Loan obligations restructuring options for business customers at Swedbank

We are interested in the long-term stability of our clients, therefore we always seek ways to restructure existing loans in order to resolve the problematic situation together with the client and help the company overcome short-term difficulties as much as possible.

Swedbank's priority is sustainable businesses, which is the driving force behind overall economy.

Crucial factors include your - the company owners' - openness, co-responsibility, desire to deal with problems and being interested in the company's long-term viability. Other important considerations include company's capacity for swift readjustment and prompt decision-making in today’s changeable market conditions, and transparency of the company’s financial data.

Aleksandrs, a company director and owner:

"My company is no exception to the overall economic situation. We, too, initially thought that we’ll be able to weather the crisis and that all will get back on track. But now it's clear that we'll have to work differently, think differently. The projects, which were calculated to bring profit in the past, now won’t pay off.

Consequently, we had to revise financing matters, too. Fortunately, we, at the firm, had enough courage and integrity first to tell ourselves what will be the things that will need change. Fortunately, we did it in good time; we went to the bank and openly showed all our financial data. But what’s most important - we demonstrated that we're willing to deal with the matters and not try to distort something in the light of general uncertainty. Together, we came up with solutions - honest and sustainable.

Because we want to do our business on a long-term basis here. And then it is vital whether you are able to accept not so great times. And continue to work. Because only those who get down to things, get to the end."

Other stories about tackling financial issues:

• Food production

  The main activity of the company is production of waffles and waffle cookies. During 20 years this limited liability company has established a stable base of industrial buyers and it has a market share of 50 % for waffle deliveries to Baltic ice-cream producers. Its success is underpinned by modern production facilities that enable to produce waffles of high quality.

  In the last months of the previous year the company requested the bank to defer repayment of principal loan amount. The bank has always supported companies which experience difficulties and have a stable business with known suppliers and buyers. However, in this case during the negotiations with the customer unpleasant surprise was discovered: the customer had used the credit line granted for core business activity to start a new business - wholesale of clothing. The customer’s objective was to ensure a flow of regular revenues to avoid seasonality of the company’s cash flow.

  The customer’s solvency troubles were caused by two factors and both of them lead to one result - a large amount of frozen assets. In autumn the largest buyer of the company’s products in Lithuania declared insolvency and remained due a significantly large amount of money to the company. Unfortunately, wholesale of clothing did not go as smoothly as it was planned - acquired goods remained in the warehouse owned by the company because in autumn and winter there was no demand for warm clothing and the company had not sold it in previous spring and summer either. Even if the company had managed to overcome cash flow difficulties caused by the bankruptcy of the large buyer of waffles, the company would not be able to renew operations due to frozen stocks of clothing.

  The bank offered the company to organise selling of clothing with the help of other companies. For the time being, two companies have been involved in this activity. One company with experience in selling of clothing was found by the bank among its customers, and the other company was found by the company's management. Thanks to the support provided by the bank the company managed to solve its cash flow problems without having a new credit line. It was possible because the bank financed the purchase of clothing from the waffle production company by the invited company and used a real estate property as a collateral. The clothing trade company could immediately pay to the company for the purchase of clothing. It enabled the company to obtain current assets for purchase of raw materials, including flour and oil, and to restore production as well as to retain the existing customers and suppliers.

  The largest buyer of the company's products in Lithuania also tried to solve his cash flow problems and insolvency administrator had authorised to continue the operations. The company, in its turn, agreed with the buyer on future deliveries of products and gradual discharge of the debt during this year.

  The company has also completed the assignment for reduction of costs: prices are lowered by suppliers of raw materials for production; payroll has been decreased; full time employment is changed into shift work subject to demand. At the same time the company has also slightly increased the selling price of the produced products and has coordinated these changes with its buyers.

  As regards restructuring of loan obligations the bank offered to the customer to align the schedule for repayment of the principal loan amount with the seasonality of the company's business, and now the company has no overdue payments. The bank monitors the company's cash flow to make sure that the company implements measures to increase efficiency of its core business activity and selling of clothing stock.

  The limited liability company has received a recommendation from the bank to make a deposit from the revenues raised during the active business season to finance operations in the next season by not spending resources for other purposes and by ensuring financing of core business activity from own resources instead of using borrowed funds from the bank to finance its current assets.

  Experience of this company shows that ill-advised start-up of a new business with funds financed from a credit facility granted for running the core business activity is unacceptable without detailed risk analysis and prior approval given by the bank because the customer tends to overestimate success of his new business. This, in its turn, may lead a successful core activity of the company to a bankruptcy.

  Now the company together with specialists from the bank learn how to think about their business in the long-term and how to choose the most appropriate business retention and development options.

• Agriculture

  The main activity of the company is production of agricultural products. The limited liability company manages around 1 300 ha of land: 50 % of it is used for winter wheat, 25 % - rape, 25 % - summer barley. For efficient management the company has acquired new equipment, incl. tractor, sprayer, soil preparation equipment, harvester, tiller, scarifier etc.

  A combination of several factors caused the company's solvency troubles. In 2008 purchase price of crop plummeted. At the same time every month the company had to make big loan repayments. Although the company was not able to discharge its loan obligations and was overdue with payments, its management avoided to communicate with the bank for 3 months because they did not know what to do. The land was already under crops and fertilisers for this season were already bought.

  Following the examination of the case the bank concluded that if the loan obligations were restructured the company was economically viable because money was not blown out of the window and it was invested into the future crops. Should the company have the possibility to pay to the bank and other creditors from this year‘s crop, it would restore its solvency.

  In addition to the problems experienced in the core business activity last year, the company suffered a failure when it tried to start to deliver and construct hangars. The goal was to raise additional revenues for the company which would be regular instead of being seasonal as they are in the area of agriculture. Operations in the new business niche coincided with the beginning of economic crisis and thus worsened the company’s financial standing. As the company terminated its operations in the area of construction of hangars in due time, this activity did not influence the business in the long term.

  In order to help the company to restore its solvency, the bank offered and the company agreed to implement several measures. As a result of these measures:
  loan repayment term was extended;
  loan currency was changed from Latvian lats into euros and thus monthly interest payment was significantly reduced;
  from now on the company will be able to repay the principal loan amount once a year when the crops will be sold.
  Thus the loan repayment schedule is aligned with the company’s cash flow. For the time being the company has no overdue payments.
  The company has taken guarantees from the Agricultural Fund as additional collateral.

  The case of this company shows that financial troubles may be solved also in cases when they are experienced in all areas: relations with suppliers, the bank and the State Revenue Service. However, it is feasible only if negotiations are started with the interested parties and a solution is found in due time. The sooner you do it, the better results will be.

How to tackle loan repayment difficulties?

Getting in touch with the bank as soon as possible is most crucial!

• Call a Swedbank branch of your choice and arrange a meeting with the bank official, who manages your company's loan at the bank, or the branch manager to have your terms of finance reviewed.
• Consultation with the bank official, who manages your company’s loan at the bank, is free of charge.
• Change of terms of loan will cause a smaller increase in the margin rate if you approach the bank early than in case loan payments fall overdue and bank's official is force to initiate restructuring of loan obligations.
• It should be taken into account that reviewing each customer’s case according to the bank's decision-making procedure may take more time than expected (up to three weeks and in some cases even more).

Why should the bank be contacted?

• The bank manager will recommend the most suitable solution for overcoming solvency difficulties depending on your company’s actual cash flow, the value of loan collateral and other conditions - with a view to easing your company’s cash flow and supporting loan repayments in the long-term.
• The bank manager will tell you about Swedbank's principles of pricing for lending and about potential change in interest rates in connection with revised terms of finance.

What does restructuring of loan obligations mean?

• The restructuring of loan obligations means changes in loan repayment terms, as initiated by you and approved with the bank manager (such as extension of loan repayment period, postponement of loan payments, granting of additional finance, transforming short-term obligations into long-term obligations, additional finance for covering overdues or for future interest payments, and other measures), so as to improve the company's solvency.

Swedbank currently offers the following solutions:

• Postponement of principal repayments;
• Extension of repayment period;
• Change of schedule (annuity / amortization or special schedule change when repayment is seasonal or transaction based);
• Granting of additional finance, transforming short-term obligations into long-term obligations;
• Refinancing of obligations;
• Provision of additional collateral and/or combining of contracts;
• Selling off unprofitable assets;
• Transferring obligations from company to individual (in small-sized enterprise segment);
• Bank's cooperation in attraction of investors or sale of companies / projects.

What will be the interest rate on the loan after restructuring?

• Although the price of money has surged several times, Swedbank, being a socially responsible company, is in such cases ready to absorb some of the costs.
• The maximum loan rates are fixed on transactions with business customers, according to which loans, that meet the bank’s loan approval procedure requirements, are priced.
• The bank shows goodwill to companies, where possible agreeing on such a combined interest rate that would allow keeping the total monthly payment at the level of previous periods (especially EUR loans, which forms the majority of loans).
• Every solution is tailor-made to befit every specific case and in all events focusing on preserving customer’s financial strength in the long-term.

How will the company benefit from restructuring loan obligations?

• Continued business operations
• Positive credit history
• The goal is that every loan restructuring case should lead to smaller monthly loan payments during restructuring period.
• Repayment schedule, final repayment date and proportionate interest payments appropriate for the company’s existing and reasonably expected cash flow.

What documents are to be presented to the bank to start dealing with problems to maintain loan payments?

• It is important to get in touch with the bank official, who manages your company’s loan at the bank, to find out what is necessary in your specific case of loan obligations restructuring.

Key documents:

• Financial documents (balance sheet, P/L statement for the previous financial year and the current year’s operating financial data).
• Cash flow statement.
• Other documents, which are essential in re-assessing the company’s creditworthiness (e.g. the company’s cooperation agreements, collateral documents).

Who will explain the decision taken?

• All questions about the decisions made should be directed to the bank officer who manages your company’s loan.

With our customer in mind and in order to find the best solution whatever the situation, we welcome our corporate clients to e-mail their suggestions or complaints to kreditrisinajumi@swedbank.lv or call 67444444. If you wish to receive a detailed reply on what are the options in dealing with your particular situation, please send your application via Swedbank Business Internet Banking.