Excessive business debt can be incurred for many different reasons including expansion, unexpected large expenses, or even poor management, and different causes sometimes require different courses of action. Creditor negotiation, debt consolidation loans, and liquidation and restructuring are four of the most common options for business debt relief.
Many small business owners hold off on seeking assistance longer than they should, because they fear loosing control of their finances or appearing week to the competition. They also don't want to highlight to there current financers in fear of existing funding agreements being pulled from the business. However, unmanageable debt eventually will lead to intense pressure from debt collectors and potentially to lawsuits, so it is important to take action early. The earlier the manager makes the call for help usually the better the result.
Creditor Negotiation
Company finances are so complex and varied, that it often takes a Corporate Executive to be able to sort through information to determine the primary causes of debt, and then offer a range of soultions.
Creditor Negotiation combines business debt help with debt settlement, so Corporate Executives (CE) help both to discern problems and educate business owners, and to take action to rectify the current situation. The CE's goal is to increase revenue by determining the problem areas that are increasing a business's debt, and often by re-allocating funds to different parts of the business.
The CE will suggest to business owners how finances can be handled differently to improve the situation, perhaps through the incorporation of external investors or debt consolidation loans. This part of the process usually is completed within just a few days or short weeks
The CE then negotiates with individual creditors to try to settle a companies debts for a reasonable sum. It is not in creditors' best interests for a debtor to place the company into External Administration, so often they will agree to settle your debt for payment that is less than full balance.
Your CE alternatively may negotiate the terms and interest rates of your loans, or may develop a realistic payment plan with creditors. As an added bonus, your CE will become the point of contact for your creditors instead of you. This saves time dealing with harassing creditors and usually enables the business owner more time to focus on getting the business back on track.
Debt Consolidation Loans
A business debt consolidation loan is a single loan that is taken out to pay off all other loans. Rather than having to manage payments to many different creditors each month, businesses only have to pay one creditor with a debt consolidation loan. In most cases businesses can often lower their on going finance costs by consolidating.
Obtaining a debt consolidation loan for a business is significantly more difficult than obtaining one for an individual. Because business debt consolidation loans likely will cover large amounts of debt, such loans are very risky for lenders.
Businesses are created for the sole purpose of creating revenue, so if revenue is not enough to cover costs, then lenders would like to know the reasons for this before they dispense money. Having appointed a Corporate Advisor will usually increase the chance of getting finance and reduce the risks of the lender knowing that someone with experience in these matters is assisting the company get back on track.
Some reasons are considered understandable, like if your company incurred a large expense for which you were not planning. Other reasons, however, such as poor management, may indicate a situation with which lenders will not want to be involved.
There are both secured and unsecured debt consolidation loans for businesses. Unsecured loans, or those that do not require any property to be put up as security, may be obtained only for small debts. These are very difficult to obtain, and always come with high interest rates. Debtor finance or Inventory finance is usually the best alternative to obtain funds with our a property being used as security.
Secured loans require that a valuable piece of property, such as a home, be attached to the agreement. In the event that your business fails to repay the loan, the property will be seized for payment. Consequently, these are easier to obtain and at better interest rates. Bear in mind however any Business Finance obtained will contain a personal guarantee. This will be used to recover debts owed and although you believe your property is not taken as security, the bank can enforce a personal guarantee and this can still result in a loss of personal property.
Administration/Liquidation
In the event that your business becomes truly unable to repay its debts as an when they fall due, and if commercial creditor negotiation and debt consolidation loans have not been helpful to you, then you might consider placing the company into Administration.
By law Administrators and Liquidators must work for creditors to obtain the best possible return for those creditors in the event of a business closing it's doors. However a Corporate Executive works solely for the small business owner. If Administration is unavoidable a Corporate Executive can assist the director propose a Deed of Company Arrangment. This binds all creditors to the deed and usually allows the business to continue as well as obtaining the best result for creditors. With a proper Deed proposal finance can also be obtained for the business if it can be shown that this will lower debt and give the business a fighting chance. This area is very complicated and a Corporate Executive that specliases in insolvency showed be contact to assist the business though this last resort alternative.
Conclusion
When it comes to managing business debt, carefully consider your options and your financial future. Creditor negotiation can be a great way to get back on the right track, and debt consolidation loans also can be useful in many situations. If all else fails, Administration is an option that can give you a fresh financial start, but certainly it is in your best interest to avoid such action if possible.
Lucas McEntee is the Managing Director of Quest Corporate Services. A Corporate Advisory firm that specialises in Debt Consolidation loans, Creditor Negotiation, Short term business loans, Factoring and Invoice discounting.
We can be contact on 1300 311 411 or info@questcorp.com.au www.questcorp.com.au
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