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Business Debt Settlement: An Overview

Dealing with business debt can be extremely stressful and overwhelming. As a business owner, you may have racked up significant debts – from business loans, to credit cards, to unpaid invoices. The financial pressures can feel inescapable.However, there are options. Business debt settlement may provide a path forward. This article will provide an overview of business debt settlement – what it is, how it works, the pros and cons, and more. We’ll also share actionable tips for navigating the process.

What is Business Debt Settlement?

Business debt settlement involves negotiating with creditors to pay off debts for less than the full amount owed. A business will work with a debt settlement company to put together a settlement offer – usually paying 30-50% of the total debt amount. If creditors accept the offer, the remaining debt is forgiven.For example, if a business owes $100,000 across multiple debts, they may be able to settle these debts for $30,000 to $50,000 total. This allows the business to resolve what they owe at a significant discount.

When Should a Business Consider Debt Settlement?

There are a few situations where business debt settlement starts to make practical sense:

  • The business is facing severe financial hardship and does not realistically have the capacity to pay back debts in full
  • Creditors have turned accounts over to collection agencies or initiated legal action
  • The business wants to avoid bankruptcy, which has severe long-term consequences
  • Owners are willing to take a credit score hit for a few years in exchange for resolving debts

Essentially, debt settlements allow businesses to resolve unpayable debts instead of endlessly fighting losing battles. However, it comes at a cost – damage to credit and reputation.

How Does the Business Debt Settlement Process Work?

The business debt settlement process generally involves the following key steps:

  • Step 1: Consult with a settlement firm and assess all outstanding debts
  • Step 2: Negotiate with creditors and collection agencies to agree on settlement offers
  • Step 3: Come up with a structured payment schedule that works for the business
  • Step 4: Make installment payments into a secured account over a period of 12-48 months
  • Step 5: Creditors accept final payment and forgive remaining balances
See also  Massachusetts Business Debt Settlement Lawyers

Reputable settlement firms will manage communications and negotiations with creditors on a business’ behalf. They have extensive experience striking mutually acceptable deals.Throughout the process, creditors may continue collection activity – calls, letters, potential lawsuits. A good settlement firm will intervene to put a hold on this while negotiations are underway.

What Debts Can Be Included in a Business Debt Settlement?

Many types of business debt can be resolved through settlements, such as:

  • Business credit cards – Both company cards and cards owners used for business expenses
  • Outstanding invoices more than 90 days late
  • Business term loans or lines of credit
  • Business equipment financing agreements
  • Commercial real estate loans
  • Recent judgments awarded to creditors in legal cases

However, there are certain debts that generally cannot be settled this way:

  • Ongoing expenses like payroll, taxes, utilities, etc.
  • Student loans
  • Mortgages and car loans
  • Debt from fraud or criminal acts

Rules differ by state, so talk to a settlement professional about your specific situation.

The Pros and Cons of Business Debt Settlement

Business debt settlement can be an extremely effective way to resolve overwhelming debts. However, there are some clear pros and cons to weigh:


  • Settle debts for a fraction of balances owed
  • Avoid bankruptcy and continue operating business
  • Consolidate multiple debts into single monthly payment
  • Get collectors to stop harassment and lawsuits


  • Hurt business credit score for a few years
  • Lose leverage to negotiate favorable terms on future debts
  • Deal with increased collection activity in the short term
  • Pay taxes on amount of debt forgiven

For many businesses facing extreme hardship, the pros tend to outweigh the cons. But each business must carefully assess their own situation.

See also  Virginia Beach Merchant Cash Advance Debt Relief Lawyers

Tips for Navigating the Business Debt Settlement Process

If you decide to pursue business debt settlement, keep these tips in mind:

  • Consult an experienced settlement firm – Don’t go it alone. Get guidance from professionals used to negotiating win-win deals with creditors.
  • Know your rights – Collectors may use aggressive tactics to get payments. But laws like the Fair Debt Collection Practices Act limits what they can legally do.
  • Open a separate bank account – Set up an FDIC-insured bank account that settlement firms can use to manage payments. Don’t mix this money with general operating funds.
  • Cut unnecessary expenses – For the duration of your payment plan, strip down budgets to bare essentials and postpone any major investments.
  • Stay disciplined – It can take 12-48 months to complete payment plans. Commit to seeing it through.
  • Rebuild credit – After debts are settled, work methodically to repair damage to business credit reports and scores.

While the process takes grit and perseverance, freedom from oppressive debts is within reach. Stay focused on the light at the end of the tunnel.

Options Beyond Business Debt Settlement

If business debt settlement does not end up being the right solution, know that you still have options:

  • Debt consolidation loans – Taking out one larger loan to pay off many debts
  • Credit counseling – Working with non-profit counselors to pay back debts in full with better terms
  • Debt refinancing – Working with creditors to refinance debts and get lower interest rates or payments
  • Chapter 11 Bankruptcy reorganization – Court-supervised process to restructure debts and payment plans
  • Chapter 7 Bankruptcy liquidation – Court-supervised process to sell assets and wipe out eligible debts
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Every situation is different. Consult qualified professionals to map out the pros and cons of each approach for your specific business. There are always possibilities.

Business Debt Settlement FAQs

Can a debt settlement company guarantee results?

No. Reputable settlement professionals will be very clear that results depend on creditor willingness to negotiate fair win-win deals. Nothing can be guaranteed.

How much will a business debt settlement cost?

Fees differ by settlement companies and state regulations. But most charge 15-25% of the total enrolled debt amount. Alternatively, some charge a monthly fee over the payment plan period. Make sure to understand fee structures upfront.

Will creditors negotiate with a business in debt settlement?

In most cases, yes. Collectors purchase business debts for pennies on the dollar. So settling for 30-50% allows them to make a profit. The key is working with professionals experienced at striking mutually acceptable deals.

Can a business owner settle personal debts too?

Yes! Reputable settlement firms can negotiate personal credit cards, medical bills, etc. on your behalf while also settling business debts. Bundling multiple debts together into one process often improves outcomes too.


Dealing with overwhelming business debts rarely needs to end in bankruptcy and dissolution. Business debt settlement provides a legitimate way to consolidate and resolve what is owed for a fraction of balances. While credit scores take a temporary hit, the business gets to continue operating unencumbered by the past.It takes grit and fiscal discipline to navigate the 12-48 month process. And results cannot be guaranteed. But with focus and perseverance, freedom from oppressive debts is within reach. Consult qualified professionals to see if settlement may be the right path forward for your business

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