How Debt Settlement Can Save Your Small Business
No business owner ever wants to be in a situation where they have to decide between paying their creditors and making payroll.
A recent report revealed that Los Angeles has the highest reported number of business closures since the pandemic began more than a year ago. Apparently, there have been at least 15,000 business closures across Los Angeles County alone, with 50% of those most likely never to reopen again. While the ones hardest hit were restaurants, retail stores, bars, beauty salons, and gyms- all other businesses that require face-to-face interactions have been devastated as well. That pretty much includes all businesses that require meeting customers in person. Is your business one of them?
Small businesses are the most vulnerable because they tend to have less money available to them and they don’t have the same access to banks for funding sources like the larger businesses do. Most owners are just busy trying to keep up with day-to-day operations that they don’t always keep good tax and financial records, making it difficult to apply a bank loan even when they can; if collateral is required to obtain a loan, a lot of them don’t have a home or other assets that they can put up as security. While the County of Los Angeles has awarded more than $150 million to qualified businesses in the form of grants to help limit closures, this simply has not been enough. A lot of small business owners are still living in fear at this time especially with surge in new infections with the new virus- not knowing whether there might be another shutdown sooner or later.
As we know, small businesses are the heart and soul of our communities. As the impact of the virus continues to take a devastating toll on them, they need help from the federal government to survive. Most business owners feel that we’re in this for the long haul before we start seeing things go back to normal again. Some are a bit more hopeful and think that the small business climate will return to normal in the next 12 months. But no one has a crystal ball to really know. At this point, it’s really a “hope for the best but be prepared for the worst” type of scenario that we are facing.
If you’re a small business owner affected by the pandemic, you’ve probably poured all your savings and resources into your business hoping that things will turn around soon. Perhaps the stress and fear of losing your business are taking their emotional toll on you. A lot of business owners have laid off employees or decreased employee hours and so they are understaffed. For the owners who have taken PPP loans from the SBA, they may have survived for a few months using the loan proceeds but now it’s all gone, and their business is still slow putting them back on square one, unfortunately. With decreased revenues, many are late on rent, utilities, and monthly debt payments.
If your business is in a severe cash flow crunch, it may be a struggle to pay your creditors, vendors, and suppliers right now. In a lot of cases that I see, bankruptcy is not even an option that the owner is considering. This is where negotiating problem debts may help you stay afloat while going through the current financial crisis. If your business is in serious jeopardy due to limited cash flow, perhaps restructuring your debts with lower payments could help. By addressing problem debts early and communicating with creditors instead of avoiding them, you can stay out of court and avoid high litigation costs. I know that constantly receiving collection letters and calls can be extremely disruptive to your business too. And if your employees see what is going on, this can kill productivity and exacerbate the problem. My advice: Be proactive. Know your numbers. Look at your current liabilities and assets. Operate as lean as you can and cut out the fat when possible. And most important of all, keep your creditors informed about what is going on. One big lawsuit is all it takes for some companies before they go bankrupt. If negotiating with your creditors for easier payment terms can help your cash flow so that your business can survive during these slow times, you should look into that as soon as possible before the situation becomes a financial emergency.
Ray Bulaon is a bankruptcy attorney and business debt mediator in Valencia who has successfully helped more than 5,000 clients in getting out of debt. For a free consultation, call 866-477-7772 or 661-775-4880. Due to current COVID restrictions, consultations are available by phone or video.
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