Business debt settlement is a negotiated agreement in which your creditors accept a one-time payment that is less than the full balance owed, and the remaining balance is forgiven. If your cash flow is unstable, your debts are high, and your future income may not help you catch up, business debt settlement is a possibility you should consider. Many owners are wary of the other options for business debt: bankruptcy, which can force them to liquidate their business, and debt consolidation, which usually requires a good credit score to be eligible for. If you have read this far, you are most likely considering hiring a debt settlement company. The best debt settlement companies can help you save money, time, and stress when debt is threatening your financial security. However, the service must be run by a reputable company or your situation could get worse.
A reliable business debt settlement company will start by determining what kind of debt you are dealing with. Because it is not uncommon to have multiple types of debt, and several different creditors who hold it, not all businesses are a good fit. Settlement works best for unsecured debt, such as business credit cards, merchant cash advances, lines of credit and money owed to vendors. If your business has more secured debt, like a mortgage or a company car loan, you might be better off with a different type of solution. Unsecured creditors tend to be more willing to negotiate, because they have no collateral to rely on. But if your balance is primarily on secured loans, the business debt settlement companies are likely to send you away empty handed. Be honest about what kinds of debt you have, and what your expenses look like, so that you are pointed toward a solution that actually works for your business.
A business debt settlement company will not know how much it can save you until it analyzes your accounts and makes offers to your creditors. Any company that tells you the exact amount of savings you can expect is either a) making grossly inaccurate estimates or b) telling you a lie. There are a lot of variables to consider when you are going through the debt settlement process, and it simply isn’t possible to estimate how much you will save without looking at your entire situation. Some creditors, like the Small Business Administration, rarely agree to settle at all, while credit card companies may be more open. And a debt settlement company cannot guarantee a creditor will accept a settlement offer.
The Right Debt Settlement Company
If you are looking for the right debt settlement company, a free consultation should be a normal part of the process. This is where you ask questions and are able to be a little bit skeptical about what they are telling you. At this stage, a decent company will be able to explain what they can do, why they are right for you, and the risks involved with going the debt settlement route. A good company will always talk to you in a straightforward way and explain everything clearly. They should outline their services, and explain your options and plans. If the answers are cloudy, talk to them again. Otherwise, take your business elsewhere.
Then there is the question of fees. You should never pay your business debt settlement company any money up front for services you haven’t received yet. If a company holds out until the end of the process to tell you their fees, or only mentions them in a blurry paragraph, that company is likely not as ethical as they claim. You should be aware of all fees from day one so there are no surprises later on.
Don’t take the company’s word for any of this. Look for customer reviews and testimonials, and research the company online to see what other business owners are saying about it. Pay attention to what current and past clients say about the company’s customer service, ethics, and outcomes. It is also important to make sure that the people doing the negotiations actually have experience in the field. Are they negotiating regularly, or are they learning the ropes as you work with them? Ask them how many professionals will be working on your case and what their background is. The best firms employ certified debt experts, and they should be able to show you proof of those credentials.
Don’t let any company pressure you to make payments to them immediately. You should never feel like you are in a rush to sign on with a particular company. If a business debt settlement company tells you that you need to sign an agreement ASAP, walk away. Pressure is one of the clearest signs that a company may not be legitimate. A good debt settlement company will offer options, not manipulation.
How the Program Works
A good company will also be honest about how the program works, including the parts that hurt. In the traditional business debt settlement program, you deposit a certain amount of money into a dedicated settlement account each month, and your debt settlement company will negotiate with your creditors and arrange a lump-sum payment. That account should be one you own and control, separate from your regular checking account. Expect that some companies will strongly encourage you to stop paying your creditors during settlement, in order to collect enough money to make a good offer. Many creditors won’t consider a settlement while you’re still current, but pausing payments usually hurts your credit. So before you sign up, learn as much as you can about how the program works. Will your credit scores be impacted?
Pausing payments also doesn’t stop a creditor from taking legal action. The problem is, until that agreement happens, they can always sue you. The company you choose should tell you how likely this is to happen for your debt, and what your options will be if it does. If your business is sued, a settlement is often still possible. You will need to consult with an attorney regarding the lawsuit. That matters even more if you personally guaranteed the debt, since a lawsuit could then reach your personal assets as well as your business’s.
Ask how long the program will take, too. A full settlement program typically takes 2-4 years, depending on the type and amount of debt, though your first debt may be settled in a matter of months.
Settlement Isn’t Right for You
Sometimes the most honest thing a settlement company can tell you is that settlement isn’t right for you. Don’t be offended if a company insists you need a different solution. A trustworthy business debt settlement company will do a thorough investigation into your business’s financial history. They will talk to you about the number of accounts you have, the type of accounts, how much you owe, your income and how stable your income has been. Settlement typically makes sense when you owe $7,500 or more. For smaller balances, or if you’d rather keep repaying under a court-approved plan, a consolidation loan, a debt management plan or Chapter 11 bankruptcy may be a better choice. It is easy to get caught up in the marketing of the debt settlement process: creditors will accept a lower payment, and the rest of the balance is forgiven. But you should be educated on all your options. If a debt settlement company is not able to point you toward a consolidation loan or bankruptcy lawyer, they aren’t worth hiring. Where settlement does fit, it has real advantages over bankruptcy: it is private, and in most cases it doesn’t require you to close your business.
Above all, trust your gut. If a company refuses to answer questions or won’t share information about fees, those can be signs of a debt relief scam. If something feels off, or you aren’t totally confident that this is the right choice for you, don’t rush in. The best companies will simply tell you what they are qualified to do and what they are not qualified to do, and will try to steer you towards the best option possible. If your gut is telling you that you should find a different company, you probably should.
