As small business owners across Australia look at ways to regain solvency, many are reaching to personally guaranteed business loans which brings with it risks that reach far beyond the business and often mean gambling everything, including the roof over your head, on the business’ success. Borrowing your way out of debt is not only a risk, but for many businesses is a risk that you don’t need to take.
Here we look at the advantages of Small Business Restructuring over borrowing:
- Real & Permanent Debt Reduction:
- Explanation: Small Business Restructuring sees a practitioner negotiate and implement a real reduction in your companies unsecured creditor and ATO debts, whilst also securing manageable payment terms for any remaining debt post restructure.
- Benefit: This can see debt reduced by up to 80%, payment terms dictated by a business’ ability to pay and remain solvent, and no personal guarantee or collateral required, allowing owners to reduce their personal risk.
- Reduced Personal Financial Risk:
- Explanation: When business owners restructure their business, they can often avoid or reduce personal liability for business debts. Personally guaranteed loans mean that if the business cannot repay the loan, the guarantor (typically the business owner) must cover the debt using their personal assets.
- Benefit: This separation protects personal assets like homes, savings, and other personal investments from being seized to satisfy business debts.
- Improved Cash Flow Management:
- Explanation: Restructuring involves reassessing the financial state of the business, renegotiating debts, and optimizing operations to cut costs.
- Benefit: This can lead to better cash flow management, as funds are not being diverted to repay high-interest loans. Instead, the business can use available cash to support operations and growth.
- Enhanced Business Flexibility:
- Explanation: Without the burden of personally guaranteed loans, businesses are not tied to rigid repayment schedules and can more easily adapt to changing market conditions.
- Benefit: This flexibility allows businesses to pivot, innovate, and take advantage of new opportunities without the pressure of immediate debt repayment obligations.
- Access to Alternative Funding Options:
- Explanation: A restructured business often presents a more attractive proposition to investors and alternative financing options, such as equity financing, grants, or business partnerships.
- Benefit: This reduces reliance on debt that requires personal guarantees, opening up more sustainable and less risky financing avenues.
- Protection of Personal Assets:
- Explanation: Restructuring can help manage and mitigate business debts without putting personal assets on the line.
- Benefit: Business owners can maintain their personal financial stability and security, knowing that their personal assets are not at risk due to business liabilities.
- Potential Tax Benefits:
- Explanation: Different restructuring strategies can offer tax advantages, such as the ability to carry forward losses, deduct business expenses, or restructure debt in a tax-efficient manner.
- Benefit: These tax benefits can improve the overall financial health of the business and reduce the tax burden, freeing up more resources for reinvestment and growth.
In Australia, the legal and regulatory framework supports Small Business Restructuring with the facility now legislated, providing businesses with a structured way to manage their debts and recover without the added pressure of personal guarantees on loans.
