Managing Debts in the Wake of the Pandemic
From a Debtor’s and Creditor’s Perspective
By James Pruitt, Senior Staff Writer
The pandemic has not quite ended. However, the light at the end of the tunnel looms bright. Unfortunately for some business owners, the light shines brightest for creditors. After months of accommodations, many business owners are now seeing collections time on the horizon. Most hard-hit may be owners of restaurants, small shops, and entertainment venues.
In the case of the pandemic, most economic transactions remained stagnant for most of 2020. That status may lift as restrictions ebb and eager consumers rush back to their pre-pandemic lives. During the long hiatus in economic activity, many small businesses saw their funds run dry.
Creditors mostly retreated for the meantime. Legal restrictions often prevented collection efforts. Also, knowledgeable creditors generally do not collect until their debtors have something to collect. During the Pandemic, most creditors simply did not bother with economically inactive debtors. They knew better. Creditors bided their time, as the economy would not stay inert for long.
In their defense, creditors need to eat too. Creditors rarely accommodate out of charity. When economic circumstances leave both parties helpless, collections tend to stop. Most purveyors of loans and forgivers of debts, negotiate willingly with their partners. However, collectors always perk their ears at leads their obligations can be satisfied.
Paradoxically, bankruptcies and other collections tend to increase during recoveries. Most common are Chapter 5 bankruptcies. Chapter 5 governs individuals and most corporations. Chapter 11 bankruptcies allow for a restructuring under the guidance of the bankruptcy court. Under Chapter 11, the business owner shelters more of their assets from creditors. However, the court needs a coherent restructuring plan before a court order forgiving any debts. The debtor needs to demonstrate a sincere plan for regaining solvency. Any hint of fraud gets you thrown out of court.
Even before bankruptcy, manifold options provide debtor relief. Generally, options vary with repayment. Debtors can settle with a fraction of their debt. Trustworthy lenders usually offer repayment plans. The only caveat for the debtor is honesty. Bad intent in the mind of the debtor (or creditor) can bring legal troubles.
On the horizon come hard choices, including selloffs and layoffs. As creditors start to collect, some businesses may not meet their payroll. Many companies may liquidate office equipment and even physical facilities. Despite the improving economy, some businesses may fail. Strangely, some of these failures may come as a result of the increased economic activity.
Wise use of funds from PPP loans may buy time. These loans have flexible terms, allowing many businesses to play catch-up as the economy normalizes. Fortunately for all of us, this experiment in pausing the economy does show many signs of success. News reports indicate we are off to a stellar year.
As we all get back to work, business owners and those they pay should buckle down on strategies for settling economic scores. We have all compromised during the Pandemic over the past year. Educated payment and debt practices ensure the survival of all economic participants. As we get through the last few months of these restrictions, Veteran Business Owners should carefully ponder strategies to step up business while communicating with those who’ve patiently waited for payment.
VAMBOA, the Veterans and Military Business Owners Association hopes that this mini-series on “Strategic Planning” has been valuable. We work hard to bring you important, positive, helpful, and timely information and are the “go to” online venue for Veteran and Military Business Owners. VAMBOA is a non-profit trade association. We do not charge members any dues or fees and members can also use our seal on their collateral and website. If you are not yet a member, you can register here:
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