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Posted: 11/1/2009 3:30:01 PM EST
Does it ruin you financially, or is the failure spread out enough that you wont be bankrupt?
Link Posted: 11/1/2009 3:31:23 PM EST
Rarely do I see a question so wonderfully answered by "it depends", as this one.
Link Posted: 11/1/2009 3:31:38 PM EST
Originally Posted By MALT0SE:
Does it ruin you financially, or is the failure spread out enough that you wont be bankrupt?


It depends on how you legally structured the business and the legal terms of loans you took, debts you incurred etc.
Link Posted: 11/1/2009 3:31:39 PM EST
I think it depends on how you setup the business, taxIDs incorporation, things of that nature
Link Posted: 11/1/2009 3:31:40 PM EST
That all depends on how much money you put into the business that you can't recover by selling it off in pieces and how much of that was on credit.
Link Posted: 11/1/2009 3:32:03 PM EST
Originally Posted By MALT0SE:
Does it ruin you financially, or is the failure spread out enough that you wont be bankrupt?


if you start a business with you own money, you can lose everything you own if it fails depending on how bad it failed.
Link Posted: 11/1/2009 3:32:21 PM EST

Originally Posted By Subnet:
Rarely do I see a question so wonderfully answered by "it depends", as this one.


No shit
Link Posted: 11/1/2009 3:32:33 PM EST
I know jack squat about business dealings so any input would be appreciated
Link Posted: 11/1/2009 3:33:28 PM EST
Originally Posted By Subnet:
Rarely do I see a question so wonderfully answered by "it depends", as this one.


I was just about to type that when I read your post.

Mainly, it depends if your business was incorporated as a separate legal entity and if any of the lines of credit are in the name of the business owner.
Link Posted: 11/1/2009 3:34:12 PM EST
It won't if the business is a LLC.
Link Posted: 11/1/2009 3:34:52 PM EST
Originally Posted By hondaciv:
It won't if the business is a LLC.


Who takes the hit if it's a LLC?
Link Posted: 11/1/2009 3:34:59 PM EST
If you were cash strapped to start with you're SOL. And that's the way most small businesses start and end, unfortunately.
Link Posted: 11/1/2009 3:35:07 PM EST
Originally Posted By MALT0SE:
I know jack squat about business dealings so any input would be appreciated


Take BA 101 at a jr. college if you are thinking about opening your own shop, you will learn a lot.
Link Posted: 11/1/2009 3:36:25 PM EST
Originally Posted By MALT0SE:
Originally Posted By hondaciv:
It won't if the business is a LLC.


Who takes the hit if it's a LLC?


Vendors



Link Posted: 11/1/2009 3:36:46 PM EST
You can be a BBC if you want but if you borrow money somebody is going to be on the hook. Or, you just can't borrow money. Your choice.
Link Posted: 11/1/2009 3:39:06 PM EST
[Last Edit: 11/1/2009 3:41:11 PM EST by NoHarmNoFAL]
Originally Posted By MALT0SE:
Does it ruin you financially, or is the failure spread out enough that you wont be bankrupt?


Just because you are in a business, even if incorporated, someone has to sign on the dotted line so someone is personally liable for the debt.

If the corp was solely responsible and you were insulated, there would a lot of defaults on that.

ETA - Anyone that would lend money to a corp and not have co-signers deserves to go out of business.
Link Posted: 11/1/2009 3:40:20 PM EST
[Last Edit: 11/1/2009 3:41:07 PM EST by TNARShooter]
even as a LLC you can take a hit because a lot of the time you have to personally guarantee things.

Need a few more details to know what the hell to tell you.

ETA:

This was what I was talking about.

Originally Posted By NoHarmNoFAL:
Originally Posted By MALT0SE:
Does it ruin you financially, or is the failure spread out enough that you wont be bankrupt?


Just because you are in a business, even if incorporated, someone has to sign on the dotted line so someone is personally liable for the debt.

If the corp was solely responsible and you were insulated, there would a lot of defaults on that.


Link Posted: 11/1/2009 3:40:41 PM EST
Unfortunately, even if you set up your business as an entity with limited liability, most banks won't lend out money for small businesses unless you personally gurantee the loan. So you may take a hit no matter what.
Link Posted: 11/1/2009 3:41:34 PM EST
Originally Posted By MALT0SE:
I know jack squat about business dealings so any input would be appreciated


You probably already know this, but before you sign anything, talk to a lawyer.
Link Posted: 11/1/2009 3:41:40 PM EST
The simple answer is maybe
Link Posted: 11/1/2009 3:43:08 PM EST
Originally Posted By TxAggieA-Batt:
Unfortunately, even if you set up your business as an entity with limited liability, most banks won't lend out money for small businesses unless you personally gurantee the loan. So you may are going to take a hit no matter what.


Link Posted: 11/1/2009 3:46:51 PM EST
[Last Edit: 11/1/2009 3:49:56 PM EST by crazyquik]
Originally Posted By MALT0SE:
I know jack squat about business dealings so any input would be appreciated


Then you probably shouldn't start a business.

But let's say you just hang out a sign saying "Gunsmith" or "Gunstore" You're now a sole proprietor. Losses that the business generate can go back to you, and personally bankrupt you. If you install a barrel the wrong way and the gun kabooms, they will sue you and you, personally, will be liable.

If you get someone to go in with you, then you've formed a partnership (even without signing anything). Again, losses (credit losses or losses from liability) go directly to the owners.

The other popular forms of business incorporate a 'liability shield' to them. You could have a small corporation (with one person (yourself!)) owning all the stock. Or a Limited Liability Company (LLC) or a limited liability partnership (LLP) or several other variations, depending on what state you live in. All these require you to spend a few (hundred) dollars to file with your state government.

In return you get an entity, think of it sorta like a box, that is seperate from your personal financial life. If you don't put anything in the box to begin with, no one in the world is going to lend you anything. But you can decide to only put $500 or $10,000 or a deed to a piece of land or a patent into the box, and then that's all that you risk losing if it fails. The buck stops when the box is empty, and doesn't go back against your personal finances. Of course, that requires all the business to be transacted under whatever the official name was, like Gunsmith LLC. So when the gun explodes this time, your personal vehicle, savings, and home will be free and clear; and creditors will only be able to get assets that belong to Gunsmith LLC.

As others have said, it may be hard to get bank loans without either personally guaranteeing the loan, or having substantial assets 'inside the box' first. Or selling junk bonds If you have an illiquid asset of value, like a patent, a machine, a piece of land, etc, it's a lot easier to get a loan secured by that asset.
Link Posted: 11/1/2009 3:47:07 PM EST
[Last Edit: 11/1/2009 4:11:49 PM EST by America-first]
If you needed to borrow money in order to capitalize the corporate business you probably had to sign personal notes backing any loans and you're on the hook.

ETA: If you go into partnership with another individual and his personal taxes are deemed to be hinky by .gov; you are liable as well.

Never, ever enter into a business partnership.
Link Posted: 11/1/2009 3:50:25 PM EST
[Last Edit: 11/1/2009 3:51:28 PM EST by krpind]
[subnet] It depends [/subnet]

If you are "all in" on your business then yeah you can go down too. This usually happens to folks who's sole income is coming from this business. If you are rich and you are investing in something, a lot of times you just walk away.

The problem is most people who are "all in" continue to try to make it work even when there is no hope. Even an owner of a Corp, LLC or a LLP can down because those entities aren't likely to get ANY credit without personal guarantees. Those guarantees are going to make anyone who signs them liable for the debt incurred for the Corp, LLC or LLP.

ETA. I see it is already covered.
Link Posted: 11/1/2009 3:51:50 PM EST
This is probably the fastest track to bankruptcy there is.

People start a business with little or no start up capital and form an LLC or some other corporate entity. Then they run out and get a credit card for the corporation and start racking up massive start up debt. What they always forget is that on the form they have to put the Corp's EIN and their SSN which ties the debt to them regardless of the corporate entity.

I have seen this happen several times and it nearly happened to me.

I have never seen a Small Business Loan that was solely tied to the corporate entity, they are always signed for by the business owner(s).
Link Posted: 11/1/2009 3:53:38 PM EST
I would love to hear some details of how these "Maybe's" are getting their financing and exactly how you get a no fault loan.
Link Posted: 11/1/2009 3:53:54 PM EST
Originally Posted By MALT0SE:
I know jack squat about business dealings so any input would be appreciated


When I sent up my business It was sent up as a LLC. My accountant helped me the whole way. Getting the proper paperwork and tax id. I would talk to your accountant.
He also helped me when I ended it.. Fortunately I paid for everything with my own money so I didn't owe anyone any thing.
Link Posted: 11/1/2009 4:03:53 PM EST
I lend money to business all day long. You borrow from me as a start-up expect at least half the start up money to come from you or investers, in this market. Or you will be going the SBA route. All owners will guarantee and most likely pledge a mortgage on there personal residence. You walk, fine expect to have whatever assets left repoed, to be taken to court, have a judgment against you and your home.
Link Posted: 11/1/2009 4:34:26 PM EST
Not if you start it with somebody elses money and limited liability.

Think Donald Trump. Many failed and Bankrupt enterprises. Man's still rich and banging hot chicks.
Link Posted: 11/1/2009 4:41:13 PM EST
Originally Posted By NoHarmNoFAL:
I would love to hear some details of how these "Maybe's" are getting their financing and exactly how you get a no fault loan.


Have a long term relationship with a lender, have a proven track record, have a sack of cash to put into the deal and be using the proceeds of the loan to buy a tangible asset that the lender can collateralize and easily turn into cash if the deal goes south and he has to repo/ foreclose on it.

Simple huh?

Link Posted: 11/1/2009 5:49:42 PM EST
Well - for lack of a better word or words, it depends on what your goals are of the business...I have a lot more to say - PM if you like.
Link Posted: 11/1/2009 5:58:33 PM EST
You're not getting credit without a personal guarantee, I don't care what form of business you start.

So, either your credit gets crushed or a private investor, if you found one to invest in your dream.
Link Posted: 11/1/2009 5:58:53 PM EST
that's one reason to take a loan to start a business instead of going balls deep with all of your assets sunk in...or so i hear.
Link Posted: 11/1/2009 6:01:10 PM EST
If you're sensible, no.
If you're into taking big risks, sure.
Link Posted: 11/1/2009 6:08:32 PM EST
Originally Posted By yumbeef:
that's one reason to take a loan to start a business instead of going balls deep with all of your assets sunk in...or so i hear.


So what do you hear will stand good for the debt?
Link Posted: 11/1/2009 6:16:03 PM EST
Originally Posted By NoHarmNoFAL:
I would love to hear some details of how these "Maybe's" are getting their financing and exactly how you get a no fault loan.



Well......first you gotta ask yourself what ethnicity you belong to and if you can get the "community reinvestment act" afficionados
to give you a hand. Generally speaking the only people who get business start up money from banks etc. when they really aren't
creditworthy or have assets are the people who can use .gov's big brother baseball bat to beat the lenders into submission.


Link Posted: 11/1/2009 6:18:06 PM EST

Originally Posted By Renegade13B:
Originally Posted By MALT0SE:
I know jack squat about business dealings so any input would be appreciated


Take BA 101 at a jr. college if you are thinking about opening your own shop, you will learn a lot.

Get a partner who knows what they are doing and preferably, has BTDT.

Also, start a business with someone else's money. Smaller oil companies often pay for a well by making three "Third for a Quarter" deals. Someone pays for a third of the cost for a quarter working interest. Well gets drilled with zero risk to the driller and the only reason many small companies survive.

Link Posted: 11/1/2009 6:51:05 PM EST
Most small businesses, regardless of type, use credit that is personally backed by the owner. That owner will still be on the hook.

There is no simple YES or NO answer here though, too many factors.
Link Posted: 11/1/2009 7:59:00 PM EST
Wow, yes it depends. I was in business for 20 years and went through lots of ups and downs. Lost my first house because of it. But finally sold out and used the money to move here and pay my bills for a while.

I would never own a business again.
Link Posted: 11/2/2009 3:43:32 AM EST
The loans you signed for are still tied to your name.

The reason for becoming an LLC is mostly to protect your personal assets against legal liabilities stemming from your business––not financial liabilities you freely enter into (with lenders).
~
Link Posted: 11/2/2009 3:46:38 AM EST
[Last Edit: 11/2/2009 3:47:58 AM EST by BozemanMT]
AS others have well documented, you are personally guaranteeing all the loans.
Even though it's a LLC/corp

Most business's fail from lack of cash, not lack of profitability.

You buy materials on day 1 with your cash. You finish the job on day 7 and bill them, they pay on day 37 (if you're lucky)

notice you have no cash for 37 days
Meanwhile bills conitnue to come in. rent, lights, phone, truck payments, insurance, etc (oh and somewhere in there you're supposed to get a salary)

So, you open a line of credit with the materials company.

So, now it's you buy materials on day 1, you finish the job on day 7, you pay the materials bill on day 30 and you get paid for the job on day 37.

See what's happening here? Credit allows you to save your cash.

BUT, if you buy everything on credit and keep pulling money out of your business (taking a salary) then you'll have no cash and large debts.

Track your payables and receivables closely and don't let them get out of whack.

#1 rule in business: cash is king.
#2 rule in business: you get paid LAST. Everyone else gets paid before you.

But even if you're doing a good job and you're well established, etc let's do an example from the past 2 years to many construction firms.

Work totally disappears. This has happened before and so you wait it out for 3 months.
still no money coming in, but continuing expenses are still there. taxes, insurance, payments, etc
Ok, at month 4, you have to take some money out because you personally need some money.
month 6 still nothing, but you have hope.
You've drained the business of cash because you need money out of it (not unreasonable), run up your personal credit cards, run up your lines of credit trying to stretch the cash.
At some point this all goes boom and you simply run out of cash.
If you knew then what you know now, you would have shut the business down at Month 1 and been fine (just having to find a new job), but it doesn't work that way. You never know. You've been thru hard times before, it will turn around, just one more month etc

personal example. We had ZERO work from Oct 15, 2008 to March 1st 2009. Nothing, I really thought we would go under, but instead we invested MORE of my personal savings to change the business. Today we're up 15% over our best year over gross and 20% net and it's only October, BUT it could have easily gone the other way though and I'd have way less cash and no income at all. A business is a gamble EVERY SINGLE FUCKING DAY. You just never know.

I hope that helps.
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