Should I consider bankruptcy now or wait

SparFace

Hi,

I have bought business about 8 months ago using business bank loan, which was personally guaranteed by me.

My plan was to work in the acquired business in parallel with another job that I was still doing. When I was deciding about this venture, my second job was sort of a backup plan. I thought that even if the new venture didn’t go very well, I would still make enough money to fully cover household expenses and fund it to some extend. Up until the breakdown all went fine and I was managing to pay my employees and the bank, even managed to make a very small profit, which was used towards some refurbishments. I continued to work at the second job, as self employed, which was sufficient to cover my household expenses, including a personal loan, which was drawn to cover the deposit for the business one. 

With the current lockdown situation my business is now ‘temporary’ closed. The business that I had my backup job is in the same situation. So I have no income (not eligible for any government help as well).
I have furloughed my employees, although committed to pay the last 20% of their salaries for the first 2 months.  I have also paused the mortgage of my house and the personal loan mentioned above. The nature of business loans does not allow it to be paused, rather than pay only the interest, which being at the very beginning of the loan term is quite substantial part of the whole payment. I have also received £10 000 from the local council. Considering the cash in my business account I would say I am in a not very bad position in order to survive the lockdown, if it is 2-3 months.
However my expectation for the business levels after we go back to “normal” is what is making me wonder if I should go bust now and pay to the bank whatever I can or wait and see how things will roll? If I chose the second option and go bust in December let say, I won’t be able to pay anything to the bank, which will leave me with more debt, that has been personally guaranteed.
Having this business was the dream of my life, but I have to face the reality as well:(
Chances of this business to survive in the long run if the income drops halfway are minimal.

Any advice on this situation would be appreciated.

Should I throw all my money with little chance of success?
Should I give up now, with the idea that will end up with less debt, which eventually I will be able to repay in 8-10 years and then have a second go?

Is it possible that the banks write off some of the money owed by the business in order to make it viable in the post-COVID-19 world? I hardly doubt they would do this for small business:(

mwarby

It would seem reasonable to at least exhaust the 10k grant on furlough payments etc, before going bankrupt 

is the business setup as a sole trader, or a limited company or similar ?

SparFace

The business is set up as limited company, but I have personally guaranteed for the loans it has drawn. So after the business goes bust I will be next to follow.

I will most likely exhaust the cash in the company, including this grant. Just wondering if this is the right thing to do.

Does anyone know any if business loans would be available for people that have bankrupted in the past? 

I know that current US president has bankrupted at least once, but I guess this is no place for comparison:)

gary83

mwarby said:

It would seem reasonable to at least exhaust the 10k grant on furlough payments etc, before going bankrupt 

is the business setup as a sole trader, or a limited company or similar ?

The 10k grant would be in addition to the furlough payments for staff, assuming they were paid via PAYE the Op would be able to keep claiming 80% of their salaries for as long as the furlough scheme exists for currently extended until June (but who knows what will happen after that) depending what kind of business your new venture is will depends how quickly your chances of rebounding after the lockdown is. 

If you cut your losses and give up on the business & wound it up now then it would mean that those jobs haven’t been retained and you’d have to stop claiming furlough payment for your staff. what kind of personal relationship do you have with your employees? Have you known them for a while? Are you prepared to leave them with nothing now?

SparFace

The 10k plus money in business would be sufficient to pay the interest of the bank loan plus some ongoing expenses for about 3 months (1 already gone). 

So if everything ends in two months I will have to restart the business with almost 0 cash, which is not what bothers me most. The thing that concerns me most is that my income would be halved. This would make the business not self sufficient. 

And my income from the second job would be halved at best. Realistically might be zero.
I know the people that work for me only since I’ve bought the business, which does’t mean I don’t care. I’m topping up the furloughed payments to 100%. Not doing this won’t buy me much time.
Unfortunately loss of jobs is inevitable in this situation. I don’t want to do it, but I don’t see how a business that generates losses and doesn’t have any savings could keep all the workforce. Saying ‘all’ with the presumption that the bank will give me a chance to pay less for a certain period of time. If not, than this should read ‘any’.