Being a business owner comes with its own set of challenges. Accumulating business debt may be one of the most challenging obstacles of all. If you find yourself in a situation where you owe money to vendors and creditors, you might feel powerless when it comes to business debt negotiations. Furthermore, the process may feel more intimidating when your debts go into the collections phase, and you have collection agents calling you nonstop or sending endless letters to you.
Regardless, you have options and rights in relation to settling your debts. Thus, we offer some tips for negotiating your settlements. Of course, you might need to consult with an attorney who specializes in this type of negotiation, but these strategies can get you started on the right path to getting collection agencies off of your case.
Know your debt situation
First off, you need to know the exact amounts you owe to each of your creditors versus how much money your business is bringing in. In fact, if you haven’t already done so, you should create a list of creditors and the amount of debt you’re carrying for each one. Plus, you’ll need to have information about the payment terms for each person or organization on hand in addition to the types of loans that you’ve taken out, such as those that are secured (which require collateral) and unsecured (like credit cards). This will give you a clear picture of what you’re able to pay off and what you may need to negotiate. Moreover, as you look at the list, you’ll be able to prioritize your debts in order of importance.
Determine negotiating power
Secondly, you’ll need to do some research or make some phone calls to your debtors to find out if they accept settlements or are even willing to negotiate. In some cases, you might find out that a settlement is not necessary because the payoff amount is affordable after all.
Likewise, you’ll need to look at your savings to figure out how much you can pay upfront, especially for the debts that are high priority and for those that you can pay off right away. The reason for this is because most collection agencies and creditors will ask for a lump sum upfront. So knowing exactly what you’re able to pay helps with the negotiation.
Another route you can take in order to gain some degree of negotiating power is to file for Chapter 11 or Chapter 13 bankruptcy, both of which allow you to create new plans with your creditors for paying off your debt while still staying open as a business. Being that these alternatives take up time and money, you might consult with an attorney who can advise you about the pros, cons, and steps for filing for bankruptcy.
Be honest about your financial situation
Once you make contact with your vendors or creditors, you should stay on the side of honesty. If your financial situation is going south, then you need to let your debtors know for at least two reasons. One relates to the possibility of the creditor giving you an extension or adapting your terms to take some strain off of your finances. The other reason deals with not making the situation worse. For instance, if you say that you have the money, but in reality, you don’t, your creditor would expect the payment right away. If you’re not able to, then the negotiation will fall through, and you might even face legal action.
Explore alternative payment options
You might also look to an alternative plan for paying off your debt, but before you start exploring your options, you’ll need to create a new budget in which you decrease your spending and allot a percentage of your profits toward paying your debts.
From there, you can try consolidating your loans in which you take out one loan with a low-interest rate and use that money to pay off all your other loans. This option can actually help to simplify your budgeting. You might also have to sell assets or markdown slow-moving inventory for a quick sale to acquire enough money for repaying debts. Additionally, you might consider hiring a debt reduction firm to help you with negotiations of rates and fees and sending out hardship letters if necessary.
Negotiate interest and fees
In addition to reworking your budget, you can look for small exceptions in your loan terms that would allow you to negotiate for a lower interest rate or to have more of your payment go toward the principal. One word of caution is that this strategy applies only to lines of credit or to credit cards.
Another tip involves negotiating your late fees either to reduce or eliminate them or to place them at the end of the loan. In other words, any fees that you’ve accrued won’t be paid until your loan terms are up, and you’re completely paying it off.
Understand creditor perspective
Plus, you have to consider what the creditor is going through. Because you’re not the only customer who is going late on payments, this person has to deal with multiple collection issues which cause a stressful situation as it is. Moreover, collecting on interest (while adhering to ethical and legal lending practices) is how the creditor is able to stay in business. So, as you figure out how to get out of debt, you might keep these factors in mind and try to come up with a win-win solution.
Be persistent and patient
Finally, stay the course and don’t give up when you start the task of business debt negotiation. Check-in with your debtors if you don’t hear back from them within a reasonable time, but be patient. The process does take time and clear, calm communication.
Conclusion
One final tip to remember is to consult with and possibly retain an attorney who specializes in business debt settlements. By having an expert in legal and business matters in your corner, you’ll lessen your chances of facing a civil suit from a collection agency; a viable and legal solution can more quickly be instituted with your creditors; and you’ll get to stay in business. That is definitely a win for everyone involved.