In some situations a bit of creativity will be needed to facilitate a turnaround and get your company back to operating in a profitable manner. However, more often than not you won’t need to be an innovator to save your business, you’ll just need to consider some of the commonly overlooked recovery and restructuring options that are applicable and readily available:
1. Using Assets as Leverage to Obtain Financing
Even if you have poor credit you may be able to obtain financial assistance by using some of your assets (i.e. – equipment, inventory, real estate, etc.) as collateral in obtaining approval for a secured loan. However if you were to default on such an agreement then the lender would potentially have the right to seize the assets you used as a security, so keep that in mind before you put your home on the line.
Another way you can use your assets as collateral is to sell your unpaid invoices to an invoice discounting or factoring company. This would allow you to convert some of the future payments from your clients into cash advances that you could either access as a line of credit or a lump sum of cash.
2. Negotiating Revised Repayment Terms with a Company Voluntary Arrangement (CVA)
Sometimes all that is needed to escape debt is relief from the continuous pressure of having to make repayments to multiple creditors every month and keep up with the seemingly endless interest charges that pile up.
A company voluntary arrangement is a formal agreement between your business and its creditors known as a CVA that can reduce the minimum amount you have to pay every month and centralize all of your monthly repayments into a single commitment. A CVA can also help you revise employee or supplier contracts in order to reduce overhead costs and payroll expenditure.
A CVA is drafted and proposed by a licensed insolvency practitioner (IP) and if approved by the majority of your creditors it becomes binding on all creditors involved. As long as you adhere to the terms of the CVA then you won’t have to worry about being taken to court or put out of business by a disgruntled creditor.
3. Centralizing Debt Repayments with a Debt Consolidation Loan
To obtain a debt consolidation loan you sign over your debts to as single lender who then repays your creditor and in turn collects a single monthly payment from you every month. This eliminates the burden of having to repay multiple creditors and makes managing your debts much easier.
In addition, debt consolidation service providers will usually offer free advice on matters related to business debt management, so you get access to debt counseling as well. Although the interest rate on the loan is usually higher than the interest rates being charged on your previous debts, you’ll usually have longer to repay the entire amount so your minimum monthly payment amounts will be lower.
4. Attempting a Last Chance Recovery with an Administration
If all else has failed and you’ve been unable to come to an agreement with your creditors the only option left may be to attempt an administration procedure, in which you would relinquish control of your business to an insolvency practitioner who would act as administrator (temporary CEO) with the aim of facilitating a recovery and allowing the business to continue on as a going concern. To begin an administration you would apply for an administration order from the court and, if it is granted, then creditors would be able to take legal action against you or force you into bankruptcy. The administrator would be able to exercise a number of techniques to bring about a turnaround, including but not limited to:
• Conducting negotiations to revise the repayment terms of problem debts and potentially arrange a CVA
• Seeking financing and funding options for the business
• Selling some of the company’s assets during a partial liquidation or using some of the assets as collateral
• Arranging a pre-packaged administration sale to sell some of the company’s assets to its directors who could then transfer the assets to a new company in order to take some of the value of the old business with them to a new endeavor.
Regardless of which one of the 4 solutions above you choose to pursue, the most important thing is that you get started as soon as possible because time is of the essence. The longer you wait to take action the higher the chances are that you will not be able to reverse the winding up process.
Author Bio: Written by Keith Tully, IP with Real Business Rescue, an insolvency firm in the UK dedicated to helping small businesses recover from serious debt problems.
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