My business is failing. What are my options?

In this 4-minute read:

  • Should I take out a loan?
  • Business bankruptcy options
  • Consider trying to sell your business
  • Closing down your business the right way

Unfortunately, the coronavirus pandemic has signaled the death knell for many American small businesses. Shops and restaurants that were operating on very thin margins before COVID-19 simply can’t handle the socioeconomic shock, and many are unlikely to survive. 

Unfortunately, as some of our previous studies have shown, 55% of small and local business owners said their business wouldn’t survive if sales stop for 1-3 months. 21% said their business wouldn’t even survive 1 month.

Read more: how many businesses have closed due to COVID-19?

If your business is failing or has failed, and you’re not sure what your options are, let’s go over a few possible courses of action.

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help! Click here to learn more.

IMPORTANT NOTE: this article is for general informational purposes only. It is not a substitute for qualified legal and/or business advice. Please seek the help of a licensed business attorney and advisor to help you weigh your specific options.

Should I try to take out a loan to save my business?

It can be tempting to borrow money to “see you through a rough patch,” and it’s possible your situation merits the consideration of a loan.

However, It’s usually not a good idea to borrow money to try to save your business without a solid plan for how you are going to recover and improve. 

Even the Federal PPP loan, which can be 100% forgiven if you adhere to the rules, will not be enough to prevent many small businesses from going under.

It’s rare that a simple infusion of cash can resurrect a business that has gotten upside down due to market changes, poor management, lack of marketing, social trends, etc.

Most experts will dissuade you from seeking out a business loan until you have consulted a qualified business advisor who can make sure you have a solid plan for changing what’s broken and helping you get profitable. Otherwise you’re just taking on more debt you can’t repay.

And that brings up another point… lenders are reluctant to approve loans for failing businesses, at least not without a hefty interest rate to make it worth their while to accept the risk. So you could potentially be losing whatever profits you’re able to generate (and more) as interest on the loan.

Get professional counsel and go carefully where taking on more debt is concerned.

Should I try to sell my failed business?

According to The Balance Small Business, the number-one reason someone sells a business is that it is failing, not because it is successful. So selling your business might be a good way to go for you, after you and your business advisor have discussed the pros and cons.

There are companies and brokers to help you find a buyer for your business, or you can list it on a website that specializes in selling businesses, such as or

Selling out can help you recoup some of your losses, and can possibly allow a fresh owner (with fresh money and ideas) to turn your good idea into a successful business.

Be sure to weigh the benefits and downsides, educate yourself, and work with a professional broker or advisor before you consider selling. The Balance Small Business has published a good overview of 5 Mistakes to Avoid When Selling Your Small Business

They include:

  • Waiting too long to sell
  • Not finding the right broker or consultant to represent your business
  • Thinking you don’t have to promote or market yourself
  • Asking too much or too little for your business
  • Selling to the wrong person/taking the first offer

Declare bankruptcy and either liquidate or reorganize

Another option for failing or failed businesses is to file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy.

Refer to our complete article on small business bankruptcy options for more details and information, but a very brief rundown is as follows:

  • Chapter 7 bankruptcy is for when you want to shutter your business and liquidate all assets, to help repay your creditors. (This type is usually chosen by sole proprietors, as the result of the bankruptcy filing is a “discharge” of your remaining debt, including loans for which you signed a personal guarantee)
  • Chapter 11 bankruptcy is for when you want to try to save your business, but need time to reorganize your debt and get the help of the bankruptcy court in negotiating payment terms and other issues with your creditors. Chapter 11 is very time consuming and can be very costly, but is an option for some small businesses
  • Chapter 13 is a cheaper, less complicated, and less costly version of Chapter 11, with limitations on how much debt you can have. Chapter 13 is usually an option used by individuals, but some sole proprietors with lower amounts of debt choose this bankruptcy option as well 

Bankruptcy has many pros and cons, but one of the advantages is you gain access to experts who specialize in negotiating with creditors and also who want your business to succeed (so that your creditors can be fully repaid). 

Of course you shouldn’t simply file bankruptcy to get access to professional advice and help… there are less drastic ways for you to get business counsel. Talk to a trusted business advisor and see if you can work out other options that might be better for you first.

Should I close my business down and walk away?

It’s sad to say that sometimes the only way to stop a business hemorrhaging money is to shut it down. If you’ve tried everything you and your business advisor can think of to no avail, and you don’t want to declare bankruptcy (which can be expensive and time consuming, and have far-reaching impacts on your credit and other aspects of your life), it might be best to simply close your business for good and walk away.

A helpful post from HerMoney details 6 signs it’s time to close your business

  • You aren’t meeting annual revenue projections (and are putting personal money into the business)
  • Your personal health has gone south
  • Your mission loses its luster
  • You love your product or services more than your customers do
  • Your key employees are leaving
  • ‘Sleep mode’ (slowing down operations to resume later) isn’t an option

Should you decide it’s time to close down your business, that does NOT mean you just lock the front door and leave the keys in the mailbox. There are several important steps to consider. PaySimple has a good list here, which we’ll just touch briefly on below:

  1. Make the toughest decision (do you do whatever you can to keep your business going, or do you shut it down?)
  2. Prepare for an orderly and strategic shut-down
  3. Get all decision-makers on board
  4. Let your staff know
  5. Collect on outstanding accounts
  6. Alert your customers and begin closing accounts
  7. File dissolution documents
  8. Take care of your tax requirements
  9. Cancel business licenses and permits
  10. Pay your outstanding debts
  11. Consider bankruptcy options
  12. Distribute assets and close your financial accounts
  13. Keep records
  14. Take time to mourn
  15. Bounce back and move on

Remember, while it’s common, particularly among America’s small business owners, to take a business failure personally, it is after all just business. 

Most, if not all successful business owners have had multiple failures before they found the magic sauce. Try not to take the failure of your business personally, and see what you can learn from the experience so you can knock it out of the part next time.

Womply can help you get the small business funding that’s right for you

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help!

Click here to check out our small business loans resources. Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!

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