According to the U.S.
Small Business Administration (SBA), roughly 50
percent of small businesses fail within their first five
years, largely because of insufficient capital, poor credit arrangements and
too much debt.
Save the Business
- Cut Costs - If you cannot bail out your business with private funds, you need to identify areas where you can reduce costs.
- Contact Customers and Suppliers - Stay connected with your customers and You should also contact your suppliers to arrange discounts and/or deferred payments.
- Contact Creditors - Contact every creditor and request that your lenders work with you to lower interest rates or restructure your repayment options.
- Consolidate Loans - You can consolidate your business loans into one payment, which may reduce monthly costs without negatively affecting your credit.
- Bankruptcy - Bankruptcy is an expensive and complex process, requiring the services of an experienced bankruptcy attorney, but it may be an option for reducing your business debt burden.
Allow the Business to Fail
- Sell the Business - Dealing with one buyer is usually easier than selling off assets, and a sale may free you from future obligations, once you have repaid your creditors.
- Liquidate Assets - Your next option would be to liquidate the business and negotiate with your creditors for the distribution of its assets.
- Bankruptcy – Turning over the business to the bankruptcy trustee who will sell its assets, go after any outstanding accounts receivable, pay owed taxes, and distribute any remaining funds to creditors.
Business debt can be a serious problem especially
when the whole problem of cash flowing still happens. A professional advice
from this matter is highly needed to see the problem from different point of
view and bring out the best solution to end the problem immediately. Business
debt problem need to be taken care professionally and there is nothing better
than to take professional business debt advice.
However,there are
some specific tasks you can do on a regular basis to deal with business debt:
- Step 1 - Document every accounts payable item in your entire business
- Step 2 - Tally all accounts receivable and monthly fixed income.
- Step 3 - Build an emergency fund that will prevent a sudden need of credit.
- Step 4 - Evaluate the balances on your credit cards.
- “Dave Ramsey, renowned budget guru, recommends paying the lowest balances first, regardless of APR. He says finance is "20 percent head knowledge and 80 percent behavior." This starts what is called a "debt snowball."
- Step 5 - Contact every creditor advising them that you are reevaluating your business debt and attempt to negotiate your APR and minimum payments.
- Step 6 - Close accounts as you pay them off to avoid using them again.
- Step 7 - Consult with your attorney and study your legal rights under the Fair Debt Collection Practices Act if you are being harassed over past due debt.
- Step 8 - Consider bankruptcy as an absolutely last resort as it will likely close your business or greatly hinder its operation.
Another Business Debt Solutions, Different Solutions for Different Situation
from Jameson Smith & Co:
- Company Voluntary Arrangement (CVA). This is a solution where the company takes voluntary action to bind themselves with legal payment plant with the company’s creditor. It work by creating payment plan that match the company cash flow for the next five years. Pre pack administration and pre pack liquidation. This is a solution where the company arrange to have future buyer that will buy the profitable aspect and the company can work on the debts later
- Creditors Voluntary Liquidation. This is the kind of solution where people choose to close down their company even without the permission from the creditors.
- Administration. This is basically work in the administration area where people put their effort on buy some time to arrange some rescue strategy or working on fast liquidation where the money can be used to pay the debts.
Another useful story:
Dykema attorney,
Brian R. Forbes, a member in the Firm’s Dallas office, was recently interviewed
by Smart Business Dallas for the publication’s October 2012 article,
“Distressed debt: How business owners can deal with having their debt sold to a
third party.
Forbes says that a
third party purchaser of distressed debt “often has a different objective than
the original lender,” and as a result is “seeking to maximize their investment
returns in a short time frame.” The article suggests that this situation may provide
opportunities for a borrower to negotiate more favorable loan terms,
particularly since the debt was likely purchased at a discount.
Forbes goes on to
discuss what to expect if a third-party buyer purchases a company’s debt,
stating that the borrower should “anticipate that the new lender will be
proactive in exercising its remedies under the loan documents in order to
resolve the credit…” He continues by highlighting some of the best-case
outcomes for a borrower in such a situation. To conclude, Forbes advises that
it is important for borrowers to retain an expert immediately to help evaluate
and determine the best resolution options.
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