A standstill or forbearance agreement is a legally binding contract between a lender and a borrower that allows the borrower to delay or temporarily suspend payment of their debts or obligations. This type of agreement is typically used when a borrower is experiencing financial difficulties and is struggling to make payments on their loans.
The purpose of a standstill or forbearance agreement is to provide the borrower with some relief while they work to get their finances back on track. By delaying or suspending payments, the borrower can focus on improving their financial situation without the added pressure of debt repayment.
In exchange for the temporary relief provided by the standstill or forbearance agreement, the borrower typically agrees to certain conditions, such as continuing to make interest payments, providing financial statements or other information, and/or agreeing to restrictions on their ability to borrow additional funds.
There are different types of standstill or forbearance agreements, each designed to address different types of financial situations. For example, a borrower who is experiencing short-term financial difficulties may enter into a standstill agreement that allows them to delay payments for a specific period of time. On the other hand, a borrower who is facing more severe financial problems may enter into a forbearance agreement that allows them to temporarily suspend all payments while they work to restructure their debts.
One of the key benefits of a standstill or forbearance agreement is that it allows the lender to avoid the costly process of pursuing legal action to recover their money. By working with the borrower to find a temporary solution, the lender can save time and money while still ensuring that they will eventually be repaid.
Finally, it`s important to note that a standstill or forbearance agreement is not a long-term solution to financial problems. While it can provide temporary relief, the borrower will eventually need to come up with a plan to repay their debts in full. For this reason, it`s important for borrowers to work closely with their lenders to find a solution that works for everyone involved.