During the tough economic times, the small businesses usually find themselves in a situation where they are unable to pay debts as per the terms and conditions of the loans. Debt forgiveness involves a situation where creditors write off part of an outstanding loan balance. When small businesses find that they are unable to pay loans any longer they should consider seeking for sba loan forgiveness. Here is what they need to do.
Avoid the chapter 7 of bankruptcy
When a debt remains delinquent for a period of time, debt forgiveness becomes an option. Properties usually get foreclosed and are sold with any remaining balance that is owned to the original owners. When a business is unable to meet any remaining debt, it can end up facing the Chapter 7 bankruptcy. This is a chapter whose goal is to liquidate all the assets and make payment to a creditor and what this means is that the creditor may not be in a position to get the amount that is owed to them immediately. The creditor should run a credit history whose goal is to determine the depth of the financial hole that the business is in prior to agreeing to minimize or they forgive the amount that is owned. If you are not sure whether to ask for SBA forgiveness or to file for bankruptcy when you are in an SBA loan default, you should explore the former first.
Clearing of books prior to restructuring
Your business can seek after debt forgiveness if you are in the process of downsizing or restricting. According to chapter 11 bankruptcy, your business will need to restructure debt and also create a plan for repayment. The bankruptcy process, on the other hand, allows a business to negotiate with its creditors for the payment of a lower debt as it seek to reduce its overall financial liabilities. When a business proposes to creditors that it wants to restructure and comes up with a plan for repayment prior to filing for Chapter 11 bankruptcy, a creditor can choose to forgive or negotiate the debt. This is due to the fact that there may be results for negotiating prior to filing as this may result in more payments.
The SBA usually provides loans guarantee of up to 75% of a business loan to a lender. This ensures that the lender is mitigated from liabilities and it makes it more attractive for lenders to give loans to small businesses. If you are a small business owner with excess liabilities and you cannot meet the loan repayment, you can request for loan forgiveness. If you have no idea where to start, you can seek the help of an SBA advisor.
The unfortunate thing is that negotiations will only begin after a business has ceased operations and has liquidated its assets. After the liquidation has paid lenders, SBA can now negotiate for the forgiveness. It may be imperative for the small business owner to provide a guarantee on a loan, putting their personal assets like savings and houses at the risk of collection or foreclosure.