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How to Negotiate with Lenders to Lower Small Business Debt

If you’re a small business owner struggling under a pile of debt, you’re definitely not alone. Many entrepreneurs find themselves overwhelmed financially at some point or another. 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 going. Taking charge of your finances puts you back in the driver’s seat.

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Follow these tips to negotiate payments you can handle so you can get back to focusing on running your company. Good luck!

Do Your Homework

Before you start making calls, take some time to get organized. Pull together statements and loan agreements for all your business debts so you have the specifics handy. Make a list of all your creditors along with balances, interest rates, and payment due dates.

Also gather a few months of bank statements and financial reports. These will help you put together a realistic budget for repaying what you owe. Having all this information in one place gives you a complete picture of your situation.

Know Your Rights

It’s important to understand your rights under the Fair Debt Collection Practices Act. This federal law says collectors can’t harass or lie to you when trying to get you to pay. They have to honor any written requests from you to stop contacting you.

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You also have a right to dispute debts you believe are inaccurate. The collector has to provide verification of the debt if you ask for it in writing. Knowing your rights gives you confidence when negotiating.

Prioritize Your Debts

Not all debts are created equal, so decide which ones to tackle first. Loans secured by business assets like equipment or vehicles should be high priority since failure to pay could result in repossession.

Taxes and payroll debts can lead to liens or levies, so stay on top of those. Payroll taxes also often have personal liability for business owners, giving them more weight.

Unsecured debts like credit cards and lines of credit rank lower since there’s less risk of losing tangible assets. Still pay something on these, but focus first on debts that put your business assets at risk.

Calculate a Realistic Budget

Crunch the numbers to figure out what you can realistically afford for monthly payments right now. Your budget will be a key factor in negotiating lower payments.

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Tally your income from sales, services, and any other sources. Then list regular operating expenses like rent, payroll, inventory, and utilities. See what’s left over for debt payments.

If the remaining amount won’t cover all your monthly payments at current levels, you’ll need to ask creditors to reduce payments. Make sure you have financial records to back up your requested payment amounts.

Contact Creditors

Once you’ve done your prep work, it’s time to call your creditors. Reach out before you miss payments since they’ll be more willing to negotiate if you’ve paid on time in the past.

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Let them know you’re committed to repaying the debt, but your current payment amount exceeds what you can afford based on your budget. Then make a specific request for a reduced monthly payment.

Emphasize it’s in both your interests to modify the payments so you can continue paying off the balance. Offer to provide documentation to back up your financial situation if needed.

Explain Your Circumstances

When explaining the need for lower payments, be honest about what’s impacting your cash flow. Slow sales, supply costs, an expensive equipment breakdown, or losing a major customer are all valid reasons.

Keep the focus on temporary circumstances affecting your ability to pay at the moment. Creditors don’t want to hear you took on too much debt. They’ll be more receptive if they see a viable path forward.

Ask About Alternatives

A lower monthly payment may not be the only option. Consider asking creditors about:

  • Extending the repayment term so you have more time to pay off the balance
  • Waiving late fees or interest charges
  • Allowing interest-only payments for a period of time
  • Letting you defer a payment or two until your cash flow improves

See if any of these alternatives would make the debt more manageable. Some options may require adding months or years to the loan, but they reduce your immediate burden.

Get Agreements in Writing

After you reach a verbal agreement, follow up to get the details in writing. Having a written record protects you and ensures there are no misunderstandings later.

Review the terms to make sure they match your understanding. Look for specifics like new payment amounts, due dates, total balance and interest rate.

Keep a signed copy for your records and mark your calendar for when the first modified payment is due. Send payments on time to show good faith.

Stay Organized

As you restructure debt payments, create a system to track everything. A spreadsheet works well so you can see new payment amounts, due dates, balances and interest rates at a glance.

Set calendar reminders on your phone, computer or paper planner for when payments are due. Automate payments when possible so you don’t miss any.

Having an organized system prevents you from falling behind again. It also shows creditors you’re committed to repaying what you owe on schedule.

Get Help if Needed

If your creditors won’t negotiate or you’re totally overwhelmed, don’t hesitate to seek outside help. Nonprofit credit counseling agencies can assist with creating debt repayment plans.

An attorney experienced with small business debt can negotiate with creditors on your behalf. There are also debt relief and consolidation programs specifically for business owners.

The Small Business Administration offers free counseling and low-cost assistance for struggling entrepreneurs. Don’t be afraid to ask for help if you need it.

By taking a proactive approach, you can work with lenders to negotiate small business debt payments that let you sleep better at night. Here’s to more peaceful days ahead!


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