Loan Workout Agreement

Last Updated: Jun 7, 2019

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A mutual agreement between a lender and borrower to renegotiate terms on a loan that is technically in default. This agreement can take many forms such as a modification or a forbearance agreement. The main purpose is to work out a mutual set of terms to avoid foreclosure or liquidation and provide continued financing for a period of time. The renegotiated terms should provide new covenants to be measured in order to benchmark the borrower's performance. In exchange for the lender to agree to these concessions in either structure, term or pricing, there must be legal consideration (i.e. typically a modification fee).