Any plan presented to your bank must be reasonable and supported by the facts on current market conditions and land and house values.
Finally, make sure you also review your personal planning to determine if your personal assets are protected, particularly if you have recourse loans.
Tink You Can’t Fix Your Balance Sheet? Read On.
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If your loans are non-recourse, your assets are over-valued and your bank won’t reprice your loan, consider turning the assets back over to the bank.
If your debt is recourse, the bank won’t reprice your loan and your personal assets are protected, it’s time to consider a possible Chapter 11 strategy. While Chapter 11 is a last resort, the threat of bankruptcy just may get your bank to negotiate with you.
In any case, you should put a plan in place that has honestly analyzed every element of your business with the help of legal counsel and financial advisors who can help assure that your family and personal assets are protected.
Above All, Conserve Your Cash
If you are putting your own cash into your business — stop immediately until you’ve fixed your balance sheet.
Conserve your cash while you are negotiating with your banks. It will be critical to you and your business until construction financing becomes more readily available.
You will need it to fund your business in the future or to take advantage of new opportunities that might arise. The cash you hold today will give you leverage in your bank negotiations and the flexibility to pursue several different strategies.
It will enable you to wind down your business if you can’t structure an alternative agreement and business strategy with your lenders, and it will provide you with the flexibility to re-enter the business when conditions improve.
Conserve your cash because it’s your best survival tool. If you use it all now, essentially funding a business that’s no longer competitive, you will never get it back.
So, before you do anything else, fix your balance sheet to determine how viable and competitive your business is and can be in the future. If you don’t fix it now, you won’t be able to attract new capital — equity and debt capital will only be available to builders with new opportunities or old projects that have been re-priced to the market.
If you don’t fix your balance sheet now, you won’t be in busi- ness when the housing market improves.
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