Workout

Definition

A renegotiated loan agreed with the lender instead of a default.

Why It Matters

It is what actually happens first when a business cannot make its payments, and almost nobody looks it up until they need it. A lender's alternative to a workout is a liquidation that recovers less, so the conversation is more available than it feels: deferred principal, a longer term, or interest-only for a stretch. What decides it is being early and being honest, because a lender who learns from a missed payment has fewer options than one who heard about the problem a quarter ahead.

In numbers: Six interest-only months on a $1M loan at 10.5% frees about $28,500 of cash, which is often the difference between a rough year and a default.