Forbearance
A temporary agreement between a lender and borrower to modify or suspend certain loan terms, typically during financial distress. Forbearance may include temporary payment reductions, suspension of principal payments, waiver of covenant defaults, or extension of maturity dates. It is a workout tool that allows borrowers to stabilize operations without triggering foreclosure. Forbearance agreements are negotiated and typically require the borrower to demonstrate a credible path to resuming normal loan terms.
Related Terms
Loan Covenant
A condition or requirement written into a loan agreement that the borrower must maintain throughout the loan term. Financial covenants may require minimum DSCR, maximum LTV, or minimum net worth. Operational covenants may govern property maintenance, insurance requirements, or leasing activity. Violation of a covenant can trigger a default, accelerate the loan, or restrict distributions to equity. Borrowers negotiate covenant thresholds during loan origination to ensure adequate operating flexibility.
Balloon Payment
The remaining principal balance due at the end of a loan term that has not fully amortized. Most commercial real estate loans have 5-10 year terms with 25-30 year amortization schedules, resulting in a large balloon payment at maturity. Borrowers typically refinance or sell the property to pay off the balloon.
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