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Looking for business debt relief services? Visit Delancey Street.

Business Debt Settlement: An Overview

Dealing with business debt can be overwhelming. Unpaid bills pile up, creditors call nonstop, and you feel like you’re drowning with no relief in sight. But there are solutions available to find your way out of debt, restore your financial health, and save your business. Business debt settlement is one potential path forward when facing unmanageable business debts.

What is Business Debt Settlement?

Business debt settlement, also called business debt negotiation or settlement, is the process of negotiating with creditors to pay off debts for less than what is actually owed. It involves working with a settlement company to act on the business’s behalf to negotiate deals with creditors.The goal is to settle accounts for a fraction of the outstanding balance – often between 40-60%. This allows the business to resolve what they owe at a discounted amount they can realistically afford to pay. It helps them avoid bankruptcy or other more drastic measures.

When Should a Business Consider Debt Settlement?

There are a few key signs that a business may benefit from debt settlement services:

  • The business is struggling with high, unmanageable debts exceeding $10,000 across multiple accounts
  • Loan and interest payments are becoming very difficult to stay current on
  • Creditors are calling about late or missed payments
  • Business revenue has taken a hit and making even minimum payments is a stretch
  • Bankruptcy feels imminent without relief

Essentially, debt settlement is most useful for businesses overloaded with debt compared to actual income and facing collections calls or legal action. It’s about finding an affordable way out when all other options have been exhausted.

The Debt Settlement Process Step-By-Step

If a business determines their debt load has become unworkable, debt settlement provides a light at the end of the tunnel. Here is an overview of the typical settlement process from start to finish:

1. Initial Consultation

The first step is to have an initial consultation with a settlement firm. This involves:

  • Thorough review of the business’s finances and all outstanding debts
  • Open discussion about the struggles with debt and desire to avoid bankruptcy
  • Learning about the settlement process in detail

This allows the settlement company to assess the situation, understand the goals, and determine if settlement is the right debt relief option.

2. Retainer Agreement

Once the business decides to move forward with settlement services, they sign a retainer agreement outlining the relationship, fees, and scope of services. This contract legally establishes the business/client and settlement company connection.

3. Open Dedicated Account

A dedicated settlement account will be opened in the business’s name at an FDIC-insured bank. All settlement money from the client will be deposited into this account. Funds are used strictly for negotiated debt payments to creditors.

4. Cease Payments to Creditors

With guidance from their settlement representative, the business stops making direct payments to creditors. This is a strategic step to being settlement negotiations from a position of hardship.

5. Documentation Gathering

Next, statements, bills, notices, and other documentation gets gathered from creditors to determine:

  • All outstanding debts and who is owed
  • Total amounts due
  • Terms, interest rates, fees for each account
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Having a complete picture of the debt landscape is essential for the negotiation process.

6. Settlement Negotiations

This is the heart of the program – direct negotiations with creditors to settle debts. The settlement company leverages their expertise and proven techniques to secure discounted payoff offers of 40-60% from creditors.It is a back and forth discussion requiring strategic offers and counter-offers. The final goal is reaching mutual settlement agreements with each creditor at reduced repayment levels the business can manage.

7. Settlement Payments

As negotiations wrap up and settlement deals get formalized, the business begins drawing from their dedicated settlement account to make the agreed-upon payments to creditors. This satisfies debts at the reduced balances negotiated by the settlement firm.

8. Debt Free Future

Within 24-48 months in most cases, the business has paid off all formerly unmanageable debts at settled amounts through the program. This wipes the slate clean and allows focusing on future growth and prosperity without the debt burden.

Why Does Debt Settlement Work?

There are a few key reasons why creditors are often open to accepting discounted payoffs through debt settlement programs:

  • Creditors recoup something – Accepting 40 or 50 cents on the dollar is more beneficial than letting accounts linger unpaid. It brings in at least some money.
  • High risk of default – Creditors recognize very delinquent accounts are at high risk of never getting paid back. Settlement locks in guaranteed money.
  • Cost savings – Settling avoids costly internal collection efforts and legal processes like lawsuits to obtain court ordered judgments.
  • Win-win outcome – Settlement allows creditors to recover a portion of bad debts while giving businesses a second chance at financial stability.

So in many cases, settlement provides a mutually beneficial result for creditors and indebted business owners alike.

What Debts Can Be Settled?

Many types of unsecured business debts are commonly settled as part of these programs, such as:

  • Business credit cards – This may include both major bank cards and store credit lines.
  • Business lines of credit – Unpaid balances on LOC accounts are eligible for settlement.
  • Accounts receivable financing – Settlement helps with these short-term cash flow loans.
  • Equipment financing agreements – Loans for vehicles, machinery, etc can be negotiated.
  • Business bank loans – Term loans, SBA loans, HELOCs and more may qualify.
  • Unpaid vendor bills – Outstanding invoices from suppliers and contractors can be settled.
  • Commercial leases – Negotiations can cover rent arrears and remaining lease terms.
  • Unpaid taxes – Certain business tax debts may be addressed through settlement.

Getting started is as easy as reaching out to discuss your unique situation. Our team can advise if your specific debts can be included in a settlement program.

What Does It Cost?

Legitimate settlement companies do not charge any upfront fees. Rather, they work on a contingency basis, only collecting if settlements are secured. Fees are based on a percentage of enrolled debt amounts, often ranging from 15-25% on average.These fees become due only as each account gets successfully settled. And many firms offer financing options so fees can be paid gradually from funds set aside in dedicated accounts rather than in one lump sum.When factoring the substantial savings – settling $100K in debt for $50K means saving $50K – settlement fees are very reasonable for this life raft service.

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Benefits of Business Debt Settlement

Deciding if settlement aligns with your debt relief objectives means weighing the key potential benefits:

Affordable Debt Elimination The number one advantage is settling debt you cannot afford to pay in full at a significantly reduced cost you can manage. This brings unbearable debt back within reach of elimination.

Avoid Bankruptcy Settlement allows businesses to resolve debt out of court and skip filing business bankruptcy. This sidesteps legal processes and extensive public records that can cripple future access to financing.

Stop Collection Calls & Lawsuits The harassment from creditors and collectors stops once accounts get enrolled into a settlement program. Ongoing collection calls and the threat of lawsuits fade away.

Improve Cash Flow Without the burden of unaffordable monthly payments, cash flow stabilizes. More working capital can go toward business growth priorities rather than just treading water on debt payments.

Tax Benefits Certain settled debt amounts may qualify as tax deductible business losses, providing additional financial relief.

Focus on Future Most importantly, settlement enables getting out from under the weight of oppressive debt. Owners regain hope and control to rebuild their business.

What Are The Drawbacks?

While settlement facilitates eliminating debt, the process is not without some downsides to consider as well:

Credit Score Impacts

When accounts get lumped into settlement, this usually means defaulting on what is owed. Missed payments often show up as late payments, collections, and defaults – all damaging to business credit scores.

Tax Liabilities

If settled debt amounts exceed $600, creditors may issue a 1099-C tax form reporting cancelled debts as taxable income. So tax obligations could follow settlement agreements.

Limited Options

Settlement bars businesses from utilizing certain other forms of debt relief. For example, settled accounts cannot subsequently file bankruptcy or utilize other legal protections.

Fees

Despite the affordability compared to total savings, settlement services do come at a cost. And it may take 2-4 years dedicating monthly deposits before completing settlement agreements.

Is Business Debt Settlement Right For You?

There are no guarantees when it comes to something as emotionally and financially complex as debt relief. Getting out of debt requires both financial discipline and utilizing the right resolution approach aligned with your goals.While debt settlement facilitates eliminating what is owed at a discount, it also comes with drawbacks like credit damage and tax risks. There is no one size fits all solution.The best path forward depends entirely on your unique situation and priorities:

  • How quickly do you need debt relief?
  • How important is saving your business credit score?
  • What level of monthly deposits can you commit to?
  • How important is confidentiality regarding financial struggles?
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Carefully considering questions like these helps determine if settlement or other options like business debt consolidation loans, credit counseling, or bankruptcy make the most sense.

Our Settlement Services

If you determine business debt settlement may be your ticket to financial freedom from unmanageable debt, we can help. With over 15 years of experience, our business debt settlement team knows this process inside and out. We have worked with business owners across every industry and successfully settled over $250 million in business debt.

Our 4 Step Process Includes:

  1. Strategic Evaluation – We thoroughly review your situation to understand the full scope of debt owed and factors driving financial hardship. This allows us to make specific settlement suitability recommendations tailored to your unique circumstances.
  2. Aggressive Negotiations – Leveraging our expertise, we negotiate with your creditors on your behalf to secure heavily discounted debt repayment offers. We leverage everything from hardship arguments to legal leverage when viable.
  3. Ongoing Support – From enrollment to final settlement, we walk with you each step of the way. This includes help opening your settlement account, making monthly deposits, disbursing settlements, and more. You have a dedicated point person to answer all your questions.
  4. Debt Free Future Focus – Our number one priority is putting you in the best position to not only get debt free but stay that way long term. We provide resources and guidance for rebuilding credit, avoiding repeat debt traps, and setting up healthy financial habits.

Let’s Talk!

The first step is having an honest conversation and evaluating if settlement could be the light at the end of the tunnel for your business – just as it has been for countless others we have helped settle over $48 million.Schedule a free, no obligation consultation today to discuss your situation and debt relief goals. There are always options, and we can help find your path forward!

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