Debt Relief for Business Owners

When you run a small business, you quickly learn that it takes capital to grow. Some business owners bootstrap; others borrow. In fact, 24% of business owners use credit cards to fund their entrepreneurial dreams. 

There may come a point when your business owes so much that the debt interferes with operations.

If you find yourself struggling with what you owe, debt relief for business owners could help you improve your business cash flow and move from the red to the black. 

Federal and state programs could help small business owners like you make your debt more manageable. Let’s look at a few examples.

Federal, State, and Private Debt Relief Programs

Read on for options for debt relief as a business owner. 

SBA debt relief

The Small Business Administration (SBA) oversees several loan programs aimed at small business owners. Here are some options for  SBA debt relief:

• 7(a) loans. The 7(a) loan program offers eligible businesses up to $5 million in funding. You could use that money to refinance current business debt so your payments are more manageable. SBA loans typically have longer repayment terms and lower rates than business loans from banks or online lenders. 

• Economic Injury Disaster Loans. The EIDL program lends to businesses that have been impacted by a disaster and can't cover expenses. These loans are intended to help with operating expenses until you recover. If necessary, you could also get a separate physical disaster loan to repair your business property. The combined limit for both is $2 million. 

Each loan type has its own eligibility rules For 7(a) loans, you must operate a for-profit business in the U.S. and meet SBA size requirements. For EIDL loans, your business must have been impacted by a covered disaster. 

State and local programs

Your state and local governments may offer debt relief to business owners. Your options may include:

• Low-interest loans

• Grants

• Financial assistance

You can find what's available in your area by searching for "small business grants in [your state].” You could also get in touch with your local chamber of commerce or your local secretary of state’s office to explore your options. 

Before you apply for debt relief, research what you'll need to do to qualify, and how much financial help you could receive. You should also weigh the potential financial impact on your business. 

A grant, for instance, can provide funds that you won't have to pay back, while a loan is a new debt. You'll need to consider whether a temporary fix in the form of a loan is sustainable for your long-term business budget. 

Private programs offering debt relief for business owners

Private debt relief for business owners is offered by companies, not government agencies. Some of the avenues you might pursue for private debt relief include debt consolidation and debt settlement. 

Debt consolidation

When you consolidate debt, you take out a new loan (often, a personal loan) and use the money to pay off other debts. Debt consolidation doesn't reduce debt, but it could make your debt easier to manage. 

For example, if you have five credit cards with a combined balance of $50,000, you might get a $50,000 personal loan to pay them off. You then have just one payment to make to the loan each month. This might make sense if you qualify for a new loan with a lower interest rate compared to your current debts.

This type of credit card debt relief can often lower your monthly payment and sometimes the total interest paid over time, since the personal loan will often have a lower interest rate than your cards.  

Debt settlement

Debt settlement is a process in which you negotiate with your creditors, asking them to accept less than what's owed but consider it payment in full. Creditors may agree to settle if you pay 25% to 50% of your outstanding debt or more. The rest is forgiven. 

This is a completely legal way to resolve debt. You might consider debt settlement if you:

• Primarily owe unsecured debts, such as credit cards

• Have a significant amount of unsecured debt

• Can’t afford to fully pay off your debts

Why do creditors agree to settle debts? Most often, it's because they fear you'll pay nothing. If they settle, they can walk away with some amount of money, and the debt isn't a total loss. You could attempt to negotiate with creditors directly if you're interested in this type of debt relief for business owners. If you aren’t comfortable with negotiating or you want professional help for any other reason, you could hire a professional debt settlement company like Freedom Debt Relief. 

Here's how this process would work:

• You tell the debt settlement company which debts you’d like to negotiate. 

• Each month, you deposit a set amount of money into a dedicated account. The amount should be affordable, and it might be less than the total amount of the minimum payments you’re making now.

• The debt settlement company negotiates with your creditors.

• When an agreement is reached, you authorize the debt settlement company to use funds from your secure account to pay your creditor. The debt settlement company’s fees will be paid from the same account.

Debt settlement could help you get rid of your debt for less than you owe. You pay a fee to work with a debt settlement company, but it may be worth it to avoid the hassle of haggling with creditors yourself. Also, since professional debt settlement companies have relationships with many creditors, they might be able to negotiate a better deal than you could get on your own.

Typically, you'll stop making payments to your creditors during the debt settlement process. Otherwise, it could be harder for you to save up money for settlement offers. Also, stopping payments sends a clear signal that you are in financial trouble.

Debt settlement has a negative impact on the company's credit standing (and on yours if you personally guaranteed the debt). The damage to your credit doesn’t have to be permanent. Getting back on stable financial footing by clearing your debts could put you in a better position to stay financially afloat in the future. 

Paying your bills on time and keeping your debt balances as low as possible are two of the best things you can do to rebuild and maintain a good credit score after debt settlement. 

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How To Find A Reputable Debt Relief Company

If you lean more toward debt settlement as a solution and you don't want to go it alone, it helps to know what to look for in a debt negotiation company. 

Here are some dos and don'ts to help you choose the best company to work with. 

Do…

• Look for a company that offers a free initial consultation to discuss your situation and possible debt solutions. 

• Ask questions about the fees and the services you get in return. 

• Read reviews of debt settlement companies to see what current and past customers have to say. 

• Choose a company that employs certified debt experts and can provide proof of their credentials.

Don't…

• Allow a company to pressure you into working with them. That's a big red flag that they may not be legitimate. 

• Pay upfront fees if you haven’t received any services yet. 

• Buy into claims that seem too good to be true.

Most importantly, you should always trust your gut. If a company refuses to answer questions, won't share information about fees, or just feels off in any way, listen to your instincts. Those red flags could all be signs of a debt relief scam. 

Learn more: 5 Strategies to Help Manage Small Business Debt

How Do Business Owners Qualify For Debt Settlement?

Secured debt, such as a mortgage or company car loan, doesn’t qualify for debt settlement. Neither does federal student loan debt or recent tax debt. However, you can settle most of your other business debts if you're eligible. 

You should make sure it makes sense to settle your debt. Typically, debt settlement for business is a good option if:

• You have more unsecured debt, such as credit card or personal loan debt, than your business is likely going to be able to repay

• You're the sole proprietor or owner of the business that owes the debt, and the debt is in your name only.

• You got into debt because of a financial hardship, such as insolvency or an economic downturn beyond your control.

• You're struggling to make payments on your debt, or you’ve already fallen behind on payments.

Ultimately, the best way to find out whether you qualify for a debt settlement program is by requesting a free debt evaluation from a debt settlement company. 

How To Approach Debt Relief Step-By-Step

Debt relief is sometimes more of a process than a quick solution. Here's how to get a better handle on your business debt situation. 

• Assess your debt. Make a list of all your secured and unsecured business debts. Note how much you owe, the interest rate, and your monthly payment. 

• Look at your cash flow. Cash flow is how money moves in and out of your business. Analyze your income and expenses to figure out how much you take in versus how much you spend, including payments to debt. 

• Analyze your budget. Once you know what your business spends, look at your budget again so you can revise it. Are there expenses you could reduce or even cut out? The more fat you can trim, the more money you can use to pay back your debts.

• Explore government debt relief options. If you have loans or credit cards, consider whether it makes sense to use an SBA 7(a) loan to consolidate them. Also check out financial assistance for small businesses at the state and local level.

• Consider private debt relief. Debt settlement can offer a pathway out of debt if you primarily owe money on credit cards or have other unsecured debts. Look at the pros and cons of debt settlement to determine if it might be right for you. 

• Talk to an expert. Sometimes it helps to have a second set of eyes reviewing your business' finances and debt. A financial advisor can review your expenses, cash flow, and debt to offer advice tailored to your needs. 

Learn more: How to Ask Creditors for Loan and Credit Card Forbearance

Impact Of Debt Relief On Your Business

Debt relief can have short- and long-term impacts on your business. In the near term, debt relief could:

• Lift the mental weight of financial stress 

• Help you recognize and overcome debt shame

• Improve your business' cash flow and budget

• Allow you to feel more confident about your financial situation going forward

However, there could also be some downsides. If you settle debts, expect your personal credit score to suffer. Your business credit score may also suffer. When credit takes a hit, it may be harder to get new loans or lines of credit for your business for a while. If you qualify for loans, they’ll probably be expensive.

However, negative impacts from debt settlement tend to fade over time, and the damage isn’t permanent. In the long term, your business may be healthier and more stable financially if you don't have excessive debt weighing you down. 

Don’t Deal With Small Business Debt Alone

If you’ve turned to credit cards and other forms of unsecured debt to keep your business afloat, you’re not alone. Thousands of business owners have gone into debt to help their company succeed. That’s why there are debt relief programs for business owners.

If you’re in so much debt that you're having difficulty keeping up with your payments, it may be time to get help. A debt relief company like Freedom Debt Relief could offer debt relief solutions you need to get rid of your business debt faster. 

With help from experienced and Certified Debt Consultants, you could put your debt stress in the past and move on to help your business reach new levels of success in the future