Business owners urged to spend their pennies wisely

 13/01/2009

Business owners are having to plough more of their own cash into their enterprises to beat the credit crunch as banks become 'noticeably more averse to lending,' it was claimed.

Leading Black Country solicitors Higgs & Sons believe that it is becoming increasingly common for owners of small and medium companies to invest their own money to instigate the required growth and alleviate their cash flow concerns.

However, partner Damian Beard is warning individuals about the dangers associated with making personal cash injections, unless they are properly documented and protected with appropriate legal security.

He said: "Business owners are advised that if they are considering investing their own funds then they should take the necessary steps to ensure that the debt owing to them by the company is suitably secured.

"This means that should the business enter liquidation or if an order for winding up is sought by an unpaid creditor, then the owner's investment is more protected than would otherwise be the case.

"This increases the prospect of fully recovering the money that has been invested. Failure to put such arrangements in place may result in the total loss of the investment upon any winding up of the company."

Mr Beard added that even if business owners had already made such an investment in their companies, it may not be too late to take similar action to protect their position now.

"Putting in place such protection will often require the consent of any parties, for example existing banks that hold existing charges over the company.

"In such circumstances, the third party charge holder may have their own requirements to be satisfied before a new charge can be granted and an agreement often needs to be reached between the parties."

If any business owners are considering injecting their own money into their companies, or have already done so and would like any further information on the type of protection that may be available, please contact Damian Beard on 01384 342100.