Borrowing to Pay Past Due Debt? Don't!

Many small businesses are confronted with declining revenues and choking debt service. The economy is in a long-term wind-down so what we have now is what we can all expect for a long while. This is understandable. Unfortunately, many are so committed to their perceived necessity to support their monthly debt service commitment that they are willing to risk their businesses to accomplish this. Thus they borrow privately, use their credit cards, deplete their 401k, and generally do whatever they can to pay the monthly payment. Wrong approach.

I understand the knee-jerk reaction---everyone wants to perform as they promised---but what if you simply can't pay because revenues are down and overhead remains high and growing? Borrowing to pay debt is NOT the answer. All this act does is transfer the burden from one lender to another; it does not change the reality that you have too much debt and cannot afford the monthly payments, irrespective of who the lender may be. In reality, all that results is that the currently defaulted lender is satisfied and the new lender is now going to be disappointed because the bottom line has not changed. Declining revenues and increased overhead does not work out.

The best path may not yet be obvious to many, so here is the answer, explained as clearly as possible: Work with the existing lender to reduce debt so it becomes affordable. Do not to borrow elsewhere to satisfy a defaulted lender. This is called a "debt workout" and it results in forgiveness of some debt so the remainder can be serviced and paid regularly, the theory being that something is better than nothing. Also, "something" comes without additional costs, risks and wasted time to obtain, and thus is even more valuable than it may at first appear to the lender.

Defaulting debt in the face of reduced revenues requires debt workouts/debt forgiveness, not refinancing. Too much debt is simply too much debt. Stop borrowing new money to pay old borrowed debt, it is a failing concept. It relieves pain for a moment only to have it come rushing back in full force as the real issue---too much debt---has gone unresolved.

Call us, this is our mission. We can help you preserve your assets and reduce your debt so you can balance your financial equations and emerge successful once again. Yes, even with personal guaranties and your home at stake. Besides what choice do you have?

Norm will arrange a no-obligation teleconference to discuss your options.