If your business is behind on what it owes, you are far from alone. Zippia reports that at least 70% of U.S. small businesses carry some form of debt, and another news organization put the average small business debt at about $195,000. However, too much debt can become a severe burden. Fortunately, there are strategies you can use to manage your small business debt. One strategy is business debt settlement. Debt settlement is a risky maneuver. Before you proceed, you need to understand what you’ll be saving, but also what you may have to give up.
Business debt settlement is the act of renegotiating a business’ debt with a creditor to resolve the debt obligation for less than the full amount owed. This could apply to debt on multiple loans or credit cards, as well as merchant cash advances. This process involves the business agreeing to pay a lump sum or a series of payments that are lower than the original debt amount in exchange for the creditor considering the debt as settled. You can try to settle your debts yourself, or you can hire a lawyer or a debt settlement company to help negotiate.
With business debt settlement, you can settle debt for less than you owe. That is the main attraction, but not the only one. Late fees can compound, and that means more debt. Negotiating a new, lower balance allows the debtor to avoid additional fees in future. Settlement can also put an end to the phone calls and letters from collectors. That alone can get a CEO’s mind focused again. It can keep worse things from happening, too. By reaching a settlement, you stop the collection process, which may include lawsuits and judgments. A lawsuit can end in garnishment, and some owners who wait too long end up in bankruptcy. In short, doing nothing is usually the worst option.
There are also advantages to getting help. When you bring on professional debt negotiators, you’re taking the job off your hands and empowering them to act on your behalf. The value is that you can be spending that time saving the business. An experienced attorney also knows the debt collection laws, has negotiated with creditors many times, and comes to the table as an emotionally detached third party.
There Are Downsides to Consider
Business debt settlements can offer some relief, but they’re definitely not a free-for-all. There are downsides to consider. The hard truth is there are risks, and nothing is guaranteed. Some creditors and lenders might refuse to negotiate, and some may sue to collect instead. Even if your creditors are eager to discuss a repayment arrangement, you still might not get the terms you want.
Then there is cost. Hiring a debt settlement company saves you the hassle, but it also adds cost. Attorney fees can be expensive too, depending on how complicated your situation is. A good settlement may save you money in the long run, but the fees come first. And whoever you hire, remember this. It is not a process that is entirely hands off for your business. You need to make decisions along the way, and you have to authorize them to negotiate on your behalf. You will also be asked for information and documents. To get the best outcome, you should pay attention to the negotiations with your creditors, even if you aren’t handling the negotiations yourself.
When should you get help? Sometimes, when your business is in financial trouble, you may run into debts you just can’t repay to your creditors. That is the clearest sign. Another is how you are being treated. Some creditors use unfair or unethical tactics, including harassment, and if you think this is happening with your company’s creditors, you should seek assistance as soon as possible. Once you have an attorney, collectors have to deal with your lawyer instead of you. And if you are already being sued, you want an attorney in your corner.
Which route makes sense? Can you do it yourself? Yes, you can negotiate with the creditor directly to reach a settlement. While it’s possible to settle debt on your own, you’re less likely to achieve a successful result, and it is a time consuming hassle. A debt settlement company will negotiate on your behalf, but there is often a fee, and there are limits to what it can do. A settlement company is not a law firm, so it cannot represent you in legal proceedings. If talks fail and a creditor sues, or bankruptcy becomes the only way out, you’ll need a bankruptcy attorney or a litigation lawyer. The settlement industry also has been slow to adopt rules and protections, so consumers should be careful with settlement companies. Attorneys are governed by rules of ethics and conduct. The American Bar Association sets guidelines on competence, client communication and confidentiality, and state agencies regulate lawyers. Settlement companies are not held to the same standards.
So it’s important to choose someone to help you settle business debt wisely. Find someone who has good experience with your particular type of business debt. Get recommendations from other business owners and colleagues. Ask about the length of experience, the type and number of cases handled, and the success rate. Nobody can promise an outcome, but a good firm can tell you how often their work results in savings for clients. Understand how their fees work. Always get the contract in writing and read it to confirm that everything is accurate. Talk to more than one firm before you decide; many offer consultations. In the end, what matters most is finding a firm you feel comfortable working with and can trust.
Settlement is not always the answer. Different situations require different solutions. If your business could repay what it owes with a little breathing room, debt consolidation might work better. At the other end of the spectrum, bankruptcy may be the right call, and you would want an attorney for that. In some cases it’s preferable to settle than to go through bankruptcy. In others, it’s the other way around. It depends on your circumstances.
Being buried in business debt is overwhelming, but it is more common than you might think. Paying everything back in full is the best outcome, but it isn’t always possible. If you’re having trouble paying back your business debts and are in financial distress, you may be a good candidate for business debt settlement. There are downsides and risks involved, and it is important to carefully consider the pros and cons before deciding if business debt settlement is the right choice for your business.
