Small business owners should act if they’re behind on loan payments, experts say

Frequent and honest communications with the lender are crucial once a small business begins having difficulty making payments on their 7(a) loan, experts said.

Too often, entrepreneurs ignore the past-due notices on their loan hoping for an increase in sales or a drop in expenses. The delay, often for months, will exacerbate the cash crunch — and may lead to the business’ demise, the experts said.

The borrower “should notify their lender immediately,” said Ree Wackett, a senior business adviser and small business educator at the Small Business Development Center at Stony Brook University. “They may create a new payment plan; they will completely restructure the loan because they want their money back.”

She and others said struggling entrepreneurs should examine every aspect of their company to find savings and opportunities for growth. For example, entrepreneurs may reduce their workforce, sublease space to another firm or reexamine expenditures.

“The marketplace may be changing, and they may need to offer additional products or services,” Wackett said.

If the business is floundering, a petition for bankruptcy in federal court buys time to reorganize, sell or dissolve, according to Mikal J. Krueger, a bankruptcy and real estate attorney at the law firm of McConville Considine Cooman & Morin P.C. in Rochester.

By filing for Chapter 11 bankruptcy protection from creditors, he said, the business gets “an automatic stay that stops lawsuits, foreclosures and the collection process. It’s designed to preserve as best as possible the operational capacity of the business.” 

The business owner also may file for Chapter 11 “to protect their personal assets,” Krueger added.

Other options include Chapter 7 liquidation and an out-of-court settlement with the lender on how to repay the loan.

“Your best bet to save your business is to get moving as soon as possible,” Krueger said. “Every day, every week, every month that you let go by and don’t address the issue is time you’ve lost forever to try to work something out.”