It’s Business, And It’s Personal

Business loans often can be leveraged

| Apr 26, 2021 | Business Collections |

Fayetteville business relationships depend heavily on loans and lines of credit between commercial firms.

When all goes well, this is a good thing since it allows commerce to continue freely without businesses having to build up large cash reserves to pay their bills up front.

Unfortunately, business enterprises do frequently come under financial distress, and they may not pay the outstanding bills they owe to other businesses as a result. Creditors will therefore have to pursue collection options.

Generally speaking, a business creditor in this situation will have the right both to take the debtor to court to get a judgement and then to take legal steps to sell off the debtor’s property to pay the debt.

However, this is a time-consuming process that is not always the best way to ensure that the creditor gets paid.

Promissory notes and personal guarantees are effective means of collection

A North Carolina enterprise may therefore want to look for ways to make sure that if its business partner runs into financial trouble, the enterprise will still have a shot at getting paid.

Likewise, if a business owes money and is starting to show warning signs of falling behind, it may be the right time to ask for some additional security.

One option is to have the debtor sign a promissory note in which the terms of repayment are set out clearly.

The note offers the debtor the option to negotiate manageable repayment terms, while the creditor can tack on interest and may even elect to secure the note with a mortgage or other lien. The note can also provide for interest and the recovery of collection costs and fees.

Finally, a note may be easier to enforce in a lawsuit than would, say, a line of credit or simple contract.

On a related point, the creditor may also offer the owners of the distress business the option of signing a personal guarantee. If properly drafted, the creditor will be allowed to pursue the business owners for payment if the business is unable to do so.

 

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