Winning the Workout Before You Even Have a Problem

A Borrower’s Guide to Navigating Lender Relations Like a Pro

By Shlomo Chopp, Managing Partner

Too many borrowers assume that the court system will serve as some sort of magical equalizer, forcing the lender to see things their way. If this is the grand strategy it’s doomed to failure.

Lenders seldom operate on emotion or fairness—they operate on evidence. If you prove that you’re a bad manager, they’ll believe you. If you’ve already demonstrated poor management, no amount of negative market conditions will convince them you were the best option. On the other hand, if you can prove that you’re a competent operator making the best possible decisions in a difficult market, they’ll be far more inclined to see the reality of the situation—as long as you back it up with hard evidence and relentless diligence.

Here’s what borrowers often miss: lenders don’t start with the assumption that you’re doing the best job possible. They have plenty of other borrowers who aren’t in default. So, before your asset manager, counterparty goes to bat for you, they’ll look at your track record and weigh whether you’re worth the political capital.

Fortunately, there are steps you can take—long before a problem arises—to lay the foundation for a successful workout - should it ever come to that.

The following don’t relate to the negotiation itself; they’re all about preparation, and good business.

(DISCLAIMER: before you act on this, know your loan documents well and consult counsel)

1. Over-Communicate from Day One

Many borrowers operate under the mistaken belief that less is more—that if they share too much, the lender might find something to use against them. While that fear has some merit, the reality is this: if everything goes well, everything will go well. But if something does go sideways, surprises will sink you faster than anything else.

Lenders hate surprises. When they don’t hear from you, they assume there’s nothing to tell. By keeping them informed from the outset—not just when things go wrong—you build credibility and trust, which becomes invaluable when you actually need it.

2. Address Issues Early—Before They Become Defaults

If trouble is on the horizon, get ahead of it. A lender who learns about issues early—before you’re in default—will be far more receptive to working with you rather than prosecuting you.

Many borrowers operate on assumptions rather than the actual provisions of their loan documents. They neglect critical notices, fail to seek required consents, and end up triggering defaults—or worse, personal recourse—often without even realizing it.

Proactively providing information to the lender allows you to clean up any problems before they force the issue. If you let them discover the problem first, you’ve already lost control of the narrative.

3. Have a Real Business Plan—and Update It Regularly

From the day you buy a property, you need a business plan. And not just a set of numbers or a pro forma—a real business plan.

A good business plan is a comprehensive document that outlines what you’re doing and why you’re doing it. It should be updated at least annually to reflect market changes, new data, and any shifts in strategy.

Why does this matter? Because when the lender (or their appraiser) asks questions, you need to respond with confidence, backed by a well-thought-out plan. If you don’t, you’ll find yourself on the defensive, fighting off misconceptions rather than controlling the conversation.

A strong, current business plan not only keeps you on track but also serves as a critical tool for engaging with your lender, employees, and investors.

4. Trust, But Verify

Never assume that your lender is your friend. Never assume they’ll “work with you” in the event of a misunderstanding.

Everything should be in writing. If possible, everything should be in a legally binding document.

Lenders operate within strict rules, and verbal assurances mean nothing when the chips are down. Protect yourself by making sure every critical agreement is documented. If it’s not in writing, it doesn’t exist.

5. Understand the Fundamentals of Borrowing

At its core, the law is simple: when you borrow money, you have to pay it back. No amount of wishful thinking, creative lawyering, or high-priced consultants can change that fundamental reality.

Before taking any major risk, you need to ask yourself two critical questions:

1. Why is the lender acting the way they are? Lenders usually have a rational reason for their actions. Understanding their motivations can give you the leverage to negotiate more effectively - and answer question #2.

2. If you were in the lender’s shoes, would you accept the offer you’re proposing? This is where self-delusion can be dangerous. It’s easy to convince yourself that your deal makes sense—but would you really take it if the roles were reversed? If not, rethink your approach before it’s too late.