Consult an attorney to learn more about your options for collecting commercial debt from lines of credit.
Loaning money or extending a line of credit always carries a degree of risk, especially in Arkansas where many markets are changing drastically. But lending institutions like yours must take precautions to minimize the instances of default when extending lines of credit to new businesses. Even the most stringent of loan qualifying processes can sometimes fail to predict the risk of certain loan recipients. When this occurs, you can increase the likelihood of successfully recovering your money by utilizing an attorney experienced in commercial debt collection for lines of credit.
When taking precautions to mitigate risk, it’s important to be aware of the types of businesses that frequently default on lines of credit. Unfortunately, some business types have a higher frequency of failure or of making late payments. These businesses include, but are certainly not limited to:
#1: Independent Restaurants
Independent, and often family-owned, restaurants unfortunately have an approximate 60% failure rate. These dismal results stem from several factors, such as an owner’s lack of business experience, the restaurant’s high start-up costs, or lack of customer demand. Inadequate management and increasing costs are not a productive combination. When restaurants default on a line of credit, the responsibility to pay back a lender falls on the owner’s personal finances. To avoid loss on your investment and collect any remaining debt, consult an attorney with small business debt collection experience.
#2: Small Retail Stores
Competition is fierce, and success for small retail stores depends largely on strong marketing campaigns. This is especially true for small stores that try to compete with larger franchises and online retailers with well-established, scalable business models. Due to the high costs associated with staffing, rent, equipment, inventory, and advertising, these businesses can have a greater default rate than the average small business.
#3: Consulting Firms
Consulting firms are simple and inexpensive to launch, as they seldom require large outlays of cash for equipment or office space. Common examples include personal fitness instructors, life coaches, IT consultants, and independent accountants. In this case, independent consulting companies frequently fail due to a lack of profitable customers. Before extending a line of credit to a consulting company, review the applicant’s business plan and personal finances.
#4: Direct Sales Professionals
According to a report from the Direct Selling Association, 13.8% of American households have a family member involved in direct selling. An astounding 99% of direct sales consultants end up losing money. The large instance of credit default in such cases is caused by poor sales skills, inaccurate personal accounting, or loss of interest. From a lending standpoint, these statistics are troubling at best and give evidence to a high risk investment.
By recognizing the business segments which are the riskiest, lending professionals can minimize the chances of investing in a business venture that could go into debt. However, if all precautions fail and a business defaults, commercial debt collection a viable option to recoup your investment.