I can’t imagine what it must be like for individuals who go through separation/divorce.
But what I can confidently advise on is the ability of business owners to obtain finance post-divorce.
People that were comfortable splitting income and minimising tax payable quickly becomes the reason for a new entity under the existing trading name.
A couple’s asset protection and structuring of assets can quickly mean that a business owner who had been trading for some time now has no residential property or didn’t have the ability to service a home loan the way the bank assessed their loan 3,4,5, however many years ago.
Business owners with new entities, no cash and no property go from expecting they call the shots on getting a great deal to having to scramble and accept higher rates and less favourable terms.
Rates for vehicle finance doubling or requiring additional deposits.
The amount they can borrow for a property becomes dramatically less, at a higher rate.
And that’s assuming everything is amicable.
Were all bills paid on time whilst going through separation?
I have seen instances where the credit conduct of a partner for vehicles was that poor that to get the finance the next time around had their effective rate increase over 400%!
Here are a few tips for business owners to consider when it comes to finance and divorce
- Ensure the ability of each party to obtain finance is considered in advance
- Take responsibility for all debts being paid for the business personally.
- If you have significant debt with a single bank – you may well have covenants and properties that your business lending is secured against. Ensure these are reviewed and assess the likelihood of any breach of these resulting from change in the business’ financial performance.
- Evaluate what assets the business will require over the next 12-18 months and work on a plan with both a commercial finance broker (preferably your accountant as well) so that any changes in structure or growth plans consider any additional costs to be incurred.
- Don’t assume everything will remain the same with your lending and don’t accept the thoughts of one lender as gospel.
- Review any buy-sell agreements and insurances to ensure they are still relevant for all stakeholders
- Do not bury your head in the sand when you have a debt the business can’t pay – it only makes things worse down the track.
- You aren’t alone. Working with a network of specialists for your business is paramount regardless of your personal situation – but you can also seek out other businesses in your industry, peers and networking groups for support.
Chris Slack is a Director at The Finance Consultancy.