Welcome to Delancey Street. We are a premier and top rated business debt settlement company. We operate in 49 out of 50 states in the USA, and are focused on helping business owners escape business debt safely, securely, and legally. Our objective is simple: business debt can crush your business, and we want to help you avoid bankruptcy and other finalities that could mean the end of your business.
Running a small business is hard enough when the money is coming in. When it’s not, the stress can be crushing. Maybe sales are down. Maybe you’ve stretched yourself a bit too thin. But either way, the cash has run out. Every year, thousands of American owners end up in the same spot. The ones who come out the other side usually do it by eliminating expenses, cutting costs and leaning on some form of debt relief. Chapter 7 bankruptcy is the last resort, and for most owners it is the end of the road: they would no longer be able to continue business. They would lose the company they built. So before you take that step, you need to do your homework and check all the other options out there first.
If you’re struggling to keep your business running, there are ways out. However, it’s important to understand the difference between debt consolidation and debt settlement so that you can make a choice that makes sense for you. Debt consolidation involves taking out one loan to pay off multiple debts. Debt settlement, on the other hand, involves negotiating with creditors to reduce amounts owed. Put simply, consolidation is still debt, whereas settlement is a reduction in your debt. Each method has its benefits and each has its pitfalls.
Debt Consolidation
Typically, consolidation focuses on the repayment method, not a strategy to reduce the debt amount. Most often, debt consolidation will involve combining your debt into one loan with a single monthly payment. The new lender pays off your original unsecured creditors, and then you owe one debt to one person with a single interest rate, monthly payment and due date. For a busy owner, that is a real advantage. You no longer have to keep track of multiple creditors and juggle multiple payments.
If your business meets certain criteria, it may qualify for a consolidation loan from a nonprofit lender. Nonprofit lenders tend to be cheaper than conventional bank loans, and a lower rate means a lower payment. This can make it easier to meet your monthly obligations on time. If you cannot find a nonprofit consolidation loan, or if you do not qualify for one, the private sector is where you should look. Private lenders may be willing to give you a lower interest rate if you can use some of your business’s assets as collateral. It’s a big risk. If the loan falls into delinquency, you could lose those assets.
The catch is time. A consolidation loan can take five years or more to pay off in full, and for as long as it is in effect, you will pay interest. These loans usually accrue interest at above-prime rates, and that can soak up your loan savings. And then you wake up a year into the payback process, and your loan balance hasn’t budged much: You’ve been paying interest for a whole year, only to chip a little off your balance. In a word, consolidation loans may be easier to deal with, but not simpler to manage over time. It is important to understand that a debt consolidation loan is not a “fix” for your financial difficulties; it is instead a way to make managing your debt easier. Without new revenue coming in, many owners end up looking at more drastic options.
For some, that means a Chapter 11 reorganization. Under Chapter 11, the bankruptcy judge will work with you to come up with a plan of reorganization. Some creditors may agree to reduce balances while others agree to stretch out the terms, and you can continue to operate your business, usually as a smaller, leaner company. But it’s risky to put the business on life support. After a bankruptcy, lenders would not trust you. New loans come at higher rates and tighter limits, if they are approved at all, and many owners who make it through restructuring are back in serious trouble within a few years. In the end, Chapter 11 may not be a long-term solution. Other owners would rather stay out of court. They want a simpler, faster path to pay off their debts and be done with their lenders. That’s where debt settlement comes in.
Debt Settlement
As its name implies, a debt settlement is where the business’s creditors agree to settle for less than the total amount owed. It does not create another loan in order to clear up existing debt; it reduces the amount of debt you owe, and it does it through direct negotiation with your creditors. You can hire a settlement firm for this. These companies will usually call your creditors and represent you in negotiations to reduce your outstanding balance. Generally, unsecured credit card debt and other unsecured personal or business loans are eligible for a settlement program. That includes personal credit cards and loans the owner borrowed to fund the business. Settlements are a powerful tool for owners in financial difficulties; if you can settle your creditors’ accounts, your debt is lower, your monthly payments are lower and you have more time to focus on improving your business and bringing in more revenue.
Settlement also differs from bankruptcy in important ways. Like a restructuring plan, it reduces what you owe your unsecured creditors, but a restructuring is a legal process and a debt settlement is not. There is no judge overseeing a debt settlement. And with a settlement, the damage to your credit may be less severe, since you are not bankrupt. No case is typical, but the reduction in your unsecured balances can be significant.
Consolidation and Settlement
Put the two side by side and the differences are easy to see. Debt consolidation is a loan. A debt settlement is not. The greatest distinction between consolidation loans and settlements is how they handle your creditors: in consolidation, your original creditors get paid in full by the new lender who issues the consolidation loan; in a settlement, they agree to take less. Consolidation is one loan. With settlement, each unsecured creditor becomes a separate negotiation. You also risk losing assets if you default on a secured consolidation loan. Most settlement programs take less time to work through than consolidation lending, too. Consolidation can take years. A debt settlement can be paid off in as little as 24 months, which is quick compared to 5+ years for a consolidation loan. If you have no new business revenue, either method can be just a band-aid; neither will create new money. If your finances are bad now, they could be worse five years down the road.
Ultimately, the choice between consolidation and settlement depends on a number of things: the amount of debt, the difficulty you’re having paying on your debt and your ability to continue your business. While debt consolidation consolidates the debt so you have one payment, debt settlement reduces the debt, which means you have less money to pay back. If your debt is manageable, a consolidation loan could make repayment more convenient. But if the interest rate is steep, you’ll be paying it off for years. If you have too much debt, or little ability to make payments, settlement might be the better option. Either way, before you take any step that could affect the long-term health of your business or your own personal finances, look carefully at every option you have.
