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Getting a loan for a business in these very uncertain times is an extremely risky move, especially if you have to personally guarantee the loan. For anyone her

Getting a loan for a business in these very uncertain times is an extremely risky move, especially if you have to personally guarantee the loan. For anyone here thinking about getting a loan, please get plenty of advice, especially legal advice, and make sure you will be able to pay it back. Otherwise I would urge you to look for other alternatives. It might seem hard or impossible now to close down your business, but it might get a lot harder to deal with the consequences of getting a loan to prop it up if you don't have a very good plan to recover. I've been through corporate bankruptcy (chapter 7) with a company that had multiple creditors. Even though there were no personal guarantees, one of the creditors decided to pursue legal action against us. 2 years after filing for bankruptcy, we are still dealing with a lawsuit by this one creditor (who by the way forced the company into bankruptcy in the first place). Btw, lawyers for a chapter 7 bankruptcy will cost you/your company $10-$20k.

jsight 7y ago
This is really good feedback. I feel like a lot of this goes down to the virtually unlimited uncertainty around when things will even start to return. I know that I've seen businesses layoff much more quickly than they'd like just out of the fear of things dragging on for months. A personally guaranteed loan will carry similar risks.
robhunter 7y ago
My understanding is that the new CARE program does not carry a personal guarantee.
jacobheric 7y ago
While your experience is interesting and instructive in general, I think it's not completely relevant to the specific loans outlined here. These loans are issued directly by the SBA, from federal treasury funds, for the purpose of assisting businesses that might otherwise not survive the economic impacts of covid. For any small business in that situation, it seems a reasonable option. IANAL, but the collateral terms as I read them are very specific and limited to business machines and such, not your house or your car.
- ta1234567890 7y ago
  My particular case is just an example. The most important thing to know is that getting a loan now, without a very good plan to paying it back, is extremely risky. For example, if you own a restaurant and have a lease, it would be a very bad idea to get a loan to pay for that lease. We don't know how long this is going to last. So by the time you are able to reopen the restaurant you might have an insurmountable debt which takes out the business and potentially makes you personally liable. I haven't looked into the details of the SBA loans, but usually if you get a loan and then file for bankruptcy without paying it, you could be liable for fraud if you knew you wouldn't be able to pay back the loan (at the time you signed it) - which is potentially the case for most businesses that might be looking into loans now. Loans are not a silver bullet, please business owners be careful.
  - munk-a 7y ago
    There are also possibly other routes for the inherent property costs. The details haven't been clear but it it looking like lease payments might be freezable pretty soon. The one thing that businesses absolutely shouldn't be doing right now, though, is retaining surplus staff. This is depressing and such, but the correct way for us to deal with this issue as a society is to push those folks who need assistance in these times onto unemployment and bolster that program, giving the best chances for business to come through the far side of the pandemic able to open their doors again. If you state/locality has laws around temporary layoffs this is the perfect time to exercise them, most such laws will defer any mandatory severance[1] until the employee is refused work or fired - but still allows those employees access to safety net funding. Please do note, I've been following Canada a bunch closer than the US but it is my impression that the US response is working pretty similarly. 1. Usually not a thing in the US, but it is pretty standard elsewhere.
    - ta1234567890 7y ago
      > but it it looking like lease payments might be freezable pretty soon. Is that in Canada or the US? If the US, do you have a link to that info? I haven't seen any talks of lease/mortgage/rent freezes outside of Europe and LatAm. Thank you.
PopeDotNinja 7y ago
I got my chapter 7 bk attorney in 2010 for $4k. Feel like I got a good deal now.
- ta1234567890 7y ago
  I'm sure prices vary. The $10-$15k is for bankruptcy lawyers in SF/BayArea in 2018.
danielfoster 7y ago
It looks like the personal guarantee can be waived for loans under $200,000. This is good advice to keep in mind in any case-- I definitely would not take a loan unless I saw a clear way to become cash flow positive.
onetimemanytime 7y ago
How much money was involved in your case? Must've had some assets for them sue you, no?
- ta1234567890 7y ago
  The particular creditor had put in $250k through a convertible note. There were almost no assets, small saas startup. But the creditor was trying to use his leverage to take over the company. He got pissed when we filed for Chapter 7 instead, then bought all claims and assets from the Trustee and sued us founders personally. Long story.
gruez 7y ago
I don't think it's relevant in this case because it will be forgiven, as mentioned by another commenter.

jsight 7y ago

This is really good feedback. I feel like a lot of this goes down to the virtually unlimited uncertainty around when things will even start to return. I know that I've seen businesses layoff much more quickly than they'd like just out of the fear of things dragging on for months. A personally guaranteed loan will carry similar risks.

robhunter 7y ago

My understanding is that the new CARE program does not carry a personal guarantee.

jacobheric 7y ago

While your experience is interesting and instructive in general, I think it's not completely relevant to the specific loans outlined here. These loans are issued directly by the SBA, from federal treasury funds, for the purpose of assisting businesses that might otherwise not survive the economic impacts of covid. For any small business in that situation, it seems a reasonable option. IANAL, but the collateral terms as I read them are very specific and limited to business machines and such, not your house or your car.

ta1234567890 7y ago
My particular case is just an example. The most important thing to know is that getting a loan now, without a very good plan to paying it back, is extremely risky. For example, if you own a restaurant and have a lease, it would be a very bad idea to get a loan to pay for that lease. We don't know how long this is going to last. So by the time you are able to reopen the restaurant you might have an insurmountable debt which takes out the business and potentially makes you personally liable. I haven't looked into the details of the SBA loans, but usually if you get a loan and then file for bankruptcy without paying it, you could be liable for fraud if you knew you wouldn't be able to pay back the loan (at the time you signed it) - which is potentially the case for most businesses that might be looking into loans now. Loans are not a silver bullet, please business owners be careful.
- munk-a 7y ago
  There are also possibly other routes for the inherent property costs. The details haven't been clear but it it looking like lease payments might be freezable pretty soon. The one thing that businesses absolutely shouldn't be doing right now, though, is retaining surplus staff. This is depressing and such, but the correct way for us to deal with this issue as a society is to push those folks who need assistance in these times onto unemployment and bolster that program, giving the best chances for business to come through the far side of the pandemic able to open their doors again. If you state/locality has laws around temporary layoffs this is the perfect time to exercise them, most such laws will defer any mandatory severance[1] until the employee is refused work or fired - but still allows those employees access to safety net funding. Please do note, I've been following Canada a bunch closer than the US but it is my impression that the US response is working pretty similarly. 1. Usually not a thing in the US, but it is pretty standard elsewhere.
  - ta1234567890 7y ago
    > but it it looking like lease payments might be freezable pretty soon. Is that in Canada or the US? If the US, do you have a link to that info? I haven't seen any talks of lease/mortgage/rent freezes outside of Europe and LatAm. Thank you.

PopeDotNinja 7y ago

I got my chapter 7 bk attorney in 2010 for $4k. Feel like I got a good deal now.

ta1234567890 7y ago
I'm sure prices vary. The $10-$15k is for bankruptcy lawyers in SF/BayArea in 2018.

danielfoster 7y ago

It looks like the personal guarantee can be waived for loans under $200,000. This is good advice to keep in mind in any case-- I definitely would not take a loan unless I saw a clear way to become cash flow positive.

onetimemanytime 7y ago

How much money was involved in your case? Must've had some assets for them sue you, no?

ta1234567890 7y ago
The particular creditor had put in $250k through a convertible note. There were almost no assets, small saas startup. But the creditor was trying to use his leverage to take over the company. He got pissed when we filed for Chapter 7 instead, then bought all claims and assets from the Trustee and sued us founders personally. Long story.

gruez 7y ago

I don't think it's relevant in this case because it will be forgiven, as mentioned by another commenter.