A company can accrue liabilities if it trades as a sole proprietorship, partnership, or corporation and depending on the nature of the vehicle that it trades as, personal assets may be at risk if the company is unable to meet a payment on debt.
Furthermore, creditors have written recourses available to them if the company can’t pay its debts because they are written in contracts. Therefore, priority has got to be given to some debt over others.
Negotiate with Your Creditors
Creditors will often be open to negotiating with you if they haven’t already sold your debt to collection agencies. One big advantage of this strategy is your ability to settle your debts for less than you owe, potentially limiting your liability as a business.
However, you must remember that, if you do not make your payments in time, your creditors can seize your personal property, putting you in bankruptcy or going after your business in court to collect the loan debt, fees and interest, which you agreed to in your loan paperwork.
If you do negotiate with your creditors, keep a copy of all communications and arrangement documents to make sure they belong to you. When you finish payments according to the settlement agreement, ask creditors to confirm on your credit report that you have settled the debt.
Refer the Debt to a Lawyer or Collection Agency
While it’s safest to never commingle your business and personal expenses, not paying your company debt is sometimes a terribly bad idea for you personally. Depending on the business structure – a sole proprietorship, a partnership, or a limited liability corporation, you could be personally liable for your company’s debt, as well as having personally guaranteed your company’s debt in merchant cash advance (MCA) or some other kinds of loans and credit.
If you stop paying, the creditor may sell the debt to a collection agency or a third-party debt buyer. If you get a phone call or letter from anyone who claims to be a debt collector, make the company prove to you in writing that you actually owe the debt. By law, debt collectors are obligated to provide validation information in the initial communication or within five days of your written request.
A bankruptcy lawyer will examine your debts and suggest a course of action to get them paid off and preserve your credit rating.
Consolidate Your Debts
This can streamline your payments (into one or a few smaller payments) and help you pay off your debt quicker – it could even boost your credit score if you make all your new payments on time. But debt consolidation should be a measure of last resort.
The first step to debt consolidation is working out how much you owe. Add up the payoff balances on each of your debts. Then, using a business loan calculator, you can work out how much of a new loan you would be able to afford.
The way to do that is to take out another loan with better rums than the older loans, lower interest charges and no penalties and finally to pay back the debt.Most people who have fallen into a mountain of business debt have cancelled credit cards. If you have bad credit, you will likely not qualify for balance transfer or any type of debt consolidation.
Refinance Your Debts
However, several lenders on our list, such as Main Street and ION, provide business debt refinancing, which enables you to replace your old loan with a new one. This can be a great option if you run a certain type of business, as it can help you reduce your interest rates and save money over time.
Sure, you won’t put in an application through truthy.com if you haven’t committed some minor fraud on your taxes, but no one said you’d run a perfect business and always pay on company loans when they come due. Your personal and business credit score and reputation will likely suffer if you default on amounts you owe, especially if you face a confession of judgment and lose your assets.
Additionally, refinancing the debt gives you an opportunity to take advantage of lower interest rates and reduce your monthly payments, giving you some extra cash every month with which to bolster your business. Sometimes lower interest rates are available but, more often than not, you’ll be paying much more over the course of the loan.
Outsource Your Debt Problems
Creating a plan, such as a debt-repayment schedule, with estimated monthly payments (or defined only on crucial dates) can help you see what has been paid, and prioritise your business needs. Various specialised programmes can help you with this, but even a spreadsheet is a good solution.
Work out how to tackle each debt based on interest rates, penalties and payment terms; discuss collateral (such as an inventory or a company car) that you can lose to creditors if you don’t pay.
When times get grim, you need to look for expenses you can trim in your business – perhaps a professional membership you rarely use, or a periodical, or even a newspaper, whose price has likely increased since you originally started getting it. You might also ask for payment deferral from a vendor or be reduced to a lower interest rate. With customers that haven’t paid their invoices, it’s time to start monitoring their payment history closely, and encourage them to pay sooner.