So Many Business Debt Issues, So Few Solutions

As a business debt expert, I am often asked questions by business owners that run the gamut of complexities that occur when a business or an owner is faced with debt or credit issues. Rather than list the too many- to-name scenarios, I have selected some of the most frequently described situations, which are real life business issues asked by real people (names and details may have been changed to protect identities) and some answers I have provided to highlight options or provide solutions.

In a downsized economy, many businesses are focused on buying out competing businesses, or selling to long time employees, often assuming or assigning the business liabilities as a part of that transaction. The intention is honorable, however the execution may not be as simple as it seems to pay off someone else’s debts.

Question: “I manage a small business with five full time employees. I want to buy the business, it is a LLC, but has a significant debt comprised mostly of credit cards and a bank line of credit. The debt is around $80k. The owner is ready to go bankrupt. I want to purchase the business and wonder if I can arrange to pay less each month. We pay nearly $2500 a month on the debt and I would like to close the accounts and pay around $1000 per month. Can we tell the creditors that we will pay a reduced amount each month, take it or leave it? It is a good business worth saving.”

Answer: When buying a business, you will not automatically assume the debt, as the prior owner has likely signed a personal guarantee. Whether or not the owner is still involved with the business, they are responsible for payment. However, if you are assuming payment of the accounts, you should call the creditors with the owner on the line, and have them authorize you as payer. As well, you need to ask to be put into a hardship payment program as you have described the need for a lower payment. This may or may not be commensurate with your suggested budget; however, most credit card companies will offer this, although some not until the account is delinquent. The purpose of these programs is to lower interest and payments for a period of time usually from 9 months to 5 years. At some point you may also elect to negotiate settlements with the creditors to pay the accounts off at a discount. If you do assume responsibility for payment, make sure that no one including your new employees will have charging privileges and that the lines are closed from further activity. This will help prevent “issues” as you are attempting to pay off the balances.

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