is real — read it.

On a fixed-repayment product, note what a term extension does and does not cost. If the total repayment amount does not change, stretching the schedule adds time, not dollars, beyond whatever fee is charged. Illustrative only: $50,400 remaining at $700 a day runs 72 business days; at $400 a day it runs 126 — 54 additional business days for a $1,500 fee, a 2.98% increase in total outlay. On an interest-bearing loan the same extension adds interest, and the two should never be assumed to behave alike.

Timing

Start when you can still see the trough coming and are still current. Two to four weeks of lead time is enough for most servicers to process a modification. Less than a week and you are asking for a decision on a timetable that guarantees a no.

What to do this week

Pull three months of statements and compute cash available for debt service. Build the debt schedule. Build the thirteen-week forecast and find the week it breaks. Convert the shortfall into a percentage reduction in remittance. Write the one-sentence ask. Then find the servicing contact in your agreement's notice provision and call them — before the number in the cure period clause starts running.

What a funder can agree to, and what any resulting document does, depends on the contract and on the law of the state it selects. This describes how these conversations usually work and is not legal advice.