Businesses sometimes require debt relief. The business environment is unpredictable, and no matter how well-prepared businesses are, mishaps happen. If debt is piling up, it’s good to know that business owners have options available to help. These debt relief choices are available for small business.
The primary navigation of a business debt relief program is to help small business owners manage, reduce, or eliminate their debt. A small business owner needs to understand the full range of debt relief options available, particularly those that can be pursued before resorting to more drastic debt measures like Chapter 7, Chapter 11, and Chapter 13 bankruptcy filings.
Debt restructuring involves negotiating with creditors to alter the terms of the debt. For example, they may be able to extend the repayment period, secure a lower interest rate, or even reduce the principal amount owed.
This program can provide much needed relief and make the debt balance more manageable. Lowering your monthly payment can help with cash flow and reduce business expenses.
Debt consolidation loans are used to combine multiple debts into one loan make one monthly payment. Debt consolidation can help with keeping track of debts and very often debt consolidation loans may be available at favorable interest rates.
Debt consolidation can also simplify debt management along with small business development and potentially reduce interest rates, depending on the terms of the new loan.
While more commonly associated with personal finance, many small business owners can use balance transfer credit cards to consolidate certain high-interest credit card debt.
If you can get a business credit card, you can benefit from a 0% introductory APR period. You then transfer your existing debt to this credit card and pay it off without accruing additional interest for current business debt for a set time. This can significantly lower monthly payments on your debt.
Debt management plans (DMPs) are often administered by credit counseling agencies to help businesses get debt relief. These plans help small businesses create a structured repayment plan to pay off debt over a specified period, usually with lower interest rates negotiated by the agency. This can help businesses systematically reduce their debt burden.
A business owner can directly negotiate with creditors to create new payment plans. This can be an effective way to manage debt.
Creditors may be willing to extend payment terms, reduce monthly payments, or lower interest rates if it increases the likelihood of being repaid.
Invoice factoring involves selling unpaid invoices to a factoring company at a discount.
This allows your business to manage its finances more effectively and provides immediate cash flow while the factoring company collects payment on the invoices. This can be a quick way to access cash tied up in accounts receivable, helping you to repay the loan or cover operational expenses.
If your business is facing hardship, cutting costs can make a difference. This can include moving to more affordable premises, laying off staff, reducing expenses, switching to more affordable utility providers, selling unused equipment, negotiating a lower rent on your existing premises, etc.
Selling non-essential business assets can generate cash to pay down debt. This might include selling equipment, real estate, or other valuable assets that are not critical to the core operations of the business.
Raising capital through equity financing involves selling shares of your business to investors. This can provide a significant influx of cash without increasing debt, but it does dilute ownership and may involve giving up some control over the business.
Various government programs offer grants, low-interest loans, and other financial assistance services to help businesses manage debt.
Programs offered through organizations such as the Small Business Administration can provide favorable terms and help your business if it’s in financial difficulty.
Professional credit counselors and financial advisors can provide tailored advice and strategies for managing debt. They can help businesses create budgets, negotiate with creditors, and develop long-term financial plans.
When other debt-relief options are not sufficient, businesses may consider bankruptcy. There are three types of bankruptcy options.
Chapter 7 involves liquidating the business's assets to pay off debts. This often leads to the closure of the business.
Chapter 7 bankruptcy, also known as "liquidation bankruptcy", involves the sale of a business's non-exempt assets to pay off creditors. This process is overseen by a court-appointed trustee who collects and sells the assets, then distributes the proceeds to creditors.
Once the assets are liquidated and the proceeds distributed, any remaining unsecured debt is typically discharged, meaning the business is no longer obligated to pay it. Chapter 7 is usually considered when a business has no viable future and needs to close down.
Chapter 11 bankruptcy, often referred to as "reorganization bankruptcy," allows a business to restructure its debts. Specifically, it lets businesses reorganize their debts and continue operating under a court-approved plan.
Under Chapter 11, the business proposes a reorganization plan to keep the business alive and pay creditors over time. The plan might involve downsizing the business operations, renegotiating debts, or liquidating some assets to generate funds.
This type of bankruptcy is generally used by larger businesses but can also be an option for small businesses looking to restructure rather than liquidate.
Chapter 13 is usually reserved for sole proprietorships. It allows for the reorganization of debt under a repayment plan while the business continues to operate.
Chapter 13 involves creating a repayment plan to pay off all or part of the debt over a period of three to five years. The debtor makes regular payments to a trustee, who then distributes the funds to creditors according to the approved plan.
This type of bankruptcy allows business owners to keep their assets and continue running their business while working on repaying their loans or other debt.
Just like debt settlement for individuals, businesses can enroll in a debt settlement program. Debt settlement for businesses involves negotiating with creditors to reduce the total amount of debt owed, often resulting in a reduction of the balance owed which could be paid in installments or as a lump sum.
This strategy can provide financial relief for businesses struggling to adhere to strict debt obligations. Through a reputable debt settlement professional, business owners can reach an agreement with creditors to possibly reduce debt balances, improve cash flow, and potentially avoid more drastic measures like bankruptcy.
Debt settlement can negatively impact the business's credit worthiness and may involve fees. However, it’s a far gentler approach than filing for any type of bankruptcy. It also gives you space and time to rebuild your business credit score and recover from a professional or personal credit misfortune.
Businesses have several options when it comes to business debt relief, aside from filing for bankruptcy.
A professional debt relief company can present all the available information and provide a strategic approach to managing financial obligations to grow your business.
Debt restructuring, business loans, consolidation, debt management plans, and professional counseling are some alternatives available to help business owners manage their debt burdens. If these measures prove insufficient or beyond reach, bankruptcy may be a legal avenue for resolving insurmountable debt, albeit with significant consequences.
Each business is unique. Whether you are exploring a business loans, seeking advice on your current financial position, or just looking to stay updated with the latest news in financial management, with ClearOne’s specialists you will receive the support you need.
Business owners interested in debt relief should schedule an appointment with a ClearOne Certified Debt Specialist today at 866-481-1597. They will get a free savings estimate along with the full picture of their financial options so that they can select the one that best matches their long-term goals.
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ClearOne Advantage, LLC is a debt settlement company, not a lender, loan broker, creditor, credit services organization, or debt collector. ClearOne Advantage, LLC does not assume or pay any debts; receive, hold or control funds belonging to consumers; or provide bankruptcy, legal, accounting or tax advice. You should review full program terms and conditions before enrolling. To the extent that any aspect of the debt settlement services relies on or results in the consumer’s failure to make timely payments to the consumer’s creditors or debt collectors, the use of the debt settlement services: (1) Will likely adversely affect the consumer’s creditworthiness; (2) May result in the consumer being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money the consumer owes due to the accrual of fees and interest by creditors or debt collectors. Not available in all states. Some third-party fees may apply. C.P.D. Reg. No. T.S. 12-03822.
ClearOne Advantage is not a credit services organization and we do not make any claims regarding improvement of a consumer’s credit scores. Entering into a debt settlement program could adversely affect your credit score.
**Disclaimer - We do not charge upfront fees and you do NOT pay our fee until a settlement has been arranged, you approve the settlement, and at least one payment is made towards the settlement. As each situation is unique, fees and costs vary. Please contact us at 888-340-4697 for a free debt analysis and for complete program details.