Question

Maria is the sole proprietor of a store that is in the same location for 16 years. They rent the space, but the business owns all the fixtures and inventory. The business has an outstanding loan with the bank but not on anything specific. Due to the bad economy, the store can't make the loan payments. What options does the bank have to collect the money it is owed?

I. Sell the inventory and use the cash to pay the debt
II. Sell the store's fixtures and use the cash to pay the debt
III. Take funds from Maria's personal account to pay the debt
IV. Sell any of Maria's personal assets and use the proceeds to pay the debt

A. I only
B. III only
C. I and II only
D. I,II, and III only
E. I, II, III, and IV

Answer 1

The bank has several options to collect debt from Maria's store, including selling inventory and fixtures, or collecting from Maria's personal accounts and assets, as a sole proprietorship implies no legal distinction between her business and personal property.

Step-by-step explanation:

When Maria, as a sole proprietor, cannot make loan payments for her store, the bank has several recourse options. To recover the money owed, a bank can typically:

• Sell the inventory and use the cash to pay the debt.
• Sell the store's fixtures and use the cash to pay the debt.
• Take funds from Maria's personal account to pay the debt.
• Sell any of Maria's personal assets and use the proceeds to pay the debt.

As a sole proprietorship, there is no legal distinction between Maria and her business, meaning her personal assets may be used to satisfy business debts. Therefore, the most accurate option that represents the bank's recourse would be:

Option E: I, II, III, and IV