Lately we’ve been operating at a loss because we just don’t have the cash flow needed to make investments while paying monthly bills. We have what we believe to be a pretty good business plan that could work if we had more capital, but I don’t see how we’re ever going to become profitable again at the rate we’re accumulating debt. At this point our credit is not good enough to obtain approval for a reasonable loan, and we don’t know how we’re going to make it through the year. What do we do?
A company that needs additional cashflow but has a low credit score should probably consider asset financing, invoice discounting, or factoring. These three options would enable you to use the company’s assets, outstanding invoices, or accounts receivables as collateral to obtain a secured loan. Although this would mean you would be putting these assets at risk (as they could be seized if you fail to adhere to the loan agreement), if, as you say, you just need some extra cash flow to jumpstart things, it could be the solution you’ve been hoping for.
If the company does not have enough assets to allow for sufficient financing, another option that may be considered is a company voluntary arrangement (CVA). One of our insolvency practitioners would review your current debt situation and then draft and submit a proposal to creditors on your behalf. If accept this agreement would reduce monthly payment amounts and possibly extend the length of the loan, thereby freeing up additional cashflow and making it easier for you to meet your monthly obligations.
If creditors are already threatening to send your business into compulsory liquidation or receivership, you must act now to postpone or prevent this from happening. A company administration procedure may give you the time and protection needed to work out a company voluntary arrangement or to liquidate some of the company’s assets in order to repay enough debts to be deemed legally solvent.
If the outcome looks bleak and you don’t think the possibility of recovery is realistic, a pre-pack administration sale may be arranged, in which the assets and business of the insolvent company are sold to a new company that is not burdened with the old companies liabilities. This would effectively allow the business to continuing operating under a new limited company, with the same clients, equipment, employees, and other assets.
25th April 2019
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