SAN JOSE, Calif. — For many small businesses, a lack of cash flow has become such an issue that financial institutions like Meriwest Credit Union are encouraging owners to consider "loan workouts."
The arrangement is an attempt at renegotiating a loan. The lender and the borrower have to come to an agreement that is mutually beneficial. During the process, interest rates, payments, and the loan term, goes on the table for modification.
"Over the past year, we have had discussions with a couple of borrowers regarding their loans. We were successful in providing direction to the borrowers to help them keep their loans current," said Greg Meyer, community relations manager at $1.3 billion Meriwest.
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Now more than ever, lenders may be willing to do loan workouts because the last thing they want to do is call a business loan that is in default, according to Meriwest. Most business loans are not secured by real property so the lender's only recourse for repayment is in the personal assets of the borrower, which can be expensive and time consuming for the lender.
"In the current economic climate, lenders are typically empathetic to their borrowers and want to help them make good decisions," said Rich Borland, business lending vice president at Meriwest.
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