Loans for Closing a Business: A New Tool for Survival or a Trap?

The beginning of 2025 saw a record number of sole proprietorships closing down. In January alone, approximately 61,500 sole proprietorships ceased operations, which is an absolute record for the entire period of full-scale war.

Why is this? We are sure you understand. Taxes are rising, especially with the new military tax and mandatory social security contributions “for oneself.” Guests began to count every hryvnia. Added to this are general economic instability, reduced demand, and other administrative obstacles.

In a state of despair and haste, entrepreneurs are ready to consider any, even the most risky, anti-crisis tools. The idea of taking out a loan to close a business in order to pay off old debts and carry out liquidation seems dangerous at first glance. However, can this financial instrument become a trap?

Advantages and risks of a loan

The decision to take out a loan to close a business is a high-stakes game. On the one hand, it can be a tool for a controlled and civilized exit from the market. On the other hand, it can be the last step before bankruptcy. Let’s consider both scenarios.

Potential advantages

If you approach the matter with a cool head, a loan can be a useful tool. It will help you:

• Maintain your business reputation. Closing down, slamming the door, and leaving a trail of debt behind you is like burning your bridges. What if you want to start all over again? It is better to settle accounts with your partners and leave on good terms.
• Pay off critical debts. The first and most important is the team’s salary. It also allows you to pay off key suppliers with whom it is important to maintain good relations.
• Avoid legal “showdowns.” Sometimes a single small but very aggressive creditor can initiate legal proceedings or enforce debt collection. The cost of legal support in such cases can exceed the amount of the debt, so a targeted loan is more economically viable in this case.
• Finance the liquidation process. Legal liquidation is a costly procedure: lawyers’ and accountants’ fees, document archiving, audits, etc. A small loan can cover these administrative costs, ensuring that the business is closed in accordance with all legal requirements.

Fatal risks

Despite the potential benefits, the reckless use of a loan to close a business is almost guaranteed to deepen the financial crisis and transfer it to the personal level:

• Transformation of business debt into personal debt. This is the most critical and often underestimated risk. Banks are reluctant to issue business loans for liquidation, as government programs are designed for investment purposes. Therefore, the easiest way is to take out a consumer loan as an individual. The amounts can reach UAH 300,000–500,000, but the interest rates are extremely high—the real annual rate often exceeds 30–35%.
• The illusion of control. Credit money in your account creates the feeling that everything is under control. But it’s like painkillers—the pain will return. However, once the loan funds have been spent, new, previously unaccounted-for debts may arise.
• Risk to personal assets. If a personal guarantee or collateral was provided to obtain the loan, taking on additional obligations to finance non-commercial activities increases the risk of losing these assets.

When a loan helps, and when it hurts

Abstract risks and benefits become much clearer when viewed in a specific example. Let’s analyze a hypothetical but entirely realistic situation with a restaurant owner to see how financial decisions for restaurants can lead to different outcomes.

Let’s imagine Alexander, the owner of a small, once successful restaurant in the center of Kyiv. Over the past two years, his business has been systematically destroyed under the pressure of circumstances characteristic of the entire industry.

Scenario 1: The restaurateur-strategist

Despite the stress, Alexander approaches the problem methodically. He orders a full financial and legal audit, which shows that his total debt is 300,000 UAH. The cost of lawyers and accountants for proper liquidation is estimated at another 50,000 UAH.

He contacts the bank and, after negotiations, receives a small credit line for the business (not for himself personally) in the amount of UAH 150,000. He uses these funds, as one of the anti-crisis tools, to fully repay the debt to employees and settle accounts with the supplier. He negotiates with the remaining partners and agrees to restructure the debt for 6 months.

At the same time, he sells the equipment and furniture, raising another UAH 200,000. This is enough to pay the lawyers and almost completely settle accounts with suppliers. Sashko exits the business with a small loan debt that he will be able to repay, but his personal assets are safe.

Scenario 2: Panic loan

In a state of panic, Alexander decides to act quickly. He does not conduct a detailed audit, but estimates his debts at approximately UAH 400,000. He takes the easiest route — as an individual, he takes out a consumer loan to close the business for UAH 500,000 at 31% per annum.

He begins to chaotically distribute money to creditors, but suddenly a debt for rent “pops up.” And then a notice arrives from the tax service about an additional charge of UAH 150,000 in taxes and penalties. The loan money runs out instantly. And what is the result?

The debts to the tax authorities and suppliers remain, and on top of that, there is a huge personal loan. The bank takes him to court, and his apartment is at risk.

Checklist: 5 questions to ask yourself before taking out a loan

Before taking a step that could determine your financial future, you need to do a self-check. Our checklist will help you assess the situation soberly and avoid impulsive decisions, especially when you are looking for effective financial solutions for restaurants.

Is there a complete and final calculation of all debts and closing costs?

It is necessary to conduct a thorough inventory of all obligations without exception: debts to suppliers, rent, utility bills, wage arrears, unpaid taxes and social security contributions, outstanding loans. Particular attention should be paid to fines and penalties that may be imposed in the future.

What is the legal nature of the loan and how does it affect my personal liability?

You must clearly understand who the borrower is: your company (LLC) or you as an individual. For the owner of an individual enterprise, this difference is less significant, since the individual enterprise is already liable for its obligations with all its assets.

Have all alternative options been considered?

A loan is not the only and often not the best option. Before contacting the bank, you need to carefully analyze alternative anti-crisis tools for exiting a business with debts:

• Bankruptcy.
• Sale of a business with debts.
• Debt restructuring through negotiations.

What is my personal plan for repaying this new debt?

The business you are taking out a loan to close will no longer generate income. Therefore, the only source of repayment for the new debt can be your personal funds. You need to draw up a realistic personal budget to understand whether you will be able to make monthly loan payments.

Have I obtained an independent assessment of the situation from a financial advisor and lawyer?

An independent financial advisor can objectively assess your situation, help identify all hidden risks, and calculate the total cost of each scenario. A lawyer, in turn, will analyze the legal implications of each step and help protect your personal assets.

How we help assess risks and choose the right strategy

Navigating the maze of financial and legal issues when closing a business on your own is an almost impossible task. Emotions, lack of expertise, and limited time often lead to fatal mistakes.

BRG’s work is based on four key stages, offering the best financial solutions for restaurants:

1. Comprehensive financial diagnostics. Our specialists conduct an audit that includes: identification of existing and potential liabilities, market valuation of assets, analysis of debt structure and cash flows.
2. Scenario modeling. We build detailed financial models for each of the possible exit scenarios. We calculate the cost of the “credit” option, the total cost of the bankruptcy procedure, and the cost of alternative liquidation in order to select effective anti-crisis tools.
3. Risk analysis and legal expertise. Our lawyers conduct an in-depth analysis of legal risks for you personally within each scenario. We help you understand the legal nuances and protect your personal assets from encroachment by business creditors.
4. Development of an anti-crisis plan. The result of our work is a step-by-step action plan. If, based on the results of modeling, a loan to close the business turns out to be the only viable option, our plan will contain clear recommendations on the amount, type, and purpose of the funds.

Remember that choosing the wrong strategy can cost you not only your business but also your personal financial well-being. Before taking out a loan, submit an application and we will check whether it is profitable for you free of charge.

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