"Forbearance Agreement" - a case study
Posted by Bill McDermott on Fri, Jan 06, 2012 @ 08:22 AM
“Forbearance Agreement” is an intimidating phrase to most business owners. It conjures up all types of feelings that bank is going to liquidate your business, you’ve lost control and you feel very vulnerable. However, it doesn’t have to. Here’s a case study of how a company stayed in a forbearance agreement for 18 months and has a game plan for success to move forward.
1) First, the company broke two loan covenants which brought both parties to the table. The line of credit and mortgage loans had cross collateralize and cross default provisions.
2) The company had multiple locations and an analysis of each location indicated that several had to be closed to get to a core profitable operation. Our bank presentation included a step by step process of how we were going to shrink the operation, liquidate inventory of the closed stores and sell off the real estate of the locations we were closing.
3) The process of closing multiple locations and transferring assets to other stores took about a year. In the meantime, the bank insisted on monthly financial reporting and field audits to insure that the level of receivables and inventory adequately protected them. Unfortunately, this was costly to my client.
4) Selling real estate in a down market can be a frustrating process. However, we successfully negotiated short sales for the locations with the help of a real estate agent and the bank.
5) By closing locations, we successfully reduced expenses and created a core operation that was profitable. The reduced debt level dramatically improved our break even point and we reduced inventory by about 60% during the 18 month period
6) We are in the process of finding a bank that can take out our existing debt with the bank and get out from under the forbearance agreement.
If you have a forbearance agreement and don’t see a way out, contact us today for a free 1 hour consult.
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