Covendium Lists Top 4 Mistakes Entrepreneurs Make when Facing Financial Distress

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Many entrepreneurs are finding themselves in a tough position these days: their commercial property is now worth less than their payments, and they can’t get lenders to renegotiate. Covendium explains the four most common mistakes entrepreneurs make when faced with this situation.

commercial debt restructure

Covendium specializes in comprehensive commercial debt restructuring and resolution.

Right-sizing your business and debt to the current market will not only provide short-term liquidity, but also will allow you to position yourself for tremendous upside when the economy picks up.

More than $1.5 trillion of commercial property debt is coming due over the next five years with no reliable liquidity available to refinance. Much of the collateral securing this debt is worth substantially less than the current principal amount outstanding. With liquidity at an all-time low and collateral values also approaching inflation-adjusted all-time lows, many distressed commercial property owners and operators will be facing the very real prospect of defaulting on their secured commercial debt obligations.

Commercial debt restructuring consultant Covendium LLC says that America is at a commercial real estate crossroad. Lenders must get back to the business of lending to property owner/operators and entrepreneurs. Commercial property must be put to use, and not sit vacant. Honest, hard-working property operators need a better option than walking away from their commercial property because their lenders don’t seem to have the interest, experience or incentive to restructure their loans to benefit all parties involved.

“If you find yourself in a position where your property’s debt balance is greater than its value – or your rental income is not covering the debt payments, taxes and costs of the property – you need to be proactive and avoid the common mistakes that many entrepreneurs make when they find themselves in financial distress,” says Gregg Grauer, CEO of Covendium.

Covendium lists 4 common mistakes made by entrepreneurs when facing tough financial decisions:

1. Ignoring the problem and assuming or hoping that new business will solve the problem.

This is easily the most common mistake, and the most important to avoid. Given the amount of sublease space currently on the market, the long-term outlook for office vacancy is not expected to fall below 15 percent any time soon. Industrial and Retail vacancy rates are not faring much better.

“Right-sizing your business and debt to the current market will not only provide short-term liquidity, but also will allow you to position yourself for tremendous upside when the economy picks up,” Grauer explains.

2. Diverting cash from personal assets or assuming more debt to fund poor-performing property or signing personal/spousal guarantees on pre-existing debt.

This is the second most common mistake, and possibly the most costly. Debtor protection laws vary by state, but every state has debtor protection for certain retirement accounts (401k, IRA…) and no entrepreneur should consider taking on additional debt to fund other debt without the advice of legal counsel and experienced debt resolution specialists.

Grauer says, “The most difficult conversation we typically have with clients is unraveling the short-term fix that they were compelled to undertake by the bank.”

3. Liquidating assets at ‘fire-sale’ prices to fund debt service.

Forced by an exaggerated fear of foreclosure, many entrepreneurs start liquidating assets quickly to make payments. Because of time pressure, they are not able to ensure an orderly sale and end up receiving far less than they might have gotten if they had sufficient time to list their assets. With the support of legal counsel and an experienced debt resolution specialist, the bank is likely to be more flexible on the timing of a payment, allowing both lender and borrower to get the most value.

4. Negotiating alone, without seeking out legal counsel or an experienced debt resolution firm.

Banks are willing to negotiate, but their first position will always be to collect the principal, interest and penalty charges. Even when they appear to be willing to negotiate, any proposal they make will always be higher than the ultimate proposal negotiated by an experienced debt resolution firm they have already worked with. Some debt resolution firms have access to private capital, allowing the entrepreneur to purchase his/her loan at a discount from the original lender.

“Working with your legal counsel and an experienced debt resolution firm will ensure that your resolution maximizes your debtor rights, minimizes your tax liability and allows you to get back to focusing on growing your business, instead of being distracted by your debt,” assures Grauer.

Covendium knows that avoiding the mistakes above and having a plan to restructure a business are the best strategies to survive and thrive in this challenging economy. The solution to the commercial real estate crisis won’t come from Washington, but through collaboration between entrepreneurs and lenders, each giving a little to ensure that both have the opportunity to do business together in the future.

For more information about mistakes entrepreneurs make when facing financial troubles, or any of Covendium’s products or services, call them at (407) 284-4000 or view them on the web at

About Covendium
Covendium specializes in comprehensive commercial debt restructuring and resolution for clients whose financial model has been adversely impacted by debt service payments that have become unsustainable.

For some clients, all they need is an experienced negotiator to provide their lender with the reality of the financial situation and the tool-set to restructure their obligations. For other clients, Covendium may assist in the replacement of the debt from a bank to a private funding source.

Their team of professional advisors has successfully restructured billions in transactions, with dozens of banking institutions (including major national, regional and community banks) and over 30 separate non-bank financial counterparties.

Bad things happen to good people. Covendium is a premier national debt resolution firm that helps their clients with everything from commercial foreclosure in Chicago to recapitalization in Miami to unpaid principal balance in Phoenix to discounted pay off in San Francisco.


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Jonathan Gorman
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