The Business Counselor Blog™

Model Form of Forbearance Agreement

In my last post I provided a report that discussed the issues that arise when negotiating and finalizing a forbearance agreement.  This week I've attached a model form of forbearance agreement  that can be used as a reference for these types of arrangements.  The summary to the form highlights the key issues that need to be considered in the drafting process including the length of the forbearance, modifications to the underlying credit arrangements and covenants from the borrower as to actions it will take during the forbearance period to keep the lender informed and cure the causes of the default that led to the agreement in the first place.

Forbearance Agreements

While the parties to any credit arrangement certainly anticipate that the borrower will fulfill its obligations with respect to timely repayment of amounts borrowed under the credit agreement and compliance with the various covenents and conditions included in the credit agreement it is not uncommon for problems to arise during the course of the relationship that lead to the borrower being in default.  At that point the the lender can obviously exercise its rights and remedies under the law including foreclosure and other legal actions; however, another alternative is for the lender to refrain, or forbear, from exercising its rights for a specified period of time to allow the borrower to fix any problems that may have led to the default.  The attached  report discusses the issues that arise when negotiating and finalizing a forbearance agreement.  In my next post I'll provide a model form of forbearance agreement.