The SBRA: Saving Small Business
By Dillon Zwick
The Small Business Reorganization Act (SBRA) was signed into law in August 2019 and went into effect February 19, 2020. The timing of the new law couldn’t have been better. It has never been easier or cheaper for a small company to restructure through a court approved process.
The SBRA accomplishes the goals of saving the company and providing creditors with a better deal then they would have if the company failed.
Additionally, through the CARES Act, the original SBRA debt limit of $2.725 million was increased to $7.5MM for the next year until March 27th, 2021. Before assuming that a business does or doesn’t qualify, we recommend a thorough review with an SBRA expert to ensure obligations are appropriately classified.
Going through a court reorganization process allows companies the following advantages:
- Business Owners:
- Keep ownership and control of their company
- Receive protection from creditor’s efforts to collect on debts
- Can reject or potentially renegotiate contracts and leases
- Can devise a plan to pay their debts while still being able to survive
- Discharge any debts remaining after 3-5 years.
- Only the judge is required to approve of the plan to move forward, not one’s creditors.
- The plan could defer all debts payments incurred before filing, until the company is in a position healthy enough to start making remaking payments.
- All debts would be discharged within 3-5 years of when the plan goes into effect.
- If the owner used their home to secure a business loan, then that loan can be modified in support of the new plan.
- There is no requirement that the company remain engaged in business post filing. You could put the business in ‘stasis’ until COVID-19 passes before reopening.
In summary, you get to keep your home, keep your business, and be free and clear of your debts in just a few years. This provides small businesses a never before seen opportunity to get a fresh start in a post-COVID-19 world. Contact Meadowlark Advisors for a consultation to see how the SBRA and CARES Act provisions may benefit your business.
