Negotiating A Settlement Of Your Business Debt

Not all businesses last forever, and often, the reason businesses close is because debt grows to unmanageable levels. So what happens after the fact? Are you personally on the hook for the debts of your business once the doors close for good? In this article, we will shed some light on busines debt relief or how business debts can be settled to keep your business afloat or long after it’s been shut down to prevent a drain on your personal finances.

How Much Business Debt Reduction Might You Expect?

If you can’t pay all your creditors in full, you’re probably wondering how little creditors might settle your debts for? That will largely depend on the type of creditor, the legal details of the debt, and the attitude of the creditor toward past-due debts. Some are more aggressive than others when trying to clear past-due business accounts off their books. Typically, settlements can range between 30% to 70% of the balance. If you can put together that much cash, you’ll be in a good negotiating position for settling your business debts.

Am I Personally Responsible For My Business Debts After Closing It?

Suppose your business is an LLC or corporation that never held any personally guaranteed debts. In this scenario, creditors will know they’re limited in their ability to collect from you personally, increasing their potential willingness to accept a small portion of what your business owes.

On the flip side of that coin, if you personally guaranteed your business debt, or worse, a friend or relative cosigned for it, the creditor has far more leverage over you.

Just remember—it won’t help your financial situation very much if you only settle on one or two small business debts for a reasonable amount without being able to settle on the larger debts. Because of this reality, it could make sense to make an offer to your creditors that states all settlement offers are contingent upon all of the creditors agreeing to settling your debts.

The good news is, creditors are well aware that they will have a hard time collecting the debt once a business closes, so they may agree to settle your debt for 50, 60, or 70 cents on the dollar—or even less if you get assistance from a professional debt settlement company like Alleviate Financial.

Considering Filing Bankruptcy For Business Debts?

If you can’t pay your business debts, you might consider bankruptcy. While bankruptcy lets you wipe out debts you have no hope of paying to give you the fresh start you need, remember the impact it will have on your credit. Bankruptcies will linger on your credit, dragging the score down for up to ten years.

Debt settlement, on the other hand, only has the potential to affect your credit for about half that time. Also, don’t forget that bankruptcy often requires giving up some of your assets, too. Those are some serious downsides that make business debt settlement a much more attractive option for many folks.

Prioritizing Your Business Debts For Settlement

When you’ve already pledged an asset that you own personally as collateral that you still want to keep after the business is closed down, you’ll need to figure out a way to pay that debt first. Once those debts are taken care of, you can next move on to the following items to ensure no one tries to drain your personal finances down the road:

  • Wages and benefits owed to employees
  • Loans you’re personally liable for
  • Suppliers, credit card companies, leasing companies, etc.
  • Advertising
  • Travel and entertainment charges
  • Dues and subscriptions 
  • Repairs and maintenance

Negotiating To Settle Other Types Of Business Debt

Negotiating With Business Equipment Lessors

If your business is just closing or hasn’t been closed for long and you still have leased equipment, it’s best to make arrangements to return the equipment. Returning the equipment before your lease term is up can limit your liability for either the remainder of the payments in the lease term, but could result in early return penalties. Still, this is better than having to negotiate for the entire cost of the equipment. 

Negotiating With Secured Creditors

Before you turn over any former business assets to a secured creditor, it’s wise to first try to negotiate with the creditor to avoid owing any deficiency on the account. That way, you retain the most leverage until the deal is done.

Negotiating With Unsecured Creditors

Once you’ve collected any outstanding A/R and sold off inventory and equipment, you might have some cash that can be used to start seeking settlements on your remaining business debts. If you only have a few creditors, it might be possible to simply call them to explain that your business doesn’t have the money to pay in full, but that you can partially pay in return for settling the debt.

If, on the other hand, you have more than a few creditors, it’s smarter to send your offers to settle in writing.

You may run into situations where creditors want to negotiate for substantially more payment or are completely uncooperative. If this happens, it might be time to involve a lawyer or at the very least, a professional debt settlement company.

Just take note, hiring professionals will immediately raise the stakes of the negotiations, because they can convincingly argue to your creditors the possibility of you filing for bankruptcy if settlements aren’t agreed to.

Business lenders would rather avoid the costs and delays inherent in bankruptcy, so most will accept your settlement instead of running the risk of getting even less and far later.

Settle Your Business Debt With Professional Help

Would you prefer hiring the help of a professional instead of trying to negotiate business debt settlements on your own? Alleviate Financial provides expert financial solutions to help you get back on your feet after closing your business. To talk with a financial consultant, contact us and learn how you can get rid of your business debt today!