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BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience:  I am a business attorney. I represent individuals and companies with all business related matters.
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Hi there, we have been in business for over 30 years in Texas,

Resolved Question:

Hi there, we have been in business for over 30 years in Texas, and because of the inability to borrow for repairs, new roof, equipment, etc, we have gone through our savings, and now have credit card debt close to 100K. We are current on all of our accounts, and both wife and I have never had an account go delinquent on our credit history. This is over 40 years for her and over 50 years for me. We are trying to hold it all together, but it is very tough. Our bank which has always loaned money to us, is not loaning at all to anyone! We have a mortage on the business which will be paid off in 2022. Payments are 2760.00 per month. We DO NOT want to lose our business, as we have owned it for 32 years. As I said, we are not behind on any payments currently, but it is getting very difficult to continue with less cash flow. What should we do? Thanks so much for your time.
Submitted: 1 year ago.
Category: Business Law
Expert:  BizIPEsq. replied 1 year ago.

TheLegalistEsq :

Hello I will be assisting you. Let me review the question

TheLegalistEsq :

I will continue to answer the question as it relates to possible solution but in the interim please let me know if the credit cards are in your personal names or under a business account

TheLegalistEsq :

The following option are not all the options that may exist rather ones that I have come across in my career

Customer:

The cards are in our name. Some of the Amex list the business name on them, but most likely were issued to us personally. We are not a corporation. We are sole proprietors.

TheLegalistEsq :

Thanks for letting me know about you being a sole proprietors. Because of this I will have to change most of my answers that I am preparing as legally you are restricted in many ways but you may have some solutions.

TheLegalistEsq :

option 1) I was about to suggest that you find an investor / partner who will infuse capital in exchange for a piece of the business (i.e. equity) but as sole proprietors you cannot do that

TheLegalistEsq :

you have to options then

TheLegalistEsq :

sorry two

TheLegalistEsq :

1) incorporate your business and the find an investor / partner. If you incorporate you will also be able to find a buyer for the business. As a sole proprietor you are not a business and the most you can sell is the equipment rather than the good will of the business.

TheLegalistEsq :

2) continue as you are and seek loans grants. But be very careful as banks who lend to sole proprietor often seek a lien against the equipment and personal guarantee often against real estate that you own. Be very careful with personal guarantees!

TheLegalistEsq :

also, do NOT pay off the credit card debt with a home equity loan. Credit card debt is unsecured and could be dismissed in bankruptcy should you come to it, but if you take a home equity loan to pay off the credit card and then are not able to pay the new mortgage you may lose your home!

Customer:

Ok, i would imagine that the bank already has our personal guarantee for the mortage payment. Could you elaborate on Loan Grants. Also, are you aware of any private investors/ companies who are loaning to small business, who are legitimate?

Customer:

By legitimate, I mean the people who are loaning the money. Also, we do not own our home, as it was destroyed in a hurricane in 2008. We are currently leasing a house.

Customer:

Is there another expert available? I still have some questions.

Customer: replied 1 year ago.

Hi again, are you coming back online, are do I need to contact another expert? Thanks.

Customer: replied 1 year ago.
Relist: Incomplete answer.
Expert left before I was through asking questions!
Expert:  BizIPEsq. replied 1 year ago.

To receive a loan as a small business or to bring a partner on board you will need to incorporate first.

Lending to small businesses is generally a very local activity, so you need to visit every bank and credit union in your area. In addition, lookup the closest SBA branch to you and see if you qualify for a Small Business Loan. Look one up at: http://www.sba.gov/local-assistance?ms=fp

 

 

By the way, experts don't have to remain in live chat to continue answering. Please continue responding

Customer: replied 1 year ago.

Thank you. did you receive my question regarding why we would not be considered a business? We file and pay 941 forms, Futa tax, Workers Comp, Sales Tax, etc. Does this not qualify us as a business? Thank you for your answer. ( i should have used a period and not a question mark. Sorry!)

Customer: replied 1 year ago.

Hi again, I am just checking to see if you saw my last question regarding our filing of all business forms etc.


 


Thank you.

Expert:  BizIPEsq. replied 1 year ago.

You may have an EIN and be filing the relevant employer taxes but that does not mean that you are a "company" that can sell equity. Only an entity that incorporated (i.e. a corporation or a Limited Liability Company also known as a LLC) can sell equity.

As noted, in order to bring in an investor / new partner you will need to issue (sell) equity in a company and therefore you must first incorporate.

Generally, loans are not issued in exchange for equity and therefore do not necessarily depended on you being incorporated. Though that is recommended, since to the extent possible you want to limit your personal exposure to debt and assign as much debt as possible to the company.

 

I hope this further clarified my answer

Customer: replied 1 year ago.

Thank you very much for your answer. If we decided to become a corporation, or an LLC, how does that affect the existing debt that we are challenged with currently? Is it folded into the business or does it remain separate from it as personal debt. Thank you again for your time.

Expert:  BizIPEsq. replied 1 year ago.
That's an excellent question and a fairly complex one. Generally if the debt has been accumulated under the EIN number then folding it into the new company should not be a problem (essentially the EIN number you currently have will be used by the new company)

Otherwise for personal debt, for example on machinery if the machinery is titled in your personal names, then you need to consult an accountant. I believe it should not be a problem, but it really depends on a review of each debt instrument individually.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
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