When Debt Financing Leads to Debt Struggles

Among the challenges that arise for entrepreneurs when getting a business started is securing the funding their new company needs. There are various options business owners have for addressing this issue. Among the main ones is debt financing.

This involves taking out formal loans to fund a startup. Common types of debt financing include bank loans, lines of credit and credit cards. There are various reasons entrepreneurs may be drawn towards this funding option. These include: not having to surrender equity in one’s company, the predictability of loans and how accessible this option typically is.

So, there are a great many entrepreneurs that take the debt financing route. While this funding option can be a big help to startups, there are potential drawbacks to it.

For one, in some cases, debt financing leads to problems down the road for a business owner. One example is that, sometimes, unexpected financial dips cause a business debt load that an owner thought would be manageable to turn overwhelming.

When a small business is struggling to pay back debt that was used to fund the startup process, its owner may be very concerned about both the company’s well-being and his or her future. When such problems and concerns arise, what a business owner does next matters a great deal.

There are various routes for addressing overwhelming business debt. Which one would be a good fit depends on a range of things. This includes a business owner’s ultimate goals. For example, different types of small business bankruptcy are used for different goals. A Chapter 11 restructuring can help with keeping a company up and running. Chapter 7 bankruptcy, on the other hand, can help business owners with the process of ending their business and moving on. Skilled bankruptcy attorneys can advise company owners on what business debt relief options may be able to help with their specific goals.

Related Posts
  • Can Businesses Benefit from Subchapter 5 in Chapter 11 Bankruptcy? Read More
  • Subchapter V of the Bankruptcy Code Read More
  • Does Business Bankruptcy Affect My Credit? Read More