Many families have small businesses that they run to supplement their income or provide them enough money to live off of. Many of these families have made the decision to take out loans to float their business through hard time or to expand their business into new markets.
When this debt becomes too overwhelming, many families decide to fold their business. Instead of doing this, many of these families should instead consider debt settlement. Going through the business debt settlement process can be a good way to make sure that business’ debts will be taken care of without causing hardship on the owners of a business, or its employees.
Of course, it’s critical for business owners to understand how this process works before making a decision on whether or not it is a good option for the family business. Debt settlement starts by the business owner making a complete list of all of the debts owed by the business. Using this list, a debt settlement company will negotiate with each creditor. These professionals will work to get a business lower monthly payments, a reduced interest rate, or simply reducing the total amount of debt owed.
Lenders are often willing to negotiate with debt settlement companies for one reason. By agreeing during negotiations to accept a partial payment of a debt in lieu of the total amount that is actually owed, a lender can help a business from falling into bankruptcy.
While most lenders aren’t concerned with most of the consequences of a creditor falling into bankruptcy, they are concerned that their entire debt could be discharged during a bankruptcy filing. The threat of losing all of its money if a business that owes it a debt was to decide to declare bankruptcy is what motivates these banks to negotiate with a debt settlement.
Many banks realize that reducing the monthly payments on a debt is a good way to help a business regain profitability. This, in turn, is the only way a bank has to ensure that it will receive some kind of return from its investment.
To start, the charged-off portion of the loans will reduce a business’ credit score. Once a business has a reduced credit score, it will find it more difficult to get new loans. Furthermore, they may find that they become classified as a high-risk company. This may means that they will have to obtain a high risk merchant account in order to continue to accept their customers’ credit cards.
Because of the risks and consequences of debt settlement, a family that owns a business should carefully consider if this the right option for them. While debt settlement is almost always a better option than bankruptcy, it is important for business owners to research their options carefully.