If you are a small business owner and your business is finding it very difficult to meet its obligations, it is time for a debt relief. Not knowing how to go about it, you may be looking for some advice and suggestions on debt relief. Remember, you are not alone who is facing such a situation as each year there are thousands of small business owners in America alone who find themselves in a dire financial strait.
The good news is that quite a few of these small business owners do survive and come out of this situation. In most cases they become more frugal and slimmer by using one or more methods of small business debt relief.
Therefore, be wise and take out some time to consider all the available options before you throw in the towel and make finally make the declaration for a Chapter 7 bankruptcy. This will surely put an end to your dreams and put your company out of business.
Small business debt consolidation loans
If you are a starter it is good for you to know that there are a large number of lenders who are ready to offer you large debt consolidation loans so that you can easily and effectively manage the clients of your struggling small business.
If you consider the debt settlement ratings and compare it with debt consolidation reviews and feedback you will find that it is better to go for a larger debt consolidation loan that get it settled for a lower amount. Most of the small business owners find it more feasible, reasonable and productive as debt consolidation does not reduce the loan amount but the number of loans only.
- These loans typically offered at a much lower rate of interest and for a longer time provide them the desired relief from debt stress. They reduce their monthly payments and can pay it for a longer time giving them ample scope to focus on their business more and run it in a better way.
- They now have to keep a track of one single loan instead of several different monthly bills with different payment amounts and due dates. That means you will have the chances of missing any payments and thereby fetching additional fees and penalties to your loan amount eliminated.
- You can take out small business debt consolidation loans in different forms though most of the times it comes as an unsecured personal loans. However, you can even opt for a secured loan that comes with collateral or a home equity loan provided you have the risk of losing your property due to non-payment considered and well covered.
- If your business meets the specific criteria, it may qualify for such a debt consolidation loan from a nonprofit lender. These types of loans will have a much lower rate of interest as compared to those loans taken for their privately issued counterparts making these loans much more affordable.
- If you do not qualify or cannot find a nonprofit debt consolidation loan you can also take it out from a private market. For this however, you will have to put up some of your business assets as collateral for the loan which will further lower the rate of interest.
As for the downside to a business debt consolidation loan, it may take as long as five or more years to repay it in full. During this time it will continue to accrue interest mostly at an above prime rate which will limit the amount of savings. If you do not have considerable additional revenue, you may have to opt for more drastic debt relief alternatives for your business.
Small business bankruptcy
For debt relief you may also decide to declare bankruptcy. Unfortunately, more than thousands of small business owners are compelled to declare bankruptcy every year although it is potentially costly option.
There are typically two common forms of bankruptcy reorganization available to small business owners:
- Chapter 11 and
- Chapter 13 bankruptcy.
These are also known as “restructuring,” as it enable the small business proprietors to renegotiate the terms and conditions of a few of their credit cards or unsecured loans.
Both these forms have the potential to damage your credit score severely but these methods of debt reorganization are especially designed to help the small business owners to avoid the worst case scenario when they are forced to declare Chapter 7 bankruptcy.
In most of the cases you will see that most businesses declare Chapter 11 bankruptcy. On the other hand the Chapter 13 declaration is usually the option followed by those business owners who carry a large amount of unsecured debts.
Chapter 13 filings are also available to sole proprietors according to Chapter 13 of the US Bankruptcy Code. There is a strict debt limit for filing Chapter 13 bankruptcy. You cannot file this until and unless you have $1.4 million in total debt. If it is less even by the minimum amount irrespective of secured or unsecured debts, you will have to file bankruptcy under Chapter 11.
However, both the processes of bankruptcy will produce similar results. After you declare bankruptcy, the judge presiding over your case will work with you as well as your creditors to design a new plan for repaying the debts. You will have to make the initial proposal for such a plan and it is recorded the negotiation process will begin.
If you have a large business then you may have to selloff a few non-core assets such as extra equipment or some storefront location that seldom find buyers to pay off the secured debts. As a process of such bankruptcy reorganization your business will be smaller and leaner.
The judge may also work out a new repayment plan when it comes to dealing with the unsecured creditors. Under the order of the judge the creditors may agree to lower the balances outstanding or lengthen the repayment term.
These moves will ease off the pressure from your business finances and will provide a chance to boost sales keeping your businesses doors open.
Latest posts by Kelly Wilson (see all)
- Small Business Debt Consolidation May Be Better Than Debt Settlement - February 13, 2019