A common mistake amongst businesses of all kinds is seeking too much financing prematurely and trapping the business with an overwhelming amount of debt obligations early on. Credit cards can give you the illusion that cash flow is great when in reality everything you spend will eventually have to be paid back and then some. This “delayed spending effect” tricks a lot of people into racking up thousands of pounds in credit card debts.
Business startup loans are another temptation in and of themselves. Many company directors opt to take out a large credit of £10,000 for example and then when the business doesn't bring in much profit they're stuck with that debt. So what can you do to recover from compounding interest and seemingly endless debt? Try the following 3 solutions for starters:
A CVA is a binding contract that would be formulated, devised, and proposed to your creditors by an insolvency practitioner on your behalf. This proposal, if approved by creditors, would introduce new loan terms with lower minimum monthly payment requirements. In addition, the CVA would protect your company from any legal actions being taken by creditors (i.e. - administration or receivership) for as long as you adhere to your end of the CVA contract.
If creditors are refusing to approve a CVA or have already issued a winding up petition against your company you may have no choice but to enter into administration voluntarily by appointing an insolvency practitioner to act as the administrator (temporary CEO) of your company. During the administration no creditors would be able to put you into compulsory liquidation or force the dissolution of your company and the administrator would work to facilitate a recovery by raising funds and attempting informal and formal negotiations.
If you're not yet being threatened with legal action you may still have time to sell some of your company's assets (i.e. inventory, equipment, tools, vehicles, real estate, etc.) and use the proceeds to repay creditors as much as possible. You could also consider using some of the assets as leverage to obtain a secured loan or line of credit. However, if you were to pursue a secured loan you'd want to be absolutely sure of your ability to make repayments on time and in full, because if you default on the loan the creditor would have the right to seize the assets or asset class you used as security.
When your business is overburdened with credit card and loan debt, a recovery can seem like a long shot, especially when creditors are already threatening to take you to Court and put you out of business. As licensed insolvency practitioners we're trained to assess your situation and devise the most suitable course of action to either facilitate a recovery or simplify the winding up process, depending on your preference and intention. Call us on 0800 644 6080 for a free consultation. You can also send us your questions via email and we'll respond with comprehensive advice.
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