The Business Debt Consolidation Process

Owning or directing a business is a huge responsibility because you are ultimately responsible for the success or failure of the venture.

More people are choosing to become entrepreneurs, taking control of their career in an entirely different way.

When the business is doing well, ownership can be very exciting. When things are not going so smoothly, the stress level is incredible.

Even during times of smooth sailing, business owners and directors have their eye on the bottom line.

They know that one unexpected event can change the financial picture, making business debt consolidation necessary.

Are you a sole trader, self-employed, director of a limited company or CIS/Agency worker and have personal or business debts? Contact us today and fill out the form below to review all your debt consolidation options. The business debt consolidation process is simple, fill out the form today and find out more. 

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Types Of Business Debt

Businesses have debt in various forms based on what they do and how they do it. For example, a company engaged in product or service delivery may have a fleet of financed vehicles. Manufacturing facilities lease or finance expensive equipment used in production. Even a small business may finance things like office equipment.

Many entrepreneurs use business loans to establish their companies. Even more make purchases on credit from suppliers and distributors.

At any point in time, a business may be responsible for payments to several different creditors. The company must generate enough income to cover payment of these expenses. If not, bills may become past due and eventually fall into arrears. If the business owner has poor credit or has maxed out credit limits offered by financial institutions, business debt consolidation becomes necessary. Otherwise, the company could be forced to close its doors.

What Is Business Debt Consolidation And How To Get It

Every year, businesses close because they are unable to remain profitable. The current economic climate has rendered business closure a more commonplace activity. Business owners who ignore corporate debt only make the situation worse. Directors of limited companies are obligated to get professional debt management advice if they believe their organization is headed for insolvency. Business debt management experts help these individuals consolidate debt and establish a plan for repaying it.

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In the UK, an assortment of companies claim to specialize in managing business debt. However, many of them charge expensive fees and do not offer a comprehensive range of services. Entrepreneurs should only deal with an organization that has a proven track record of consolidating corporate debts. Corporate expenditures differ from personal expenses and the UK holds business leaders fiscally responsible in different ways based on the business structure.

Business debt consolidation companies should explain all the options available to an organization and provide professional recommendations regarding the best course of action. Every company has a unique financial situation and this should be taken into account by the debt management professional when advice is offered.

Business owners save money by using companies that provide free and impartial advice, like ours. They should avoid companies that take a hard-sell approach. There should never be an obligation to use one of the programs mentioned.

When a business is in financial trouble, having an expert on its side is important. Customer service is key, making it important that the debt consolidation company is staffed with experienced professionals.

Some debt consolidation or management solutions involve fees and these should be competitive, providing excellent value for the money.

Business Debt Consolidation Options

In the UK, there are both informal and formal options for consolidating business debt. A debt consolidation loan is an informal solution that is very effective for businesses with a small amount of debt. The company takes out a loan large enough to cover all outstanding debts and proceeds from the loan are used to repay these debts. The business then repays the debt consolidation loan through monthly payments over a predetermined period.

Interest is charged on this loan, but entrepreneurs can shop around to find a rate that is much lower than that associated with existing business debts. A business debt consolidation loan makes debt repayment more affordable because it stretches this repayment over a longer term. Though the debt remains on the corporate books for a longer period, the company is able to continue operating as usual.

A Company Voluntary Arrangement (CVA) is suitable for a viable business experiencing cash flow issues that have created debts. Similar to an Individual Voluntary Arrangement available to consumers, this is an arrangement between the company and its creditors to repay all or a portion of unsecured business debts.

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An Insolvency Practitioner (IP) helps the company determine how much debt can affordably be repaid. This individual then contacts creditors to get them to agree to the CVA. The business makes one regular payment to the IP, who distributes the money to creditors per the agreement.

A business that has a CVA in place may continue trading with current directors in place. Debt that the company cannot afford to repay is written off within approximately five years. While the business is making more affordable debt repayments, creditors cannot pursue legal action, including filing County Court Judgments or requesting Winding Up procedures.

An Administrator Order is an alternative to liquidation. It is used when the future of part or all of the company is questionable. An Insolvency Practitioner is assigned to manage affairs of the organization. A plan is established for restructuring the business in order to keep it going, realizing a more positive result for creditors than if the organization were wound up, or identifying assets to be distributed to secured creditors.

While the plan is being established under the Administration Order, the business may continue trading and creditors may not take legal action. When the Administration Order ends, the business usually enters a CVA. The largest drawback to an Administration Order is the cost involved because many companies cannot afford to pay the Administration team in addition to corporate operational expenses.

Pre-Pack Administration was created as a solution, allowing the company to enter a deal for sale of assets or the business itself before starting the insolvency process.

Last-Resort Option For Business Debt Consolidation

Creditors Voluntary Liquidation (CVL) is designed for an insolvent company that cannot resolve its cash flow issues. Company directors pay a heavy price for ignoring early indications of insolvency. Therefore, corporate leadership should obtain professional business debt consolidation advice as soon as financial issues arise.

Under a CVL, directors are able to meet their legal obligations while formally ending the business so that trading can cease. This is a fast, cost-effective way to formally close a company and is the most common type of liquidation used by companies in England and Wales. It puts an end to creditor pressure while permitting negotiations regarding personal guarantees.

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Once the company directors pass a resolution declaring the business insolvent, this resolution is signed and the directors appoint someone to serve as an IP. This individual acts as the liquidator until creditors formally confirm the appointment.

Public announcement is made regarding the liquidation and employees are made redundant. The liquidator values all company assets, sells them, and uses the profits to pay liquidation fees, statutory payments to employees, and creditors. In most cases, creditors receive only a portion of what they are due.

A limited company may be forced to close through a process called Compulsory Liquidation or Winding Up. One of the company creditors usually initiates this action against the will of the directors or shareholders of the business.  The High Court is petitioned for a winding up order that forces the business to close. Company bank accounts are frozen and assets may not be sold without a court-issued validation order. This has a severe impact on the trading ability of the business.

A liquidator is appointed to handle the Winding Up process. This individual researches actions of directors and determines whether any permitted trade while knowing the business was insolvent. Directors found guilty of this face stiff financial and employment consequences. During Compulsory Liquidation, all company employees are made redundant.

The Right Business Debt Consolidation Solution Matters

Sole traders, directors, and other business leaders should take company debt consolidation seriously. Finding the right solution allows the business to continue trading as long as possible. Even when a business seems to be facing liquidation, there may still be hope. Company leaders should seek professional advice as soon as they recognize a problem. Debt consolidation professionals skilled in corporate finances can help businesses navigate the complex world of corporate debts.

No director or entrepreneur wants to discover that business closure is the only option. If corporate debt is addressed in the early stages, solutions like a business debt consolidation loan, CVA, or Administration Order may be suitable. The company can continue trading with the hope that the financial difficulties are only temporary.

Business debt consolidation is a welcome alternative to Winding Up or a CVL. Consolidating debt allows the business to remain intact and provides creditors with all or a portion of the money they are due. In many cases, this is enough to get the business back on track financially.

Though corporate leaders hope they will never need to consolidate debt, they feel more comfortable knowing that professionals are there to assist them if they need it.