Business Debt, Rising Interest Rates, and Economic Uncertainty

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

Business owners know that it’s a careful balance of managing cash-flow and business debt that keeps any business afloat – but even more during uncertain economic conditions. The Office of the Superintendent of Bankruptcy continues to report an increase in Canadian business insolvencies. “It’s an increasingly unforgiving business environment due to rising interest rates and economic uncertainties,” said David Lewis, a board member of the Canadian Association of Insolvency Restructuring Professionals (CAIRP). Even though we all know interest rates are going up and the dollar isn’t as strong as it could be, many entrepreneurs simply can’t avoid generating business debt. So, assuming debt is going to be part of the equation, how do you make sure it doesn’t lead to 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. 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 for 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 can help you put a stay of proceedings in place that will stop legal action against you as a business owner.

 Coping with rising interest rates.

As interest rates continue to rise, so will your cost of borrowing if you are unable to pay off your business debts. As a sole proprietor you may have access to credit operating lines and credit cards that you have personally guaranteed. If your business is still profiting, you will need a strategy to cope with rising interest rates so that your debt problem doesn’t get worse. You could try taking any of the following steps to make repayment more affordable and avoid bankruptcy.

First, consolidate debt – speak with your bank and see if higher interest debts could be consolidated, 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, 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 and ask for help as well as a list of grant funding optionsfor 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 and you can start over as a new business with a clean slate.

Negotiating with creditors to repay business debts.

If you do have business debt and are worried about legal action against you, or a CRA wage garnishment, try negotiating. 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. Don’t make arrangements you won’t be able to keep, you won’t solve your business debt problem and you’ll be back to square one, considering debt relief options again, in no time.  

Get help from 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. We also offer online booking for your convenience. You owe it to yourself – and your business.