Under certain circumstances, restructuring, which is a term for re-organizing your business or individual finances can be a strategy to maximize your net cash flow and potentially avoid bankruptcy. We have seen such needs in clients who faced default on loans insured by the Small Business Administration (SBA Loans), merchant cash advance programs, credit card debt taken on for business expenses, and other debt that businesses or individuals realize cannot be repaid, just to name a few.
Financial restructuring will include but is not limited to a review of your assets, liabilities, earnings and income stream to determine the next best steps. Our firm will review your debts with the objective to reduce, eliminate, rearrange and/or determine how best to utilize and maximize net cash flow. In many cases, this can avoid bankruptcy.
A brief mention of 2 dangers – SBA Loans and Merchant Cash Advance Programs (MCAPs) – are discussed below.
Small Business Administration Loans or SBA Loans are dischargeable in bankruptcy but keep in mind, they require personal guarantees, even though they are taken out for businesses. The good news is that even when bankruptcy is not appropriate or feasible, our firm can help restructure or modify your SBA Loans. This can be done via negotiating for longer repayment periods and lower interest rates. There is also an option to negotiate a one-time payment for less than the full amount of the SBA Loan in order to fulfill the loan. This is called an Offer in Compromise. The most important goal is to avoid default as that will have disastrous legal and financial consequences for you and your business.
Merchant Cash Advance Programs have taken off since the 2008 financial crisis as they help finance small businesses that traditional banks may not. MCAPs are a mix between a loan and a sales agreement. They typically require no collateral but demand a personal guarantee of repayment, control over the business’s accounts receivable – meaning that they own a percentage of the business’s future income and agreeing to a Confession of Judgement (COJ) – where you waive right to court hearing in the event of default.
The repayment amounts and interest charges often exceed 100% and cause problems akin to that of a payday lender for small businesses. MCAP Lenders deduct payment automatically, usually weekly or daily. They are not banks and therefore are not regulated, which puts a business’s ability to get a fair shake into question. These loans can prove even more burdensome when a business is unable to generate revenue as the Confession of Judgement gives the MCAP Lender a quick legal judgement for default. That judgement is then used to freeze your bank accounts, collect your income, and place liens on your assets. Thanks to the personal guarantee, there are even cases where small business owners had liens placed on their personal homes and faced foreclosure.
Suffice it to say, do not let it get to this point. If you foresee difficulty in generating revenue or have already received notice of a COJ, contact our law firm immediately. We can assist in negotiating lower repayment amounts, lower interest rates, and even a buy-out from that agreement.
From the planning phase through execution, the organization of business information is critical. Information needs to be accessible to help expedite the process and resolve your debt.
What’s needed during the process can include loan agreements, financial statements, vendor and trade debt/receivables, and income information, to name a few. We help organize all of your information efficiently to present a complete package to creditors.
We understand that time can be of the essence. With this data we provide some alternatives for you and your company.
The sooner you reach out for a legal consultation, the better your outcome can be.