When your business takes a hit in profits, or you find yourself in a dry spell where revenue is down, and supply cost is up, paying down your business debt seems almost impossible. In this situation, you’ll need to undergo a business debt negotiation. Such an endeavor may seem tricky. After all, the lender is going to want to receive your payments on time without a hitch. Nonetheless, creditors would much rather get something as opposed to nothing, especially if they can avoid the expensive collection and/or litigation process to try to regain their funds. So, with this in mind, you have a chance of reaching a reasonable debt settlement. Below are some steps for you to follow as you negotiate. And remember, if the process gets daunting, you can (and probably should) consult with a professional.
Understand debt types
To begin with, you need to examine the types of business debts that you have accumulated and to gain a firm understanding of their terms before you attempt to settle with your creditors. For example, you may have obtained from an online lender and usually involves putting some real estate or business equipment as collateral. Or you may have opted for the SBA which requires no collateral, but the terms vary depending on how much money was borrowed and for what purpose (ie: a 7-year loan for equipment or a 25-year mortgage on commercial property). And perhaps, you have picked up a business line of credit along the way and can no longer afford the interest. As part of your debt negotiation, you might need to lengthen the term of the loan or try to obtain a lower interest rate, for example. Likewise, if you have almost reached the end of the loan’s term, then your lender might take a smaller lump sum instead of trying to collect on the balance. Either way, knowing what exactly the terms–and their fine print–call for in each situation is the first step toward debt settlement that works in your favor.
Assess your financial situation
In addition to understanding the terms and requirements of your business debts, you also need to keep track of your own ability to repay all your loans. Assessing how much revenue you have to work with in the short term is vital to paying off the smaller debts. Analyzing and gaining an accurate picture of your profits will also help you to figure out how to approach your business debt negotiation with little long term impact. Basically, staying abreast of your financial status proves to be vital to this process.
Contact creditors
Likewise, communication is key, so contacting your creditors to notify them of any difficulties will pave the way for a successful negotiation. In fact, you will have much better luck if you already have an offer ready to present to the creditor. And of course, this also involves having at least the highlights of your loan terms on hand for quick reference.
Seek professional help
Also, having a professional in your corner to facilitate debt negotiations has a better outcome than trying to go it alone. In fact, you can look forward to a better outcome if you seek the help of an attorney as opposed to a business debt settlement company–some of which are not always reliable. Someone who has full knowledge of the law regarding debt settlements and the client’s rights would gain more traction during a business debt negotiation. Or at the very least, you can gain some helpful advice through a consultation.
Negotiate lower payments
Aside from doing the legwork of reviewing your loans and their terms, you can negotiate lower payments. There are two different ways to do so as previously mentioned. You can try to lengthen the term of the loan since adding another few months or years often results in lower payments. Another possible route is to refinance the loan in hopes of getting a lower interest rate which would decrease the amount of each monthly payment.
Settlement agreement terms
Once you and your creditor come to an agreement, you’ll need to get a copy of the settlement agreement terms before initiating a payment. One important aspect to remember about a debt settlement is that you cannot miss a payment, and all payments need to be on time. While this type of agreement provides accountability for both parties, the creditor can rescind the agreement if you miss a payment.
Pay the settlement amount
And finally, you’ll need to pay the settlement amount in full to be able to keep to the agreement. And that means the exact amount (whether you agreed to a different monthly payment or a lower amount in full) that was outlined in the settlement. In the end, that will have a lower impact on your credit score, and you will no longer have the worry of paying off your debt.
FAQs
What is debt settlement all about?
Debt settlement involves two parties, the lender or vendor and the person or business who owes money to either of these entities. The two parties come to an agreement on a percentage of the debt that will be paid or a one-time amount that will pay off the debt.
How does debt settlement work?
How to negotiate a business debt settlement?