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Short of bankruptcy, what I can do if my business is cash-poor?
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Short of bankruptcy, what I can do if my business is cash-poor?

On Behalf of | Sep 26, 2022 | Bankruptcy & Asset Protection, Business & Commercial Law

Many businesses in the Tampa Bay area can easily run into financial problems, even when its leadership is running the organization well. For example, just like Florida households, businesses can run into a situation in which they are cash-poor.

This is a situation in which a business’s balance sheet would show the business is solvent, that is, it has more assets than debts. However, the business does not have adequate cash flow, for any number of reasons, to pay its current debts and expenses.

While it is an option, filing a Chapter 11 bankruptcy can be an extreme step depending on an organization’s circumstances. On the other hand, in other situations, it is the right choice.

Still, a business facing a cash flow crunch should consider alternatives to bankruptcy, especially if the business’s concern is with just one or a handful of zealous creditors.

A business can always try to work out arrangements with their creditors

Business debts are often easier to negotiate than are personal or family obligations.

The reason is that the creditor has an incentive to keep their business customer financially healthy, especially if that customer brings a lot of revenue to the creditor or has the potential to do so.

One nonprofit which provides loans and other support to small businesses offers some important tips to business owners who may need to reach out to their creditors to renegotiate their obligations.

While this organization rightly recommends being polite, transparent and proactive, it is also important for the business to understand its legal rights and options.

Ultimately, doing so can put the business in a better negotiating position to get a more favorable payment plan or even forgiveness for some of their debt.

Legally, it is important to put whatever agreement a creditor and business reach into an enforceable written contract so that there are no misunderstandings down the road.

A business may have to secure additional funding

A business that is strapped for cash but has assets and draws revenue may also be able to work through the legal and financial steps of securing a new business loan, consolidating debt or even seeking out new investment into the business.

Doing this will often require important legal steps.

For example, securing a new business loan will usually require a business to sign a detailed application and include full and accurate financial disclosures. The loan agreement itself will also set out the business’s legal rights and responsibilities.

The same is true when a business is seeking additional investment capital.