How to Negotiate Lower Payments on Small Business Debt

If you’re a small business owner who’s struggling under a mountain of debt, you’re not alone. Lots of entrepreneurs find themselves in over their heads financially at some point. The good news is, you have options for getting that debt under control. Negotiating lower monthly payments with your creditors can help relieve some of the pressure and keep your business afloat.

Trying to negotiate debt on your own can seem super intimidating. You may not know where to start or what to say. But with some preparation and persistence, you can often work out a deal. In this article, we’ll walk through the process step-by-step so you can get those payments down to a manageable number.

Do Your Homework

Before reaching out to creditors, take time to get organized. Pull together statements and documentation on all your business debts so you have a complete picture. Make a list of each creditor along with key info like:

• Original loan amount
• Interest rate
• Total amount owed
• Minimum monthly payment

Also gather records on your business finances, including profit and loss statements, accounts receivable, accounts payable, etc. This will help you put together a realistic proposed payment plan.

Know Your Rights

As a small business owner, you have certain rights when dealing with creditors and debt collectors. For example, when they first contact you, they have to provide written notice about the debt with key details like the total amount owed. This is your right under the Fair Debt Collection Practices Act.

If you don’t recognize a debt or question whether you actually owe it, you can send a written request asking for verification. Debt collectors have to provide this within five days of communicating with you about the debt. Review the information carefully before paying or agreeing to any proposed repayment plan.

Prioritize Your Debts

Not all debts are created equal, so it helps to prioritize which ones are most critical to tackle first. Secured debts like equipment loans or business lines of credit should take top priority since failure to pay could result in repossession of assets.

Next in line are debts that could result in litigation, like unpaid rent, vendor bills, or breach of contract with customers. Unsecured debts like credit cards and medical bills are lower priority.

Come up with a ranking system – say 1 to 5 – and assign each creditor a priority level. This will help guide you on where to focus your negotiating efforts.

Calculate a Realistic Budget

Before talking to creditors, figure out a realistic monthly budget for debt repayment. Tally up your average monthly income, then subtract regular business expenses like payroll, supplies, etc. The remainder is what you can afford to pay out in debt service.

If the budget is super tight, look for areas to cut costs in your business. But be realistic – drastic cuts may end up harming your revenue, making the situation worse. Prioritize keeping the lights on and making enough to cover monthly operating costs.

Contact Creditors

Now it’s time to reach out to creditors and ask for reduced monthly payments. Call each creditor and explain that you’re experiencing financial hardship but want to pay back what you owe. Be honest about your situation.

Emphasize that you want to avoid default or bankruptcy, but your current payments aren’t sustainable. Then propose a lower monthly repayment amount based on the budget you calculated. Offer to provide documentation to back up your proposal if needed.

If the creditor won’t immediately agree to reduced payments, don’t get discouraged! Ask what options may be available, like lowering the interest rate, extending the repayment term, or temporarily deferring payments. Be willing to negotiate.

Get it in Writing

If a creditor verbally agrees to modified repayment terms, insist on getting it in writing before making any payments. This binding agreement protects you from continued collection efforts down the road.

Carefully review the written contract before signing. Make sure it reflects everything that was agreed to, and keep a copy for your records. Also get written confirmation if any creditor refuses your proposal.

Stay Organized

Once new repayment agreements are in place, stay on top of your new monthly payment schedule. Set up reminders for when each payment is due and keep a log of any communication with creditors.

If you can’t make a payment, proactively communicate that to the creditor right away. See if additional flexibility is possible, or consider consulting an attorney if your business is really struggling.

Watch for Red Flags

Unfortunately, some debt collectors resort to questionable tactics like harassment or threats. Understand your rights so you can recognize any red flags:

• Calls before 8 am or after 9 pm are prohibited
• Collectors can’t share details about your debt with others
• Threats to take legal action must be legitimate

If in doubt, talk to a lawyer or file a complaint with the Consumer Financial Protection Bureau. Don’t let aggressive collectors intimidate you into accepting an unfair deal.

Explore Other Options

If negotiating just isn’t resulting in payments you can afford, talk to an attorney about alternatives. Options like debt consolidation loans or Chapter 11 bankruptcy may provide more permanent solutions.

The earlier you seek help, the more tools you’ll have to overcome debt. With persistence and a strategic approach, you can work with creditors to reach a payment plan that works for both parties.

Dealing with business debt can be stressful, but taking control of your finances helps put you back in the driver’s seat. Follow these steps to negotiate payments you can handle so you can get back to focusing on running your company.

Good luck!

References

Here are the references cited in this article:

• How to Negotiate With Creditors for Small Business Owners – Accion Opportunity Fund
• How do I negotiate a settlement with a debt collector? | Consumer Financial Protection Bureau
• Negotiating Debt Settlements When You Go Out of Business – Nolo
• How to Negotiate Debts with Your Lenders | Equifax
• Business Debt Negotiations and Settlements – Ronald D. Weiss, P.C., Attorney at Law
• Debt Settlement Negotiations: A Do-It-Yourself Guide – NerdWallet