Small businesses are reopening after a year of shutdowns and lost business. But creditors may also be engaged in debt collection from these businesses. Several measures can help pay off debt before small business undergo lawsuits or take business law actions.
Business can seek commercial debt counseling for debt elimination and avoiding bankruptcy. Certified counselors review the business’ financial situation and create an affordable debt repayment plan.
Taking money from a business or personal emergency account can help eliminate debt and boost a business’ credit rating after the debt is paid off. But taking money from a personal savings account may be insufficient to pay off overwhelming commercial debt.
A debt consolidation loan is another borrowing option. Qualifying for a commercial debt consolidation is more difficult than getting a personal debt consolidation loan because a much larger amount is needed for the business organization. A commercial budget needs to be submitted to assure the lender that the business will rebound, and the loan will be timely repaid. Lenders may agree to loans with lower interest rates and payment consolidation into a single monthly obligation.
Sometimes you may be able to negotiate with your creditors to lower the outstanding balance and make it easier to pay off. A professional debt arbitrator can also lower the balance to a more reasonable amount.
Reliable debt settlement companies have convinced creditors to reduce business debt by 40 to 60 percent. The business must pay off the agreed-upon amount in a lump sum payment, however. Creditors are more willing to agree to these proposals if they believe the business will undergo bankruptcy which can lead to greater creditor losses after the debtor business pays off secured loans.
This may be the time to reexamine the business budget. Allot part of the budget to variable expenses such as manufacturing materials. Watch where money is being spent.
Likewise, lower your costs. Saved money may be used to pay off debt and raise your credit rating. Consider selling off underused equipment.
Paying off high-interest debt
Your clients and customers should be held accountable for any money owed to your business. Increased collection efforts of delinquent accounts can raise funds for paying off high-interest debt.
Do not transfer company assets
Transferring company assets to friends and family members to keep them hidden from creditors and lenders is not an option. Lenders are prepared to trace transactions and retrieve property. Illegitimate transfers can lead to civil or even criminal actions.
Bankruptcy or sale
If everything else does not work, it may be necessary to sell the business, liquidate its assets, and file for bankruptcy. There may be times that bankruptcy is not an option, and the business should be sold.
Before declaring bankruptcy, renew your insurance contract because many carriers are reluctant to provide insurance for firms that file for Chapter 11 or Chapter 13 bankruptcies. If your insured business continues to make regular payments, the carrier cannot cancel its policy.
Starting up a small business requires loans and keeping it established requires financing. This can lead to further debt which may grow during shutdowns and lower consumer activity. Cutting down business costs can help reduce funding and save money which can be used to pay off debt. Attorneys can also provide legal options to help protect your business.