Step by Step
Tips to consider before approaching a lender about working out debt:
Be proactive. Banks want to know when they are going to be paid and how much. It’s up to builders to come up with solutions that don’t make the banks worse off.
Be realistic. Banks want builders to present them with a believable plan supported by detailed financial data. The credibility of such a plan could hinge on how convinced the banks are that the builder will be around long enough to execute it.
Cash is king. Generating cash flow should be your main objective, and a loan modification could include handing the bulk of any proceeds from home sales over to your lender. Even when banks allow builders to forgo interest payments on debt for a while, they want evidence that the builder is willing to tap other cash sources, including unencumbered personal assets.
Find new financial partners. Banks often want builders in workout situations to drum up buyers for land and finished lots that collateralize their debt or investors to fund new construction. Private equity money is out there, but it’s not cheap, and might require the builder to give up operational control or ownership.
Think long term. Business conditions might not recover for years, so builders might need to mothball certain projects, or even their entire operations, for a while. But they’ll need to convince lenders that providing financing and waiting are in their best interests.