Small businesses encounter the biggest challenge for survival during the first five years. It is during this period that almost 50 percent of small business has to close shops. This startling fact has been revealed by none other than Small Business Association or SBA. The reasons for failure are many – from too much debt to insufficient capital and even poor credit arrangements are to be blamed. Borrowing seems good to the extent that you are capable of paying back the loans. But if you ever find it difficult to pay back, it can have disastrous effect on business which can even be driven to the point of liquidation. However, before such eventuality happens, know about the possible financial restructuring that can be done by taking a fresh loan. How it can be done and how it will help business to turn around has been discussed in this article.
Deal with a single lender
For businesses it is common to have several lenders who have to be serviced concurrently. All lenders have to be paid back every month on specified dates and you just can’t afford to miss it. But the ground realities could be different. Making payments on different dates throughout the month can be quite taxing and keeping track of multiple loan accounts can be a hard task. Problems faced in managing so many loan accounts can result is a few missed payments.
To avoid such problems in managing multiple lenders, taking debt consolidation loans is a feasible solution that is widely accepted. A single big loan is taken to replace all other loans that are paid off so that the goal of dealing with a single lender is achieved. This would not only provide better scope to manage finances, the step can save the business from peril.
Why it is better than other options?
Exercising the option of debt consolidation is a positive way to combat financial problems without having to put the business at stake. Any other measures that might be taken can have a negative impact on the future of business.
- The liquidation route – When you are unable to pay back lenders, you might think about liquidating assets to fetch the money for repayment. Selling off the business assets would mean that the business gets crippled with no way of recovering from it. In this method, you can negotiate with all lenders and make them agree to use the money obtained from selling the assets to be distributed among them. Although the lenders might not be paid back in full, they feel that something is better than nothing.
- Filing for bankruptcy – Filing for bankruptcy means that the business assets are turned over to bankruptcy trustees who arrange for selling the assets and paying back to the lenders. Besides the business assets, filing for bankruptcy would mean that all other assets belonging to the owner can be attached for paying back loans.
Along with consolidation, take customers and suppliers into confidence and cut costs to make the business turnaround.
Homerun Nievera is the publisher of Negosentro.com and WorldExecutivesDigest.com. He has interests in several tech and digital businesses as director and chief strategist.