Business Debt, Rising Interest Rates, and Economic Uncertainty

Posted on 8 February 2019

Written by Trevor Pringle

Business debt is causing bankruptcy rates to go up – do you know how to survive rising interest rates?  

Business owners know that managing cash-flow and business debt is a careful balance. However, it’s necessary to balance to keep any business afloat. Arguably, it’s even more important during uncertain economic conditions. Yet the Office of the Superintendent of Bankruptcy reports an increase in Canadian business insolvencies. “It’s an increasingly unforgiving business environment due to rising interest rates and economic uncertainties.” Said David Lewis of the Canadian Association of Insolvency Restructuring Professionals (CAIRP).

Avoiding Bankruptcy

We all know interest rates are going up and the dollar isn’t as strong as it could be. However, many entrepreneurs simply can’t avoid debt. With the economic shifts, business owners can’t help generating business debt. So assuming debt is part of the business equation, how do you avoid bankruptcy?

Sole proprietors need protection

Because corporate directors generally have a layer that insulates their personal finances from mixing in with their business affairs, they risk less. Sole proprietors may pledge personal assets, bank accounts and credit scores to obtain financing for their business ventures. If you don’t run an incorporated business and your business debt has become unmanageable you should get advice right away.

Get Help

So, you will want to act quickly, in particular with regard to large debts to Canada Revenue Agency (CRA). If you are a homeowner, CRA could choose to register on title. Even against your property if you are unable to repay a business debt to them. Tax debt is one of the leading causes for sole proprietor bankruptcy filings. At Spergel, we help put a stay of proceedings in place that will stop legal action against you personally.

Coping with rising interest rates

Interest rates continue to rise. In other words, it’s safe to assume that your cost of borrowing will rise too. As a sole proprietor you may have access to credit operating lines and credit cards that you have personally guaranteed. If your business is profiting, you will need a strategy to cope with rising rates. As a result of implement a good plan, your debt problem won’t get worse. So try these steps to avoid bankruptcy.

Three Steps

First, consolidate debt. Speak with your bank and see if higher interest debts could be consolidated. But be very careful about using a home equity loan on your personal residence for the purpose of paying down business debt – remember, the business could still fail and you are taking a risk.

Second, Ask lenders for a reduction in interest, renegotiate loan terms.

Finally, Reduce expenses if possible. For example: if renting an office, move to a home based office and use the “rent” money to pay down your highest interest debts.

Dealing with economic uncertainty

If your business is facing a downturn in economic conditions it may be time to innovate. For example, if you run a brick and mortar shop perhaps you can open up your retail store online. If you operate in a niche market, e-commerce may be beneficial to your bottom line. Visit a government run business support office in your municipality. Ask for help as well as a list of grant funding options for operating cash to weather uncertain times. Economic adversity doesn’t have to mean the end of your business. However, in some cases, starting over might be the best way to get back on track. In some circumstances, a bankruptcy can help clear away debt. You can start over as a new business with a clean slate.

Negotiating with creditors to repay business debts.

If you have business debt you may worry about legal action against you. Similarly, a CRA wage garnishment might concern you. So try negotiating with them. An attempt to negotiate with your creditors may work. It will depend on how much you owe and how far behind you are. Your future profitability and the sustainability of your current business will be important to consider. Lastly, don’t make arrangements you won’t be able to keep. Because, as a result, you won’t solve your business debt problem. You don’t want to be back to square one, considering debt relief options again.  

Speak with a Licensed Insolvency Trustee

We can help if you need to clear the slate and start over.  We’re here to provide the business debt advice you need. For a FREE review of your options please call 1-877-501-4321. In addition we offer online booking for your convenience. You owe it to yourself – and your business.

Trevor Pringle

Trevor B. Pringle is a Chartered Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on consumer proposals and small business debt. When Trevor isn't at the office providing debt relief to Canadians and corporations with his innovative problem-solving skills, Trevor enjoys regular trail runs in the Dundas Valley.

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