Always Use Protection! In Business Finance
“We might be able to arrange arrangements for your repayment. Can you bring at least one payment by Friday?” In a two-sentence discussion with the borrower, the employee serving your loan may have just planted the borrower’s litigation seed.
“They said they would work with me.” If you institutionalize the foreclosure action later, the borrower can state that they are “in negotiations” with your company to prepare a payment plan. Such claims can lead to other arguments in muddy areas that seize collateral.
From the borrower’s point of view, when does the loan officer’s actions cross the line between normal daily communication and the actual agreement to modify the loan agreement or delay the collection action? The answer to this question can be very subjective.
What is the solution?
Enter – Pre-Exercise Agreement.
With the Pre-Training Agreement, the borrower and lender agree that there is no training agreement, there is no postponement of billing actions by the lender / service provider, and there is no modification of the terms of the loan agreement or lenders’ rights, unless the agreement is made in writing and implemented by all parties.
Actually, the term “Protocol Agreement” should be used, rather than “Pre-Training Agreement.” It might be wise to avoid using the term exercise altogether. Their use, either orally or in writing, can enable borrowers to claim that they rely on representation that some arrangements or modifications will be made.
WHEN and HOW to use the “protocol” agreement:
Strengths of Procedure:
Where the borrower has entered into a protocol agreement, you have a clear protection element. But what about bad borrowers who haven’t, or won’t, implement a protocol agreement?
In this complex field, which is clearly stated, written procedures and protocol letters can help avoid misunderstandings and reduce responsibility.
Procedure:
Written policies and procedures …
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