The trend for businesses as a result of the huge impact that Covid-19 has had on business in recent months is not good. Many businesses have gone bust as a result of financial pressure now that countries are loosening lockdown restrictions.
Now more than ever, businesses require funding in order to get them through this current crisis. Many businesses have not received any income and some have had to keep on paying sums of money to maintain services and to keep the business afloat.
Banks have tightened their belts so tightly that they are not willing to lend money. As a result, businesses that have exhausted their operating capital and have spent all cash are not in a position to cope with their immediate requirements. They have no money to invest. Many are forced to downsize, or close down.
The market has contracted massively. This is bad news for most businesses as they simply cannot survive on their existing scale. Even the big established businesses have seen a drop in revenue for the past year. It is not that they have suddenly closed down their business units, but it is more or less the same scenario.
If a business is not able to cope with this situation when faced with severe debt pressures, then the ultimate result is that it will go bust due to inability to repay the debts. At such a point, the only solution available is to convert the business into a leasehold property. A leasehold property means that you are not actually owning the building, but you pay rent for the use of the building. Businesses can convert their leasehold property into a suitable working capital instrument that can be used to repay the debts that have accumulated. Hence, businesses that have gone bust due to excessive debt will not have a choice but to convert their commercial buildings into leasehold property.
When a business company goes bust, the first thing that the administration looks at is its capital structure. The capital structure of the business company is looked upon as one of the most important factors in deciding whether the business will be able to meet its obligations. The capital structure is decided after taking into consideration all the financial obligations of the company. Usually, it is the requirement of the business company to raise a certain amount of equity to fund its operations. However, in some circumstances, especially when the business has already raised a substantial amount of equity, the issue of capital will also be considered secondary.