Business Failure: Dealing with Loans

When your company is closing, you will have to resolve the business failure across many different areas. Some businesses will have leases on office space or equipment to resolve. Other businesses will have expenses related to laying off a number of workers. Across the board, most businesses will have outstanding loans that need to be resolved in order to move forward with dissolving the business entirely.

Business Liquidation

The fastest way for most businesses to pay off loans is to move through the liquidation process. Court-ordered liquidation is not necessary for a business to begin selling off assets and paying off loans. You may believe you do not have a large asset base to liquidate if you are not a company with heavy machinery or property holdings. However, you should consider every single asset the business owns as a potential source of revenues. Computers and other electronics will tend to be high-ticket items. You can also sell assets like desks, cubicle partitions and other office furniture. If you are creative, you may find you even have outstanding subscriptions with business services or newspapers that you can sell for a small amount of cash. Remember: liquidation is not about making a profit on your assets. The main goal of liquidation is to get enough cash to keep yourself from loan default or bankruptcy. 

Debt Modification

Notifying your lenders that your business is closing will lead to a heightened sense of urgency for them to receive payment on any outstanding debt. Most lenders will not want the loans to go into default or for you to declare bankruptcy. Bankruptcy means they will have to wait longer to be paid off, and they will likely get less as a result of a bankruptcy than if they negotiate with you independently. Start immediately in speaking with a debt management agency or lawyer to settle your outstanding debt. You may be able to reduce it to a portion of what you currently owe. 

Business Bankruptcy

If you cannot effectively come up with the cash to settle your debt or if the lenders will not work with you to settle the debt, you may have no choice but to enter business bankruptcy. Bankruptcy, while it is scary for most borrowers, will put into place many legal protections that will help you positively resolve your outstanding debts. If you have set up your business properly from the start, your personal assets will be protected when your business enters bankruptcy. This means your credit score will not decrease and your assets cannot be seized to pay off your business lenders. Bankruptcy is the last choice for most borrowers, but it is the best way to get a clean slate and move forward if other options have been expended.